UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly period ended September 30, 2005

COMMISSION FILE NO. 0-50253

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

(Exact Name of Registrant as Specified in its Charter)

South Dakota		46-0462968
(State of Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

100 Caspian Avenue, Post Office Box 500, Volga, South Dakota 57071

(Address of Principal Executive Offices)

(605) 627-9240

(Registrant’s Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes o No ý

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

On November 14, 2005, the registrant had 30,445,500 capital units outstanding.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2005 AND 2004

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004
Condensed Consolidated Statements of Operations (unaudited)
Condensed Consolidated Statements of Cash Flows (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Managers

South Dakota Soybean Processors, LLC

Volga, South Dakota

We have reviewed the condensed consolidated balance sheet of South Dakota Soybean Processors, LLC (the “Company”), as of September 30, 2005, and the related condensed consolidated statements of operations and cash flows for the three-month and nine-month periods ended September 30, 2005 and September 30, 2004, respectively. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States of America), the balance sheet of South Dakota Soybean Processors, LLC as of December 31, 2004, and the related statements of operations, changes in members’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 1, 2005, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 2004 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

Gordon, Hughes & Banks, LLP

October 27, 2005

Greenwood Village, Colorado

F-1

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2005			December 31, 2004
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	325,527		$	11,423
Trade accounts receivable, less allowance for uncollectible accounts of $28,000	18,340,096			17,452,118
Inventories (Note 2)	10,890,484			8,601,502
Margin deposits	612,533			1,424,422
Prepaid expenses	238,023			538,816
Total current assets	30,406,663			28,028,281

PROPERTY AND EQUIPMENT	51,883,385			51,398,225
Less accumulated depreciation	(23,456,753		)	(21,268,006		)
Total property and equipment, net	28,426,632			30,130,219

OTHER ASSETS
Investments	4,193,673			4,077,625
Equity investment in unconsolidated affiliate	2,882,140			2,869,366
Notes receivable - members	629,791			481,710
Patents, net	6,718,455			6,900,047
Other, net	15,146			12,640
Total other assets	14,439,205			14,341,388

Total assets	$	73,272,500		$	72,499,888

The accompanying notes are an integral part of these condensed consolidated financial statements

F-2

	September 30, 2005			December 31, 2004
	(Unaudited)
LIABILITIES AND MEMBERS’ EQUITY

CURRENT LIABILITIES
Excess of outstanding checks over bank balance	$	3,809,473		$	3,411,975
Current maturities of long-term debt	3,519,782			1,216,438
Note payable - seasonal loan (Note 3)	1,173,049			—
Accounts payable	561,663			928,858
Accrued commodity purchases	13,035,589			23,640,446
Accrued expenses	2,214,921			1,646,228
Accrued interest	98,043			49,471
Total current liabilities	24,412,520			30,893,416

LONG-TERM LIABILITIES
Long-term debt, less current maturities	15,474,402			8,986,151
Deferred compensation	126,486			129,345
Total long-term liabilities	15,600,888			9,115,496

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY	—			368,403

COMMITMENTS

MEMBERS’ EQUITY
Class A Units, no par value, 30,576,000 and 28,228,500 units issued and outstanding at September 30, 2005 and December 31, 2004, respectively	33,419,667			32,122,573
Subscriptions receivable (Note 4)	(160,575		)	—
Total members’ equity	33,259,092			32,122,573

Total liabilities and members’ equity	$	73,272,500		$	72,499,888

The accompanying notes are an integral part of these condensed consolidated financial statements

F-3

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED

	Three Months Ended Septmber 30:						Nine Months Ended September 30:
	2005			2004			2005			2004

NET REVENUES	$	62,194,975		$	59,930,785		$	158,011,831		$	189,321,901

COST OF REVENUES
Cost of product sold	51,314,643			49,026,491			131,277,030			160,127,407
Production	3,950,234			3,830,209			11,923,393			10,904,258
Freight and rail	5,419,319			4,406,967			15,394,428			12,609,179
Brokerage fees	66,360			62,078			179,971			207,889
Total cost of revenues	60,750,556			57,325,745			158,774,822			183,848,733

