SOUTH DAKOTA SOYBEAN PROCESSORS LLC - Annual Report: 2013 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR

15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NO. 000-50253

South Dakota Soybean Processors, LLC

(Exact name of registrant as specified in its charter)



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

100 Caspian Avenue; PO Box 500 Volga, South Dakota		57071
(Address of Principal Executive Offices		(Zip Code)

(605) 627-9240

(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:

CLASS A CAPITAL UNITS

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



¨ Large Accelerated Filer	¨ Accelerated Filer	¨ Non-Accelerated Filer	x Smaller Reporting Company
		(do not check if a smaller reporting company)

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

¨ Yes x No

The aggregate market value of the registrant’s common stock held by non-affiliates at June 30, 2013 was approximately $29,685,500. The aggregate market value was computed by reference to the last sales price during the registrant’s most recently completed second fiscal quarter.

As of the day of this filing, there were 30,419,000 Class A capital units of the registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of Form 10-K - Portions of the Information Statement for 2014 Annual Meeting of Members.

CAUTIONARY STATEMENT REGARDING

FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K and other reports issued by South Dakota Soybean Processors, LLC (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contain “forward-looking statements” that deal with future results, expectations, plans and performance. 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. These forward-looking statements are made based on our expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this report. Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” and elsewhere in this report. As stated elsewhere in this report such factors include, among others:


•	Changes in the weather or general economic conditions impacting the availability and price of soybeans and natural gas;


•	Changes in business strategy, capital improvements or development plans;


•	Changes in the availability of credit and interest rates;


•	Damage to or loss of our facilities due to casualty, weather, mechanical failure or any extended or extraordinary maintenance or inspection that may be required;


•	Global, national and regional agricultural, economic, financial and commodities market, political, social, and health conditions;


•	Fluctuations in U.S. oil consumption and petroleum prices;


•	The availability of additional capital to support capital improvements, development and projects;


•	Changes in perception of food quality and safety; and


•	Other factors discussed under the item below entitled “Risk Factors.”

We are not under any duty to update the forward-looking statements contained in this report. We cannot 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.

PART I

Item 1. Business.

Overview

South Dakota Soybean Processors, LLC (“we,” “us,” “our” or the “Company”) owns and operates a soybean processing plant and a soybean oil refinery in Volga, South Dakota. From 2003 to 2011, we operated a bio-based polyurethane facility which we closed in 2011 because of poor financial performance. We are owned by approximately 2,200 members, most of whom reside in South Dakota and neighboring states and many of whom deliver and sell soybeans to our plant for processing.

Our core business consists of processing locally grown soybeans into soybean meal and soybean oil. Approximately 80% of a bushel of soybeans (60 pounds) is processed into soybean meal or hulls, and the remaining 20% is extracted as oil. We sell the soybean meal primarily to resellers, feed mills, and livestock producers as livestock feed. We market and sell multiple grades of soybean oil in either crude or refined format. Crude and refined soybean oil are marketed and sold to the food, biodiesel and chemical industries. Under certain market conditions, we may register and deliver warehouse receipts for crude oil according to the terms and conditions of a Chicago Board of Trade (CBOT) soybean oil futures contract.

We strive to maintain a competitive position in the marketplace by producing high quality products, operating a highly efficient operation at the lowest possible cost, and adding value to our core products to capture larger margins. We continue to search for ways to improve our efficiencies by analyzing new methods of vertical integration, adding value to our products by investing in further processing of our products, and reviewing new applications for our products in the plastics and energy fields. While it is our objective to maximize the issuance of cash distributions to our members from profits generated through operations, we recognize the need to maintain our financial strength by reinvesting for our future.

General Development of Business

We were originally organized as a South Dakota cooperative in 1993. As a South Dakota cooperative, we were entitled to single-level, pass-through tax treatment on income generated through our members’ patronage. This allowed us to pass our income onto our members in the form of distributions without first paying taxes at the company level, similar to a partnership. As we grew, however, the continuing availability of this advantageous tax treatment became less secure. As a result, in 2001 the cooperative’s board of directors approved a plan to reorganize into a South Dakota limited liability company, which became effective on July 1, 2002. The transaction was an exchange of interests whereby the assets and liabilities of the cooperative were transferred for capital units of the newly formed limited liability company, Soybean Processors, LLC. The capital units were distributed to our members upon dissolution of the cooperative at a rate of one capital unit of the limited liability company for each share of equity stock owned in the cooperative. The distribution of capital units to our members was registered under the Securities Act of 1933, as amended. For financial statement purposes, no gain or loss was recorded as a result of the exchange transaction. Upon completion of the reorganization, the name of the limited liability company was changed to South Dakota Soybean Processors, LLC.

We began producing crude soybean oil, soybean meal and soybean hulls in late 1996. Since then we have made significant capital improvements and expanded our business to include the development of vertically integrated product lines and services. In 2002, we completed the construction of a refining facility and began refining crude soybean oil. In 2003, we acquired ownership and management control of Urethane Soy Systems Company (USSC), a company that produced and sold various soybean oil-based polyurethane products. In December 2011, USSC’s operations were closed because of poor financial performance. In May 2011, we completed the construction and start up of a deodorizer at our facility, which allows us to deodorize refined oil and sell the oil directly to customers in the food industry.

Industry Information

The soybean processing industry converts soybeans into soybean meal, soybean hulls and soybean oil. A bushel of soybeans typically yields approximately 44 pounds of meal, 4 pounds of hulls, and 11 pounds of crude oil when processed. While the meal and hulls are mostly consumed by animals, food ingredients are the primary end use for the oil. Crude soybean oil is generally refined for use as salad and cooking oil, baking and frying fat, and to a more limited extent, for industrial uses. Increasingly, the sale of soybean oil for human consumption is impacted by the regulation of trans-fat. Trans-fat is created by the hydrogenation process of products such as soybean oil and plant oils. Since 2006, the U.S. Food and Drug Administration has required that food processors disclose the level of trans-fatty acids contained in their products. In addition, various local governments in the U.S. have enacted, or are considering enacting, restrictions on the use of trans-fats in restaurants. As a result, many food manufacturers have reduced the amount of hydrogenated soybean oil they include in their products or switched to other oils containing lower amounts of trans-fat.

Soybean production is concentrated in the central U.S., Brazil, Argentina and China. In the 2013 harvest season, the U.S. produced approximately 3.29 billion bushels of soybeans, which is the third largest on record and approximately 40% of estimated world production. The USDA estimates that approximately 53% of soybeans produced in the U.S. are processed domestically, 45% are exported as whole soybeans, and 2% are retained for seed and residual use. Historically, there has been an adequate supply of soybeans produced in South Dakota and upper Midwest for the soybean processing industry. In 2013, farm producers in South Dakota produced 182.0 million bushels of soybeans, ranking it eighth among the top producing states in the U.S. as set forth in the following table:



State		Production (bushels)
Illinois		461 million
Iowa		415 million
Indiana		259 million
Minnesota		259 million
Nebraska		247 million
Ohio		217 million
Missouri		194 million
South Dakota		182 million

Soybean processing facilities are generally located close to adequate sources of soybeans and a strong demand for meal to decrease transportation costs. Soybean meal is predominantly consumed by poultry and swine in the U.S. On average, exports of soybean meal account for 20% to 25% of total production.

Soybean oil refineries are also generally located close to processing plants. Oil is shipped throughout the U.S. and for export. Approximately 85% of domestic oil production is used in food applications and 15% in industrial applications.

Soybean crushing and refining margins are cyclical, characteristic of a mature, competitive industry. While the price of soybeans may fluctuate substantially from year to year, the prices of meal and oil generally track that of soybeans, although not necessarily on a one-for-one basis; therefore, margins can be variable.

The soybean industry continues diligently to introduce soy-based products as bio-based substitutes for various petroleum-based products. Such products include biodiesel, soy ink, lubricants, candles and plastics. Biodiesel, a substitute for standard, petroleum-based diesel fuel, experienced steady growth in the U.S. until 2008. But, between 2008 and 2010, the biodiesel market became stagnant due to overcapacity in the industry, price volatility in the petroleum oil market, and volatile input costs. In 2011, the biodiesel market began to grow again because of increased demand stemming from expansion of the Renewable Fuel Standard (RFS) program and resumption of the biodiesel blenders’ tax credit, which was even further expanded in 2012 and 2013.

Products & Services

Soybean Processing

We process soybeans at our crushing plant to extract the soybean oil from the protein and fiber portions of the soybean. Approximately 80% of a soybean bushel is processed and sold as soybean meal or hulls. The remaining percentage of the soybean is extracted as crude soybean oil. The crude soybean oil may be sold directly to customers, or we may process the crude into refined oil for future sale.

Polyurethane

Until December 2011, we produced a bio-based polyol called Soyol^® which was used in industrial applications for the polyurethane industry. Soyol^® was made from specially refined crude soybean oil which, upon reaction with other ingredients, formed polyurethane plastics. Soyol^® was made as a renewable replacement for petrochemical based polyols. Polyurethanes are used in a variety of products such as insulation in buildings and appliances; seating; carpet backing and padding; shoe soles; roof coatings; mattresses and pillows; rigid panels; and bumpers and interiors in cars, tractors and trucks. We sold Soyol^® to USSC which, in turn, marketed and sold to its customers Soyol^® and polyurethane resin systems incorporating Soyol^®. The resin systems included a spray-on insulation product called SoyTherm™, a spray-based coating product for various applications (such as bedliners) called BioTuff™, and several others. USSC’s operations were closed in December 2011 because of poor financial performance, and USSC was formally dissolved on December 7, 2012.

Raw Materials and Suppliers

We purchase soybeans for processing from local soybean producers and elevators, of which there has been adequate supply. In 2013, producers in South Dakota grew and harvested approximately 182 million bushels, compared to 141 million in 2012, 150 million bushels in 2011, 157 million bushels in 2010, 175 million bushels in 2009, and 138 million bushels in 2008. Of this amount, we processed 27.2 million bushels in 2013, compared to 26.2 million in 2012, 24.4

million bushels in 2011, 25.2 million bushels in 2010, 24.5 million bushels of soybeans in 2009, 26.5 million bushels in 2008 and 26.6 million bushels in 2007. We control the flow of soybeans into our facilities with a combination of pricing and contracting options. Threats to our soybean supply include weather, changes in government programs, and competition from other processors and export markets.

Utilities

We use natural gas and electricity to operate the crushing and refining plants. Natural gas is used in the boilers for processing heat and for drying soybeans. NorthWestern Corporation of Sioux Falls, South Dakota, provides for the delivery of natural gas to us on an interruptible basis. We are at risk to adverse price fluctuations in the natural gas market, but we have the capability to use fuel oil and biofuel as a backup for natural gas if delivery is interrupted or market conditions dictate. We also employ forward contracting to offset some of this risk. Our electricity is supplied by the City of Volga, South Dakota.

Employees

We currently employ approximately 94 individuals, all but nine of whom are full-time. We have no unions or other collective bargaining agreements.

Sales, Marketing and Customers

Our soybean meal is primarily sold to resellers, feed mills, and livestock producers as livestock feed. Our meal market is local (typically within 200 miles of our Volga facility), Western U.S., and Canada. Prior to the addition of our deodorizer in March 2011, we sold our oil primarily as crude soybean oil to various companies in the refining industry which typically process the oil for human consumption. Following the installation of a new deodorizer in March 2011, we began selling refined oil directly to the food industry for human consumption and to the biodiesel industry. Our Soyol^® and polyurethane resin systems incorporating Soyol^® were primarily sold to companies within the housing and auto industries prior to the closing of USSC’s operations in December 2011.

