SOUTH DAKOTA SOYBEAN PROCESSORS LLC - Quarter Report: 2009 June (Form 10-Q)

vUNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2009

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

For the transition period from to

COMMISSION FILE NO. 000-50253

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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

¨ Large Accelerated

Filer

¨ Accelerated Filer

¨ Non-Accelerated Filer

(do not check if a smaller

reporting company)

x Smaller Reporting

Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes x No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

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

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 August 14, 2009, the registrant had 30,419,000 capital units outstanding.

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009 AND 2008

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

Index to Financial Statements

		Page

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS		4

FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008		6
Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2009 and 2008 (unaudited)		8
Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2009 and 2008 (unaudited)		9
Notes to Condensed Consolidated Financial Statements		10

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 June 30, 2009, and the related condensed consolidated statements of operations for the three-month and six-month periods ended June 30, 2009 and the condensed consolidated statement of cash flows for the six-month period ended June 30, 2009. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 (United States), 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 review, we are not aware of any material modifications that should be made to the 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), the consolidated balance sheet of South Dakota Soybean Processors, LLC as of December 31, 2008, and the related consolidated statements of operations, changes in members’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 24, 2009, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Eide Bailly LLP

August 13, 2009

Greenwood Village, Colorado

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 statements of operations for the three-month and six-month periods ended June 30, 2008 of South Dakota Soybean Processors, LLC (the “Company”) and the condensed consolidated statement of cash flows for the six-month period ended June 30, 2008. These interim financial statements are the responsibility of the Company’s management.

Gordon, Hughes & Banks, LLP

July 28, 2008

Greenwood Village, Colorado

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2009			December 31,
	(Unaudited)			2008
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	9,177		$	9,332
Trade accounts receivable, less allowance for uncollectible accounts of $96,000		17,800,887			18,939,727
Inventories		30,758,469			22,621,675
Trading securities		285,644			-
Margin deposits		1,341,868			-
Prepaid expenses		670,969			544,105
Total current assets		50,867,014			42,114,839

PROPERTY AND EQUIPMENT		55,045,093			54,344,281
Less accumulated depreciation		(32,055,896	)		(31,038,838	)
Total property and equipment, net		22,989,197			23,305,443

OTHER ASSETS
Investments in cooperatives		7,848,625			8,055,962
Notes receivable - members		148,897			148,898
Patents and other intangible assets, net		5,482,666			5,640,572
Total other assets		13,480,188			13,845,432

Total assets	$	87,336,399		$	79,265,714

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

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS – continued

	June 30,
	2009		December 31,
	(Unaudited)		2008
LIABILITIES AND MEMBERS' EQUITY

CURRENT LIABILITIES
Excess of outstanding checks over bank balance	$	4,581,695	$	2,408,396
Current maturities of long-term debt		2,850,000		819,017
Note payable - seasonal loan		19,904,473		-
Accounts payable		1,125,352		1,117,600
Accrued commodity purchases		13,820,481		25,174,258
Margin deposit deficit		-		252,281
Accrued expenses		1,476,774		1,890,668
Accrued interest		105,764		88,281
Total current liabilities		43,864,539		31,750,501

LONG-TERM LIABILITIES
Long-term debt, less current maturities		9,300,000		9,300,000
Deferred compensation		68,571		107,405
Total long-term liabilities		9,368,571		9,407,405

COMMITMENTS AND CONTINGENCIES

TEMPORARY EQUITY, net of subscriptions receivable of $2,259, consisting of 70,750 Class A capital units		140,491		140,491

MEMBERS' EQUITY
Class A Units, no par value, 30,419,000 units issued and outstanding		33,962,798		37,967,317

Total liabilities, temporary equity and members' equity	$	87,336,399	$	79,265,714

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

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2009 AND 2008

	Three Months Ended June 30:						Six Months Ended June 30:
	2009			2008			2009			2008

NET REVENUES	$	60,496,800		$	101,249,185		$	121,454,512		$	188,517,599

COST OF REVENUES
Cost of product sold		53,171,137			88,391,241			108,518,296			163,145,676
Production		3,910,371			4,225,381			7,881,171			8,504,239
Freight and rail		3,720,785			4,921,797			7,460,495			9,557,362
Brokerage fees		83,819			66,894			135,703			139,929
Total cost of revenues		60,886,112			97,605,313			123,995,665			181,347,206

GROSS PROFIT (LOSS)		(389,312	)		3,643,872			(2,541,153	)		7,170,393

OPERATING EXPENSES
Administration		1,049,510			1,444,406			2,449,951			2,978,895
OPERATING PROFIT (LOSS)		(1,438,822	)		2,199,466			(4,991,104	)		4,191,498

OTHER INCOME (EXPENSE)
Interest expense		(244,672	)		(551,839	)		(484,077	)		(1,281,668	)
Other non-operating income		559,383			521,798			1,112,594			1,069,856
Patronage dividend income		-			1,500			358,367			248,580
Total other income (expense)		314,711			(28,541	)		986,884			36,768