GROSS PROFIT (LOSS)	1,444,419			2,605,040			(762,991		)	5,473,168

OPERATING EXPENSES
Administration	679,127			1,090,182			2,966,590			3,054,626
OPERATING PROFIT (LOSS)	765,292			1,514,858			(3,729,581		)	2,418,542

OTHER INCOME (EXPENSE)
Interest expense	(321,147		)	(603,865		)	(885,421		)	(1,220,149		)
Other non-operating income (expense)	309,868			332,830			461,878			355,214
Patronage dividend income	—			—			193,413			153,961
Total other income (expense)	(11,279		)	(271,035		)	(230,130		)	(710,974		)

INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST OF SUBSIDIARY	754,013			1,243,823			(3,959,711		)	1,707,568

MINORITY INTEREST IN NET LOSS OF SUBSIDIARY	101,248			180,729			368,403			538,857

INCOME (LOSS) BEFORE INCOME TAXES	855,261			1,424,552			(3,591,308		)	2,246,425

INCOME TAX EXPENSE	—			—			—			1,032

NET INCOME (LOSS)	$	855,261		$	1,424,552		$	(3,591,308	)	$	2,245,393

BASIC AND DILUTED EARNINGS (LOSS) PER CAPITAL UNIT	$	0.03		$	0.05		$	(0.12	)	$	0.08

WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR THE CALCULATION OF BASIC AND DILUTED EARNINGS (LOSS) PER CAPITAL UNIT	30,550,467			28,255,863			29,581,960			28,257,621

The accompanying notes are an integral part of these condensed consolidated financial statements

F-4

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE-MONTH PERIODS ENDED

	September 30, 2005			September 30, 2004
OPERATING ACTIVITIES
Net income (loss)	$	(3,591,308	)	$	2,245,393
Charges and credits to net income (loss) not affecting cash:
Depreciation and amortization	2,544,282			2,163,076
Minority interest in net loss of subsidiary	(368,403		)	(538,857		)
Loss on sale of fixed assets	6,081			5,047
(Gain) on equity method investment	(12,774		)	(186,510		)
Non-cash patronage dividends	(116,048		)	(153,961		)
Change in current assets and liabilities	(12,420,225		)	(10,624,958		)
NET CASH FROM (USED FOR) OPERATING ACTIVITIES	(13,958,395		)	(7,090,770		)

INVESTING ACTIVITIES
Patent costs	(151,769		)	(71,449		)
Deposit on investment subscription	—			(287,500		)
Retirement of patronage dividends	—			46,188
Increase in notes receivable	(148,081		)	—
Proceeds from sale of property and equipment	—			3,500
Purchase of property and equipment	(517,621		)	(957,979		)
NET CASH FROM (USED FOR) INVESTING ACTIVITIES	(817,471		)	(1,267,240		)

FINANCING ACTIVITIES
Change in excess of outstanding checks over bank balances	397,498			653,266
Proceeds from issuance of member units	4,727,828			—
Distributions to members	—			(3,290,629		)
Proceeds from note payable - seasonal loan	1,173,049			8,736,901
Proceeds from long-term debt	9,159,223			4,418,168
Principal payments on long-term debt	(367,628		)	(2,674,581		)
Redemption of member capital units	—			(6,000		)
NET CASH FROM (USED FOR) FINANCING ACTIVITIES	15,089,970			7,837,125

NET CHANGE IN CASH AND CASH EQUIVALENTS	314,104			(520,885		)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	11,423			529,697

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	325,527		$	8,812

The accompanying notes are an integral part of these condensed consolidated financial statements

F-5

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	836,849	$	1,194,660
Income taxes	$	—	$	2,032

Subscriptions receivable upon issuance of member units	$	160,575	$	—

See Notes to Financial Statements

F-6

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The condensed financial statements as of and for the periods ended September 30, 2005 and 2004 reflect, in the opinion of management of South Dakota Soybean Processors, LLC (the “Company” or “LLC”), all normal recurring adjustments necessary for a fair statement of the financial position and results of operations and cash flows for the interim periods presented. The results of operations and cash flows for interim periods are not necessarily indicative of results for a full year due in part to the seasonal nature of some of the Company’s businesses. The condensed consolidated balance sheet data as of December 31, 2004 has been derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiary. The effects of all intercompany accounts and transactions have been eliminated.

These statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2004, included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2005.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.

Reclassifications

Reclassifications have been made to the September 30, 2004 financial information to conform to the current period presentation. These reclassifications have no effect on previously reported net income or members’ equity.

NOTE 2 - INVENTORIES

	September 30, 2005		December 31, 2004
Finished goods
Soy processing	$	4,920,562	$	5,913,666
Refined oil	804,007		602,466
Other	158,970		46,762
Total finished goods	5,883,539		6,562,894

Raw materials
Soy processing	4,897,798		1,950,568
Refined oil	30,201		18,909
Other	20,017		17,167
Total raw materials	4,948,016		1,986,644

Supplies & miscellaneous	58,929		51,964

Totals	$	10,890,484	$	8,601,502

F-7

NOTE 3 - NOTES PAYABLE – SEASONAL LOAN

The Company has entered into a seasonal revolving credit agreement with CoBank, which expired July 1, 2005. CoBank unilaterally extended the maturity date to September 1, 2006. The purpose of the credit agreement is to finance the inventory and accounts receivable of the Company. The Company may borrow up to $15,200,000. Interest accrues at a variable rate (6.40% at September 30, 2005). There were advances outstanding at September 30, 2005 and December 31, 2004 of $1,173,049 and $0, respectively. Advances on the revolving credit agreement are limited based upon inventory and accounts receivable, net of soybean accounts payable.

NOTE 4 - MEMBERS’ EQUITY

The Board of Directors approved a registration statement that was filed with the Securities and Exchange Commission on February 14, 2005 for the sale of additional units in a public offering. The maximum offering under the statement will be $11,250,000. As of September 30, 2005 the Company had sold 2,347,500 member units for a total of $4,888,250. The equity offering allowed the investor to initially pay only 50% and sign a note payable to SDSP for the remaining portion. At September 30, 2005, the Company had subscriptions receivable of $160,575, which is accounted for as a deduction from members’ equity in the accompanying balance sheet.

NOTE 5 - LEGAL PROCEEDINGS

From time to time in the ordinary course of our business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We carry insurance that provides protection against general commercial liability claims, claims against our directors, officers and employees, business interruption, automobile liability, and workers’ compensation claims. Except as described below, we are not currently involved in any material legal proceedings and are not aware of any potential claims.

On January 28, 2003, we were served with notice that we had been named as a defendant in a breach of contract suit in the circuit court of Cook County, Illinois, along with a number of other individual defendants, including our Chief Executive Officer, Rodney Christianson. The plaintiff, James Jackson, was an employee of USSC whose services were terminated shortly after we became the majority owner in early January 2003. Mr. Jackson claimed that he was wrongfully terminated and that the defendants unjustly interfered with his employment contract and committed fraud in connection with our acquisition of a controlling interest in USSC. On April 24, 2005 we reached a mediated settlement that will include a payment of $300,000 to Mr. Jackson, of which USSC paid $60,000 and the insurance carrier assumed the remainder of the obligation.

In a related suit, USSC has reached a mediated settlement with Thomas Kurth, former President of USSC, in which Mr. Kurth will transfer his USSC shares and his interest in a developmental product company to USSC for no compensation. As a result of the foregoing, the Company has increased its proportionate share in USSC stock to 65.7%.

F-8

CAUTIONARY STATEMENT REGARDING

FORWARD-LOOKING INFORMATION

The information in this quarterly report on Form 10-Q for the nine-month period ended September 30, 2005, contains “forward-looking statements” within the meaning of the private securities litigation reform act of 1995 with respect to the business and operations of South Dakota Soybean Processors and our affiliates. In addition, we and our representatives and agents may from time to time make other written or oral forward-looking statements, including statements contained in our filings with the Securities and Exchange Commission and our reports to members and security holders. Words and phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions identify forward-looking statements. We wish to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.