The table presented below represents the percentage of sales by quantity of product sold within various markets for 2013.



Market	Soybean Meal	Crude Soybean Oil	Refined Oil
Local	38%	15%	23%
Other U.S. States	36%	85%	74%
Export	26%	—	3%

Over half of our products are shipped by rail, the service of which is provided by the Canadian Pacific (CP) rail line, with connections to the Burlington-Northern Santa Fe (BNSF) and the Union Pacific (UP) rail lines. Beginning in early-to-mid summer, assuming federal government approval of a purchase of the rail line owned by CP by Genesee & Wyoming, Inc, our products will be shipped on the rail line owned by Genesee & Wyoming, Inc. All of our assets and operations are domiciled in the U.S., and all of the products sold are produced in the U.S.

Dependence upon a Single Customer

None.

Competition

We are in direct competition with several other soybean processing companies in the U.S., many of which have significantly greater resources than we do. The U.S. soybean processing industry is comprised primarily of 16 different companies operating 63 plants in the U.S. It is a mature, consolidated and vertically-integrated industry with four companies controlling nearly 84% of the processing industry. Those four companies are Archer Daniels Midland (ADM), Bunge, Cargill and Ag Processing (AGP). The U.S. vegetable oil (including soybean oil) refining industry is divided between oilseed processors and independent vegetable oil refiners. The oilseed processors operate approximately 83% of the vegetable oil refining capacity in the U.S., and ADM, Bunge, Cargill and AGP operate approximately 68%

of the oil refining capacity. The three largest independent vegetable oil refiners are ACH Foods (in joint venture with ADM), Smuckers (Proctor & Gamble), and ConAgra (Hunt-Wesson).

We are the only soybean processing plant currently operating in South Dakota. We believe that our processing facility represents approximately 7% of the total soybean processing capacity in the upper Midwest and about 1.3% in the U.S. We plan to maintain our competitive position in the market by producing high quality products and operating a highly efficient operation at the lowest possible cost, and adding value to our products. In May 2011 we completed construction of a soybean oil deodorizer. The deodorization unit allows us to further refine the soybean oil into a fully-refined salad oil. This gives us a greatly expanded customer base to which to market the oil, increasing our competitive position in the processing industry.

Government Regulation and Environmental Matters

Our business is subject to laws and related regulations and rules designed to protect the environment which are administered by the U.S. Environmental Protection Agency, the South Dakota Department of Environment and Natural Resources and similar government agencies. These laws, regulations and rules govern the discharge of materials to the environment, air and water; reporting storage of hazardous wastes; the transportation, handling and disposition of wastes; and the labeling of pesticides and similar substances. Our business is also subject to laws and related regulations and rules administered by other federal, state, local and foreign governmental agencies that govern the processing, storage, distribution, advertising, labeling, quality and safety of feed and grain products. Failure to comply with these laws, regulations and rules could subject us to administrative penalties, injunctive relief, civil remedies and possible recalls of products.

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to the Securities Exchange Act of 1934, as amended, are filed with the SEC. Such reports and other information filed by us with the SEC are available on the SEC website (www.sec.gov). The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Our website is at www.sdsbp.com.

Item 1A. Risk Factors.

We are affected by changes in commodity prices. Our revenues, earnings and cash flows are affected by market prices for commodities such as crude petroleum oil, natural gas, soybeans, and crude and refined vegetable oils. Commodity prices generally are affected by a wide range of factors beyond our control, including weather, disease, insect damage, drought, the availability and adequacy of supply, government regulation and policies, and general political and economic conditions. In addition, we are exposed to the risk of nonperformance by counterparties to contracts. Risk of nonperformance by counterparties includes the inability to perform because of a counterparty’s financial condition and also the risk that the counterparty will refuse to perform a contract during a period of price fluctuations where contract prices are significantly different than the current market prices.

We are subject to global and regional economic downturns and risks relating to turmoil in global financial markets. The level of demand for our products is increasingly affected by regional and global demographic and macroeconomic conditions, including population growth rates and changes in standards of living. A significant downturn in global economic growth, or recessionary conditions in major geographic regions, may lead to reduced demand for agricultural commodities which could adversely affect our business and results of operations. Additionally, weak global economic conditions and turmoil in global financial markets, including constraints on the availability of credit, have in the past adversely affected, and may in the future continue to adversely affect, the financial condition and creditworthiness of some of our customers, suppliers and other counterparties which in turn may negatively impact our financial condition and results of operations.

We could be affected by higher than anticipated operating costs, including but not limited to increased prices for soybeans. In addition to general market fluctuations and economic conditions, we could experience significant cost increases associated with the ongoing operation of our soybean processing and refining plant caused by a variety of factors, many of which are beyond our control. These cost increases could arise from an inadequate local supply

of soybeans and resulting increased price that is not accompanied by an increase in the price for soybean oil and meal. Labor costs can also increase over time, particularly if there is any shortage of labor, or shortage of persons with the skills necessary to operate our facility. Adequacy and cost of electric and natural gas utilities could also affect our operating costs. Changes in price, operation and availability of truck and rail transportation may affect our profitability with respect to the transportation of soybean meal, oil and other products to our customers.

It may become more difficult to sell our soybean oil for human consumption. The U.S. Food and Drug Administration requires food manufacturers to disclose the levels of trans-fatty acids contained in their products. In addition, various local governments in the U.S. are considering, and some have enacted, restrictions on the use of trans-fats in restaurants. Several food processors have either switched or indicated an intention to switch to edible oil products with lower levels of trans-fatty acids. Because processing soybean oil, particularly hydrogenation, creates trans-fat, it may be difficult to sell our oil to customers engaged in the food industry which could adversely affect our revenues and profits.

Hedging transactions involve risks that could harm our profitability. To reduce our 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 futures contract or an options futures contract) for soybeans, soybean meal and crude soybean oil on the Chicago Board of Trade. While hedging activities reduce our risk of loss from changing market values, such activities also limit the gain potential which otherwise could result from those market fluctuations. Our policy is to maintain hedged positions within limits, but we can be long or short at any time. In addition, at any one time, our inventory and purchase contracts for delivery to our facility may be substantial, which could limit our ability to adjust our hedged positions. If our risk management policies and procedures that guide our net position limits are inadequate, we could suffer adverse financial consequences.

Our business is not diversified. Our success depends on our ability to profitably operate our soybean processing plant and soybean oil refinery. We do not have any other lines of business or other sources of revenue if we are unable to operate or soybean processing plant and soybean oil refinery. This lack of diversification may limit our ability to adapt to changing business conditions and could cause harm to our business.

We are dependent on our management and other key personnel, and loss of their services may adversely affect our business. Our success and business strategy is dependent in large part on our ability to attract and retain key management and operating personnel. This can present particular challenges for us because we operate in a specialized industry and because our business is located in a rural area. Such individuals are in high demand and are often subject to competing employment offers in the agricultural value-added industries. Any loss of the managers or key employees or the failure of such individuals to perform their job functions in a satisfactory manner would have a material adverse effect on our business operations and prospects.

We operate in an intensely competitive industry and we may not be able to continue to compete effectively. We may not be able to continue to successfully penetrate the markets for our products. The soybean processing business is highly competitive, and other companies presently in the market, or that could enter the market, could adversely affect prices for the products we sell. We compete with other soybean processors such as Archer-Daniels Midland (ADM), Cargill, Bunge, and Ag Processing (AGP), among others, all of which are capable of producing significantly greater quantities of soybean products than we do, and may achieve higher operating efficiencies and lower costs due to their scale.

Our profitability is influenced by the protein and moisture content of the soybeans in the local growing area. The northern portion of the western soybean belt, where our plant is located, typically produces a lower protein soybean resulting in a lower protein soybean meal. Because lower protein soybean meal is sold at a lower price, we may not be able to operate as profitably as soybean processing plants in other parts of the country. If adverse weather conditions further reduce the protein content of the soybeans grown in our area, our business may be materially harmed because we will be required to sell our soybean meal at discounted prices to our customers.

In addition, the moisture content of the soybeans that are delivered to our plant also influences our profitability and the efficiency of our plant operations. Soybeans with high moisture content require more energy to dry them before they can be processed. While we may recover some of these extra energy costs by paying producers less for high moisture soybeans, these savings may not be sufficient to offset our additional operating expenses.

Because soybean processing and refining is energy intensive, our business will be materially harmed if energy prices increase substantially. Electricity prices have steadily increased the last few years, and natural gas prices

have fluctuated historically. Currently, natural gas prices are at record low levels. If the trend in electricity prices continues, any significant increase in the price of natural gas will increase our energy costs and adversely affect our profitability and operating results.

Transportation costs are a factor in the price of soybean meal and oil, and increased transportation costs could adversely affect our profitability. Soybean meal and oil may be shipped by trucks, rail cars, and barges. Added transportation costs are a significant factor in the price of our products, and we may be more vulnerable to increases in transportation costs than other producers because our location in Volga is more remote than that of most of our competitors. Today, most of our products are sold FOB Volga, South Dakota, and those that are not have the full transportation cost added to the contract. Transportation costs do not currently affect our margin directly; however, the added costs could eventually affect demand for our products.

The rail line on which our facility is located was recently sold by Canadian Pacific Railway to Genesee & Wyoming. The sale is awaiting federal governmental approval which, if approved, could be made effective in early-to-mid summer 2014. There is no assurance that Genesee & Wyoming will provide the same level of service as Canadian Pacific. Any adverse change in service from either of these companies during or after the transition could adversely affect our profitability and operating results.

Increases in the production of soybean meal or oil could result in lower prices for soybean meal or oil and have other adverse effects. Existing soybean processing and refining plants could construct additions to increase their production and new soybean processing and refining plants could be constructed as well. If there is not a corresponding increase in the demand for soybean meal and oil, or if the increased demand is not significant, the increased production of soybean meal and oil may lead to lower prices for soybean meal and oil. The increased production of soybean meal and oil could have other adverse effects as well. For example, the increased production of soybean meal and oil could result in increased demand for soybeans which could in turn lead to higher prices for soybeans, resulting in higher costs of production and lower profits if we are not able to lock in satisfactory margins on future soybean purchases and soybean meal and oil sales.

Legislative, legal or regulatory developments could adversely affect our profitability. We are subject to extensive air, water and other environmental laws and regulations at the federal and state level. In addition, some of these laws require our plant to operate under a number of environmental permits. These laws, regulations and permits can often require pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, damages, criminal sanctions, permit revocations and/or plant shutdowns.

New environmental laws and regulations, including new regulations relating to alternative energy sources and the risk of global climate change, new interpretations of existing laws and regulations, increased governmental enforcement or other developments could require us to make additional unforeseen expenditures. It is expected that some form of regulation will be forthcoming at the federal level in the U.S. with respect to emissions of GHGs, (including carbon dioxide, methane and nitrous oxides). Also, new federal or state legislation or regulatory programs that restrict emissions of GHGs in areas where we conduct business could adversely affect our operations and demand for our products. New legislation or regulator programs could require substantial expenditures for the installation and operation of equipment that we do not currently possess or substantial modifications to existing equipment.

In addition, although our production of soybean meal and oil is not directly regulated by the U.S. Food & Drug Administration, we must comply with the FDA’s content and labeling requirements, which are monitored at our customers’ facilities. Failure to comply with these requirements could result in fines, liability to our customers or other consequences that could increase our operating costs and reduce profits. In addition, changes to the FDA’s rules or regulations could be adopted that would increase our operating costs and expenses, or require capital investment.

