SOUTH DAKOTA SOYBEAN PROCESSORS LLC - Quarter Report: 2010 September (Form 10-Q)

Unassociated Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2010

¨	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 ¨

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 o No o

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: On November 10, 2010, 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

SEPTEMBER 30, 2010 AND 2009

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

Index to Financial Statements

		Page

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS		1

FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009		2
Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2010 and 2009 (unaudited)		4
Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2010 and 2009 (unaudited)		5
Notes to Condensed Consolidated Financial Statements		6

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, 2010 and the related condensed consolidated statements of operations for the three-month and nine-month periods ended September 30, 2010 and 2009 and the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2010 and 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, 2009, 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 25, 2010, 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, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

November 9, 2010

Sioux Falls, South Dakota

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,
	2010			December 31,
	(Unaudited)			2009
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	2,532		$	69,791
Trade accounts receivable, less allowance for uncollectible accounts of $23,000 and $56,000 at September 30, 2010 and December 31, 2009, respectively		17,745,011			19,222,873
Inventories		23,423,529			35,822,294
Margin deposits		2,708,404			362,609
Prepaid expenses		239,991			576,846
Total current assets		44,119,467			56,054,413

PROPERTY AND EQUIPMENT		58,252,818			55,218,551
Less accumulated depreciation		(33,886,032	)		(32,497,138	)
Total property and equipment, net		24,366,786			22,721,413

OTHER ASSETS
Investments in cooperatives		7,922,574			7,848,625
Notes receivable - members		148,898			148,898
Patents and other intangible assets, net		857,684			786,581
Total other assets		8,929,156			8,784,104

Total assets	$	77,415,409		$	87,559,930

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

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS – continued

	September 30,
	2010		December 31,
	(Unaudited)		2009
LIABILITIES AND MEMBERS' EQUITY

CURRENT LIABILITIES
Excess of outstanding checks over bank balance	$	1,914,479	$	4,589,459
Current maturities of long-term debt		250,000		2,850,000
Note payable - seasonal loan		6,836,814		14,252,224
Accounts payable		511,699		650,573
Accrued commodity purchases		24,686,257		22,943,887
Accrued expenses		1,983,699		2,709,172
Accrued interest		141,872		130,750
Total current liabilities		36,324,820		48,126,065

LONG-TERM LIABILITIES
Long-term debt, less current maturities		11,258,200		8,000,000
Deferred compensation		51,619		69,573
Total long-term liabilities		11,309,819		8,069,573

COMMITMENTS AND CONTINGENCIES

TEMPORARY EQUITY, consisting of 0 and 70,750
Class A capital units at September 30, 2010 and December 31, 2009, respectively		-		140,491

MEMBERS' EQUITY
Class A Units, no par value, 30,419,000 units issued and outstanding		29,780,770		31,223,801

Total liabilities, temporary equity and members' equity	$	77,415,409	$	87,559,930

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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

	Three Months Ended September 30:						Nine Months Ended September 30:
	2010			2009			2010			2009

NET REVENUES	$	70,434,421		$	77,880,978		$	204,697,649		$	199,335,490

COST OF REVENUES
Cost of product sold		62,326,100			69,918,841			180,258,929			178,437,137
Production		3,537,968			3,213,340			11,167,739			11,094,511
Freight and rail		4,017,311			3,872,284			12,272,295			11,332,779
Brokerage fees		116,044			110,034			345,055			245,737
Total cost of revenues		69,997,423			77,114,499			204,044,018			201,110,164

GROSS PROFIT (LOSS)		436,998			766,479			653,631			(1,774,674	)

OPERATING EXPENSES
Administration		1,084,055			1,178,105			3,387,627			3,628,056
OPERATING LOSS		(647,057	)		(411,626	)		(2,733,996	)		(5,402,730	)

OTHER INCOME (EXPENSE)
Interest expense		(326,568	)		(319,686	)		(942,295	)		(803,763	)
Other non-operating income		678,059			540,634			1,881,587			1,653,228
Patronage dividend income		-			-			211,282			358,367
Total other income (expense)		351,491			220,948			1,150,574			1,207,832

LOSS BEFORE INCOME TAXES		(295,566	)		(190,678	)		(1,583,422	)		(4,194,898	)

INCOME TAX EXPENSE		-			-			100			300

NET LOSS	$	(295,566	)	$	(190,678	)	$	(1,583,522	)	$	(4,195,198	)