INCOME (LOSS) BEFORE INCOME TAXES		(1,124,111	)		2,170,925			(4,004,220	)		4,228,266

INCOME TAX EXPENSE (BENEFIT)		-			300			300			300

NET INCOME (LOSS)	$	(1,124,111	)	$	2,170,625		$	(4,004,520	)	$	4,227,966

BASIC AND DILUTED EARNINGS (LOSS) PER CAPITAL UNIT	$	(0.04	)	$	0.07		$	(0.13	)	$	0.14

WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED EARNINGS (LOSS) PER CAPITAL UNIT		30,419,000			30,419,000			30,419,000			30,419,000

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

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2009 AND 2008

	2009			2008
OPERATING ACTIVITIES
Net income (loss)	$	(4,004,520	)	$	4,227,966
Charges and credits to net income (loss) not affecting cash:
Depreciation and amortization		1,293,427			1,267,323
(Gain) loss on sales of property and equipment		9,737			-
Unrealized (gain) in market value on trading securities		(7,931	)		-
Non-cash patronage dividends		(125,428	)		(123,540	)
Change in current assets and liabilities		(20,500,237	)		(11,724,910	)
NET CASH (USED FOR) OPERATING ACTIVITIES		(23,334,952	)		(6,353,161	)

INVESTING ACTIVITIES
Proceeds from investments in cooperatives		-			420,120
Retirement of patronage dividends		55,052			376,517
Patent costs		(78,993	)		(84,297	)
Proceeds from sales of property and equipment		12,431			-
Purchase of property and equipment		(762,449	)		(194,093	)
NET CASH (USED FOR) FROM INVESTING ACTIVITIES		(773,959	)		518,247

FINANCING ACTIVITIES
Change in excess of outstanding checks over bank balances		2,173,299			(1,054,597	)
Net (payments) proceeds from seasonal borrowings		19,904,473			10,470,952
Distributions to members		-			(3,766,059	)
Decrease (increase) in subscriptions receivable		-			312,668
Proceeds from long-term debt		2,030,984			-
Principal payments on long-term debt		-			(5,948	)
NET CASH FROM FINANCING ACTIVITIES		24,108,756			5,957,016

NET CHANGE IN CASH AND CASH EQUIVALENTS		(155	)		122,102

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		9,332			9,247

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	9,177		$	131,349

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:	2009		2008

Interest	$	466,594	$	1,121,444

Income taxes	$	-	$	-

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

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The financial statements as of and for the periods ended June 30, 2009 and 2008 reflect, in the opinion of management of South Dakota Soybean Processors, LLC (the “Company”, “LLC”, “we”, “our”, or “us”), 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 consolidated balance sheet data as of December 31, 2008 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, 2008, included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2009.

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 of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS No. 165), which is applicable to the accounting for and disclosure of subsequent events not otherwise addressed in GAAP. SFAS No. 165 defines subsequent events as “events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued.” The adoption of SFAS No. 165 requires the disclosure of the date through which subsequent events have been evaluated, as well as whether the date is the date the financial statements were issued or the date the financial statements were available to be issued. For public entities, financial statements are considered “issued” when they are widely distributed to shareholders and other financial users for general use and reliance in a form and format that complies with GAAP. SFAS No. 165 is effective for fiscal years and interim periods ending after June 15, 2009. The Company has evaluated subsequent events through August 13, 2009, which is the date they issued their financial statements.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140” (SFAS No. 166), which is a revision to SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS No. 166 eliminates the concept of a “qualifying special purpose entity”, changes the requirements for derecognizing financial assets and requires additional disclosures. SFAS No. 166 is effective for fiscal years and interim periods beginning after November 15, 2009. Earlier adoption is prohibited. Management does not expect the adoption of SFAS No. 166 to have a material impact on the Company’s financial position or results of operations.

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SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities” (SFAS No. 167), which makes significant changes to the model for determining who should consolidate a variable interest entity and addresses how often this assessment should be performed. SFAS No. 167 requires all existing arrangements to be evaluated, and must be adopted through a cumulative-effect adjustment. SFAS No. 167 is effective for fiscal years and interim periods beginning after November 15, 2009. Earlier adoption is prohibited. Management is evaluating the impact adoption may have on the Company’s financial position, results of operations and cash flows.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards Codification (Codification) will become the sole source of authoritative generally accepted accounting principles in the United States of America (GAAP) and will supersede all existing non-SEC accounting and reporting standards. Once the Codification is in effect, all of its content will carry the same level of authority, and any accounting guidance not contained within the Codification will become non-authoritative. SFAS No. 168 is effective for fiscal years and interim periods ending after September 15, 2009. Because the Codification is not intended to change GAAP, the adoption of this standard will not have an impact on the Company’s financial results; however, the Company’s disclosures and references to accounting standards will change to reflect the new Codification structure.

