SOUTH DAKOTA SOYBEAN PROCESSORS LLC - Quarter Report: 2011 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, 2011

¨	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	(I.R.S. Employer
Incorporation or Organization)	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 ¨ No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: On November 14, 2011, 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, 2011 AND 2010

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

Index to Financial Statements

	Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS	4

FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010	5
Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended
September 30, 2011 and 2010 (unaudited)	7
Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30,
2011 and 2010 (unaudited)	8
Notes to Condensed Consolidated Financial Statements	9

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, 2011 and the related condensed consolidated statements of operations for the three-month and nine-month periods ended September 30, 2011 and 2010 and the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2011 and 2010. 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, 2010, 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 30, 2011, 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, 2010, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Eide Bailly LLP

November 21, 2011

Greenwood Village, Colorado

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,
	2011			December 31,
	(Unaudited)			2010
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	132,475		$	91,600
Trade accounts receivable, less allowance for uncollectible accounts of $63,000 and $35,000 at September 30, 2011 and December 31, 2010, respectively		22,670,077			21,613,858
Inventories		21,245,601			42,616,963
Trading securities		77,599			-
Margin deposits		3,403,831			2,331,414
Prepaid expenses		245,807			514,879
Total current assets		47,775,390			67,168,714

PROPERTY AND EQUIPMENT		63,229,128			60,858,944
Less accumulated depreciation		(36,048,689	)		(34,396,272	)
Total property and equipment, net		27,180,439			26,462,672

OTHER ASSETS
Investments in cooperatives		7,870,663			7,922,574
Notes receivable - members		148,898			148,898
Patents and other intangible assets, net		833,039			844,058
Total other assets		8,852,600			8,915,530

Total assets	$	83,808,429		$	102,546,916

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,
	2011		December 31,
	(Unaudited)		2010
LIABILITIES AND MEMBERS' EQUITY

CURRENT LIABILITIES
Excess of outstanding checks over bank balance	$	8,786,994	$	1,734,940
Current maturities of long-term debt		611,200		233,421
Note payable - seasonal loan		9,790,099		24,790,669
Accounts payable		585,201		1,126,303
Accrued commodity purchases		20,173,752		27,854,623
Accrued expenses		1,778,081		1,841,052
Accrued interest		104,959		155,700
Total current liabilities		41,830,286		57,736,708

LONG-TERM LIABILITIES
Long-term debt, less current maturities		14,200,000		13,883,383
Deferred compensation		61,294		57,166
Total long-term liabilities		14,261,294		13,940,549

COMMITMENTS AND CONTINGENCIES

MEMBERS' EQUITY
Class A Units, no par value, 30,419,000 units issued and outstanding, net of subscriptions receivable of $2,259 at September 30, 2011 and December 31, 2010		27,716,849		30,869,659

Total liabilities and members' equity	$	83,808,429	$	102,546,916

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, 2011 AND 2010

	Three Months Ended September 30:						Nine Months Ended September 30:
	2011			2010			2011			2010

NET REVENUES	$	95,915,853		$	70,434,421		$	295,729,416		$	204,697,649

COST OF REVENUES
Cost of product sold		86,873,334			62,326,100			272,264,658			180,258,929
Production		3,795,406			3,537,968			11,560,248			11,167,739
Freight and rail		4,898,718			4,017,311			13,063,275			12,272,295
Brokerage fees		175,232			116,044			388,002			345,055
Total cost of revenues		95,742,690			69,997,423			297,276,183			204,044,018

GROSS PROFIT (LOSS)		173,163			436,998			(1,546,767	)		653,631

OPERATING EXPENSES
Administration		605,185			1,084,055			2,433,004			3,387,627

OPERATING LOSS		(432,022	)		(647,057	)		(3,979,771	)		(2,733,996	)

OTHER INCOME (EXPENSE)
Interest expense		(465,263	)		(326,568	)		(1,282,760	)		(942,295	)
Other non-operating income		655,496			678,059			1,817,814			1,881,587
Patronage dividend income		-			-			292,207			211,282
Total other income (expense)		190,233			351,491			827,261			1,150,574

LOSS BEFORE INCOME TAXES		(241,789	)		(295,566	)		(3,152,510	)		(1,583,422	)

INCOME TAX EXPENSE		-			-			(300	)		(100	)

NET LOSS	$	(241,789	)	$	(295,566	)	$	(3,152,810	)	$	(1,583,522	)

BASIC AND DILUTED LOSS PER CAPITAL UNIT	$	(0.01	)	$	(0.01	)	$	(0.10	)	$	(0.05	)