We are subject to industry-specific risks which could adversely affect our operating results. We are subject to risks which include, but are not limited to, product quality or contamination; shifting consumer preferences; federal, state, and local food processing regulations; socially unacceptable farming practices; environmental, health and safety regulations; and customer product liability claims. The liability which could result from certain of these risks may not always be covered by, or could exceed liability insurance related to product liability and food safety matters maintained by us. The occurrence of any of the matters described above could adversely affect our revenues and operating results. Our products are used as ingredients in livestock and poultry feed. Thus, we are subject to risks associated with the outbreak of disease in livestock and poultry, including, but not limited to, mad-cow disease and avian influenza. The

outbreak of disease could adversely affect demand for our products used as ingredients in livestock and poultry feed. A decrease in demand for these products could adversely affect our revenues and operating results.

We could face increased operating costs if we were required to segregate genetically modified soybeans and the products generated from these soybeans. In the last several years, some soybean producers in our area have been planting genetically modified soybeans, commonly known as Round-up Ready beans. Neither the U.S. Department of Agriculture nor the FDA currently requires that genetically modified soybeans be segregated from other soybeans. If these agencies or our customers were to require that we process these genetically modified soybeans separately, we would face increased storage and processing costs and our profitability could be harmed.

Item 2. Properties.

We conduct our operations principally at our facility in Volga, South Dakota. We own the land, consisting of 106 acres, on which all of the infrastructure and physical properties rest. Our facilities consist of a soybean processing plant, a soybean oil refinery and deodorizer, a quality control laboratory, and administrative and operations buildings.

All of our tangible property, real and personal, serves as collateral for our debt instruments with our primary lender, CoBank, ACB, of Greenwood Village, Colorado, which is described below under “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operation—Indebtedness.”

Item 3 Legal Proceedings.

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

Item 4. Mine Safety Disclosures.

None.

Part II

Item 5. Market for Registrant's common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

As of March 1, 2014, the total number of Class A capital units outstanding is 30,419,000, all of which is owned and held by 2,181 members.

Trading Activity

Our capital units are not traded on an exchange or The NASDAQ Stock Market. Rather, our capital units are traded on a “qualified matching service” as defined by the publicly-traded partnership rules of the federal tax code. Under the qualified matching service, bids for capital units submitted by interested buyers and sellers are matched on the basis of rules and conditions set forth under the federal tax code and by us, all trades being subject to approval by our board of managers. Our qualified matching service is operated through Variable Investment Advisors, Inc., of Sioux Falls, South Dakota, a registered broker-dealer operating a registered alternative trading system with the SEC. The following table contains historical information by quarter for the past two years regarding the trading of capital units through the qualified matching service:



Quarter	Low Price (1)		High Price (1)		Average Price		# of Capital Units Traded
First Quarter 2012	$	0.45	$	0.50	$	0.47	24,500
Second Quarter 2012	$	0.40	$	0.55	$	0.53	43,000
Third Quarter 2012	$	0.55	$	0.80	$	0.63	30,000
Fourth Quarter 2012	$	0.50	$	0.75	$	0.53	109,500
First Quarter 2013	$	0.65	$	0.75	$	0.70	115,000
Second Quarter 2013	$	0.72	$	1.00	$	0.84	50,000
Third Quarter 2013	$	0.71	$	0.73	$	0.72	17,500
Fourth Quarter 2013	$	0.74	$	0.90	$	0.82	26,500


(1)	The qualified matching service prohibits firm bids; therefore, the prices reflect actual sale prices of the capital units.

Trading and Transfer Restrictions

As a limited liability company, we must strictly restrict transfers of our capital units in order to preserve our preferential single-level tax status at the member level. To preserve this, our operating agreement prohibits transfers other than through the procedures specified under our capital units transfer system, which may be amended from time to time by our board of managers. Under this system, our capital units cannot be traded on any national securities exchange or in any over-the-counter market. Also, we do not permit the number of capital units traded through the qualified matching service on an annual basis to exceed 10% of our total issued and outstanding capital units. All transactions also must be approved by the board, which are generally approved if they fall within “safe harbors” contained in the rules of the federal tax code. Permitted transfers include transfers by gift or death, sales to qualified family members, and trades through the qualified matching service subject to the 10% restriction. Pursuant to our operating agreement, a minimum of 2,500 capital units is required to be owned by an individual for membership, and no member may own more than 1.5% of our total outstanding capital units.

Distributions

In 2013 we paid a cash distribution to our members of $5.1 million (approximately 16.7¢ per capital unit). We made no cash distributions to our members in 2012. On February 4, 2014, our board of managers approved a cash distribution of $11.0 million (approximately 36.2¢ per capital unit). The distribution was issued to our members on or about February 7, 2014 in accordance with our operating agreement and distribution policy. Our distributions are declared at the discretion of our board of managers and are issued in accordance with the terms of our operating agreement. In addition, distributions are subject to restrictions imposed under our loan agreement with our lender. There is no assurance as to if, when, or how much we will make in distributions in the future. Actual distributions depend upon our profitability, expenses and other factors discussed in this report.

Item 6. Selected Financial Data.

The following table sets forth selected financial data of South Dakota Soybean Processors, LLC for the periods indicated. The financial statements included in Item 8 of this report were audited by Eide Bailly LLP.



	2013			2012			2011			2010			2009
Bushels processed	27,159,521			26,228,731			24,370,299			25,227,040			24,482,087
Statement of Operations Data:
Revenues	$	468,833,992		$	411,985,913		$	397,228,087		$	285,189,823		$	263,500,053
Costs & expenses:
Cost of goods sold	(446,180,873		)	(395,072,744		)	(396,703,189		)	(282,135,754		)	(261,676,261		)
Operating expenses	(2,884,760		)	(2,415,460		)	(2,307,650		)	(2,620,355		)	(3,199,306		)
Operating profit (loss)	19,768,359			14,497,709			(1,782,752		)	433,714			(1,375,514		)
Non-operating income	3,079,755			2,171,884			2,735,725			2,624,280			2,775,455
Interest expense	(1,665,339		)	(1,928,660		)	(1,308,195		)	(1,218,948		)	(904,314		)
Income tax expense	(1,000		)	(1,000		)	(300		)	(100		)	(300		)
Income (loss) from continuing operations	21,181,775			14,739,933			(355,522		)	1,838,946			495,327
Gain (loss) on discontinued operations	9,272			(236,800		)	(3,592,800		)	(2,333,579		)	(7,238,843		)
Net income (loss)	$	21,191,047		$	14,503,133		$	(3,948,322	)	$	(494,633	)	$	(6,743,516	)
Weighted average capital units outstanding	30,419,000			30,419,000			30,419,000			30,419,000			30,419,000
Net income (loss) per capital unit	$	0.697		$	0.477		$	(0.130	)	$	(0.016	)	$	(0.222	)
Balance Sheet Data:
Working capital	$	14,578,205		$	13,253,429		$	6,742,521		$	11,281,789		$	7,928,348
Net property, plant & equipment	29,838,791			26,468,051			26,398,309			25,441,511			22,721,413
Total assets	135,156,519			141,045,236			90,107,428			102,363,554			87,559,930
Long-term obligations	4,091,791			11,726,213			14,247,972			13,936,366			8,069,573
Members’ equity	46,541,671			36,348,365			26,921,337			30,869,659			31,364,292
Other Data:
Capital expenditures	$	5,435,284		$	1,854,226		$	3,139,905		$	5,583,208		1,609,119
Impairment charges	$	—		$	—		$	637,318		$	—		$	4,507,289

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion along with our financial statements and the notes to our financial statements included elsewhere in this report. The following discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance and achievements may differ materially from those expressed in, or implied by, such forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Information” at the beginning of this report.

Overview and Executive Summary

We recorded a consolidated net income of $21.2 million for the year ended December 31, 2013 – our best financial year ever. While we improved efficiencies within our operations, our record profits are primarily attributed to favorable soybean quality and increased demand for our products. The soybeans harvested in 2012 and 2013, which we processed in 2013, were high in oil and protein content and low in moisture, consequently improving our yields and margins on soybeans processed. In addition, demand for our soybean products increased during 2013, largely due to domestic and international soybean shortages caused by a drought and other inclement weather in 2012. Further, we had an adequate supply of soybeans for processing from our area, despite adverse weather conditions. Internationally, the U.S. experienced record soybean meal exports of which we were a beneficiary. During the first nine months of 2013, we experienced increased demand for soybean oil from both the food and biodiesel industries.

During 2013, we completed construction on several projects designed to improve efficiencies for operation. We improved our storage capacity for soybeans by building two new soybean bins with a storage capacity of approximately 700,000 bushels. We expanded our rail yard and added a road to aid in transporting our products.

While we are very pleased with our record results in 2013, we have several challenges ahead of us. First, the local soybean crop harvested in the fall of 2013 was high in moisture. Soybeans with high moisture are difficult to store and are more susceptible to spoilage. To protect against loss of future potential income, we will need to carefully manage our soybean inventory and properly inspect all purchased beans. Secondly, the latest USDA report forecasts a decrease in meal exports for 2014 due to increased competition from South American processors. If the forecast is accurate, our income could decrease if we are unable to offset the decrease in meal exports with increased demand for meal domestically from the livestock industry. In addition, we continue to experience shortages of qualified personnel to operate our facility. In August 2013, the South Dakota Department of Labor reported an unemployment rate of just 3.2% within Brookings County, the location of our facility. With a new large employer relocating to Brookings County in early 2014, we expect to experience additional turnover which could force us to increase our efforts to hire new employees and increase labor costs.

Results of Operations

Comparison of Years Ended December 31, 2013 and 2012



	Year Ended December 31, 2013					Year Ended December 31, 2012
	$			% of Revenue		$			% of Revenue
Revenue	$	468,833,992		100.0		$	411,985,913		100.0
Cost of revenues	(446,180,873		)	(95.2	)	(395,072,744		)	(95.9	)
Operating expenses	(2,884,760		)	(0.6	)	(2,415,460		)	(0.6	)
Other income (expense)	1,414,416			0.3		243,224			0.1
Income tax expense	(1,000		)	—		(1,000		)	—
Income (loss) from continuing operations	21,181,775			4.5		14,739,933			3.6
Gain (loss) from discontinued operations	9,272			—		(236,800		)	(0.1	)
Net income (loss)	$	21,191,047		4.5		$	14,503,133		3.5

Revenue – Revenue increased $56.8 million, or 13.8%, for the year ended December 31, 2013, compared to the same period in 2012. The increase in revenues is primarily due to increases in sales volumes of soybean meal and oil, as well as an increase in the average sales price of soybean meal. During the year ended December 31, 2013, we processed approximately 3.5% in additional soybeans than in 2012, which increased the amount of soybean products available for sale. The average sales price of our soybean meal increased approximately 11.8% in the year ended December 31, 2013, compared to 2012. The increase in sale price of meal is primarily due to a poor soybean crop in 2012 caused by drought, which led to substantial price increases of commodities including soybean meal in 2013.

Gross Profit/Loss – Gross profit increased $5.7 million, or 33.9%, during the year ended December 31, 2013, compared to the same period in 2012. The increase is primarily attributed to improved soybean quality within our region and increased demand for soybean meal. While many U.S. soybean processors had been dealing with substandard soybean quality for most of 2013 due to drought, the locally-grown beans we received through September were low in moisture, high in oil and protein content, and produced higher than historical yields. In addition, demand for soybean meal increased for the year ended December 31, 2013 because of record meal exports and increased demand from the domestic market. Demand for meal increased domestically because of a decrease in supply of distillers grains, a competing feed substitute for soybean meal. Partially offsetting this increase in gross profit is a $2.1 million increase in production costs for the year ended December 31, 2013, compared to 2012. Production costs increased due to increases in personnel costs, energy usage and prices, and maintenance costs.