Reclassifications

Reclassifications have been made to the June 30, 2008 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

	2009		2008

Finished goods	$	14,289,125	$	5,960,820
Raw materials and other		16,469,344		16,660,855

Totals	$	30,758,469	$	22,621,675

NOTE 3 - NOTES PAYABLE – SEASONAL LOAN

The Company has entered into a revolving credit agreement with CoBank, which expires February 1, 2010. The purpose of the credit agreement is to finance the inventory and accounts receivable of the Company. On March 23, 2009, the Company amended its Master Loan Agreement. Under the amendment, the Company may borrow up to $40 million. Interest accrues at a variable rate (3.06% at June 30, 2009). Advances on the revolving credit agreement are secured and limited to qualifying inventory and accounts receivable, net of any accrued commodity purchases. There were advances outstanding of $19,904,473 and $0 at June 30, 2009 and December 31, 2008, respectively. The remaining available funds to borrow under the terms of the revolving credit agreement are approximately $19,620,000 as of June 30, 2009.

The Company is in violation of one of its loan covenants with CoBank as of June 30, 2009 but received a waiver from CoBank through August 31, 2009. The loan covenant requires the Company to maintain a minimum working capital of $7.5 million through August 31, 2009 and $9.0 million at September 30, 2009. At June 30, 2009, working capital was approximately $7.0 million. The Company is currently negotiating with CoBank to modify their loan agreement. Based on these negotiations, management anticipates that the Company will comply with the working capital covenant after August 31, 2009.

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SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - CONTINGENCIES

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 31, 2007, the Company was named as a defendant in a lawsuit filed in the U.S District Court for the District of Minnesota, along with other individual defendants, including the Company’s chief executive officer, commercial manager, and two Board members. The plaintiffs, Transocean Group Holdings PTY Ltd. and Transocean Global Biofuels PTY Ltd., of Sydney, Australia (“Transocean”), allege that the Company breached a heads of agreement with Transocean dated April 28, 2006. The heads of agreement concerned the potential development and operation of a biodiesel refinery through a company called High Plains Biofuels, Inc., to be owned by the Company and Transocean as shareholders. Transocean alleges that the individual defendants breached fiduciary duties to High Plains Biofuels. Transocean is seeking relief for its expectation damages which is unknown at this time. Based upon their investigation of the facts surrounding the case, management believes that Transocean’s allegations are meritless and are vigorously defending the action. The Company filed an answer to Transocean’s complaint on September 17, 2007. Transocean filed an amendment complaint on January 18, 2008 to which the Company filed an answer on February 7, 2008. The Company also filed a motion for summary judgment on January 15, 2009, and oral arguments were heard in May 2009. No trial date has been set for this lawsuit. Management cannot provide, however, any assurance that the Company will be successful in disposing of the case or that any costs of settlement or damages would not be material if they are unable to get the case dismissed.

On June 7, 2005, the Company received notification from the Securities and Exchange Commission (“SEC”) that the Company’s filings were under review. During the course of the review, the SEC requested additional information about the Company’s change in auditors for the audit of its financial statements for the year ended December 31, 2004 as disclosed in the Company’s 8-K filing dated January 18, 2005. After considering such information, management determined that the independence of the audit firm, Eide Bailly LLP, with respect to its audit of financial statements for the year ended December 31, 2003 was compromised and decided to have the financial statements for that period re-audited. As a result, in the latter part of 2005 the Company’s Board of Managers engaged Gordon, Hughes, & Banks LLP to re-audit the financial statements for the year ended December 31, 2003. The re-audit produced an unqualified opinion and there was no effect on previously reported net income or member’s equity. During early 2005, prior to receiving notice of the SEC review, the Company solicited investors through an S-1 registration statement which included the 2003 audit opinion letter from Eide Bailly LLP and the audited financial statements for the year ended December 31, 2003. Because the independence of Eide Bailly was compromised for that period, the registration statement did not meet the requirements of federal securities law. The financial statements included in the Company’s periodic reports for such periods, as amended, are now compliant with the independent auditor requirements of applicable securities law, but there remains a possibility that claims could be made against the Company relating to the inclusion in the offering materials of the original audit opinion letter. As of June 30, 2009 and December 31, 2008, the Company has not recorded a provision for this matter, as management believes the likelihood of claims being asserted by investors in the offering is remote under FAS 5. Management believes that any liability the Company may incur would not have a material adverse effect on its financial condition or its results of operations. Due to the circumstances described above, the Company has recorded the net proceeds received to date, reduced by an amount that no longer qualifies as a possible claim under federal and state securities laws, as temporary equity in the accompanying consolidated balance sheets. Amounts recorded as temporary equity totaled $140,491 as of June 30, 2009 and December 31, 2008, consisting of 70,750 Class A capital units.