BASIC AND DILUTED LOSS PER CAPITAL UNIT	$	(0.01	)	$	(0.01	)	$	(0.05	)	$	(0.14	)

WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED 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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

	2010			2009
OPERATING ACTIVITIES
Net loss	$	(1,583,522	)	$	(4,195,198	)
Charges and credits to net loss not affecting cash:
Depreciation and amortization		1,628,424			1,934,966
Loss on sales of property and equipment		17,557			9,737
Non-cash patronage dividends		(73,949	)		(125,428	)
Change in current assets and liabilities		12,738,878			2,494,145
NET CASH FROM OPERATING ACTIVITIES		12,727,388			118,222

INVESTING ACTIVITIES
Proceeds from investments in cooperatives		-			277,713
Retirement of patronage dividends		-			55,052
Patent costs		(111,630	)		(97,861	)
Proceeds from sales of property and equipment		-			12,431
Purchase of property and equipment		(3,237,627	)		(1,028,383	)
NET CASH (USED FOR) INVESTING ACTIVITIES		(3,349,257	)		(781,048	)

FINANCING ACTIVITIES
Change in excess of outstanding checks over bank balances		(2,674,980	)		(1,471,391	)
Net (payments) proceeds from seasonal borrowings		(7,415,410	)		1,394,052
Payments for debt issue costs		(13,200	)		-
Proceeds from long-term debt		1,958,200			4,967,079
Principal payments on long-term debt		(1,300,000	)		(4,236,096	)
NET CASH FROM (USED FOR) FINANCING ACTIVITIES		(9,445,390	)		653,644

NET CHANGE IN CASH AND CASH EQUIVALENTS		(67,259	)		(9,182	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		69,791			9,332

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,532		$	150

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:	2010			2009

Interest	$	931,173		$	794,367

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 September 30, 2010 and 2009 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, 2009 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, 2009, included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 26, 2010.

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 February 2010, Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2010-09 (ASU 2010-09), Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 removes the requirement for a Securities Exchange Commission (SEC) filer to disclose a date in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of Generally Accepted Accounting Principles (GAAP). All of the amendments in ASU 2010-09 are effective immediately. The Company adopted ASU 2010-09 in March 2010, and it did not have a material impact on the Company’s condensed consolidated interim financial statements.

In January 2010, the FASB issued Accounting Standards Update 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires an entity to disclose separately the amounts of significant transfers in and out of Level 1 and 2 fair value measurements, and describe the reasons for the transfers. Also, it requires additional disclosure regarding purchases, sales, issuances and settlements of Level 3 measurements. ASU 10-06 is effective for interim and annual periods beginning after December 15, 2009, except for the additional disclosure of Level 3 measurements, which is effective for fiscal years beginning after December 15, 2010. The Company adopted ASU 2010-06 in March 2010, and it did not have a material impact on the Company’s condensed consolidated interim financial statements.

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SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In July 2010, the FASB issued Accounting Standards Update 2010-20 (ASU 2010-20), Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which will require more information about credit quality. ASU 2010-20 requires an entity to provide additional disclosures including, but not limited to, a roll forward schedule of the allowance for credit losses, the aging of past due financing receivables at the end of the period, the nature and extent of troubled debt restructurings that occurred during the period and their impact on the allowance for credit losses, the nature and extent of troubled debt restructurings that occurred within the last year that have defaulted in the current reporting period and their impact on the allowance for credit losses, and any impaired financing receivables presented by class. The extensive new disclosures of information will become effective for both interim and annual reporting periods ending after December 15, 2010 for public companies. Specific items regarding activity that occurred before the issuance of the ASU, such as the allowance roll forward and modification disclosures will be required for periods beginning after December 15, 2010 for public companies. The Company is currently in the process of assessing the impact of this pronouncement on the condensed consolidated financial statements.

The Company has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a material impact on the Company’s financial condition or results of operations.

NOTE 2 - INVENTORIES

Inventories consist of the following at September 30, 2010 and December 31, 2009:

	2010		2009

Finished goods	$	8,780,374	$	8,813,404
Raw materials and other		14,643,155		27,008,890

Totals	$	23,423,529	$	35,822,294

NOTE 3 - NOTES PAYABLE – SEASONAL LOAN

The Company has entered into a revolving credit agreement with CoBank, which expires July 1, 2011. The purpose of the credit agreement is to finance the inventory and accounts receivable of the Company. Prior to the amendment discussed in Note 8, the Company could borrow up to $30 million under this agreement. Interest accrues at a variable rate (4.11% at September 30, 2010). 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 $6,836,814 and $14,252,224 at September 30, 2010 and December 31, 2009, respectively. The remaining available funds to borrow under the terms of the revolving credit agreement are approximately $23,163,000 as of September 30, 2010.