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased $469,000, or 19.4%, for the year ended December 31, 2013, compared to 2012. The increase is largely due to an increase in personnel costs and donations to a local university for the construction of a new swine unit enhancement project.

Interest Expense – Interest expense decreased by $263,000, or 13.7%, for the year ended December 31, 2013, compared to 2012. The decrease in interest expense is due to a decrease in interest rates on our senior debt with CoBank. As of December 31, 2013, the interest rate on our seasonal line of credit was 2.93%, compared to 3.27% as of December 31, 2012.

Other Non-Operating Income – Other non-operating income, including patronage dividend income, increased $908,000, or 41.8%, for the year ended December 31, 2013, compared to 2012. The increase is primarily due to an increase in patronage allocations received from our associated cooperatives, including CoBank and Minnesota Soybean Processors. In 2013, we received $1,169,000 in patronage allocations from these cooperatives, compared to $577,000 in 2012.

Income (Loss) from Discontinued Operations – In 2013, we generated a gain of $9,000 from discontinued operations, compared to a loss of $237,000 in 2012. The improvement is the result of our decision to discontinue and dissolve USSC, our wholly owned subsidiary and polyurethane segment, in December 2012, and place for sale its assets and business.

Net Income/Loss – We generated a consolidated net income of $21.2 million during the year ended December 31, 2013, compared to $14.5 million during the same period in 2012. The $6.7 million improvement in net income is primarily attributable to an increase in gross profit associated with improved soybean quality within our region and increased demand for soybean meal.

Comparison of Years Ended December 31, 2012 and 2011



	Year Ended December 31, 2012					Year Ended December 31, 2011
	$			% of Revenue		$			% of Revenue
Revenue	$	411,985,913		100.0		$	397,228,087		100.0
Cost of revenues	(395,072,744		)	(95.9	)	(396,703,189		)	(99.9	)
Operating expenses	(2,415,460		)	(0.6	)	(2,307,650		)	(0.6	)
Other income (expense)	243,224			0.1		1,427,530			0.4
Income tax expense	(1,000		)	—		(300		)	—
Income (loss) from continuing operations	14,739,933			3.6		(355,522		)	(0.1	)
Loss from discontinued operations	(236,800		)	(0.1	)	(3,592,800		)	(0.9	)
Net loss	$	14,503,133		3.5		$	(3,948,322	)	(1.0	)

Revenue – Revenue increased $14.8 million, or 3.7%, for the year ended December 31, 2012, compared to the same period in 2011. The increase in revenues is primarily due to an increase in the average sales price of soybean meal along with an increase in sales volume of soybean meal. During the year ended December 31, 2012, we processed approximately 7.6% in additional soybeans than during the same period of 2011, which increased the amount of soybean products available for sale. The average sales price of our soybean meal increased approximately 20.3% in the year ended December 31, 2012, compared to the same period in 2011. The increase in sale price is primarily due to a poor South American crop and the anticipation of a poor 2012 domestic crop due to drought, which caused substantial price increases in many commodities including soybean meal and hulls. The increase in revenues is partially offset by a decrease in sales volume of soybean oil due to weaker demand for such oil from the biodiesel market. During the year ended December 31, 2011, we purchased, refined, and resold approximately 48 million pounds of soybean oil as a result of the strong demand from biodiesel producers, compared to only 14.5 million pounds during the same period in 2012.

Gross Profit/Loss – We generated a gross profit of $16.9 million during the year ended December 31, 2012, compared to $0.5 million for the same period in 2011. The $16.4 million improvement is primarily attributed to improved soybean quality within our region and improved value of soybean oil following the addition of a deodorizer to our facility in the second quarter of 2011. While many soybean processors in the U.S. were dealing with poor soybean quality due to a hard freeze early last fall, the locally-grown beans we received were low in moisture, high in oil and protein content, and produced higher than historical yields. In addition, demand for soybean meal increased for the year ended

December 31, 2012 because a competing product, distillers grains, experienced a decrease in supply following an ethanol production slowdown.

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased $108,000, or 4.7%, for the year ended December 31, 2012, compared to 2011. The increase is largely due to an increase in personnel costs.

Interest Expense – Interest expense increased by $620,000, or 47.4%, for the year ended December 31, 2012, compared to 2011. Prior to our decision to discontinue our polyurethane segment in 2011, we allocated $0.4 million of interest expense to the polyurethane segment. Following discontinuation of this segment, though,we did not allocate any interest expense to that segment per Generally Accepted Accounting Principles. In addition, the increase in interest expense is due to increased interest rates on our senior debt with CoBank.

Other Non-Operating Income – Other non-operating income decreased $564,000, or 20.6%, for the year ended December 31, 2012, compared to 2011. The decrease is primarily due to a decrease in oil storage income arising from our issuance of warehouse receipts on a CME soybean oil contract. We stored less oil on a CME oil contract in 2012 than in 2011 because the biodiesel market increased its demand for soybean oil during the second half of 2011. As a result, entities for which a CME contract was in effect took delivery on approximately half of the oil we had stored for the CME, in effect decreasing our oil storage income in 2012. The decrease in other non-operating income is partially offset by an increase in patronage allocations received from our associated cooperatives, including CoBank and Minnesota Soybean Processors.

Income (Loss) from Discontinued Operations – In 2011, we decided to discontinue operations of our polyurethane segment, including our wholly-owned subsidiary USSC, and placed for sale the segment’s assets and business. This decision was made primarily because of a history of significant operating losses. In 2012, we generated a loss of $237,000, compared to a loss of $3,593,000 in 2011. On December 7, 2012, we dissolved USSC.

Net Income/Loss – We generated a consolidated net income of $14.5 million during the year ended December 31, 2012, compared to a consolidated net loss of $3.9 million during the same period in 2011. The $18.4 million improvement in net income is primarily attributable to an increase in gross profit associated with improved soybean quality within our region and an increase in demand for soybean meal.

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 December 31, 2013, we had working capital, defined as current assets less current liabilities, of approximately $14.6 million, compared to working capital of $13.3 million on December 31, 2012. Working capital increased between periods primarily due to an increase in net income and the receipt of $2.7 million for the retirement of patronage allocations from associated cooperatives. 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.

Comparison of the Years Ended December 31, 2013 and 2012



	2013			2012
Net cash from (used for) operating activities	$	22,136,230		$	(9,887,692	)
Net cash used for investing activities	(2,695,485		)	(1,745,104		)
Net cash from (used for) financing activities	(19,733,569		)	11,925,520

Cash Flows From (Used For) Operating Activities

The $32.0 million change in cash flows used for operating activities is primarily attributed to an increase in net income and a decrease in inventory in 2013, compared to 2012. During the year ended December 31, 2013, we reported net income of $21.2 million, compared to $14.5 million in 2012. In addition, our inventory decreased by $7.7 million in 2013, compared to an increase of $42.8 million during the same period in 2012. Partially offsetting the increase in net income and change in inventories is a $7.7 million decrease in accrued commodity purchases during 2013, compared to a $21.4 million increase in 2012. The changes in inventories and accrued commodity purchases resulted from our

decision in the fall of 2012 to accumulate beans when believed that beans would become scarce due to a drought in the U.S.

Cash Flows from Investing Activity

Cash flows used for investing activities increased $950,000 during the year ended December 31, 2013, compared to the same period in 2012. The increase is the result of $3.6 million in addition spending on capital improvements in 2013, compared to 2012 for purposes of improving the quality and efficiency of operations. Offsetting this increase in spending is our receipt of a $2.7 million distribution from CHS in February 2013 for the retirement of previous patronage allocations, which we did not receive in 2012.

Cash Flows from Financing Activity

The $31.7 million change in cash flows from (used for) financing activities is principally due to a decrease in borrowings during the year ended December 31, 2013, compared to the same period in 2012, as a result of improved profitability and a decrease in inventories.

Comparison of the Years Ended December 31, 2012 and 2011



	2012			2011
Net cash from (used for) operating activities	$	(9,887,692	)	$	24,431,048
Net cash used for investing activities	(1,745,104		)	(2,980,418		)
Net cash from (used for) financing activities	11,925,520			(21,450,630		)

Cash Flows From (Used For) Operating Activities

The $34.3 million change in cash flows used for operating activities is primarily attributed to increases in inventory, commodity prices, and accounts receivable in 2012, compared to 2011. During the year ended December 31, 2012, our inventory increased by $42.8 million, compared to a $16.4 million decrease during the same period in 2011, largely due to a steep increase in soybean inventory quantity and higher commodity prices. Soybean inventories increased dramatically in 2012 because we decided to accumulate beans as they may become scarcer as a result of the 2012 drought in the U.S. This drought, along with effect of an anticipated poor South American crop in early 2012, increased commodity prices in 2012.

In addition to the increases in inventory quantities and commodity prices, accounts receivable increased by $12.0 million during the year ended December 31, 2012, compared to $3.6 million increase during the same period in 2011. Accounts receivable increased largely due to the elevated commodity prices.

Cash Flows from Investing Activity

The $1.2 million decrease in cash flows used for investing activities is principally due to a decrease in the purchase of property and equipment in 2012, compared to 2011. We purchased $1.9 million in property and equipment in 2012, compared to $3.1 million in 2011. In 2011, we increased purchases of property and equipment because we were in the process of completing the construction of the deodorizer to our refinery, which we completed in the second quarter of 2011.

Cash Flows from Financing Activity

The $33.4 million change in cash flows from (used for) financing activities is principally due to an increase in short-term borrowings as a result of the increase in inventory and accounts receivable in 2012, as discussed above, compared to the same period in 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 $11.6 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 reduced by $1.3 million every six

months until the credit line’s maturity on March 20, 2018. 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 $3.1 million and $14.2 million as of December 31, 2013 and 2012, respectively. There was approximately $8.5 million of remaining commitments available to borrow under this loan as of December 31, 2013.

The second credit line is a revolving working capital (seasonal) loan that matures on August 1, 2014. The primary purpose of this loan is to finance inventory and receivables. The maximum available to borrow under this credit line is $50 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 outstanding on the working capital loan is $0 and $16.9 million as of December 31, 2013 and 2012, respectively. Under this loan, there was an additional $50.0 million in available funds to borrow as of December 31, 2013.

Both loans with CoBank 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 3.18% and 4.21% as of December 31, 2013 and 2012, respectively. As of December 31, 2013 and 2012, the interest rate on the seasonal loan is 2.93% and 3.96%, respectively. We were in compliance with all covenants and conditions under the loans as of December 31, 2013 and the date of this filing.

Effective March 1, 2013, the State of South Dakota Department of Transportation agreed to loan the Brookings County Regional Railway Authority a sum of $964,070 for purposes of making improvements to the railway infrastructure near our soybean processing plant in Volga, South Dakota. In consideration of this secured loan, we agreed to provide a guarantee to the State of South Dakota Department of Transportation for the full amount of the loan, plus 2% interest. This guarantee, however, turned into a direct debt obligation of ours on October 16, 2013, when we received the $964,070 in loan proceeds and assumed responsibility for the loan's annual principal and interest payments of $75,500 beginning June 1, 2014. The note payable matures on June 1, 2020.

Capital Expenditures

We invested approximately $5.4 million in capital expenditures for property and equipment during the year ended December 31, 2013, compared to approximately $1.9 million in capital expenditures during the year ended December 31, 2012. In 2013, we constructed two additional soybean bins, expanded our rail yard, built another road within our facility, and made several other miscellaneous improvements to enhance the quality and efficiency of our soybean crushing facility and oil refinery. Depending on our profitability in 2014, we anticipate spending between $2.0 million and $5.0 million on capital improvements. Our principal sources of funds are anticipated to be cash flows from operating activities.