Our forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. These risks and uncertainties include, but are not limited to, risks related to the level of commodity prices, loss of member business, competition in our industry, changes in the taxation of limited liability companies, compliance with laws and regulations, perceptions of food quality and safety, business interruptions and casualty losses, access to equity capital, consolidation of producers and customers, alternative energy sources, and the performance of our polyurethane operations. Other risks or uncertainties may be described from time to time in the company’s future filings with the Securities and Exchange Commission.

We undertake no obligation to revise any forward-looking statements to reflect future events or circumstances.

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

You should read the following discussion along with our financial statements and the notes to our financial statements included elsewhere in this report, and our audited financial statements for our most recently completed fiscal year included in our latest annual report on Form 10-K. The following discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance, and achievements may differ materially from those expressed in, or implied by, any forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Information.”

Executive Overview

After recording losses of $4.4 million for the first six months of 2005, we recorded a net profit of $855,000 for the third quarter of 2005. Our return to profitability is due to local soybean meal basis values returning closer to its historical relationship to local soybean basis values. The local basis value is the difference in our local price received for soybean meal or paid for soybeans versus the price of the commodity on the Chicago Board of Trades. In the nine months ending September 30, 2005, we recorded a net loss of $3.6 million versus a net income of $2.2 million in the same period in 2004, a decrease of $5.8 million. The net loss recorded for the period is largely due to the poor margins in the first six months of 2005, which were primarily a result of the combination of the short soybean crop in 2003 followed by a record soybean crop in 2004. On the revenue side, due to the record soybean crop in 2004, our customers are confident that supplies of soybean meal and soybean oil will be readily available, resulting in sale prices falling by 31% and 24%, respectively. On our supply side, due to the short soybean crop in 2003, soybean farmers enjoyed record prices for soybeans in 2004 and emptied their storage bins. For the nine months ended September 30, 2005, escalating energy prices led to an increase in production and administrative expenses of $0.2 million.

As expected, we experienced improved margins in the third quarter. Given a strong world demand for soybeans and the US 2005 soybean crop exceeding 3.0 billion bushels, management expects to maintain margins at levels closer to historical averages for the 2005 crop year. Two significant threats to our industry’s profitability will be higher energy prices or a major world wide outbreak of the bird flu.

SDSP expects to continue to make progress towards our long-term objectives of delivering high quality products and services at the lowest possible cost, adding value by investing in the further processing of our products, and reviewing new applications for our products in the plastics and energy fields. During 2005, SDSP continued to expend capital to fund the operations of Urethane Soy System Company, Inc. (“USSC”), SDSP’s majority-owned subsidiary which markets Soyol^Ò, a bio-based polyurethane product made from soybean oil. Higher prices for petroleum products and improving demand for polyurethane products should assist in meeting our objectives.

USSC has increased its product offering from 2 polyols to 15 polyols and 4 systems for the polyurethane industry. SDSP believes we will see increased demand for Soyol^Ò as customers in the carpet, rigid foam, and pultrusion industries complete their testing of Soyol^Ò. However, we do not anticipate that USSC will generate a profit until at least 2006.

As a result of adverse changes in the soybean market and our continued capital investment in USSC, SDSP encountered some cash flow constraints in 2004 and early 2005. In order to provide additional working capital and finance our capital investment in USSC, our Board of Managers authorized an

offering of capital units to raise up to $11.25 million, which was launched in February 2005. As of close of the offering, we had raised a total of $4.5 million.

Company Profile

We own and operate a soybean processing plant, a Soyol^Ò production facility and a soybean oil refinery in Volga, South Dakota. We were originally organized as a South Dakota cooperative, and reorganized into a South Dakota limited liability company effective July 1, 2002. We began producing crude soybean oil and soybean meal in late 1996, and since then we have also expanded our business to include the development of new product lines and management services. In 2000, we began providing management services to Minnesota Soybean Processors (MnSP) and obtained a minority interest in MnSP in 2004. In 2002, we began refining crude soybean oil into a product known as refined and bleached oil, and in early 2003, we became the majority owner and assumed management control of USSC.