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, 2011 AND 2010

	2011			2010
OPERATING ACTIVITIES
Net loss	$	(3,152,810	)	$	(1,583,522	)
Charges and credits to net loss not affecting cash:
Depreciation and amortization		1,778,194			1,628,424
Loss on sales of property and equipment		11,321			17,557
Non-cash patronage dividends		(102,272	)		(73,949	)
Change in current assets and liabilities		11,180,241			12,738,878
NET CASH FROM OPERATING ACTIVITIES		9,714,674			12,727,388

INVESTING ACTIVITIES
Retirement of patronage dividends		76,585			-
Patent costs		(48,290	)		(111,630	)
Purchase of property and equipment		(2,447,974	)		(3,237,627	)
NET CASH USED FOR INVESTING ACTIVITIES		(2,419,679	)		(3,349,257	)

FINANCING ACTIVITIES
Change in excess of outstanding checks over bank balances		7,052,054			(2,674,980	)
Net proceeds (payments) from seasonal borrowings		(15,000,570	)		(7,415,410	)
Payments for debt issue costs		-			(13,200	)
Proceeds from long-term debt		2,232,000			1,958,200
Principal payments on long-term debt		(1,537,604	)		(1,300,000	)
NET CASH USED FOR FINANCING ACTIVITIES		(7,254,120	)		(9,445,390	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		40,875			(67,259	)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		91,600			69,791

CASH AND CASH EQUIVALENTS, END OF YEAR	$	132,475		$	2,532

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the period for:	2011		2010

Interest	$	1,333,501	$	931,173

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 -

PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

The financial statements as of and for the periods ended September 30, 2011 and 2010 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, 2010 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 wholly-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, 2010, included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2011.

Use of estimates

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

The Company has reviewed all 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.

Reclassifications

Certain reclassifications have been made to the prior year’s financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or members’ equity.

NOTE 2 -

ACCOUNTS RECEIVABLE

Accounts receivable are considered past due when payments are not received on a timely basis in accordance with the Company’s credit terms. Accounts considered uncollectible are written off. The Company’s estimate of the allowance for doubtful accounts is based on historical experience, its evaluation of the current status of receivables, and unusual circumstances, if any.

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table provides information regarding the Company’s allowance for doubtful accounts receivable as of September 30, 2011 and December 31, 2010:

			Charged
	Balance at		(Credited) to					Balance at
	Beginning of		Costs and					End of
Description	Period		Expenses		Deductions			Period

Allowance for doubtful accounts deducted from assets for the period ended:
December 31, 2010:	$	91,629	$	121,894	$	(178,534	)	$	34,989

September 30, 2011:	$	34,989	$	68,000	$	(39,818	)	$	63,171

NOTE 3 -

INVENTORIES

Inventories consist of the following at September 30, 2011 and December 31, 2010:

	2011		2010

Finished goods	$	18,934,234	$	12,698,000
Raw materials		2,200,830		29,809,256
Supplies & miscellaneous		110,537		109,707

Totals	$	21,245,601	$	42,616,963

Finished goods and raw materials are valued at estimated market value, which approximates net realizable value. In addition, futures and option contracts are marked to market through cost of revenues, with unrealized gains and losses recorded in the above inventory amounts. Supplies and other inventories are stated at the lower of cost, determined by the first-in, first-out method, or market.

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 -

PROPERTY AND EQUIPMENT

	2011
			Accumulated					2010
	Cost		Depreciation			Net		Net

Land	$	443,816	$	-		$	443,816	$	443,816
Land improvements		296,189		(59,025	)		237,164		251,045
Buildings and improvements		16,559,332		(5,740,343	)		10,818,989		9,139,147
Machinery and equipment		43,872,650		(29,353,617	)		14,519,033		11,379,600
Company vehicles		145,975		(124,021	)		21,954		41,087
Furniture and fixtures		1,161,038		(771,683	)		389,355		330,792
Construction in progress		750,128		-			750,128		4,877,185

Totals	$	63,229,128	$	(36,048,689	)	$	27,180,439	$	26,462,672

Depreciation of property and equipment amounts to $1,718,886 and $1,574,697 for the nine months ended September 30, 2011 and 2010, respectively.

NOTE 5 -

NOTES PAYABLE – SEASONAL LOAN

The Company has entered into a revolving credit agreement with CoBank, which expires June 1, 2012. The Company may borrow up to $40 million under this agreement to finance inventory and accounts receivable. Interest accrues at a variable rate (4.24% at September 30, 2011). 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 $9,790,099 and $24,790,669 at September 30, 2011 and December 31, 2010, respectively. The remaining available funds to borrow under the terms of the revolving credit agreement are approximately $30,210,000 as of September 30, 2011.

