SOUTH DAKOTA SOYBEAN PROCESSORS LLC - Quarter Report: 2010 March (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 March 31, 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):

o Large Accelerated

Filer

o Accelerated Filer

o 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 May 11, 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

MARCH 31, 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 March 31, 2010 (unaudited) and December 31, 2009	2
Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2010 and 2009 (unaudited)	4
Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 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 March 31, 2010 and the related condensed consolidated statements of operations and cash flows for the three-month periods ended March 31, 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.

Eide Bailly LLP

May 10, 2010

Sioux Falls, South Dakota

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,
	2010			December 31,
	(Unaudited)			2009
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	150		$	69,791
Trade accounts receivable, less allowance for uncollectible accounts of $7,000 and $92,000 at March 31, 2010 and December 31, 2009, respectively		19,958,050			19,222,873
Inventories		25,207,249			35,822,294
Margin deposits		366,895			362,609
Prepaid expenses		494,830			576,846
Total current assets		46,027,174			56,054,413

PROPERTY AND EQUIPMENT		55,520,194			55,218,551
Less accumulated depreciation		(33,021,467	)		(32,497,138	)
Total property and equipment, net		22,498,727			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		805,771			786,581
Total other assets		8,877,243			8,784,104

Total assets	$	77,403,144		$	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

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

CURRENT LIABILITIES
Excess of outstanding checks over bank balance	$	1,359,025	$	4,589,459
Current maturities of long-term debt		2,850,000		2,850,000
Note payable - seasonal loan		20,102,233		14,252,224
Accounts payable		750,076		650,573
Accrued commodity purchases		11,903,339		22,943,887
Accrued expenses		2,023,545		2,709,172
Accrued interest		151,320		130,750
Total current liabilities		39,139,538		48,126,065

LONG-TERM LIABILITIES
Long-term debt, less current maturities		6,700,000		8,000,000
Deferred compensation		51,111		69,573
Total long-term liabilities		6,751,111		8,069,573

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		31,372,004		31,223,801

Total liabilities, temporary equity and members' equity	$	77,403,144	$	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 PERIODS ENDED MARCH 31, 2010 AND 2009

	2010			2009

NET REVENUES	$	66,930,758		$	60,957,712

COST OF REVENUES
Cost of product sold		58,119,064			55,347,159
Production		3,911,379			3,970,800
Freight and rail		4,005,112			3,739,710
Brokerage fees		98,363			51,884
Total cost of revenues		66,133,918			63,109,553

GROSS PROFIT (LOSS)		796,840			(2,151,841	)

OPERATING EXPENSES
Administration		1,056,128			1,400,441
OPERATING PROFIT (LOSS)		(259,288	)		(3,552,282	)

OTHER INCOME (EXPENSE)
Interest expense		(330,881	)		(239,405	)
Other non-operating income		527,190			553,211
Patronage dividend income		211,282			358,367
Total other income (expense)		407,591			672,173

INCOME (LOSS) BEFORE INCOME TAXES		148,303			(2,880,109	)

INCOME TAX EXPENSE		100			300

NET INCOME (LOSS)	$	148,203		$	(2,880,409	)

BASIC AND DILUTED EARNINGS (LOSS) PER CAPITAL UNIT	$	0.00		$	(0.09	)

WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED EARNINGS (LOSS) PER CAPITAL UNIT		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 THREE-MONTH PERIODS ENDED MARCH 31, 2010 AND 2009

	2010			2009
OPERATING ACTIVITIES
Net income (loss)	$	148,203		$	(2,880,409	)
Charges and credits to net income (loss) not affecting cash:
Depreciation and amortization		546,566			645,155
Loss on sales of property and equipment		15,348			9,737
Non-cash patronage dividends		(73,949	)		(125,428	)
Change in current assets and liabilities		(1,666,966	)		(7,933,047	)
NET CASH (USED FOR) OPERATING ACTIVITIES		(1,030,798	)		(10,283,992	)

INVESTING ACTIVITIES
Retirement of patronage dividends		-			55,052
Patent costs		(36,081	)		(26,997	)
Proceeds from sales of property and equipment		-			12,431
Purchase of property and equipment		(322,337	)		(308,273	)
NET CASH (USED FOR) INVESTING ACTIVITIES		(358,418	)		(267,787	)

FINANCING ACTIVITIES
Change in excess of outstanding checks over bank balances		(3,230,434	)		679,401
Net (payments) proceeds from seasonal borrowings		5,850,009			7,832,213
Proceeds from long-term debt		-			2,030,983
Principal payments on long-term debt		(1,300,000	)		-
NET CASH FROM FINANCING ACTIVITIES		1,319,575			10,542,597

NET CHANGE IN CASH AND CASH EQUIVALENTS		(69,641	)		(9,182	)

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

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

	2010			2009

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	310,311		$	247,440

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 March 31, 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 consolidated 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 No. 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 consolidated financial statements.