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 several long-term leases for hopper rail cars and oil tank cars with GE Capital, Trinity Capital, Flagship Rail Services and GATX Corporation. Total lease expense under these arrangements is approximately $2.2 million for each of the years ended December 31, 2013 and 2012. Prior to August 1, 2013, the hopper rail cars earned mileage credit from the railroad through a sublease program, which totaled $0.8 million and $1.5 million during the years ended December 31, 2013 and 2012, respectively.

In addition to rail car leases, we have several operating leases for various equipment and storage facilities. Total lease expense under these arrangements is $144,000 and $184,000 for the years ended December 31, 2013 and 2012, 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.

Other Long-Term Commitments

We have a commitment under a Grain Storage and Transportation Agreement with H&I Grain of Hetland, Inc. (H&I). This agreement is for the handling, storage and transportation of soybeans to and from H&I’s facilities located in DeSmet, Hetland, and Arlington, South Dakota, at established rates per bushel. The agreement provides for an annual minimum payment of $200,000 and expires on August 31, 2014. Expenses under this agreement were $1.5 million and $1.2 million for the years ended December 31, 2013 and 2012, respectively.

Contractual Obligations

The following table shows our contractual obligations for the periods presented:



	Payment due by period
CONTRACTUAL OBLIGATIONS	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-Term Debt Obligations (1)	$	4,540,000	$	138,000	$	276,000	$	3,424,000	$	702,000

Operating Lease Obligations	10,751,000		2,431,000		4,031,000		2,573,000		1,716,000

Other Long-Term Liabilities (2)	255,000		212,000		12,000		—		31,000

Total	$	15,546,000	$	2,781,000	$	4,319,000	$	5,997,000	$	2,449,000


(1)	Represents principal and interest payments on our notes payable, which are included on our Consolidated Balance Sheet.


(2)	Represents obligations under our deferred compensation program, which is included on our Consolidated Balance Sheet, and under our Grain Storage and Transportation Agreement with H&I.

Recent Accounting Pronouncements

See page F-13, Note 1 of our audited financial statements for a discussion on the impact, if any, of the recently pronounced accounting standards.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Preparation of our financial statements requires estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. We continually evaluate these estimates based on historical experience and other assumptions that 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 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 average closing price on the Chicago Board of Trade, net of the local basis, for the last two business days of the period and the first business day 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 is recognized.

The impairment loss is 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 7A. Quantitative and Qualitative Disclosure about Market Risk.

Commodities Risk & Risk Management. To reduce the price change risks associated with holding fixed price commodity positions, we generally take opposite and offsetting positions by entering into commodity futures contracts (either a straight or options futures contract) on a regulated commodity futures exchange, the Chicago Board of Trade. While hedging activities reduce the risk of loss from 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. Management does not anticipate that its hedging activity will have a significant impact on future operating results or liquidity. Hedging arrangements do not protect against nonperformance of a cash contract.

At any one time, our inventory and purchase contracts for delivery to 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 minimal 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 8. Financial Statements and Supplementary Data.

Reference is made to the “Index to Financial Statements” of South Dakota Soybean Processors, LLC located on the page immediately preceding page F-1 of this report, and financial statements and schedules for the years ended December 31, 2013, 2012 and 2011.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Control and Procedures.

Evaluation of Disclosure Controls and Procedures . Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, our management has concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit 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. Additionally, based on management’s evaluation, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is accumulated and communicated to our management to allow timely decisions regarding required disclosures.

Management’s report on internal control over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As a result of the audit of our financial statements, we determined that we did not accrue as a liability the amount of the distribution to our members that had been declared by the Company's Board of Managers. Our Operating Agreement states that we are required to distribute to our members, who held capital units at any point during the fiscal year, at least thirty percent of the net income unless the net income is less than $500,000 or the distribution would cause the Company to violate its loan covenants. On February 7, 2013, our Board of Managers declared a cash distribution of $5,076,105 to our members who held capital units during 2012. As a result of our evaluation of this error, we concluded

that this error was material to the consolidated balance sheet and statement of changes in members' equity for the year ended December 31, 2012. Consequently, our consolidated financial statements for that period were restated to reflect the correction of this error and additional internal controls have been implemented to prevent such error from occurring in the future. As of December 31, 2013, our management assessed our internal control over financial reporting in relation to criteria described in Internal Control- Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment using those criteria, we concluded that, as of December 31, 2013, our internal control over financial reporting is not effective. Our management reviewed the results of their assessment with the Audit Committee.

This Annual Report does not include a report of our registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to an audit report by our registered public accounting firm pursuant to the rules of the Commission that permit us to provide only management’s report in this report.

Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



	/s/ Thomas Kersting
	Thomas Kersting, Chief Executive Officer
	(Principal Executive Officer)



	/s/ Mark Hyde
	Mark Hyde, Chief Financial Officer
	(Principal Financial Officer)

Item 9B. Other Information.

None.

PART III

Pursuant to General Instructions G(3), we omit Part III, Items 10, 11, 12, 13, and 14, and incorporate such items by reference to an amendment to this Annual Report on Form 10-K or to an Information Statement to be filed with the Commission within 120 days after the close of the fiscal year covered by this Report (December 31, 2013).

Part IV

Item 15. Exhibits, Financial Statement Schedules.

The following exhibits and financial statements are filed as part of, or are incorporated by reference into, this report:

(a)(1) Financial Statements — Reference is made to the “Index to Financial Statements” of South Dakota Soybean Processors, LLC located on the page immediately preceding page F-1 of this report for a list of the financial statements for the year ended December 31, 2013. The financial statements appear on page F-2 of this Report.

(2) All supplemental schedules are omitted because of the absence of conditions under which they are required or because the information is shown in the Consolidated Financial Statements or notes thereto.

(3) Exhibits - See Exhibit Index following the Signature Page to this report. The following exhibits constitute management agreements, compensatory plans, or arrangements: Exhibits 10.4, and 10.5.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:



	SOUTH DAKOTA SOYBEAN
	PROCESSORS, LLC
Date: March 21, 2014
	/s/ Thomas Kersting
	Thomas Kersting, Chief Executive Officer
	(Principal Executive Officer)

Date: March 21, 2014	/s/ Mark Hyde
	Mark Hyde, Chief Financial Officer
	(Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Date: March 21, 2014	/s/ Thomas Kersting
	Thomas Kersting, Chief Executive Officer
	(Principal Executive Officer)

Date: March 21, 2014	/s/ Mark Hyde
	Mark Hyde
	Chief Financial Officer (Principal Financial Officer)

Date: March 21, 2014	/s/ Paul Barthel
	Paul Barthel, Manager

Date: March 21, 2014	/s/ David Driessen
	David Driessen, Manager

Date: March 21, 2014	/s/ Paul Dummer
	Paul Dummer, Manager

Date: March 21, 2014	/s/ Ronald Gorder
	Ronald Gorder, Manager

Date: March 21, 2014	/s/ Kent Howell
	Kent Howell, Manager

Date: March 21, 2014	/s/ Jerome Jerzak
	Jerome Jerzak, Manager

Date: March 21, 2014	/s/ Gary Kruggel
	Gary Kruggel, Manager



Date: March 21, 2014	/s/ Robert Nelsen
	Robert Nelsen, Manager

Date: March 21, 2014	/s/ Robert Nelson
	Robert Nelson, Manager

Date: March 21, 2014	/s/ Doyle Renaas
	Doyle Renaas, Manager

Date: March 21, 2014	/s/ Randy Tauer
	Randy Tauer, Manager

Date: March 21, 2014	/s/ Delbert Tschakert
	Delbert Tschakert, Manager

Date: March 21, 2014	/s/ Lyle Trautman
	Lyle Trautman, Manager

Date: March 21, 2014	/s/ Ardon Wek
	Ardon Wek, Manager

Date: March 21, 2014
	Gary Wertish, Manager

EXHIBIT INDEX**



Exhibit Number	Description	Filed Herewith	Incorporated Herein by Reference to

3.1(i)	Articles of Organization.		Appendix A to the Registrant’s Prospectus filed with the Commission pursuant to Rule 424(b)(3) on May 24, 2002 (File No. 333-75804).

3.1(ii)	Operating Agreement, as amended and restated.		Exhibit 3.1(ii) to the Registrant’s Form 8-K filed on June 21, 2012.

3.1(iii)	Articles of Amendment to Articles of Organization.		Exhibit 3.1(iii) to the Registrant’s Form 10-QSB filed with the Commission on August 14, 2002.

4.1	Form of Class A Unit Certificate.		Exhibit 4.1 to the Registrant’s Form S-4 filed with the Commission on December 21, 2001. (File No. 333-75804)

10.1	Form of Mortgage and Security Agreement with CoBank dated October 2, 1995.		Exhibit 10.1 to the Registrant’s Form S-4 filed with the Commission on December 21, 2001. (File No. 333-75804)

10.2	Track Lease Agreement with DM&E Railroad dated October 15, 1996.		Exhibit 10.10 to the Registrant’s Form S-4 filed with the Commission on December 21, 2001. (File No. 333-75804)

10.3	Railroad Car Lease Agreement with Trinity Industries dated February 12, 2002.		Exhibit 10.15 to the Registrant’s Form S-4 filed with the Commission on March 14, 2002. (File No. 333-75804)

10.4	Thomas Kersting Employment Agreement dated June 19, 2012.		Exhibit 10.1 to the Registrant’s Form 8-K filed with the Commission on June 21, 2012.

10.5	Deferred Compensation Plan for the benefit of Thomas Kersting dated February 13, 2001.		Exhibit 10.20 to the Registrant’s Form 10-K filed with the Commission on March 27, 2003.

10.6	Railcar Leasing Agreements with General Electric Railcar Services Corporation, dated November 10, 2003 and November 25, 2003.		Exhibit 10.19 to the Registrant’s Form 10-K filed with the Commission on March 30, 2004.

10.7	Security Agreement with CoBank dated June 17, 2004.		Exhibit 10.1 to the Registrant’s Form 10-Q filed with the Commission on August 16, 2004.

10.8	Master Loan Agreement with CoBank dated May 3, 2010.		Exhibit 10.1 to the Registrant’s Form 10-Q filed with the Commission on August 16, 2010.



Exhibit Number	Description	Filed Herewith	Incorporated Herein by Reference to

10. 9	Amendment to Master Loan Agreement with CoBank dated May 12, 2011.		Exhibit 10.1 to the Registrant’s Form 8-K/A filed with the Commission on June 30, 2011.

10.10	Amendment to Master Loan Agreement with CoBank dated March 14, 2012		Exhibit 10.1 to the Registrant’s Form 8-K filed with the Commission on March 16, 2012.

10.11	Amendment to Master Loan Agreement with CoBank dated October 4, 2012		Exhibit 10.1 to the Registrant’s Form 10-Q filed with the Commission on November 14, 2012.

10.12	Amendment to Master Loan Agreement with CoBank dated July 23, 2013		Exhibit 10.1 to the Registrant's Form 10-Q filed with the Commission on August 9, 2013.

10.13	Revolving Term Loan Supplement dated March 21, 2013.		Exhibit 10.17 to the Registrant's Form 10-K filed with the Commission on March 25, 2013.

10.14	Revolving Credit Supplement dated March 21, 2013.		Exhibit 10.18 to the Registrant's Form 10-K filed with the Commission on March 25, 2013.

10.15	Revolving Credit Supplement dated July 23, 2013.		Exhibit 10.1 to the Registrant's Form 10-Q filed with the Commission on August 9, 2013.