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SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”), which requires enhanced disclosures about how these instruments and activities affect the entity’s financial position, financial performance and cash flows. The standard requires disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. As SFAS 161 is only disclosure related, it did not have an impact on our financial position, results of operation or cash flows.

In the ordinary course of business, the Company enters into contractual arrangements as a means of managing exposure to changes in commodity prices. The Company’s derivative instruments primarily consist of commodity futures, options and forward contracts. Although these contracts may be effective economic hedges of specified risks, they are not designated as, nor accounted for, as hedging instruments. These contracts are recorded on the Company’s consolidated balance sheets at fair value as discussed in Note 6, Fair Value of Financial Instruments.

As of June 30, 2009 and December 31, 2008, the value of the Company’s open futures, options and forward contracts was approximately $(1,478,913) and $1,362,559, respectively.

	Balance Sheet	Asset Derivatives		Liability Derivatives
	Classification	June 30, 2009		June 30, 2009
Derivatives not designated as hedging under SFAS 133:
Commodity contracts	Current Assets	$	2,659,593	$	4,138,506

During the six months ending June 30, 2009, net realized and unrealized losses on derivative transactions were recognized in the consolidated statement of operations as follows:

	Location of Net Gain	Net Gain (Loss) Recognized on
	(Loss) Recognized	Derivative Activities for the:
	in Earnings on	Three-Months Ended		Six-Months Ended
	Derivative Activities	June 30, 2009		June 30, 2009

Derivatives not designated as hedging under SFAS 133:
Commodity contracts	Cost of Sales	$	3,882,414	$	5,248,422

The Company recorded a gain of $5,248,422 in cost of goods sold related to its commodity derivative instruments for the six months ended June 30, 2009.

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SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), which provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, SFAS 157 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. The adoption of this statement had an immaterial impact on the Company’s financial statements. SFAS 157 defines the hierarchy as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange and commodity derivative contracts listed on the Chicago Board of Trade (“CBOT”).

Level 2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs, such as commodity prices using forward future prices.

Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.

The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective levels to which fair value measurements are classified within the fair value hierarchy as of June 30, 2009:

	Fair Value as of June 30, 2009
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash equivalents	$	9,177	$	-	$	-	$	9,177

Trading securities	$	285,644	$	-	$	-	$	285,644

Inventory	$	526,447	$	28,130,856	$	-	$	28,657,303

Margin deposits (deficits)	$	1,341,868	$	-	$	-	$	1,341,868

The fair value of the Company’s long-term debt approximates the carrying value. The interest rates on the long-term debt are similar to rates the Company would be able to obtain currently in the market.

The Company enters into various commodity derivative instruments, including futures, options, swaps and other agreements. The fair value of the Company’s commodity derivatives is determined using unadjusted quoted prices for identical instruments on the Chicago Board of Trade (“CBOT”). The Company estimates the fair market value of their finished goods and raw materials inventories using the market price quotations of similar forward future contracts listed on the CBOT and adjusts for the local market adjustments derived from other grain terminals in our area.

Item 2.

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

Forward-Looking Statements

The information in this quarterly report on Form 10-Q for the three-month and six-month periods ended June 30, 2009, (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contains “forward-looking statements” that deal with future results, expectations, plans and performance, and should be read in conjunction with the consolidated financial statements and Annual Report on Form 10-K for the year ended December 31, 2008. Forward-looking statements may include statements which use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions. Forward-looking statements involve numerous assumptions, risks and uncertainties. Actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements are identified in our Form 10-K for the year ended December 31, 2008.

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

Executive Overview and Summary

Our core business and primary source of income generation is our soybean processing plant located in Volga, South Dakota. We process approximately 27 million bushels of soybeans annually to produce approximately 600,000 tons of high protein soybean meal and 300 million pounds of crude soybean oil. Our production represents approximately 1.5% of the total soybean processing capacity in the United States. In addition to our processing plant, we operate a soybean oil refinery in Volga where we produce partially refined soybean oil. The partially refined soybean oil is sold to customers in the food, chemical and industrial sectors. Under certain market conditions we may issue warehouse receipts for crude oil according to the terms and conditions of the CBOT soybean oil contract. Other activities that generate income are our investment in Minnesota Soybean Processors (MnSP), as well as through management and consulting agreements.

Soybean processing is basically a commodity driven business and is cyclical in nature. Our industry is dependent on the annual soybean crop production (supply side) and world economic growth (demand side for food). Soybean processing is a highly consolidated industry with four companies in the U.S. controlling 84% of the soybean processing industry and 68% of the soybean oil refining capacity for food applications. We compete in this industry by producing high quality products and operating a highly efficient operation at the lowest possible cost.

In efforts to increase the value of the products we produce, we continue to invest in our subsidiary, USSC, for the research, marketing and development of soy-based polyol and soy-based polyurethane systems. For the six months ended June 30, 2009, USSC achieved a substantial improvement in its gross margin per unit sold compared to the same period of 2008; however, it continues to operate at a loss.