RESULTS OF OPERATIONS

Comparison of the three months ended September 30, 2005 and 2004

Revenue – Revenue increased from $59.9 million for the third quarter of 2004 to $62.2 million for the third quarter of 2005, an increase of approximately $2.3 million, or 4%. The increase in revenues is primarily a result of a higher volume in sales (units) of refined and bleached soybean oil, crude soybean oil, and soybean meal, which increased by 47%, 636%, and 17%, respectively, in the third quarter of 2005 versus the same period in 2004. These increases were slightly offset by lower average prices in soybean meal and refined and bleached soybean oil. The average sales prices for soybean meal and refined and bleached soybean oil decreased by 17% and 25%, respectively.

Gross Profit/Loss – During the third quarter of 2005, we generated a gross profit of $1.4 million, compared to a gross profit of $2.6 million for the third quarter of 2004. Revenues increased by approximately $2.3 million (4%) in the third quarter of 2005, while cost of revenues increased by $3.4 million (6%). The primary reason for the decrease in gross profit is the tight local soybean market, which resulted in a higher local market adjustment for soybeans in relation to products sold. In addition, the gross loss was impacted by a $1,012,000 (23%) increase in freight expense and $120,000 (3%) increase in production expense for the third quarter of 2005 compared to the third quarter of 2004. The increased freight cost resulted from higher product volumes delivered to customers and higher freight rates. The increase in production expense was primarily attributable to higher natural gas costs in the second quarter of 2005.

Administrative Expense – Administrative expense, including all selling, general and administrative expenses, decreased by $411,000, or 38%, for the third quarter of 2005 compared to the same period in 2004. The decrease was due to decreased professional expenses and payroll costs, and offset by an increase in patent amortization.

Interest Expense – Interest expense decreased by $283,000, or 47%, for the third quarter of 2005 compared to the same period in 2004. The decrease was due to lower debt levels as a result of the approximately $8.5 million in principal amount that has been repaid by the Company since the end of the third quarter of 2004. This decrease in interest expense was offset by an increase in interest rate on our senior debt. At September 30, 2005, we had outstanding debt of $20.2 million, most of which consists of our senior debt and seasonal loan, which bore interest at an annual rate of 6.40% interest as of September 30, 2005. At September 30, 2004, we had outstanding debt of $29.0 million, the majority of which bore interest at an annual rate of 5.84%.

Net Income/Loss – We recorded a net income of $855,000 for the third quarter of 2005, compared to net income of $1.4 million for the same period in 2004. The decrease of $570,000 in net income is primarily attributable to decreased gross margin on products sold as a result of the tight local soybean market, offset by a decrease in administrative costs and interest expense.

Comparison of the nine months ended September 30, 2005 and 2004

Revenue – Revenue decreased from $189.3 million for the nine months ended September 30, 2004 to $158.0 million for the same period in 2005, a decrease of approximately $31.3 million, or 16%. The decrease in revenues is primarily a result of lower soybean meal and soybean oil prices. The average sales prices for soybean meal and refined and bleached soybean oil decreased by 27% and 24%, respectively. The decreases attributable to these factors were slightly offset by 20% higher sales volume of refined and bleached soybean oil during the first nine months of 2005.

Gross Profit/Loss – During the nine-month period ended September 30, 2005, we suffered a gross loss of $763,000, compared to a gross profit of $5.5 million for the same period in 2004. Revenues decreased by approximately $31.3 million (16%) in the nine-month period ended September 30, 2005, while cost of revenues decreased by only $25.1 million (14%). The decrease in gross profit was a result of several factors. The primary reason for the decrease in gross profit is the tight local soybean market, which resulted in a higher local market adjustment for soybeans in relation to products sold. In addition, the decrease in gross profit was impacted by a $2.8 million (22%) increase in freight expense and $1.0 million (9%) increase in production expense for the first nine months of 2005 compared to the same period in 2004. The increased freight cost resulted from higher product volumes delivered to customers and higher freight rates. The increase in production expense was primarily attributable to higher natural gas costs in 2005. These increased costs were offset by a decrease of $28.9 million in cost of products sold, which was due to an approximately 18% drop in soybean prices.