(continued on next page)

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - INVENTORIES

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

	2010		2009

Finished goods	$	11,169,019	$	9,434,625
Raw materials and other		14,038,230		26,387,669

Totals	$	25,207,249	$	35,822,294

NOTE 3 - NOTES PAYABLE – SEASONAL LOAN

The Company has entered into a revolving credit agreement with CoBank, which expires August 1, 2010. The purpose of the credit agreement is to finance the inventory and accounts receivable of the Company. Under this agreement, the Company may borrow up to $30 million. Interest accrues at a variable rate (3.25% at March 31, 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 $20,102,233 and $14,252,224 at March 31, 2010 and December 31, 2009, respectively. The remaining available funds to borrow under the terms of the revolving credit agreement are approximately $9,898,000 as of March 31, 2010.

NOTE 4 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In March 2008, FASB issued ASC 815, Derivatives and Hedging (formerly SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities). ASC 815 requires enhanced disclosures about how these instruments and activities affect the entity’s financial position, financial performance and cash flows. The guidance 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. The guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. As ASC 815 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 March 31, 2010 and December 31, 2009, the value of the Company’s open futures, options and forward contracts was approximately $(78,021) and $(493,859), respectively.

	Balance Sheet	Asset Derivatives		Liability Derivatives
	Classification	March 31, 2010		March 31, 2010
Derivatives not designated as hedging instruments:
Commodity contracts	Current Assets	$	1,361,625	$	1,439,646

(Continued on next page)

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

During the three months ending March 31, 2010 and 2009, net realized and unrealized gains (losses) on derivative transactions were recognized in the consolidated statement of operations as follows:

	Net Gain (Loss) Recognized on
	Derivative Activities for the Three-Month
	Periods Ending March 31:
	2010		2009
Derivatives not designated as hedging instruments:
Commodity contracts	$	2,324,414	$	(1,366,008	)

The Company recorded gains (losses) of $2,324,414 and $(1,366,008) in cost of goods sold related to its commodity derivative instruments for the three months ended March 31, 2010 and 2009, respectively.

NOTE 5 - 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 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.

(Continued on next page)

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables set 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 March 31, 2010 and December 31, 2009:

	Fair Value as of March 31, 2010
	Level 1		Level 2		Level 3		Total
Financial assets:
Inventory	$	35,436	$	23,092,473	$	-	$	23,127,909

Margin deposits (deficits)	$	366,895	$	-	$	-	$	366,895

	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 (deficits)	$	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 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 period ended March 31, 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 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 Chicago Board of Trade (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 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 three months ended March 31, 2010, USSC achieved a substantial improvement in its gross margin, compared to the same period of 2009, and increased sales volume by 50% in a depressed market. Despite our efforts though, USSC continues to operate at a loss.

In terms of overall operations between periods, we generated a net profit of approximately $148,000 for the three months ended March 31, 2010, compared to a net loss of $2.9 million for the same period in 2009, an increase of $3.0 million, or $0.48 per bushel processed. Profits increased primarily due to an increase of $2.9 million in gross profits and a decrease of $0.3 million in operating expenses. A small South American soybean crop in 2009 combined with a lower U.S. dollar resulted in a strong export demand of U.S. soybean meal in the first quarter of 2010. The higher margins were partially offset by a high moisture soybean crop, which reduced the product yield we achieve per bushel.

We anticipate that our margins will be under continued pressure through the balance of the crop year (September 2010) due to lower export demand and low product yields. 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 March 31, 2010 and 2009

	Quarter Ended March 31, 2010						Quarter Ended March 31, 2009
				% of						% of
	$			Revenue			$			Revenue

Revenue	$	66,930,758			100.0		$	60,957,712			100.0
Cost of revenues		(66,133,918	)		(98.8	)		(63,109,553	)		(103.5	)
Administrative expenses		(1,056,128	)		(1.6	)		(1,400,441	)		(2.3	)
Other income (expense)		407,591			0.6			672,173			1.1
Income tax expense		(100	)		0.0			(300	)		(0.0	)

Net income (loss)	$	148,203			0.2		$	(2,880,409	)		(4.7	)

Revenue – Revenue increased $6.0 million, or 9.8%, for the first quarter of 2010, compared to the same period in 2009. The increase in revenues is primarily due to an increase in the sales volume of soybean oil along with an increase in the average sales price of soybean oil. Poor oil prices in the first quarter of 2009 caused us to reduce slightly our oil sales during that quarter in order to maximize profits. The average sales price of our soybean oil increased approximately 18% in the first quarter of 2010, compared to the same period in 2009. The principal cause for the price improvement is record export sales of soybeans to China and strong international demand for soybean products.