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SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - LONG-TERM DEBT

	2010			2009

Revolving term loan from CoBank, interest at variable rates (4.36% and 3.49% at September 30, 2010 and December 31, 2009, respectively), secured by substantially all property and equipment. Loan matures September 20, 2017.	$	11,258,200		$	10,600,000

Note payable to Richard Kipphart, issued February 13, 2002, with monthly installments of $20,000, interest at 5%, and to maturity. Note matures on January 15, 2012.		250,000			250,000
		11,508,200			10,850,000
Less current maturities		(250,000	)		(2,850,000	)

Totals	$	11,258,200		$	8,000,000

The Company entered into an agreement as of August 12, 2010 with CoBank to amend and restate its Master Loan Agreement (MLA), which includes both the revolving term loan and the seasonal loan discussed in Note 3. Under the terms and conditions of the MLA, CoBank agreed to make advances to the Company for up to $16,800,000 on the revolving term loan. The available commitment decreases in scheduled periodic increments of $1,300,000 every six months starting September 20, 2011 until maturity on September 20, 2017. The principal balance outstanding on the revolving term loan was $11,258,200 and $10,600,000 as of September 30, 2010 and December 31, 2009, respectively. There was $5,541,800 of remaining commitments available to borrow on the revolving term loan as of September 30, 2010. Under this agreement, the Company is subject to compliance with standard financial covenants and the maintenance of certain financial ratios.

The minimum principal payments on long-term debt obligations, assuming the Company will advance the remaining amounts available on the revolving term loan, are expected to be as follows:

For the years ending September 30:
2011	$	1,550,000
2012		2,600,000
2013		2,600,000
2014		2,600,000
2015		2,600,000
Thereafter		5,100,000

Total	$	17,050,000

NOTE 5 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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 condensed consolidated balance sheets at fair value as discussed in Note 6, Fair Value of Financial Instruments.

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SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2010 and December 31, 2009, the value of the Company’s open futures, options and forward contracts was approximately $675,000 and $(493,859), respectively.

		Asset		Liability
	Balance Sheet	Derivatives as of		Derivatives as of
	Classification	September 30, 2010		September 30, 2010
Derivatives not designated as hedging instruments:
Commodity contracts	Current Assets	$	4,766,216	$	4,091,216

		Asset		Liability
	Balance Sheet	Derivatives as of		Derivatives as of
	Classification	Dec. 31, 2009		Dec. 31, 2009
Derivatives not designated as hedging instruments:
Commodity contracts	Current Assets	$	932,777	$	1,426,636

During the three-month and nine-month periods ending September 30, 2010 and 2009, net realized and unrealized gains (losses) on derivative transactions were recognized in the condensed consolidated statement of operations as follows:

	Net Gain (Loss) Recognized on					Net Gain (Loss) Recognized on
	Derivative Activities for the					Derivative Activities for the
	Three-Months Ended:					Nine-Months Ended:
	September 30, 2010			September 30, 2009		September 30, 2010		September 30, 2009
Derivatives not designated as hedging instruments:
Commodity contracts	$	(751,337	)	$	4,816,815	$	2,745,610	$	10,065,237

The Company recorded gains of $2,745,610 and $10,065,237 in cost of revenues related to its commodity derivative instruments for the nine months ended September 30, 2010 and 2009, respectively.

NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS

In February 2006, FASB issued ASC 820, Fair Value Measurements and Disclosures (formerly SFAS No. 157, Fair Value Measurement). ASC 820 defines fair value, establishes a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, this guidance 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 ASC 820 had an immaterial impact on the Company’s financial statements. The three levels of hierarchy and examples are 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 Mercantile Exchange Group, Inc. (“CME”).

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SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 tables set forth financial assets and liabilities measured at fair value in the condensed consolidated balance sheets and the respective levels to which fair value measurements are classified within the fair value hierarchy as of September 30, 2010 and December 31, 2009:

	Fair Value as of September 30, 2010
	Level 1			Level 2		Level 3		Total
Financial assets:
Inventory	$	(663,013	)	$	21,859,023	$	-	$	21,196,010

Margin deposits	$	2,708,404		$	-	$	-	$	2,708,404

	Fair Value as of December 31, 2009
	Level 1		Level 2		Level 3		Total
Financial assets:
Inventory	$	269,437	$	33,480,174	$	-	$	33,749,611

Margin deposits	$	362,609	$	-	$	-	$	362,609

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 CME. 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 CME and adjusts for the local market adjustments derived from other grain terminals in our area.