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 -

LONG-TERM DEBT

	2011			2010

Revolving term loan from CoBank, interest at variable rates (4.49% and 4.37% at September 30, 2011 and December 31, 2010, respectively), secured by substantially all property and equipment.
Loan matures March 20, 2018.	$	14,811,200		$	13,879,200

Note payable to Richard Kipphart, issued February 13, 2002, interest rate of 5%, monthly installments of $20,000. Note paid off in September 2011.		-			237,604
		14,811,200			14,116,804
Less current maturities		(611,200	)		(233,421	)

Totals	$	14,200,000		$	13,883,383

The Company entered into an agreement as of May 16, 2011 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 5. 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. Prior to the amendment on the Company's revolving term loan that became effective on November 10, 2011 (described below), the available commitment was scheduled to decrease 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 $14,811,200 and $13,879,200 as of September 30, 2011 and December 31, 2010, respectively. There was $688,800 of remaining commitments available to borrow on the revolving term loan as of September 30, 2011.

Under this agreement, the Company is subject to compliance with standard financial covenants and the maintenance of certain financial ratios. The Company is in violation of one of its loan covenants with CoBank as of September 30, 2011. The loan covenant requires the Company to maintain a minimum working capital of $8.0 million at fiscal year-end (December 31st) and $6.5 million at the end of each other period for which financials are to be furnished. On May 12, 2011 CoBank granted a waiver of this covenant violation through September 30, 2011 provided that working capital did not go below $4.75 million.

On November 10, 2011, the Company entered into an amendment of our loan agreements with CoBank. Under the amendments, the interest rate on both loans increased by 0.35%, and the next $1.3 million debt payment, which was originally due on March 20, 2012, was deferred until March 20, 2018. In addition, CoBank granted the Company a waiver of the working capital violation as of September 30, 2011 and October 31, 2011, as well as the anticipated non-compliance as of December 31, 2011, provided that working capital does not fall below $7.5 million at December 31, 2011. The Company has reflected this amendment within the balance sheet as of September 30, 2011 and, as a result, the working capital calculated per the agreement with CoBank was $5.95 million as of September 30, 2011.

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The minimum principal payments on long-term debt obligations are expected to be as follows:

For the twelve-month periods ending September 30:
2012	$	611,200
2013		2,600,000
2014		2,600,000
2015		2,600,000
2016		2,600,000
Thereafter		3,800,000

Total	$	14,811,200

NOTE 7 -

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

ASC 815, Derivatives and Hedging 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.

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 8, Fair Value of Financial Instruments.

As of September 30, 2011 and December 31, 2010, the value of the Company’s open futures, options and forward contracts was approximately $1,128,898 and $(803,242), respectively.

		Amounts As of September 30, 2011
	Balance Sheet	Asset		Liability
	Classification	Derivatives		Derivatives
Derivatives not designated as hedging instruments:
Commodity contracts	Current Assets	$	14,069,417	$	12,940,519

		Amounts As of December 31, 2010
	Balance Sheet	Asset		Liability
	Classification	Derivatives		Derivatives
Derivatives not designated as hedging instruments:
Commodity contracts	Current Assets	$	4,489,163	$	5,292,405

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three-month and nine-month periods ended September 30, 2011 and 2010, net realized and unrealized gains (losses) on derivative transactions were recognized in the consolidated statement of operations as follows:

	Net Gain (Loss) Recognized on						Net Gain (Loss) Recognized on
	Derivative Activities for the Three-						Derivative Activities for the Nine-
	Month Periods Ending September 30:						Month Periods Ending September 30:
	2011			2010			2011			2010
Derivatives not designated as hedging instruments:
Commodity contracts	$	(817,036	)	$	(751,337	)	$	(1,006,848	)	$	2,745,610

The Company recorded gains (losses) of $(1,006,848) and $2,745,610 in cost of goods sold related to its commodity derivative instruments for the nine-month periods ended September 30, 2011 and 2010, respectively.

NOTE 8 -

FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820, Fair Value Measurements and Disclosures 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 (“CME”).

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 consolidated balance sheets and the respective levels to which fair value measurements are classified within the fair value hierarchy as of September 30, 2011 and December 31, 2010:

	Fair Value as of September 30, 2011
	Level 1		Level 2		Level 3		Total

Financial assets:
Inventory	$	1,128,898	$	17,581,085	$	-	$	18,709,983
Trading securities	$	77,599	$	-	$	-	$	77,599
Margin deposits	$	3,403,831	$	-	$	-	$	3,403,831

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Fair Value as of December 31, 2010
	Level 1			Level 2		Level 3		Total
Financial assets:
Inventory	$	(803,242	)	$	41,093,728	$	-	$	40,290,486
Margin deposits	$	2,331,414		$	-	$	-	$	2,331,414

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; therefore, the Company has recorded them in Level 1. In certain circumstances, the net value of these commodity derivative instruments could be negative. 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; thus, the Company considers these assets to be Level 2.