Gross Profit/Loss – For the first quarter of 2010, we generated a gross profit of $0.8 million, compared to $2.1 million loss for the first quarter of 2009. The $2.9 million change in gross profit (loss) is primarily attributed to an improved local basis in terms of the relationship between soybeans and soybean meal along with higher oil content in the soybeans delivered to our plant. Because the USDA projected a tight soybean carryout for the 2008-2009 crop year, our soybean suppliers were reluctant sellers in 2009, which increased the cost of purchasing soybeans relative to the CBOT price and thus lowered our crush margins in 2009 compared to 2010. In addition, soybeans harvested locally in the fall of 2008 had a higher moisture and lower oil content than an average crop, which decreased the amount of soybean meal and oil produced from a bushel of soybeans in 2009. While the higher moisture is still present in this year’s crop, the oil content has returned to near-average levels, which increases the amount of oil available for us to sell.

Administrative Expense – Administrative expense, including all selling, general and administrative expenses, decreased $344,000, or 24.6%, for the first quarter of 2010, compared to the same period in 2009. Approximately 30% of this decrease is due to a decrease in amortization expense of our patents, 28% due to a decrease in professional fees, and 25% due to a decrease in 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 at a rate of $103,000 per quarter. Because of the impairment, no further amortization is necessary in 2010, including during the first quarter 2010.

Interest Expense – Interest expense increased by $91,000, or 38.2%, for the first quarter of 2010, compared to the same period in 2009. This increase is due to increased debt levels resulting from increased inventory quantities. The average debt level during the first quarter of 2010 is approximately $32.8 million, compared to an average debt level of approximately $17.9 million during the same period in 2009.

Other Non-Operating Income – Other non-operating income decreased by approximately $173,000 for the first quarter of 2010, compared to the same period in 2009. This decrease is largely due to a decrease in patronage allocations from CoBank in 2010, compared to 2009.

Net Income/Loss – The $3.0 million improvement in net income (loss) for the first quarter of 2010, compared to the same period in 2009, is primarily attributable to increases in crush margins 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 March 31, 2010, we had working capital, defined as current assets less current liabilities, of approximately $6.9 million, compared to working capital of $7.7 million on March 31, 2009. Working capital decreased between periods primarily due to $2.6 million in payments on long-term debt. Despite this decrease, we anticipate that at least through 2010 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 three-month periods ended March 31, 2010 and 2009:

	2010			2009

Net cash (used for) operating activities	$	(1,030,798	)	$	(10,283,992	)
Net cash (used for) investing activities		(358,418	)		(267,787	)
Net cash from financing activities		1,319,575			10,542,597

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 $9.3 million decrease in cash flows used for operating activities is primarily attributed to an improvement in net income and a larger decrease in inventory during the three months ended March 31, 2010, compared to the same period in 2009.

Cash Flows from Investing Activity

Cash flows used for investing activities remained relatively constant for the first quarter of 2010, compared to the same period in 2009.

Cash Flows from Financing Activity

The $9.2 million decrease in cash flows from financing activities is principally due to a decrease in borrowings during the three months ended March 31, 2010, compared to the same period in 2009. The decrease in seasonal and long-term borrowings in the first three months of 2010, compared to the same period in 2009, is largely due to an improvement in net income along with a decrease in inventory quantities.

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 $9.3 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 until maturity on September 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 $9.3 million and $11.9 million as of March 31, 2010 and 2009, respectively. There are no remaining funds available to borrow on the revolving term loan as of March 31, 2010.

The second credit line is a revolving working capital loan that matures on August 1, 2010. The primary purpose of this loan is to finance inventory and receivables. The maximum available under this credit line is $30 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 $20.1 million and $7.8 million as of March 31, 2010 and 2009, respectively. The remaining available funds to borrow on the revolving working capital loan are $9.9 million as of March 31, 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 3.50% and 3.26% as of March 31, 2010 and 2009, respectively. As of March 31, 2010 and 2009, the interest rate on the working capital loan is 3.25% and 3.26%, 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 March 31, 2010.

We also have another long-term note payable totaling $250,000, with an annual interest rate of 15.0% as of March 31, 2010. We have not made any principal payments on this other long-term obligation during the three months ended March 31, 2010 and 2009 and the date of this filing.

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 $0.5 million for each of the three-month periods ended March 31, 2010 and 2009. The hopper rail cars earn mileage credit from the railroad through a sublease program, which totaled $0.4 million for each of the three months ended March 31, 2010 and 2009.

In addition to rail car leases, we have several operating leases for various equipment and storage facilities. Total lease expense under these arrangements is $49,000 and $69,000 for the three-month periods ended March 31, 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 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 March 31, 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 proceedings and are not aware of any potential claims.

Item 1A.

Risk Factors.

During the quarter ended March 31, 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.

Submission of Matters to a Vote of Security Holders.

None

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: May 11, 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)
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).