In terms of overall operations between periods, we generated a net loss of $4.0 million for the six months ended June 30, 2009, compared to a net profit of $4.2 million for the same period in 2008, a decrease of $8.2 million or $0.67 per bushel processed. Profits decreased primarily due to a reduction of $9.7 million in gross margin. Lower margins were caused by a decrease in revenues of $3.62 per soybean bushel between periods, while cost of product sold only decreased by $2.85 per bushel between periods. Factors contributing to this result include a tight domestic soybean supply, reduced demand for soy products due to high feed prices and a struggling U.S. biodiesel industry, and a lower quality (lower oil content and higher moisture) soybean crop locally from 2008. These lower margins were partially offset by a $2.5 million decrease in energy, interest, and administrative expenses.

We anticipate that our results of operations for the remainder of 2009 could look similar to the first half of 2009, at least until the 2009 harvest. Tight soybean supplies and economic uncertainty, domestically and internationally, will continue to contribute to price volatility in the commodity and petroleum markets. An effective use of risk management and operating prudently will likely be our best tools for handling these challenges.

RESULTS OF OPERATIONS

Comparison of the three months ended June 30, 2009 and 2008

	Quarter Ended June 30, 2009						Quarter Ended June 30, 2008
				% of						% of
		$		Revenue				$		Revenue

Revenue	$	60,496,800			100.0		$	101,249,185			100.0
Cost of revenues		(60,886,112	)		(100.7	)		(97,605,313	)		(96.4	)
Administrative expenses		(1,049,510	)		(1.7	)		(1,444,406	)		(1.4	)
Other income (expense)		314,711			0.5			(28,541	)		(0.1	)
Income tax (expense) benefit		—			—			(300	)		(0.0	)

Net income (loss)	$	(1,124,111	)		(1.9	)	$	2,170,625			2.1

Revenue – Revenue decreased $40.8 million, or 40.2%, for the second quarter of 2009 compared to the same period in 2008. The decrease in revenues is primarily due to decreases in the average sales price and volume of all soybean products. The average sales price of our soybean products decreased approximately 29% in the second quarter of 2009, compared to the same period in 2008. The principal cause for this decrease is a reduction in the price of crude petroleum oil and its refined products, which has been the primary driving factor for the price fluctuation of our products over the last few years. In addition to the decrease in sales price, we experienced a 22.5% decrease in sales volume of soybean products during the second quarter of 2009, compared to the same period in 2008. The decrease in sales volume of soybean products is attributed to a decrease in soybeans crushed, higher moisture and lower oil yields per bushel crushed, and changes in customer demand for our soybean oil. As a result of a tight local soybean crop, we decreased the amount of soybeans crushed at our facility by approximately 16.4% during the second quarter of 2009 compared to the same period in 2008, thus reducing the amount of our products available to be sold. In addition, soybeans harvested locally in the fall of 2008 had higher moisture and lower oil content than an average crop, therefore decreasing the amount of soybean meal and oil produced from a bushel of soybeans. Finally, reduced sales volume of refined and bleached soybean oil to ACH Foods, our primary customer for soybean oil historically, has required us to seek an expanded customer base for our soybean oil. However, the demand for our oil from the new customer base, particularly the biodiesel industry, has fluctuated dramatically due to price volatility. We expect this fluctuation to continue for the near future.

Gross Profit/Loss – For the second quarter of 2009, we generated a gross loss of $0.4 million compared to a gross profit of $3.6 million for the second quarter of 2008. The $4.0 million change in gross profit (loss) is primarily attributed to lower crush margins, a 16.4% decrease in the volume of soybeans crushed, and the higher moisture and lower oil content from soybeans harvested locally in 2008. Due to a large decrease in commodity prices since the summer of 2008, as well as the USDA projecting a tight soybean carryout for 2008-2009, soybean suppliers were reluctant sellers in the first half of 2009. This reluctance has increased the cost of purchasing soybeans for the crushing process and, therefore, lowered our crush margins. Offsetting in part this decrease in gross profit is a decrease in production costs of $0.3 million for the second quarter of 2009 compared to the same period in 2008. Production costs decreased between periods primarily due to a decrease in energy costs.

Administrative Expense – Administrative expense, including all selling, general and administrative expenses, decreased $395,000, or 27.3%, for the second quarter of 2009 compared to the same period in 2008. Approximately 46% of this decrease is due to a decrease in professional fees, 39% due to a decrease in personnel costs, and 11% due to a decrease in our operating expenses associated with USSC.

Interest Expense – Interest expense decreased 55.7% for the second quarter of 2009 compared to the same period in 2008. This decrease is due to lower debt levels resulting from lower soybean prices, inventory quantities and accounts receivable, as well as lower interest rates on our senior debt. The average debt level during the second quarter of 2009 is approximately $19.5 million compared to an average debt level of approximately $40.0 million during the same period in 2008. The annual interest rate on our senior debt is 3.06% and 4.50% as of June 30, 2009 and 2008, respectively.