31.1	Rule13a-14(a)/15d-14(a) Certification by Chief Executive Officer	X

31.2	Rule 13a-14(a)/15d-14 Certified by Chief Financial officer	X

32.1	Section 1350 Certification by Chief Executive Officer	X

32.2	Section 1350 Certification by Chief Financial Officer	X

** Documents can be found at www.sec.gov

South Dakota Soybean Processors, LLC

Consolidated Financial Statements

December 31, 2013, 2012, and 2011

F-1

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

Index to Financial Statements



	Page

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-3

FINANCIAL STATEMENTS
Consolidated Balance Sheets	F-4
Consolidated Statements of Operations	F-5
Consolidated Statements of Changes in Members’ Equity	F-6
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-9

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Managers and Members

South Dakota Soybean Processors, LLC

Volga, South Dakota

We have audited the accompanying consolidated balance sheets of South Dakota Soybean Processors, LLC (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, changes in members’ equity, and cash flows for the years ended December 31, 2013, 2012, and 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of South Dakota Soybean Processors, LLC as of December 31, 2013 and 2012 and the consolidated results of its operations and its cash flows for the years ended December 31, 2013, 2012, and 2011, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company did not accrue certain distributions to the members' that were earned during the year ended December 31, 2012. These errors were discovered by the Company's management during the current year. Accordingly, the 2012 financial statements have been restated to correct these errors.

/s/ Eide Bailly LLP

Greenwood Village, Colorado

March 20, 2014

F-3

South Dakota Soybean Processors, LLC

Consolidated Balance Sheets

December 31, 2013 and 2012

___________________________________________________________________________________________________________________



	2013			2012 (Restated)
Assets
Current assets
Cash and cash equivalents	$	50		$	292,874
Trade accounts receivable	30,928,277			30,596,162
Inventories	64,798,457			72,469,499
Margin deposits	1,687,180			1,624,565
Assets of discontinued division	155,421			216,105
Prepaid expenses	1,531,877			1,024,882
Total current assets	99,101,262			106,224,087

Property and equipment	67,753,029			62,457,602
Less accumulated depreciation	(37,914,238		)	(35,989,551		)
Total property and equipment, net	29,838,791			26,468,051

Other assets
Investments in cooperatives	6,064,481			8,197,832
Notes receivable - members	145,707			147,056
Other intangible assets, net	6,278			8,210
Total other assets	6,216,466			8,353,098

Total assets	$	135,156,519		$	141,045,236

Liabilities and Members' Equity
Current liabilities
Excess of outstanding checks over bank balance	$	12,369,865		$	—
Current maturities of long-term debt	51,359			2,600,000
Note payable - seasonal loan	—			16,917,303
Accounts payable	1,929,317			1,812,186
Member distributions payable	11,000,000			5,076,105
Accrued commodity purchases	54,673,312			62,421,223
Accrued expenses	3,313,309			2,241,614
Accrued interest	327,427			448,795
Deferred liabilities - current	858,468			1,453,432
Total current liabilities	84,523,057			92,970,658

Long-term liabilities
Long-term debt, less current maturities	4,036,356			11,600,000
Deferred liabilities	55,435			126,213
Total long-term liabilities	4,091,791			11,726,213

Commitments and contingencies

Members' equity Class A Units, no par value, 30,419,000 units issued and outstanding, net of subscriptions receivable of $0 and $2,259 at December 31, 2013 and 2012, respectively	46,541,671			36,348,365

Total liabilities and members' equity	$	135,156,519		$	141,045,236

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

F-4

South Dakota Soybean Processors, LLC

Consolidated Statements of Operations

For the Years Ended December 31, 2013, 2012, and 2011

___________________________________________________________________________________________________________________



	2013			2012			2011

Net revenues	$	468,833,992		$	411,985,913		$	397,228,087

Cost of revenues:
Cost of product sold	399,246,411			353,641,110			362,144,771
Production	18,653,510			16,525,879			15,226,656
Freight and rail	27,647,077			24,390,748			18,864,807
Brokerage fees	633,875			515,007			466,955
Total cost of revenues	446,180,873			395,072,744			396,703,189

Gross profit	22,653,119			16,913,169			524,898

Operating expenses:
Administration	2,884,760			2,415,460			2,307,650
Operating income (loss)	19,768,359			14,497,709			(1,782,752		)

Other income (expense):
Interest expense	(1,665,339		)	(1,928,660		)	(1,308,195		)
Other non-operating income	1,910,684			1,595,156			2,443,518
Patronage dividend income	1,169,071			576,728			292,207
Total other income (expense)	1,414,416			243,224			1,427,530

Income (loss) from continuing operations before income taxes	21,182,775			14,740,933			(355,222		)

Income tax expense	(1,000		)	(1,000		)	(300		)

Income (loss) from continuing operations	21,181,775			14,739,933			(355,522		)

Gain (loss) on discontinued operations	9,272			(236,800		)	(3,592,800		)

Net income (loss)	$	21,191,047		$	14,503,133		$	(3,948,322	)

Basic and diluted earnings (loss) per capital unit:
Income (loss) from continuing operations	$	0.70		$	0.48		$	(0.01	)
Income (loss) from discontinuing operations	—			(0.01		)	(0.12		)
Net income (loss)	$	0.70		$	0.48		$	(0.13	)

Weighted average number of capital units outstanding for calculation of basic and diluted earnings (loss) per capital unit	30,419,000			30,419,000			30,419,000

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

F-5

South Dakota Soybean Processors, LLC

Consolidated Statements of Changes in Members’ Equity

For the Years Ended December 31, 2013, 2012, and 2011

___________________________________________________________________________________________________________________



	Class A Units
	Units	Amount

Balances, January 1, 2011	30,419,000	$	30,869,659

Recognition of capital units previously recorded as temporary equity	—	—

Net loss	—	(3,948,322		)

Balances, December 31, 2011	30,419,000	26,921,337

Net income	—	14,503,133

Distribution to members	—	(5,076,105		)

Balances, December 31, 2012 (restated)	30,419,000	36,348,365

Net income	—	21,191,047

Distributions to members	—	(11,000,000		)

Decrease in subscriptions receivable	—	2,259

Balances, December 31, 2013	30,419,000	$	46,541,671

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

F-6

South Dakota Soybean Processors, LLC

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2013, 2012, and 2011

___________________________________________________________________________________________________________________



	2013			2012			2011
Operating activities
Net income (loss)	$	21,191,047		$	14,503,133		$	(3,948,322	)
(Gain) loss from discontinued operations	(9,272		)	236,800			3,592,800
Income (loss) from continued operations	21,181,775			14,739,933			(355,522		)
Charges and credits to net income (loss) from continuing operations not affecting cash:
Depreciation and amortization	2,059,867			1,785,254			2,083,593
(Gain) loss on sales of property and equipment	(7,391		)	1,161			13,216
Non-cash patronage dividends	(591,099		)	(327,169		)	(102,272		)
Change in current assets and liabilities	(576,878		)	(26,411,714		)	23,008,509
Net cash from (used for) operating activities of continuing operations	22,066,274			(10,212,535		)	24,647,524
Net cash from (used for) operating activities of discontinued operations	69,956			324,843			(216,476		)
Net cash from (used for) operating activities	22,136,230			(9,887,692		)	24,431,048

Investing activities
Proceeds from investments in cooperatives	—			—			77,599
Retirement of patronage dividends	2,724,450			—			76,585
Decrease in member loans	1,349			619			223
Proceeds from sales of property and equipment	14,000			—			88,409
Purchase of property and equipment	(5,435,284		)	(1,854,226		)	(3,139,905		)
Net cash used for investing activities of continued operations	(2,695,485		)	(1,853,607		)	(2,897,089		)
Net cash from (used for) investing activities of discontinued operations	—			108,503			(83,329		)
Net cash used for investing activities	(2,695,485		)	(1,745,104		)	(2,980,418		)

Financing activities
Change in excess of outstanding checks over bank balances	12,369,865			(4,386,782		)	2,651,842
Net (payments) proceeds from seasonal borrowings	(16,917,303		)	16,917,303			(24,790,669		)
Distributions to members	(5,076,105		)	—			—
Decrease in subscriptions receivable	2,259			—			—
Proceeds from long-term debt	23,157,209			1,547,999			10,058,801
Principal payments on long-term debt	(33,269,494		)	(2,153,000		)	(9,133,000		)
Net cash from (used for) financing activities of continued operations	(19,733,569		)	11,925,520			(21,213,026		)
Net cash used for financing activities of discontinued operations	—			—			(237,604		)
Net cash from (used for) financing activities	(19,733,569		)	11,925,520			(21,450,630		)


(continued on next page)

F-7

South Dakota Soybean Processors, LLC Consolidated Statements of Cash Flows (continued) For the Years Ended December 31, 2013, 2012 and 2011 ____________________________________________________________________________________________

	2013			2012		2011

Net change in cash and cash equivalents	(292,824		)	292,724		—

Cash and cash equivalents, beginning of year	292,874			150		150

Cash and cash equivalents, end of year	$	50		$	292,874	$	150

Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	$	1,786,707		$	1,758,531	$	1,472,624

Income taxes	$	—		$	—	$	—

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

F-8

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

___________________________________________________________________________________________________________________

Note 1 - Principal Activity and Significant Accounting Policies

Organization

South Dakota Soybean Processors, LLC (the “Company” or “LLC”) processes and sells soybean products, such as soybean oil, meal and hulls. The Company’s principal operations are in Volga, South Dakota.

The consolidated financial statements include the accounts of the Company and Urethane Soy Systems Company (USSC), which is the Company’s wholly-owned subsidiary. During 2011 the Company determined to discontinue operations of its polyurethane segment, including USSC, and put the assets and business up for sale. For all periods presented, amounts associated with the polyurethane segment have been classified as discontinued operations on the accompanying consolidated financial statements. See Note 5 for additional information.

On October 16, 2012, USSC’s Board of Directors and the Company’s Board of Managers approved the legal dissolution of USSC, and on December 7, 2012, USSC was formerly dissolved as a corporation.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated.

Cash and cash equivalents

The Company considers all highly liquid investment instruments with maturities of three months or less at the time of acquisition to be cash equivalents.

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, which is generally 30 days from invoice date. 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.

The following table presents the aging analysis of trade receivables as of December 31, 2013 and 2012:



	2013		2012
Past due:
Less than 30 days past due	$	3,344,540	$	2,717,120
31-90 days past due	571,697		185,168
Greater than 90 days past due	—		45
Total past due	3,916,237		2,902,333
Current	27,012,040		27,693,829
Totals	$	30,928,277	$	30,596,162

The following table provides information regarding the Company’s allowance for doubtful accounts receivable of continued operations as of December 31, 2013, 2012, and 2011:



	2013			2012		2011
Balances, beginning of year	$	—		$	—	$	—
Amounts charged (credited) to costs and expenses	20,487			—		(7,838		)
Additions (deductions)	(20,487		)	—		7,838
Balances, end of year	$	—		$	—	$	—

In general cash received is applied to the oldest outstanding invoice first, unless payment is for a specified invoice. The Company, on a case by case basis, may charge a late fee of 1 ½% per month on past due receivables.

F-9

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

___________________________________________________________________________________________________________________

Inventories

Finished goods (soybean meal, oil, refined oil, and hulls) and raw materials (soybeans) are valued at estimated market value. This accounting policy is in accordance with the guidelines described in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 905, Agriculture (formerly AICPA Statement of Position No. 85-3, Accounting by Agricultural Producers and Agricultural Cooperatives). Supplies and other inventories are stated at the lower of cost, determined by the first-in, first-out method, or market.

Investments

Investments in cooperatives are carried at cost plus the amount of patronage earnings allocated to the Company, less any cash distributions received.