Administrative Expense – Administrative expense, including all selling, general and administrative expenses, decreased $88,000, or 3%, for the nine months ended September 30, 2005 compared to the same period in 2004. The decrease results from a decrease in professional expenses, offset by an increase in payroll costs, director expenses, and patent amortization.

Interest Expense – Interest expense decreased by $335,000, or 27%, for the nine-month period ended September 30, 2005 compared to the same period in 2004. The decrease was due to lower debt levels as a result of the approximately $8.5 million in principal amount that has been repaid by the Company since the end of the third quarter of 2004. This decrease in interest expense was offset by an increase in the purchase of soybeans on a deferred payment contract, as well as an increase in interest rates on our senior debt. At September 30, 2005, we had outstanding debt of $20.2 million, most of which consists of our senior debt and seasonal loan, which bore interest at an annual rate of 6.40% interest as of September 30, 2005. At September 30, 2004, we had outstanding debt of $29.0 million, the majority of which bore interest at an annual rate of 5.84%.

Net Income/Loss – We recorded a net loss of $3.6 million for the nine months ended September 30, 2005, compared to net income of $2.2 million for the same period in 2004. The decrease of $5.8 million in net income is primarily attributable to decreased gross margin on products sold as a result of the tight local soybean market.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows from Operations

Operating activities used $14.0 million for the nine months ended September 30, 2005. The funds used by the Company in the nine months ended September 30, 2005 consisted primarily of a $12.4 million increase in working capital requirements, $3.6 million in net operating losses, and $368,000 of minority interest in the net loss of USSC, offset by depreciation and amortization expense of $2.5 million. The change in working capital requirements in 2005 was primarily due to a decrease in accrued commodity purchases and an increase in inventory values, offset by a decrease in the margin deposit account and an increase in accrued expenses.

Cash Flows for Investing Activities

Investing activities used $817,000 during the nine-month period ending September 30, 2005. We purchased $518,000 of property and equipment, invested/spent $152,000 in patent costs, and increased notes receivable by $148,000 during the nine-month period ending September 30, 2005. The $518,000 spent on property and equipment during the nine months consisted of equipment to improve the performance in our crushing operations and to update our information technology hardware.

Cash Flows from Financing Activities

Financing activities provided the Company $15.1 million for the nine-month period ending September 30, 2005. During the nine months ended September 30, 2005, we had $9.2 million in proceeds from long-term debt commitments, $4.5 million from the issuance of capital units, $1.2 million in proceeds from seasonal loan commitments, and a $397,000 increase in excess of outstanding checks over bank balance. These funds were offset by $368,000 of principle payments on long-term debt.

Indebtedness

CoBank is our primary lender. Effective June 17, 2004, we modified the two lines of credit with CoBank to meet the needs of our operations. The first is a revolving long-term loan agreement. Under the terms of this loan, we began with an $18.4 million credit line. It now reduces by $1.3 million approximately every six months. The final payment will be equal to the remaining unpaid principal balance of the loan on March 20, 2011. The revolving loan is set up so that we may borrow funds as needed up to the credit line maximum, and then pay down the principal whenever excess cash is available. Repaid amounts may be reborrowed up to the available credit line. We pay a 0.50% annual commitment fee on any funds not borrowed.

The second credit line is a revolving working capital loan. In February 2005, CoBank extended this agreement from March 31, 2005 to July 1, 2005. Then, in July 2005, CoBank extended this agreement from July 1, 2005 to October 31, 2005 and subsequent to September 30, 2005, renewed it until September 1, 2006. The primary purpose of this loan is to finance inventory and receivables. The maximum availability under this credit line is $16 million. Borrowing base reports and financial statements are required monthly to justify the balance borrowed on this line. We pay a 0.25% annual commitment fee on any funds not borrowed; however, we have the option to reduce these credit lines during any given commitment period listed in the agreement to avoid the commitment fee.