The Company has patronage investments in other cooperatives and common stock in a privately held entity. There is no market for their patronage credits or the entity’s common shares, and it is impracticable to estimate fair value of the Company’s investments. These investments are carried on the balance sheet at original cost plus the amount of patronage earnings allocated to the Company, less any cash distributions received.

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.

NOTE 9 -

BUSINESS SEGMENT INFORMATION

The Company organizes its business units into two reportable segments: soybean processing and polyurethane. Separate management of each segment is required because each segment is subject to different marketing, production, and technology strategies. The soybean processing segment purchases soybeans and processes them in primarily three products: soybean meal, oil and hulls. The polyurethane segment manufactures a soy-based polyol, which is called Soyol®, and its resin system and sells them to the polyurethane industry. The segments’ accounting policies are the same as those described in the summary of significant accounting policies. Market prices are used to report intersegment sales.

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment information for the three-month and nine-month periods ended September 30, 2011 and 2010 are as follows:

	Soybean
	Processing		Polyurethane			Total
For the Three Months Ended September 30, 2011:
Sales to external customers	$	95,520,510	$	395,343		$	95,915,853
Intersegment sales		79,671		-			79,671
Depreciation and amortization		577,116		55,718			632,834
Interest expense		371,990		93,273			465,263
Segment income (loss)		124,995		(366,784	)		(241,789	)
Segment assets		80,323,119		3,485,310			83,808,429
Expenditures for segment assets		344,008		-			344,008

For the Three Months Ended September 30, 2010:
Sales to external customers	$	69,808,639	$	625,782		$	70,434,421
Intersegment sales		120,609		-			120,609
Depreciation and amortization		483,221		53,882			537,103
Interest expense		236,662		89,906			326,568
Segment income (loss)		352,995		(648,561	)		(295,566	)
Segment assets		98,156,719		4,390,197			102,546,916
Expenditures for segment assets		1,660,687		-			1,660,687

	Soybean
	Processing			Polyurethane			Total
For the Nine Months Ended September 30, 2011:
Sales to external customers	$	294,366,890		$	1,362,526		$	295,729,416
Intersegment sales		288,732			-			288,732
Depreciation and amortization		1,610,567			167,627			1,778,194
Interest expense		1,003,981			278,779			1,282,760
Segment loss		(1,980,373	)		(1,172,437	)		(3,152,810	)
Expenditures for segment assets		2,447,974			-			2,447,974

For the Nine Months Ended September 30, 2010:
Sales to external customers	$	202,958,838		$	1,738,811		$	204,697,649
Intersegment sales		352,610			-			352,610
Depreciation and amortization		1,480,689			147,735			1,628,424
Interest expense		706,958			235,337			942,295
Segment income (loss)		336,237			(1,919,759	)		(1,583,522	)
Expenditures for segment assets		3,125,318			112,309			3,237,627

Due to a history of losses within the polyurethane segment, the Company is currently planning to exit the polyurethane industry. As of the date of this filing, the Company is currently researching every available option regarding its assets and its 100% ownership interest in USSC.

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 -

SUBSEQUENT EVENT

Except for the event listed below, we evaluated all of our activity and concluded that no subsequent events have occurred that would require recognition in our financial statements or disclosed in the notes to our financial statements.

As discussed in Note 6, the Company entered into an amendment of our loan agreements with CoBank on November 10, 2011.

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, 2011, (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, 2010. 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, 2010.

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 1.3% 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 refine the crude soybean oil for customers in the food, chemical and industrial sectors. In the second quarter of 2011, we completed construction of a deodorizer to our refinery, which allows us to produce and sell food-grade soybean oil and opens a new customer base for our products. Also, under certain market conditions we may issue warehouse receipts for crude soybean oil according to the terms and conditions of a Chicago Mercantile Exchange Group (CME) soybean oil contract.

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 75% 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 addition to soybean processing, we have operated in the polyurethane industry through our wholly-owned subsidiary, Urethane Soy Systems Company (USSC). USSC has been engaged in the business of researching, marketing and developing soy-based polyol and soy-based polyurethane systems. Finished products include a spray-on insulation product called SoyTherm®, an elastomeric coating material for several different applications (such as bedliners) called BioTuff™, and several others sold to original equipment manufacturers (OEM).