Property and equipment

Property and equipment is stated at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense when incurred. When depreciable properties are sold or retired, the cost and accumulated depreciation are eliminated from the accounts and the resultant gain or loss is reflected in income.

Depreciation is provided for over the estimated useful lives of the individual assets using the straight-line method. The range of the estimated useful lives used in the computation of depreciation is as follows:



Building and improvements	10-39 years
Equipment and furnishings	3-15 years

The Company reviews its long-lived assets for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. If impairment indicators are present and the future cash flows is less than the carrying amount of the assets, values are reduced to the estimated fair value of those assets.

Patents

The Company’s patents were amortized over their estimated useful lives, using the straight-line method over a period of 16 to 20 years, which is the shorter of the remaining estimated economic life of the patents acquired or 20 years from the original file date.

The Company evaluated the recoverability of identifiable intangible assets whenever events or changes in circumstances indicated 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 the asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures 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 exceeds 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 the Company to make assumptions about future cash flows over the life of the assets being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. During the years ended December 31, 2013, 2012, and 2011, the Company recorded impairment losses of $0, $0, and $637,318, respectively, related to intangible assets. The impairment loss in 2011 is recorded in “Loss on discontinued operations” on the consolidated statement of operations. As of December 31, 2012, the Company no longer held any outstanding patents.

Deferred revenue

The Company recognizes revenues as earned. Amounts billed in advance of the period in which service is rendered are recorded as a liability under “Deferred revenue”.

F-10

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

___________________________________________________________________________________________________________________

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.

Revenue Recognition

Revenue is recognized when the title to the related products is transferred to the customer. When a sales contract has delivery terms of ‘FOB Shipping Point’, revenue is recognized when the products are shipped. For those sales contracts with delivery terms of ‘FOB Destination’, revenue is not recognized until the products are delivered to the agreed-upon location. Revenues are presented net of discounts and sales allowances.

Freight

The Company presents all amounts billed to the customer for freight as a component of net revenue. Costs incurred for freight are reported as a component of cost of revenue.

The Company’s “Shipping and Handling Costs” policy is in accordance with ASC 605, Revenue Recognition (formerly EITF Issue 0-10, Accounting for Shipping and Handling Fees and Costs).

Advertising costs

Advertising and promotion costs are expensed as incurred. The Company incurred $26,000, $12,000, and $25,000, of advertising costs on continuing operations in the years ended December 31, 2013, 2012, and 2011, respectively.

Environmental remediation

It is management’s opinion that the amount of any potential environmental remediation costs will not be material to the Company’s financial condition, results of operations, or cash flows; therefore, no accrual has been recorded.

Accounting for derivative instruments and hedging activities

All of the Company’s derivatives are designated as non-hedge derivatives. The futures and options contracts used by the Company are discussed below. Although the contracts may be effective economic hedges of specified risks, they are not designated as, nor accounted for, as hedging instruments.

The Company, as part of its trading activity, uses futures and option contracts offered through regulated commodity exchanges to reduce risk. The Company is exposed to risk of loss in the market value of inventories. To reduce that risk, the Company generally takes opposite and offsetting positions using futures contracts or options.

Unrealized gains and losses on futures and options contracts used to hedge soybean, oil and meal inventories, as well as foreign exchange rates, are recognized as a component of net proceeds for financial reporting. Inventories are recorded at estimated market value. Consequently, unrealized gains and losses on derivative contracts are offset by unrealized gains and losses on inventories and reflected in current earnings.

Earnings per capital unit

Earnings per capital unit are calculated based on the weighted average number of capital units outstanding. The Company has no other capital units or other member equity instruments that are dilutive for purposes of calculating earnings per capital unit.

Income taxes

As a limited liability company, the Company’s taxable income or loss is allocated to members in accordance with their respective percentage ownership. Therefore, no provision or liability for income taxes has been included in the financial statements.

F-11

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

___________________________________________________________________________________________________________________

The Company has evaluated the provisions of FASB ASC 740-10 (previously Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes) for uncertain tax positions. As of December 31, 2013 and 2012, the unrecognized tax benefit accrual was zero.

The Company will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred.

As of December 31, 2013, the book value of the Company’s net assets exceeds the tax basis of those assets by approximately $8.9 million.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are no longer subject to income tax examinations by U.S. federal and state tax authorities for years prior to 2010. We currently have no tax years under examination.

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.

Note 2 - Correction of Prior Period

In accordance with the SEC's Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements" (SAB 108), the Company in 2012 did not accrue as a liability the amount of the distribution to its members that had been declared by the Company's Board of Managers. The Company's Operating Agreement states that the Company shall distribute to its members, who held capital units at any point during the fiscal year, at least thirty percent (30%) of the net income unless the net income is less than $500,000 or the distribution would cause the Company to violate its loan covenants. On February 7, 2013, the Company's Board of Managers declared a cash distribution of $5,076,105 to its members who held capital units during 2012. As a result of the Company's evaluation of this error under SAB 108, the Company determined that this error was material to the consolidated balance sheet and statement of changes in members' equity for the year ended December 31, 2012. Consequently, the consolidated financial statements for that period were restated to reflect the correction of this error. In evaluating and determining the appropriateness of applying SAB 108 to this error, the Company considered materiality both quantitatively and qualitatively as prescribed by the SEC's Staff Accounting Bulletin No 99. The following table reflects the impact of the above error to the consolidated balance sheet and statement of changes in members' equity as of and for the year ended December 31, 2012:



	As Previously Reported		Adjustments			Adjusted
Balance sheet:
Member distributions payable	$	—	$	5,076,105		$	5,076,105
Members' equity	41,424,470		(5,076,105		)	36,348,365
Statement of changes in members' equity:
Distribution to members	—		(5,076,105		)	(5,076,105		)
Balance, December 31, 2012	41,424,470		(5,076,105		)	36,348,365

Note 3 - Inventories

The Company’s inventories consist of the following as of December 31,:



	2013		2012
Finished goods	$	16,690,431	$	28,345,806
Raw materials	47,890,986		44,003,018
Supplies & miscellaneous	217,040		120,675
Totals	$	64,798,457	$	72,469,499

F-12

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

___________________________________________________________________________________________________________________

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.

Note 4 - Margin Deposits

The Company has margin deposits with a commodity brokerage firm used to acquire futures and option contracts to manage the price volatility risk of soybeans, crude soybean oil and soybean meal. Consistent with its inventory accounting policy, these contracts are recorded at market value. At December 31, 2013, the Company’s futures contracts all mature within 12 months.

Note 5 - Discontinued Operations

In 2011 the Company determined to discontinue operations of its polyurethane segment, including its wholly-owned subsidiary USSC, and put the assets and business up for sale. The Company decided to discontinue and sell this division primarily because it has incurred significant operating losses over the past several years. Results of operations and the related charges for discontinued operations have been classified as “Loss on discontinued operations” on the accompanying consolidated statements of operations. Assets and liabilities of the discontinued operations have been reclassified and reflected on the accompanying consolidated balance sheets as “Assets of discontinued operations” and “Liabilities of discontinued operations” accordingly. For comparative purposes, all prior periods presented have been restated to reflect the reclassifications on a consistent basis.

Sales revenue from the polyurethane segment for the years ended December 31, 2013, 2012, and 2011 were $2,239, $457,748, and $1,495,257, respectively. During 2012, the Company sold the patents, other intellectual property, and property and equipment, incurring a loss on the sales totaling $(161,812). In conjunction with the discontinuance of operations, the Company recognized a loss on disposal of $1,104,000 in 2011 to write down the related carrying amounts to their fair values less estimated cost to sell. The gains (losses) from discontinued operations of this division were $9,272, $(236,800), and $(3,592,800) for the years ended December 31, 2013, 2012, and 2011, respectively.

Interest expense was allocated to discontinued operations based on the amount of debt related to the operations of the discontinued division. For the years ended December 31, 2013, 2012, and 2011, interest expense allocated to discontinued operations was $0, $0, and $372,000, respectively.

The assets and liabilities of the discontinued operations are presented separately under the captions “Assets of discontinued division” and “Liabilities of discontinued division,” respectively, in the accompanying balance sheets at December 31, 2013 and 2012, and consist of the following:



	2013		2012
Assets of discontinued division:
Cash	$	—	$	—
Accounts receivable, less allowance for uncollectible accounts (2013 - $0; 2012 - $52,000)	—		2,791
Inventories	—		—
Prepaid expenses	—		—
Property and equipment, net	155,421		213,314
Notes receivable	—		—
Patents and other intangible assets, net	—		—
Total assets	$	155,421	$	216,105



	2013		2012
Liabilities of discontinued division:
Accounts payable	$	—	$	—
Accrued expenses	—		—
Total liabilities	$	—	$	—

F-13

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

___________________________________________________________________________________________________________________

Note 6 - Investments in Cooperatives

The Company’s investments in cooperatives consist of the following at December 31:



	2013		2012
Minnesota Soybean Processors:
Common stock and Class A Preferred Shares	$	3,964,728	$	3,455,876
Class B Preferred Shares, 8% non-cumulative, convertible	575,000		575,000
CHS (formerly Cenex Harvest States)	124,819		2,849,269
CoBank	1,399,934		1,317,687
Totals	$	6,064,481	$	8,197,832

On February 6, 2013, the Company received $2,724,450 from CHS for the retirement of previous retained patronage allocations.

Note 7 - Property and Equipment

The following is a summary of property and equipment at December 31:



	2013							2012
	Cost		Accumulated Depreciation			Net		Net
Land	$	443,816	$	—		$	443,816	$	443,816
Land improvements	585,678		(116,944		)	468,734		401,691
Buildings and improvements	16,551,664		(6,626,521		)	9,925,143		10,246,705
Machinery and equipment	48,160,659		(30,476,174		)	17,684,485		14,379,270
Company vehicles	74,895		(19,102		)	55,793		6,567
Furniture and fixtures	1,111,669		(675,497		)	436,172		525,984
Construction in progress	824,648		—			824,648		464,018
Totals	$	67,753,029	$	(37,914,238	)	$	29,838,791	$	26,468,051

Depreciation of property and equipment of continued operations amounts to $2,057,935, $1,783,322, and $2,081,481 for the years ended December 31, 2013, 2012, and 2011, respectively.

Note 8 - Other Intangible Assets

The following table provides information regarding the Company’s other intangible assets as of December 31, 2013 and 2012:



				Accumulated
Intangible Assets	Life	Cost		Amortization			Net
As of December 31, 2013:
Loan Origination Costs	10 years	$	13,200	$	(6,922	)	$	6,278
As of December 31, 2012:
Loan Origination Costs	10 years	$	13,200	$	(4,990	)	$	8,210

Amortization expense on the loan origination costs amounts to $1,932, $1,932, and $2,112 for the years ended December 31, 2013, 2012, and 2011, respectively.

F-14

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

___________________________________________________________________________________________________________________

Future amortization expense related to the loan origination costs is expected to be approximately:



For the years ending December 31:
2014	$	1,932
2015	1,932
2016	1,932
2017	482
2018	—
Total	$	6,278

Note 9 - Notes Payable - Seasonal Loan

The Company has entered into a revolving credit agreement with CoBank which expires August 1, 2014. Under this agreement, the Company may borrow up to $50 million to finance inventory and accounts receivable. Interest accrues at a variable rate (2.93% at December 31, 2013). 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 $0 and $16,917,303 at December 31, 2013 and 2012, respectively. The remaining available funds to borrow under the terms of the revolving credit agreement are approximately $50,000,000 as of December 31, 2013.