NOTE 7 - COMMITMENTS

As of September 30, 2010, the Company had unpaid commitments of approximately $2.5 million for construction and acquisition of property and equipment, all of which is expected to be incurred by May 2011.

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SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - SUBSEQUENT EVENT

On October 14, 2010 the Company entered into an amendment of the Master Loan Agreement with CoBank for the purpose of amending our revolving working capital (seasonal) loan. Under the amendment, the amount that the Company may borrow on the seasonal loan is increased from $30 million to $40 million. In addition, the Company’s covenant for working capital is changed. Prior to the amendment, the minimum working capital requirement was $7.5 million at the end of each fiscal year and $6.0 million at the end of each other period for which financial statements are required to be furnished. After the amendment, the minimum working capital requirement will remain at $7.5 million at the end of each fiscal year and $6.0 million at the end of each other period for which financial statements are required to be furnished including November 30, 2010. Beginning on January 31, 2011, however, and for every period for which financial statements are required to be furnished, the minimum working capital for these periods is increased from $6.0 million to $7.0 million.

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 nine-month periods ended September 30, 2010, (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contains “forward-looking statements” that deal with future results, expectations, plans and performance, and should be read in conjunction with the consolidated financial statements and Annual Report on Form 10-K for the year ended December 31, 2009. Forward-looking statements may include statements which use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions. Forward-looking statements involve numerous assumptions, risks and uncertainties. Actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements are identified in our Form 10-K for the year ended December 31, 2009.

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

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 U.S. 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 Chicago Mercantile Exchange Group (CME) 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 approximately 84% of the soybean processing industry and approximately 87% 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, Urethane Soy Systems Company (USSC), for the research, marketing and development of soy-based polyol and soy-based polyurethane systems. For the nine months ended September 30, 2010, USSC had a 25% improvement in its gross margin, compared to the same period of 2009. Sales to the OEM (original equipment manufacturer) increased in 2010. Spray foam sales, however, decreased due to the poor housing market. USSC continues to operate at a loss.

In terms of overall operations between periods, we generated a net loss of approximately $1.6 million for the nine months ended September 30, 2010, compared to a net loss of $4.2 million for the same period in 2009, an improvement of $2.6 million, or $0.15 per bushel processed. The improved results are primarily due to an increase of $2.4 million in gross profits for the nine months of 2010. A small South American soybean crop in 2009, combined with a weaker U.S. dollar, resulted in strong exports of soybean meal from the U.S. in the first quarter of 2010. Margins declined in the second and third quarter of 2010 as South America’s soybean crop and soybean products became more competitive with the U.S. export market. The high moisture content of the soybean crop in 2009, which reduces the product yield, adversely affected our soy processing unit in 2010.

The 2010 U.S. soybean crop is at a record volume and has returned to normal moisture levels. As a result, we anticipate that our process yields will return to historical levels. However, 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 September 30, 2010 and 2009

	Quarter Ended September 30, 2010						Quarter Ended September 30, 2009
				% of						% of
	$			Revenue			$			Revenue

Revenue	$	70,434,421			100.0		$	77,880,978			100.0
Cost of revenues		(69,997,423	)		(99.4	)		(77,114,499	)		(99.0	)
Administrative expenses		(1,084,055	)		(1.5	)		(1,178,105	)		(1.5	)
Other income (expense)		351,491			0.5			220,948			0.3
Income tax expense		—			0.0			—			—

Net (loss)	$	(295,566	)		(0.4	)	$	(190,678	)		(0.2	)

Revenue – Revenue decreased $7.4 million, or 9.6%, for the third quarter of 2010, compared to the same period in 2009. The decrease in revenues is primarily due to decreases in the average sales price of soybean meal and sales volume of soybean oil. The average sales price of our soybean meal decreased approximately 14% in the third quarter of 2010, compared to the same period in 2009. The decrease is primarily due to an increase in supply of soybeans from a favorable soybean crop in South America. In addition, because of lower oil prices due to decreased export demand of soybean oil in the second quarter of 2009, in contrast to 2010, we slightly reduced our oil sales during the second quarter of 2009 in order to maximize profits. As margins began to improve during the third quarter of 2009, we increased sales volume to reduce our increased oil supply.