Both CoBank loans are set up with a variable rate option. The variable rate is set by CoBank and changes weekly on the first business day of each week. We also have a fixed rate option on both loans allowing us to fix rates for any period between one day and the entire commitment period. We can get a fixed rate quote from CoBank at any time and lock-in the interest rate on all or a part of our borrowings that are available for fixing. Both CoBank loans are secured by substantially all of our assets and are subject to compliance with standard financial covenants and the maintenance of certain financial ratios.

The balance borrowed on the revolving term loan was $17.1 million as of September 30, 2005 and 2004. As of September 30, 2005 and 2004, the Company owed $1.2 million and $8.7 million, respectively, on the working capital loan with CoBank. The annual interest rate on both the working capital and revolving term loans as of September 30, 2005 was 6.40%. CoBank has agreed to defer our next scheduled principal payment of $1.3 million.

We also have other long-term contracts and notes totaling approximately $1.9 million, with a weighted average annual interest rate of 2.4% as of September 30, 2005. These arrangements include a no interest $1.8 million long-term payable to the other USSC shareholders relating to our purchase of their tendered USSC shares. The obligation is secured by the purchased shares, with final payment due on October 31, 2006. Our highest interest loan is a $250,000 loan owed by USSC at 15% per annum which is payable in 2005. We made principal payments of $73,000 and $2.7 million on these additional long-term obligations during the nine months ended September 30, 2005 and 2004, respectively.

Capital Raising

During the first three quarters of 2005, we conducted a registered offering to sell up to 5,625,000 new capital units. The offering was made available exclusively to our existing members at a price of $2.00 per unit until April 11, 2005, and then became available to the general public at a price of $2.50 per unit. The offering originally expired on May 31, 2005 and was extended to June 30, 2005. As of September 30, 2005, we had sold 2,200,500 capital units for a total of $4,520,750.

We received subscriptions for an additional 130,500 units ($326,250) that have not been accepted and are being held in escrow pending resolution of the SEC matters described in Part II, Item 5 below.

OFF BALANCE SHEET FINANCING ARRANGEMENTS

Lease Commitments

We have commitments under various operating leases for rail cars, various types of vehicles, and lab and office equipment. Our most significant lease commitments are our rail car leases which allow us to distribute our products. We have a number of long-term leases with GE Capital and Trinity Capital for hopper rail cars and oil tank cars. Total lease expense under these arrangements was approximately $1.6 million for both the nine-month periods ending September 30, 2005 and 2004. The hopper rail cars earn mileage credit from the railroad through a sublease program which totaled $1.6 million and $1.3 million for the nine-month periods ending September 30, 2005 and 2004, respectively.

In addition to the rail car leases, we have several operating leases for various equipment. Total lease expense under these arrangements was $79,000 and $48,000 for the nine-month periods ending September 30, 2005 and 2004, respectively. Some of our leases include purchase options; however, none are for a value less than fair market value at the end of the lease.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

Commitments and Contingencies

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

Inventory Valuation

We account for our inventories at estimated net realizable market value. These inventories are agricultural commodities that are freely traded, have quoted market prices, may be sold without significant further processing and have predictable and insignificant costs of disposal. We derive our estimates from local market prices determined by grain terminals in our area. Processed product price estimates are determined by the ending sales contract price as of the close of the final day of the period. This price is determined by the closing price on the Chicago Board of Trade, net of the local basis. Changes in the market values of these inventories are recognized as a component of cost of goods sold.

Long-Lived Assets

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

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

Accounting for Derivative Instruments and Hedging Activities

We minimize the effects of changes in the price of agricultural commodities by using exchange-traded futures and options contracts to minimize our net positions in these inventories and contracts. We account for changes in market value on exchange-traded futures and option contracts at exchange prices and account for changes in value of forward purchase and sales contracts at local market prices determined by grain terminals in the area. Changes in the market value of all these contracts are recognized in earnings as a component of cost of goods sold.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Commodities Risk & Risk Management. To reduce the price change risks associated with holding fixed price commodity positions, we generally take opposite and offsetting positions by entering into commodity futures contracts (either a straight or options futures contract) on a regulated commodity futures exchange, the Chicago Board of Trade. While hedging activities reduce the risk of loss from increasing market prices of soybeans, such activities also limit the gain potential which otherwise could result from significant decreases in market prices of soybeans. Our policy is generally to maintain a hedged position within limits, but we can be long or short at any time. Our profitability is primarily derived from margins on soybeans processed, not from hedging transactions. Management does not anticipate that its hedging activity will have a significant impact on future operating results or liquidity. Hedging arrangements do not protect against nonperformance of a cash contract.