Other Non-Operating Income – Other non-operating income remained constant for the second quarter of 2009 compared to the same period in 2008.

Net Income/Loss – The $3.3 million decrease in net income for the second quarter of 2009, compared to the same period in 2008, is primarily attributable to a decrease in gross profit, partially offset by decreases in administrative and interest expenses.

Comparison of the six months ended June 30, 2009 and 2008

	Six Months Ended June 30, 2009						Six Months Ended June 30, 2008
				% of						% of
	$			Revenue			$			Revenue

Revenue	$	121,454,512			100.0		$	188,517,599			100.0
Cost of revenues		(123,995,665	)		(102.1	)		(181,347,206	)		(96.2	)
Administrative expenses		(2,449,951	)		(2.0	)		(2,978,895	)		(1.6	)
Other income (expense)		986,884			0.8			36,768			0.0
Income tax (expense) benefit		(300	)		(0.0	)		(300	)		(0.0	)

Net income (loss)	$	(4,004,520	)		(3.3	)	$	4,227,966			2.2

Revenue – Revenue decreased $67.1 million, or 35.6%, for the six-month period ended June 30, 2009 compared to the same six-month period in 2008. The decrease in revenues is primarily due to decreases in the average sales price and volume of all soybean products. The average sales price of our soybean products decreased approximately 26.7% in the first six months of 2009, compared to the same period in 2008. The principal cause for this decrease is a reduction in the price of crude petroleum oil and its refined products, which has been the primary driving factor for price fluctuation of our products the last few years. In addition to the decrease in sales price, we experienced a 16.0% decrease in the sales volume of soybean products during the six-month period ended June 30, 2009 compared to the same period in 2008. The decrease in sales volumes of soybean products is attributed to a decrease in amount of soybeans crushed, higher moisture and lower oil content in the local 2008 soybean crop, and changes in customer demand for our soybean oil. As a result of a tight local soybean crop, we decreased the amount of soybeans crushed at our facility by approximately 12.1% during the six-month period ended June 30, 2009 compared to the same period in 2008, thus reducing the amount of our products available to be sold. In addition, soybeans harvested locally in the fall of 2008 had higher moisture and lower oil content than an average crop, therefore decreasing the amount of soybean meal and oil produced from a bushel of soybeans. Finally, reduced sales volume of refined and bleached soybean oil to ACH Foods, our primary customer for soybean oil historically, has required us to seek an expanded customer base for our soybean oil. However, the demand for our oil from the new customer base, particularly the biodiesel industry, has fluctuated dramatically due to price volatility.

Gross Profit/Loss – For the first two quarters of 2009, we generated a gross loss of $2.5 million compared to a gross profit of $7.2 million for the same period in 2008. The $9.7 million change in gross profit (loss) is primarily attributed to lower crush margins, a 12.1% decrease in the volume of soybeans crushed, and higher moisture and lower oil content from soybeans harvested locally in 2008. Due to a large decrease in commodity prices since the summer of 2008, as well as the USDA projecting a tight soybean carryout for 2008-2009, soybean suppliers were reluctant sellers in the first half of 2009. This reluctance has increased the cost of purchasing soybeans for the crushing process and, therefore, lowered our crush margins. Offsetting in part this decrease in gross profit is a decrease in production costs of $0.6 million for the first six months of 2009 compared to the same period in 2008. Production costs decreased between periods primarily due to a decrease in energy costs.

Administrative Expense – Administrative expense, including all selling, general and administrative expenses, decreased $529,000, or 17.8%, for the six-month period ended June 30, 2009 compared to the same period in 2008. Approximately 36% of this decrease is due to a decrease in professional fees, 36% due to a decrease in personnel costs, and 8% due to a decrease in our operating expenses associated with USSC. These decreases in administrative expenses are partially offset by an increase in bad debt expense of approximately $150,000 during the first half of 2009 compared to the same period in 2008.

Interest Expense – Interest expense decreased 62.2% for the six months ended June 30, 2009 compared to the same period in 2008. This decrease is due to lower debt levels resulting from lower soybean prices, inventory quantities and accounts receivable, as well as lower interest rates on our senior debt. The average debt level during the first six-month period of 2009 is approximately $18.8 million compared to an average debt level of approximately $43.7 million during the same period in 2008. Similarly, the annual interest rate on our senior debt is 3.06% and 4.50% as of June 30, 2009 and 2008, respectively.

Other Non-Operating Income – Other non-operating income increased 11.6% for the six-month period ended June 30, 2009, compared to the same period in 2008. This increase is due to a $111,000 increase in patronage dividends received from CoBank in the first half of 2009 compared to the same period in 2008.