Gross Profit/Loss – For the third quarter of 2010, we generated a gross profit of $0.4 million, compared to a gross profit of $0.8 million for the third quarter of 2009. The $0.4 million decrease in gross profit is primarily attributed to a higher moisture content of soybeans delivered to our facility. Higher moisture content in soybeans adversely impacts our gross profit by decreasing the amount of soybean meal produced from a bushel of soybeans.

Administrative Expenses – Administrative expenses, including all selling, general and administrative expenses, decreased $94,000, or 8.0%, for the third quarter of 2010, compared to the same period in 2009. Most of this decrease is due to a decrease in amortization expense of our patents. In late 2009, we elected to impair the value of our patents which were being amortized over the life of the patents at a rate of $103,000 per quarter. Because of the impairment, no further amortization has been necessary in 2010, including the third quarter of 2010.

Interest Expense – Interest expense remained relatively unchanged for the third quarter of 2010, compared to the same period in 2009. The average debt level for the third quarter of 2010 decreased approximately $5.8 million, compared to the same period in 2009; however, this was offset by an increase in the interest rate on our senior debt during these same periods.

Other Non-Operating Income – Other non-operating income increased by approximately $137,000, or 25.4%, for the third quarter of 2010, compared to the same period in 2009. This increase is largely due to an increase in grant funding received for the research and development of our soybean oil-based polyol into different product applications.

Net Income/Loss – The $0.1 million increase in net loss for the third quarter of 2010, compared to the same period in 2009, is primarily attributable to a decrease in gross profit associated with higher moisture content in the soybeans we processed, partially offset by a decrease in administrative expenses and an increase in other non-operating income.

Comparison of the nine months ended September 30, 2010 and 2009

	Nine Months Ended September 30, 2010						Nine Months Ended September 30, 2009
				% of						% of
	$			Revenue			$			Revenue

Revenue	$	204,697,649			100.0		$	199,335,490			100.0
Cost of revenues		(204,044,018	)		(99.7	)		(201,110,164	)		(100.9	)
Administrative expenses		(3,387,627	)		(1.7	)		(3,628,056	)		(1.8	)
Other income (expense)		1,150,574			0.6			1,207,832			0.6
Income tax expense		(100	)		(0.0	)		(300	)		(0.0	)

Net loss	$	(1,583,522	)		(0.8	)	$	(4,195,198	)		(2.1	)

Revenue – Revenue increased $5.4 million, or 2.7%, for the nine-month period ended September 30, 2010 compared to the same nine-month period in 2009. The increase in revenues is primarily due to an increase in the sales volumes of soybean oil, along with an increase in the average sales price of soybean oil. Because the volume of bushels processed increased 2.4% in the nine-month period ended September 30, 2010, compared to the same period in 2009, the amount of product available to sell also increased. As for prices, the average sales price of our soybean oil increased approximately 15% in the first nine months of 2010, compared to the same period in 2009. The principal cause for the price improvement is a record export in sales of soybeans to China and strong international demand for soybean products.

Gross Profit/Loss – For the first three quarters of 2010, we generated a gross profit of $0.7 million compared to a gross loss of $1.8 million for the same period in 2009. The $2.5 million change in gross profit (loss) is primarily attributed to an improvement in demand for soybean products internationally. Partially offsetting this increase is the adverse impact caused by higher moisture content in the soybeans delivered to our facility. Higher moisture content decreases the amount of soybean meal produced from a bushel of soybeans.

Administrative Expense – Administrative expense, including all selling, general and administrative expenses, decreased $240,000, or 6.6%, for the nine-month period ended September 30, 2010 compared to the same period in 2009. This decrease is primarily due to decreases in amortization expense of our patents and bad debt expense. In late 2009, we elected to impair the value of our patents, which were being amortized over the life of the patents. Because of the impairment, no further amortization has been completed in 2010. Partially offsetting the decrease in administrative expenses is an increase in the operating costs associated with USSC.

Interest Expense – Interest expense increased by $139,000, or 17.2%, for the nine months ended September 30, 2010, compared to the same period in 2009. This increase is due to increased debt levels resulting from an increase in inventory quantity in the first nine months of 2010. The average debt level during the first three quarters of 2010 is approximately $25.6 million, compared to an average debt level of approximately $21.5 million for the same period in 2009.