In the nine months ended September 30, 2011, we recorded a consolidated net loss of nearly $3.2 million. This loss consists of a $2.0 million loss from our soy processing segment and $1.2 million loss from our polyurethane segment.

Within our soy processing segment, we feel the pull of two opposing forces in the market – a decrease in demand for soybean meal and a strong demand for soybean oil. On the meal side, high corn prices continue to adversely impact the demand for soybean meal. Canola meal and distiller grains, which are selling at a significantly discounted price than normal, are experiencing an increase in demand from feeders consequently causing a decrease in demand for soybean meal. In response, we have had to decrease production in our crush capacity in order to match the decrease in demand for meal.

Fortunately, with our refinery and deodorizer, we have been able to offset in part the impact from the meal side by taking advantage of an increasing demand for soybean oil, primarily from the biodiesel sector. With stronger margins in the industry, more biodiesel plants, which were forced to shut down the last few years, are coming back online and purchasing more soybean oil. This new demand is helping to alleviate some of the losses experienced earlier this year.

Where the markets head for the remaining portion of 2011 and 2012 is still a question mark. The Renewable Fuel Standard (RFS) is still in play, requiring a percentage of renewable fuel be blended into transportation fuels. It is uncertain, however, whether the blender’s credit will be extended after this year. If the blender’s credit is not renewed, soybean oil prices are likely to drop and decrease our margins until the market adjusts to the situation. As of today, however, the oil market looks positive with the USDA forecasting increased oil demand into next year.

In addition to the increased demand for our refined soybean oil from companies in the biodiesel sector, we are continuing to see new business from around the country as food companies seek alternative suppliers for refined oil. In addition, the demand for lecithin and distillate, co-products of our oil refining process, remain at record levels. The price of soybean hulls also has increased as livestock producers in the drought-ravaged Southwest look for additional sources of fiber for their animals.

Within our polyurethane segment, we sustained a net loss of nearly $1.2 million during the nine-month period ended September 30, 2011 because of declining sales. Due to a history of losses within this segment, we plan to exit this segment before the end of this year. We are researching every available option regarding our 100% ownership interest in USSC and its assets.

RESULTS OF OPERATIONS

Comparison of the three months ended September 30, 2011 and 2010

	Quarter Ended September 30, 2011						Quarter Ended September 30, 2010
	$			% of Revenue			$			% of Revenue

Revenue	$	95,915,853			100.0		$	70,434,421			100.0
Cost of revenues		(95,742,690	)		(99.8	)		(69,997,423	)		(99.4	)
Operating expenses		(605,185	)		(0.7	)		(1,084,055	)		(1.5	)
Other income (expense)		190,233			0.2			351,491			0.5
Income tax expense		—			0.0			—			—

Net (loss)	$	(241,789	)		(0.3	)	$	(295,566	)		(0.4	)

Revenue – Consolidated revenue increased $25.5 million, or 36.2%, for the third quarter of 2011, compared to the same period in 2010.

Revenues from our soy processing segment increased to $95.5 million in the third quarter of 2011 from $69.8 million during the same period in 2010, an increase of $25.7 million. The increase in revenues within our soy processing segment is primarily due to an increase in the average sales price of soybean meal and oil. Despite a reduction in demand for soybean meal, the average sales price of our soybean meal and oil increased approximately 12% and 61%, respectively, in the third quarter of 2011, compared to the same period in 2010. These increases are primarily attributable to a weak U.S. dollar, which caused substantial price increases in nearly all commodities including soybean meal and oil. The increase in sales prices also occurred because of an improvement in oil basis levels, largely resulting from a rebound in the biodiesel market.

The revenues from our polyurethane segment decreased to $0.4 million during the third quarter of 2011 from $0.6 million during the same period in 2010. The decrease in revenues within this segment is largely due to an intentional reduction in sales as we continued to make plans to exit this segment.

Gross Profit/Loss – For the third quarter of 2011, we generated a consolidated gross profit of $0.2 million, compared to $0.4 million for the third quarter of 2010.

In the third quarter of 2011, we generated a gross profit from our soy processing segment of $0.4 million, compared to $0.7 million in the same period in 2010. The $0.3 million decrease in gross profit is primarily attributed to lower customer demand for soybean meal. Canola meal and distiller grains, which are selling at a far discounted price than normal, are experiencing an increase in demand from feeders and consequently causing a decrease in demand for soybean meal.

We generated a gross loss from our polyurethane segment of $0.2 million during the third quarters of 2011 and 2010.

Operating Expenses – Consolidated administrative expenses, including all selling, general and administrative expenses, decreased $479,000, or 44.2%, for the third quarter of 2011, compared to the same period in 2010.