Net Income/Loss – The $8.2 million change in net income (loss) for the six-month period ended June 30, 2009, compared to the same period in 2008, is primarily attributable to a decrease in gross profit, partially offset by decreases in administrative and interest expenses.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash provided by operations and borrowings under our two lines of credit which are discussed below under “Indebtedness.” On June 30, 2009, we had working capital, defined as current assets less current liabilities, of approximately $7.0 million, compared to working capital of $12.1 million on June 30, 2008. Working capital decreased between periods primarily due to a decrease in net income. Despite this decrease, we anticipate for the foreseeable future having sufficient cash flows from operations and our revolving debt to fund working capital, cover operating expenses and capital expenditures, and meet debt service obligations.

A summary of our cash flow from operating, investing and financing activities for each of the six-month periods ended June 30, 2009 and 2008:

	2009			2008

Net cash (used for) operating activities	$	(23,334,952	)	$	(6,353,161	)
Net cash (used for) from investing activities		(773,959	)		518,247
Net cash from financing activities		24,108,756			5,957,016

Cash Flows from Operations

Cash flows from operations are generally affected by commodity prices and the seasonality of our business. These commodity prices are affected by a wide range of factors beyond our control, including weather, crop conditions, drought, the availability and the adequacy of supply and transportation, government regulations and policies, world events, and general political and economic conditions. The increase in cash flows used for operating activities is primarily attributed to a decrease in net income and a larger increase in net operating assets and liabilities during the six months ended June 30, 2009 compared to the same period in 2008. The increase in net operating assets and liabilities is caused by an increase in commodity prices between December 31, 2008 and June 30, 2009 which increased inventories and margin deposits and decreased accrued commodity purchases during the same period.

Cash Flows from Investing Activity

The $1.3 million change in cash flows from (used for) investing activities between the six months ended June 30, 2009 and the same period in 2008 is primarily attributed to decreases in the amount received in 2009 from our investments in MnSP and CHS, Inc., as well as an increase in the amount of purchases of property and equipment. In the six months ended June 30, 2008, following a mandatory unit retain investment of $420,000 in MnSP in 2006, MnSP repaid us the unit retains, compared to no payment during the same period in 2009. In addition, during the six-months ended June 30, 2009, we received $55,000 from the retirement of patronage dividends by CHS, compared to $377,000 during the same period in 2008. Property and equipment purchases for general capital improvements were $762,000 during the six-months ended June 30, 2009 compared to $194,000 for the same period in 2008.

Cash Flows from Financing Activity

The increase in cash flows from financing activities is principally due to a $11.7 million increase in seasonal and long-term borrowings and a $3.8 million decrease in distributions paid to members during the six months ended June 30, 2009, compared to the same period in 2008. During the first six-month period of 2008, we distributed approximately $3.8 million to our members compared to no distributions during the same period in 2009.

Indebtedness

We have two lines of credit with CoBank, our primary lender, to meet the short and long-term needs of our operations. The first credit line is a revolving long-term loan. Under the terms of this loan, we may borrow funds as needed up to the credit line maximum, or $11.9 million, and then pay down the principal whenever excess cash is available. Repaid amounts may be borrowed up to the available credit line. Prior to an amendment of our Master Loan Agreement with CoBank on March 23, 2009 (see below), the available credit line was scheduled to be reduced by $1.3 million every six months until maturity on March 20, 2013. The final payment at maturity will be equal to the remaining unpaid principal balance of the loan. We pay a 0.50% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan is $11.9 million and $13.2 million as of June 30, 2009 and 2008, respectively. There are no remaining commitments available to borrow on the revolving term loan as of June 30, 2009.

The second credit line is a revolving working capital loan that matures on February 1, 2010. The primary purpose of this loan is to finance inventory and receivables. The maximum available under this credit line is $40 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 the credit line during any given commitment period listed in the agreement to avoid the commitment fee. The principal balance on the working capital loan is approximately $19.9 million and $33.9 million as of June 30, 2009 and 2008, respectively.

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. The annual interest rate on both the revolving term and working capital loans is 3.06% and 4.50% as of June 30, 2009 and 2008, respectively. 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.

On March 23, 2009 we amended our Master Loan Agreement with CoBank. Under this amendment, CoBank agreed to waive the $1.3 million semi-annual credit line reduction scheduled for March 20, 2009, thus extending the maturity of the revolving term loan from March 20, 2013 to September 30, 2013. In addition, CoBank modified our financial covenant regarding the payment of distributions to our members. While the loan agreement with CoBank is in effect, we may not declare or issue distributions to members in excess of 50% of our consolidated net income of the prior fiscal year without prior written consent from CoBank.

We were in violation with one of our loan covenants with CoBank as of June 30, 2009 but received a waiver from CoBank through August 31, 2009. The loan covenant requires us to maintain a minimum working capital of $7.5 million through August 31, 2009 and $9.0 million at September 30, 2009, but our actual working capital was $7.0 million at June 30, 2009. We are currently negotiating with CoBank to modify our loan agreement. Based on these negotiations, we anticipate that we will comply with the working capital covenant after August 31, 2009.