Other Non-Operating Income – Other non-operating income decreased by $57,000, or 4.7% for the nine-month period ended September 30, 2010, compared to the same period in 2009. This decrease is due to a $147,000 decrease in patronage dividends received from CoBank in the first three quarters of 2010, compared to the same period in 2009. Partially offsetting this decrease is an increase in grant funding received for the research and development of soybean oil-based polyol into different product applications.

Net Income/Loss – The $2.6 million change in net loss for the nine-month period ended September 30, 2010, compared to the same period in 2009, is primarily attributable to an increase in gross profit and a decrease in administrative 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 September 30, 2010, we had working capital, defined as current assets less current liabilities, of approximately $7.8 million, compared to working capital of $5.9 million on September 30, 2009. Working capital increased between periods primarily due to the restructuring of loans with CoBank in May and August 2010. In the restructuring which we accomplished through amendments in May and August, we increased our revolving term loan from $9.3 million to $16.8 million to fund various capital improvements. One amendment involved the waiver of two of the $1.3 million debt payments on our revolving term loan, which had been scheduled for payment in September 2010 and March 2011. For the remainder of the year, we anticipate that we will have 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 nine-month periods ended September 30, 2010 and 2009:

	2010			2009

Net cash from operating activities	$	12,727,388		$	118,222
Net cash (used for) investing activities		(3,349,257	)		(781,048	)
Net cash from (used for) financing activities		(9,445,390	)		653,644

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 $12.6 million increase in cash flows from operating activities is primarily attributed to a $1.7 million increase in accrued commodity purchases during the nine months ended September 30, 2010, compared to a decrease of $10.8 million during the same period in 2009.

Cash Flows from Investing Activities

The $2.6 million increase in cash flows used for investing activities is principally due to an increase in the purchase of property and equipment in 2010 for plant operations.

Cash Flows from (Used For) Financing Activities

The $10.1 million change in cash flows from (used for) financing activities is principally due to a decrease in borrowings during the nine months ended September 30, 2010, compared to the same period in 2009. The decrease in seasonal and long-term borrowings in 2010, compared to 2009, is largely due to a decrease in inventory quantity.

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 $16.8 million, and then pay down the principal whenever excess cash is available. Repaid amounts may be borrowed up to the available credit line. The available credit line is scheduled to be reduced by $1.3 million every six months starting September 20, 2011 until maturity on September 20, 2017. 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 $11.3 million and $10.6 million as of September 30, 2010 and 2009, respectively. Under this loan, we have an additional $5.5 million in available funds to borrow as of September 30, 2010.

The second credit line is a revolving working capital (seasonal) loan that matures on July 1, 2011. The primary purpose of this loan is to finance inventory and receivables. The maximum available under this credit line was $30 million at September 30, 2010; however, on October 14, 2010, we entered into an amendment with CoBank to increase this credit line to $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 $6.8 million and $1.4 million as of September 30, 2010 and 2009, respectively. Under this loan, we have an additional $23.2 million in available funds to borrow as of September 30, 2010.

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 the revolving term loan is 4.36% and 3.25% as of September 30, 2010 and 2009, respectively. As of September 30, 2010 and 2009, the interest rate on the working capital loan is 4.11% and 3.25%, 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. We were in compliance with all covenants and conditions with CoBank as of September 30, 2010.

We also have another note payable totaling $250,000, with an annual interest rate of 5.0%. We have not made any principal payments on this obligation during the nine-month periods ended September 30, 2010 and 2009.

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 $1.6 million and $1.5 million for the nine-month periods ended September 30, 2010 and 2009, respectively. The hopper rail cars earn mileage credit from the railroad through a sublease program, which totaled $1.1 million and $1.2 million for each of the nine months ended September 30, 2010 and 2009, respectively.

In addition to rail car leases, we have several operating leases for various equipment and storage facilities. Total lease expense under these arrangements is $154,000 and $191,000 for the nine-month periods ended September 30, 2010 and 2009, 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 under Part I, Item 1, 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 CME. 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 4.

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 principal financial officer 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 September 30, 2010 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. We are not currently involved in any material legal proceeding and are not aware of any potential claims.

Item 1A.

Risk Factors.

During the quarter ended September 30, 2010, there were no material changes to the Risk Factors disclosed in Item 1A (Part I) of our 2009 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. (Removed and Reserved).

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: November 10, 2010
	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)
10.1		Amendment to Master Loan Agreement dated October 14, 2010
10.2		Monitored Revolving Credit Supplement dated October 14, 2010
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).