At any one time, our inventory and purchase contracts for delivery to the plant may be substantial. We have risk management policies and procedures that include net position limits. They are defined by commodity, and include both trader and management limits. This policy and procedure triggers a review by management when any trader is outside of position limits. The position limits are reviewed at least annually with the Board of Directors. We monitor current market conditions and may expand or reduce the limits in response to changes in those conditions.

Foreign Currency Risk. We conduct essentially all of our business in U.S. dollars and have no direct risk regarding foreign currency fluctuations. Foreign currency fluctuations do, however, impact the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of and demand for U.S. agricultural products compared to the same products offered by foreign suppliers.

Interest Rate Risk. We manage exposure to interest rate changes by using variable rate loan agreements with fixed rate options. Long-term loan agreements can utilize the fixed option through maturity; however, the revolving ability to pay down and borrow back would be eliminated once the funds were fixed.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, have concluded that our disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that we file with the Securities and Exchange Commission within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation of disclosure controls and procedures that occurred during our second fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

liability, and workers’ compensation claims. Except as described in our periodic reports on file with the SEC, we are not currently involved in any material legal proceedings and are not aware of any potential claims.

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

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

In connection with the Securities and Exchange Commission’s review of our Form 10-K for the year ended December 31, 2004, the Commission raised questions regarding whether the independence of our former auditor, Eide Bailly, LLP, was compromised with respect to its review of the financial statements for the quarter ended September 30, 2003, and its audit of the financial statements for the year ended December 31, 2003. The effectiveness of our extension of our latest capital units offering was also delayed pending resolution of this issue. Following communication with the Commission regarding the application of the independence rules in effect at the time, we agreed to comply with the Commission’s request to amend our SEC filings to include re-audited and re-reviewed financial statements for the above periods.

Our new auditor, Gordon, Hughes & Banks, LLP, has completed its audit of our 2003 financial statements and on November 9, 2005, delivered its signed audit report, dated as of September 30, 2005. No restatement of the Company’s previously filed financial statements for such periods was required as a result of such subsequent audit. We have amended our previously filed Form 10-K for 2003 and the registration statement for our capital units offering to include the new audit report covering our 2003 financial statements. As of the date of this report, we are awaiting a response from the SEC as to whether they have any additional comments regarding these matters.

Item 6. Exhibits

(a) Exhibits. See Exhibit Index.

SIGNATURES

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

	SOUTH DAKOTA
	SOYBEAN PROCESSORS, LLC


Dated: November 14, 2005
	By	/s/ Rodney G. Christianson
		Rodney G. Christianson
		Chief Executive Officer

EXHIBIT INDEX

FORM 10-Q

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

Exhibit Number		Description
3.1(i)		Articles of Organization (1)
3.1(ii)		Operating Agreement, as amended (2)
3.1(iii)		Articles of Amendment to Articles of Organization (3)
4.1		Form of Class A Unit Certificate (4)
31		Rule 13a-14(a)/15d-14(a) Certification
32		Section 1350 Certification

(1) Incorporated by reference from Appendix B to the information statement/prospectus filed as a part of the issuer’s Registration Statement on Form S-4 (File No. 333-75804).

(2) Incorporated by reference from the same numbered exhibit to the issuer’s Form 10-K filed on April 15, 2005.

(3) Incorporated by reference from the same numbered exhibit to the issuer’s Form 10-Q filed on August 14, 2002.

(4) Incorporated by reference from the same numbered exhibit to the issuer’s Registration Statement on Form S-4 (File No. 333-75804).

SOUTH DAKOTA SOYBEAN PROCESSORS LLC - Quarter Report: 2005 September (Form 10-Q)

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CAUTIONARY STATEMENT REGARDING

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