We also have another long-term note payable totaling $250,000, with an annual interest rate of 15.0% as of June 30, 2009. We made principal payments of $0 and $6,000 on these other long-term obligations during the six months ended June 30, 2009 and 2008, respectively.

OFF BALANCE SHEET FINANCING ARRANGEMENTS

Except as described below, we do not utilize variable interest entities or other off-balance sheet financial 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 the rail car leases we use to distribute our products. We have a number of long-term leases with GE Capital, Trinity Capital, and AIG Rail Services for hopper rail cars and oil tank cars. Total lease expenses under these arrangements are approximately $1.0 million for each of the six-month periods ended June 30, 2009 and 2008. The hopper rail cars earn mileage credit from the railroad through a sublease program, which totaled $0.8 million for each of the six months ended June 30, 2009 and 2008.

In addition to rail car leases, we have several operating leases for various equipment and storage facilities. Total lease expense under these arrangements is $96,000 and $97,000 for the six-month periods ended June 30, 2009 and 2008, respectively. Some of our leases include purchase options, none of which, however, are for a value less than fair market value at the end of the lease.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 of our Financial Statements for a discussion on the impact, if any, of the recently pronounced accounting standards.

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. We continually evaluate these estimates based on historical experience and other assumptions we believe to be reasonable under the circumstances.

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

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

Commitments and Contingencies

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

Inventory Valuation

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 (CBOT), net of the local basis, for the last three business days of the period and the first two business days of the subsequent period. 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-lined 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.

We evaluate the recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying value may not be recoverable. Such circumstances could include, but are not limited to: (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. We measure the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeded its fair value. The fair value is measured based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.

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 the 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 CBOT. While hedging activities reduce the risk of loss from changing market prices, such activities also limit the gain potential which otherwise could result from these significant fluctuations in market prices. 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. We do not anticipate that our 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 our facility 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 managers. 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 4T.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and controller have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2009 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.

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 dispute. Currently, we are not involved in any legal proceeding that we believe is material. In the event we become involved in a legal proceeding, 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 31, 2007, we were named as a defendant in a lawsuit filed in the U.S. District Court for the District of Minnesota, along with other individual defendants, including our chief executive officer, Rodney Christianson, commercial manager, Tom Kersting, and Board member, Dan Feige, and former board member, Rodney Skalbeck. The plaintiffs, Transocean Group Holdings PTY Ltd. and Transocean Global Biofuels PTY Ltd., of Sydney, Australia (“Transocean”), allege that we breached a heads of agreement with Transocean dated April 28, 2006. The heads of agreement concerned the potential development and operation of a biodiesel refinery through a company called High Plains Biofuels, Inc., to be owned by us and Transocean as shareholders. Transocean alleges that the individual defendants breached fiduciary duties to High Plains Biofuels. Transocean is currently seeking restitution damages, the value of which is uncertain and disputed at this time. Based upon our investigation of the facts surrounding the case, we believe that Transocean’s allegations are meritless, and we are vigorously defending the action. We filed answers to Transocean’s complaint on September 17, 2007 and amended complaint on February 7, 2008. We also filed a motion for summary judgment on January 15, 2009 and oral arguments were held on the motion on May 20, 2009. We cannot provide, however, any assurance that we will be successful in disposing of the case or that any costs of settlement or damages would not be material if we are unable to get the case dismissed.

Item 1A.

Risk Factors.

During the quarter ended June 30, 2009, there were no material changes to the Risk Factors disclosed in Item 1A (Part I) of our 2008 Annual Report on Form 10-K.

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.

On June 16, 2009, we held our annual meeting of members in Brookings, South Dakota. At the meeting, Robert Nelson, Alan Christensen, Dan Feige, James Jepsen, Maurice Odenbrett, Lyle Trautman and Gary Wertish were reelected to the Board of Managers. Paul Barthel, Dean Christopherson, David Driessen, Paul Dummer, Wayne Enger, Ronald Gorder, Marvin Hope, Jerome Jerzak, Peter Kontz, Bryce Loomis, Robert Nelsen, Randy Tauer, Delbert Tschakert and Ardon Wek, will remain on the board until their terms expire, they are reelected, or their earlier death, resignation or removal.

VOTE TABULATION FOR BOARD OF MANAGER NOMINEES

Nominee	For	Abstentions
District One
Robert Nelson	Unanimous

District 2
Alan Christensen	Unanimous

District 3
Dan Feige	Unanimous

District 4
James Jepsen	Unanimous

District 5
Maurice Odenbrett	Unanimous

District 6
Lyle Trautman	Unanimous

District 7
Gary Wertish	Unanimous

Item 5.

Other Information

None.

Item 6.

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: August 14, 2009
	By	/s/ Rodney 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 8-K filed on June 28, 2007.

(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).