In the third quarter of 2011, operating expenses within the soy processing segment decreased to $497,000, compared to $633,000 during the same period in 2010. The $136,000 decrease is largely due to a reduction in personnel costs.

Operating expenses within the polyurethane segment decreased to $108,000 in the three-month period ended September 30, 2011, compared to $451,000 in the same period in 2010. This decrease in operating expenses is a result of our plans to exit this segment.

Interest Expense – Interest expense increased to $465,000 during the third quarter of 2011, compared to $327,000 in the same period in 2010. This increase is due to increased debt levels resulting from an increase in inventory quantity and our refinery expansion project. The average debt level during the three-month period ended September 30, 2011 is approximately $33.9 million, compared to an average debt level of $21.1 million for the same period in 2010.

Other Non-Operating Income – Consolidated other non-operating income remained relatively constant at approximately $0.7 million for both three-month periods ended September 30, 2011 and 2010.

Other non-operating income within the soy processing segment remained relatively constant at approximately $0.7 million for both three-month periods ended September 30, 2011 and 2010.

Other non-operating income within the polyurethane segment decreased approximately $0.1 million as a result of decreases in grant income related to research and development in the third quarter of 2011, compared to the same period in 2010. As a result of our plans to exit the polyurethane segment, we elected not to pursue additional research and development which reduced grant income.

Net Income/Loss – We generated a consolidated net loss of $0.2 million during the three month period ended September 30, 2011, compared to a consolidated net loss of $0.3 million during the same period in 2010.

Net income within the soy processing segment decreased to $0.1 million during the third quarter of 2011, compared to $0.4 million in the same period in 2010. The $0.3 million decrease in net income is primarily attributable to a decrease in gross profit associated with a decrease in customer demand for soybean meal which minimized our crush margins.

The net loss within the polyurethane segment decreased to $0.4 million during the quarter ended September 30, 2011, compared to $0.7 million during the same period in 2010. The $0.3 million decrease in net loss is mainly due to a decrease in operating expenses resulting from a decrease in personnel costs.

Comparison of the nine months ended September 30, 2011 and 2010

	Nine Months Ended September 30, 2011						Nine Months Ended September 30, 2010
	$			% of Revenue			$			% of Revenue

Revenue	$	295,729,416			100.0		$	204,697,649			100.0
Cost of revenues		(297,276,183	)		(100.6	)		(204,044,018	)		(99.7	)
Operating expenses		(2,433,004	)		(0.8	)		(3,387,627	)		(1.7	)
Other income (expense)		827,261			0.3			1,150,574			0.6
Income tax expense		(300	)		0.0			(100	)		(0.0	)

Net income (loss)	$	(3,152,810	)		(1.1	)	$	(1,583,522	)		(0.8	)

Revenue – Consolidated revenue increased $91.0 million, or 44.5%, for the first nine months of 2011, compared to the same period in 2010.

Revenues from our soy processing segment, after elimination of all intersegment revenues, increased to $294.4 million in the nine months ended September 30, 2011 from $203.0 million during the same period in 2010, an increase of $91.4 million. The increase in revenues within our soy processing segment is primarily due to an increase in the average sales price of soybean meal and oil and a 16% increase in the sales volume of soybean oil. Despite a reduction in customer demand for soybean meal, the average sales price of our soybean meal and oil increased approximately 17% and 58%, respectively, in the first nine months of 2011, compared to the same period in 2010. These increases are primarily attributable to a weak U.S. dollar, which caused substantial price increases in nearly all commodities including soybean meal and oil. The increase in sales prices also occurred because of an improvement in oil basis levels, largely resulting from a rebound in the biodiesel market. The increase in the sales volume of soybean oil is primarily due to stronger demand for oil from the biodiesel market.

The revenues from our polyurethane segment decreased to $1.4 million during the nine-month period ended September 30, 2011 from $1.7 million during the same period in 2010. The decrease in revenues within our polyurethane segment is largely due to a reduction in sales as we continue to execute plans to exit this segment.

Gross Profit/Loss – During the first nine months of 2011, we generated a consolidated gross loss of $1.5 million, compared to a gross profit of $0.7 million during the same period in 2010.

In the nine-month period ended September 30, 2011, we generated a gross loss from our soy processing segment of $1.0 million, compared to a gross profit of $1.1 million in the same period in 2010. The $2.1 million decline in gross profit (loss) is primarily attributed to an excess supply of oil and meal throughout the world which decreased customer demand for soybean meal and adversely pressured crush margins in 2011. In 2010, soybean crush companies in the U.S. exported approximately 28% of their meal production. But in 2011 exports decreased to more historical levels, thus placing more pressure on crushing volumes and margins.

We generated a gross loss from our polyurethane segment of $0.5 million during each of the first nine-month periods of 2011 and 2010.

Operating Expenses – Consolidated administrative expenses, including all selling, general and administrative expenses, decreased $955,000, or 28%, for the nine-month period ended September 30, 2011, compared to the same period in 2010.

Operating expenses within the soy processing segment decreased to $1.8 million during the nine-month period ended September 30, 2011, compared to $2.0 million in the same period in 2010. This decrease in operating expenses is largely due to a reduction in personnel costs.

Operating expenses within the polyurethane segment decreased to $0.6 million in the nine-month period ended September 30, 2011, compared to $1.4 million in the same period in 2010. This decrease in operating expenses is primarily a reflection of our plans to exit this segment.

Interest Expense – Consolidated interest expense increased to $1.3 million during the nine months ended September 30, 2011, compared to $0.9 million in the same period in 2010. This increase is due to increased debt levels resulting from an increase in inventory quantity and our refinery expansion project. The average debt level during the nine-month period ended September 30, 2011 is approximately $36.2 million, compared to an average debt level of $25.6 million for the same period in 2010.

Other Non-Operating Income – Consolidated other non-operating income remained relatively constant at $2.1 million during each of the nine-month periods ended September 30, 2011 and 2010.

Other non-operating income within the soy processing segment was approximately $1.8 million during the nine-month period ended September 30, 2011, compared to $1.7 million during the same period in 2010. This increase is largely due to an increase in patronage allocations received from CoBank in 2011, compared to 2010.

Other non-operating income within the polyurethane segment decreased to $22,000 in the first nine months of 2011, compared to $216,000 during the same period in 2010. The $194,000 decrease was largely a result of decreases in grant income related to research and development. As a result of our plans to exit the polyurethane segment, we elected not to pursue additional research and development which reduced our grant income.

Net Income/Loss – We generated a consolidated net loss of $3.2 million during the nine-month period ended September 30, 2011, compared to $1.6 million during the same period in 2010.

We generated a net loss of $2.0 million in our soy processing segment during the first nine months of 2011, compared to a net profit of $0.3 million in the same period in 2010. The $2.3 million decrease in net profit (loss) is primarily attributable to a decrease in gross profit associated with a decrease in customer demand for soybean meal which minimized crush margins.

We generated a net loss of $1.2 million in our polyurethane segment during the nine-month period ended September 30, 2011, compared to $1.9 million during the same period in 2010. The $0.7 million decrease in net loss within the segment is mainly a result of our plans to exit this segment.

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, 2011, we had working capital, defined as current assets less current liabilities, of approximately $6.0 million, compared to working capital of $7.8 million on September 30, 2010. Working capital decreased between periods primarily due to a net loss. Based on our current operating plans, we believe that we will be able to fund our needs for the foreseeable future from cash from operations and revolving lines of credit.

A summary of our cash flow from operating, investing and financing activities for each of the nine-month periods ended September 30, 2011 and 2010:

	2011			2010

Net cash from operating activities	$	9,714,674		$	12,727,388
Net cash (used for) investing activities		(2,419,679	)		(3,349,257	)
Net cash (used for) financing activities		(7,254,120	)		(9,445,390	)

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 $3.0 million decrease in cash flows from operating activities is primarily attributed to a $1.6 million decrease in net profit (loss) during the nine months ended September 30, 2011, compared to the same period in 2010. In addition to the decrease in net profit (loss), we had a $21.4 million decrease in inventory during the first nine months of 2011, compared to only $12.4 million during the same period of 2010. These decreases are partially offset by a decrease in accrued commodity purchases. During the nine months ended September 30, 2011, accrued commodity purchases decreased $7.7 million, compared to an increase of $1.7 million during the same period in 2010. The large fluctuations in inventory and accrued commodity purchases in 2011 were the result of the 2011 soybean crop harvest which primarily occurred in late-September compared to mid-October in 2010.

Cash Flows Used For Investing Activities

The $0.9 million decrease in cash flows used for investing activities is principally due to a decrease in the purchase of property and equipment in 2011. Property and equipment purchases were $2.4 million in the nine months ended September 30, 2011, compared to $3.2 million during the same period in 2010. In 2010, we began construction of a deodorizer to our refinery which has allowed us to produce and sell food-grade soybean oil. During the nine months ended September 30, 2011, we spent approximately $1.9 million on the deodorizer project, compared to $2.3 million during the same period in 2010.

Cash Flows Used For Financing Activities

The $2.2 million decrease in cash flows used for financing activities is principally due to a decrease in short-term borrowings as a result of a decrease in inventory during the nine-month period ended September 30, 2011.

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. Prior to the amendments of our revolving term loan agreement that became effective on November 10, 2011, the available credit line was 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 is 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 $14.8 million and $11.3 million as of September 30, 2011 and 2010, respectively. Under this loan, we have an additional $688,800 in available funds to borrow as of September 30, 2011.

The second credit line is a revolving working capital (seasonal) loan that matures on June 1, 2012. The primary purpose of this loan is to finance inventory and receivables. The maximum available under this credit line is $40 million. Borrowing base reports and financial statements are required monthly to justify the balance borrowed on this line. We pay a 0.25% annual commitment fee on any funds not borrowed; however, we have the option to reduce the credit line during any given commitment period listed in the agreement to avoid the commitment fee. The principal balance on the working capital loan is approximately $9.8 million and $6.8 million as of September 30, 2011 and 2010, respectively. Under this loan, we have an additional $30.2 million in available funds to borrow as of September 30, 2011.

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 4.49% and 4.36% as of September 30, 2011 and 2010, respectively. As of September 30, 2011 and 2010, the interest rate on the working capital loan is 4.24% and 4.11%, 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 violation of one of our loan covenants with CoBank as of September 30, 2011. The loan covenant required us to maintain a minimum working capital of $8.0 million at fiscal year-end (December 31st) and $6.5 million at the end of each other period (monthly) for which financials are to be furnished. On May 12, 2011, CoBank granted a waiver of this covenant violation through September 30, 2011 provided that working capital did not go below $4.75 million.

On November 10, 2011, we entered into an amendment of our loan agreement with CoBank. Under the amendment, the interest rates on both loans with CoBank were increased by 0.35%, and the next $1.3 million semi-annual payment, which was due on March 20, 2012, was deferred until March 20, 2018. In addition, CoBank granted us a waiver of our working capital violation as of September 30, 2011 and October 31, 2011, as well as our anticipated non-compliance as of December 31, 2011, provided that our working capital does not fall below $7.5 million as of December 31, 2011. We have reflected this amendment in our balance sheet as of September 30, 2011 and, as a result, working capital as calculated under the agreement with CoBank was approximately $5.95 million as of September 30, 2011.

We also had another note payable totaling $250,000, with an annual interest rate of 5.0%. The principal balance on this note is $0 and $250,000 as of September 30, 2011 and 2010, respectively. We made principal payments totaling $238,000 and $0 on this obligation during the nine-month periods ended September 30, 2011 and 2010, respectively.

OFF BALANCE SHEET FINANCING ARRANGEMENTS

Except as described below, we do not utilize variable interest entities or other off-balance sheet financial arrangements.

Lease Commitments

We have commitments under various operating leases for rail cars, various types of vehicles, and lab and office equipment. Our most significant lease commitments are the rail car leases we use to distribute our products. We have a number of long-term leases with GE Capital, Trinity Capital, and Flagship Rail Services for hopper rail cars and oil tank cars. Total lease expenses under these arrangements are approximately $1.6 million for each of the nine-month periods ended September 30, 2011 and 2010, respectively. The hopper rail cars earn mileage credit from the railroad through a sublease program, which totaled $1.1 million for each of the nine months ended September 30, 2011 and 2010.

In addition to rail car leases, we have several operating leases for various equipment and storage facilities. Total lease expense under these arrangements is $181,000 and $154,000 for the nine-month periods ended September 30, 2011 and 2010, 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 Mercantile Exchange (CME), 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, as well as our forward purchase and sales contracts, using quoted exchange prices for identical instruments. 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, 2011 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, 2011, there were no material changes to the Risk Factors disclosed in Item 1A (Part I) of our 2010 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).

None

Item 5.

Other Information

On November 10, 2011, we entered into amendments to our revolving working capital (seasonal) and revolving term loans with our lender, CoBank, ACB of Greenwood, Colorado. See Part I, Item 2, “Indebtedness” above, the text of which is incorporated by reference.

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 21, 2011
	By	/s/ Thomas L. Kersting
		Thomas L. Kersting
		Chief Executive Officer (Principal Executive Officer)

Dated: November 21, 2011
	By	/s/ Mark Hyde
		Mark Hyde
		Chief Financial Officer (Principal Financial and Accounting 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		Revolving Credit Supplement dated November 10, 2011
10.2		Revolving Term Loan Supplement dated November 10, 2011
31.1		Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer
32.1		Section 1350 Certification by Chief Executive Officer
32.2		Section 1350 Certification by Chief Financial Officer

(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).