Note 10 - Long-Term Debt



	2013			2012
Revolving term loan from CoBank, interest at variable rates (3.18% and 4.21% at December 31, 2013 and 2012, respectively), secured by substantially all property and equipment. Loan matures March 20, 2018.	$	3,123,645		$	14,200,000
Note payable to Brookings Regional Railroad Authority, due in annual principal and interest installments of $75,500, interest rate at 2.00%, secured by railroad track assets. Note matures June 1, 2020.	964,070			—
	4,087,715			14,200,000
Less current maturities	(51,359		)	(2,600,000		)
Totals	$	4,036,356		$	11,600,000

The Company entered into an agreement as of March 21, 2013 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 8. Under the terms and conditions of the MLA, CoBank agreed to make advances to the Company for up to $12,900,000 on the revolving term loan. The available commitment decreases in scheduled periodic increments of $1,300,000 every six months starting September 20, 2013 until maturity on March 20, 2018. The principal balance outstanding on the revolving term loan was $3,123,645 and $14,200,000 as of December 31, 2013 and 2012, respectively. There was approximately $8.5 million of remaining commitments available to borrow on the revolving term loan as of December 31, 2013.

Under this agreement, the Company is subject to compliance with standard financial covenants and the maintenance of certain financial ratios. The Company was in compliance with all covenants and conditions with CoBank as of December 31, 2013.

Effective March 1, 2013, the State of South Dakota Department of Transportation agreed to loan the Brookings County Regional Railway Authority $964,070 for purposes of making improvements to the railway infrastructure near the Company's soybean processing plant in Volga, South Dakota. In consideration of this secured loan, the Company agreed to provide a guarantee to the State of South Dakota Department of Transportation the full amount of the loan, plus interest. This guarantee, however, became a direct obligation of the Company's on October 16, 2013, when the Company received the entire loan proceeds and assumed responsibility for paying the annual principal and interest payments.

F-15

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

___________________________________________________________________________________________________________________

The minimum principal payments on long-term debt obligations are as follows as of December 31, 2013:



For the years ending December 31:
2014	$	51,359
2015	57,246
2016	58,344
2017	1,983,203
2018	1,260,749
Thereafter	676,814
Total	$	4,087,715

Note 11 - Employee Benefit Plans

The Company maintains a Section 401(k) plan for employees who meet the eligibility requirements set forth in the plan documents. The Company matches a percentage of employees’ contributed earnings. The amounts charged to expense under continuing operations under this plan were approximately $125,000, $73,000, and $68,000 for the years ended December 31, 2013, 2012, and 2011, respectively.

The Company has a deferred compensation plan for key employees. The Company shall pay the employees in five equal annual installments upon retirement. The future payments have been discounted at 8%. The amount recognized as expense (benefit) during the years ended December 31, 2013, 2012, and 2011 was $10,000, $4,000, $3,000, respectively. The Company made payments of approximately $11,827 for each of the years ended December 31, 2013, 2012, and 2011. Deferred compensation payable is $38,663 and $40,634 as of December 31, 2013 and 2012, respectively.

Note 12 - Commitments

The Company has operating leases for 253 rail cars from GE Capital. The leases require monthly payments of $100,795. The Company also leases 137 rail cars from Trinity Capital. This lease requires monthly payments of $74,529. The Company also leases 64 rail cars from Flagship Rail Services. This lease requires monthly payments of $24,832. The Company also leases 15 rail cars from GATX Corporation. This lease requires monthly payments of $10,050.The leases began between 1996 and 2013 and have terms ranging from 5-18 years. Lease expense for all rail cars was $2,237,863, $2,237,477, and $2,179,818 for the years ended December 31, 2013, 2012, and 2011, respectively. Prior to August 1, 2013, the Company generated revenues from the use of 317 of these rail cars on other railroads. Such revenues were $760,201, $1,535,316, and $1,453,374 for the years ended December 31, 2013, 2012, and 2011, respectively.

On September 1, 2011, the Company renewed a Grain Storage and Transportation Agreement with H&I Grain of Hetland, Inc. (“H&I”). This agreement is for the handling, storage and transportation of soybeans to and from the H&I facilities located in DeSmet, Hetland and Arlington, South Dakota, at established rates per bushel. The agreement provides for an annual minimum payment of $200,000. The agreement expires on August 31, 2014. Expenses under the agreements with H&I were $1,474,568, $1,258,806, and $642,341 for the years ended December 31, 2013, 2012, and 2011, respectively.

The Company also has a number of other operating leases for machinery and equipment. Rental expense for continuing operations under these other operating leases was $144,344, $183,771, and $193,570 for the years ended December 31, 2013, 2012, and 2011, respectively.

The following is a schedule of future minimum payments required under these operating commitments.

F-16

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

___________________________________________________________________________________________________________________



	Rail Cars		Other		Total
Year ended December 31:
2014	$	2,329,000	$	102,000	$	2,431,000
2015	2,129,000		61,000		2,190,000
2016	1,794,000		46,000		1,840,000
2017	1,610,000		17,000		1,627,000
2018	940,000		6,000		946,000
Thereafter	1,715,000		2,000		1,717,000
Totals	$	10,517,000	$	234,000	$	10,751,000

Note 13 - Cash Flow Information

The following is a schedule of changes in assets and liabilities used to determine cash from operating activities:



	2013			2012			2011
(Increase) decrease in assets:
Trade accounts receivable	$	(332,115	)	$	(11,965,822	)	$	(3,608,153	)
Inventories	7,671,042			(42,755,845		)	16,396,324
Margin account deposit	(62,615		)	3,993,901			(3,287,052		)
Prepaid expenses	(506,995		)	(196,591		)	227,867
	6,769,317			(50,924,357		)	9,728,986



	2013			2012			2011
Increase (decrease) in liabilities:
Accounts payable	117,131			817,518			(15,105		)
Accrued commodity purchases	(7,747,911		)	21,358,570			13,299,182
Accrued expenses and interest	950,327			956,009			(146,487		)
Deferred liabilities	(665,742		)	1,380,546			141,933
	(7,346,195		)	24,512,643			13,279,523

Totals	$	(576,878	)	$	(26,411,714	)	$	23,008,509

The member distributions payable as described in Note 17 are considered non-cash financing activities.

Note 14 - Derivative Instruments and Hedging Activities

In the ordinary course of business, the Company enters into contractual arrangements as a means of managing exposure to changes in commodity prices and, occasionally, foreign exchange rates. 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 15, Fair Value of Financial Instruments.

As of December 31, 2013 and 2012, the value of the Company’s open futures, options and forward contracts was approximately $1,095,316 and $1,601,219, respectively.



		Amounts As of December 31, 2013
	Balance Sheet Classification	Asset Derivatives		Liability Derivatives
Derivatives not designated as hedging instruments:
Commodity contracts	Current Assets	$	5,091,939	$	3,992,371
Foreign exchange contracts	Current Assets	10		4,262
Totals		$	5,091,949	$	3,996,633

F-17

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

___________________________________________________________________________________________________________________



		Amounts As of December 31, 2012
	Balance Sheet Classification	Asset Derivatives		Liability Derivatives
Derivatives not designated as hedging instruments:
Commodity contracts	Current Assets	$	5,248,420	$	3,647,637
Foreign exchange contracts	Current Assets	1,846		1,410
Totals		$	5,250,266	$	3,649,047

During the years ended December 31, 2013, 2012, and 2011, 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 Year Ending December 31:
	2013		2012		2011
Derivatives not designated as hedging instruments:
Commodity contracts	$	1,113,206	$	5,802,562	$	(4,173,693	)
Foreign exchange contracts	9,072		518		—
Totals	$	1,122,278	$	5,803,080	$	(4,173,693	)

The Company recorded gains (losses) of $1,122,278, $5,803,080, and $(4,173,693) in cost of goods sold related to its commodity derivative instruments for the years ended December 31, 2013, 2012, and 2011, respectively.

Note 15 - 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 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 December 31, 2013 and 2012:



	Fair Value as of December 31, 2013
	Level 1		Level 2		Level 3		Total
Financial assets:
Inventory	$	1,099,567	$	63,068,391	$	—	$	64,167,958
Margin deposits	$	1,687,180	$	—	$	—	$	1,687,180
Assets of discontinued division	$	—	$	—	$	155,421	$	155,421

F-18

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

___________________________________________________________________________________________________________________



	Fair Value as of December 31, 2012
	Level 1		Level 2		Level 3		Total
Financial Assets:
Inventory	$	1,600,783	$	70,243,052	$	—	$	71,843,835
Margin deposits	$	1,624,565	$	—	$	—	$	1,624,565
Assets of discontinued division	$	—	$	—	$	216,105	$	216,105

The Company considers the carrying amount of significant classes of financial instruments on the balance sheets, including cash, accounts receivable, prepaid expenses, notes receivable, accounts payable, and accrued liabilities, to be reasonable estimates of fair value due to their length or maturity. The fair value of the Company’s long-term debt approximates the carrying value. The interest rates on the long-term debt are similar to rates the Company would be able to obtain currently in the market.

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

The assets of discontinued division represent a nonrecurring level 3 fair value measurement. The fair value measurements were based on managements’ best estimate of fair market value, which includes comparisons to similar assets within the industry.

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 following table presents the changes in Level 3 instruments measured on a recurring basis for the years ended December 31, 2013 and 2012.



	2013			2012
Beginning balance	$	216,105		$	853,678
Purchases	—			10,616
Sales	(57,894		)	(547,005		)
Settlements	(21,577		)	218,668
Net gains (losses) included in earnings	18,787			(319,852		)
Ending balance	$	155,421		$	216,105

Note 16 - Business Credit Risk and Concentrations

The Company also grants credit to customers throughout the United States and Canada. The Company evaluates each customer’s credit worthiness on a case-by-case basis. Accounts receivable are generally unsecured. These receivables from continuing operations were $30,833,839 and $30,594,924 at December 31, 2013 and 2012, respectively.

Soybean meal sales accounted for approximately 58%, 57%, and 46% of total revenues from continuing operations for the years ended December 31, 2013, 2012, and 2011, respectively. Soybean oil sales represented approximately 38%, 39%, and 49% of total revenues for the years ended December 31, 2013, 2012, and 2011, respectively.

Net revenue by geographic area for the years ended December 31, 2013, 2012, and 2011 are as follows:



	2013		2012		2011
United States	$	395,581,058	$	358,748,132	$	362,014,278
Canada	73,252,934		53,237,781		35,213,809
Totals	$	468,833,992	$	411,985,913	$	397,228,087

F-19

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

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Note 17 - Members' Equity

A minimum of 2,500 capital units is required for an ownership interest in the Company. Such units are subject to certain transfer restrictions. The Company retains the right to redeem the units at the greater of $0.20 per unit or the original purchase price less cumulative distributions through the date of redemption in the event a member attempts to dispose of the units in a manner not in conformity with the Operating Agreement, if a member becomes a holder of less than 2,500 units, or if a member becomes an owner (directly or indirectly) of more than 1.5% of the issued and outstanding capital units. The Company’s Operating Agreement also includes provisions whereby cash equal to a minimum of 30% of available net income will be distributed to unit holders subject to certain limitations. These limitations include a minimum net income of $500,000, restrictions imposed by debt and credit instruments or as restricted by law in the event of insolvency. Earnings, losses and cash distributions are allocated to members based on their percentage of ownership in the Company.

The Board of Managers approved a Form S-1 registration statement that was filed with the Securities and Exchange Commission on February 14, 2005 for the sale of additional units in a public offering. The maximum offering under the statement was $11,250,000. During 2005, the Company sold 2,190,500 member units for a total of $4,495,750, which was originally accounted for as temporary equity. The offering allowed the investor to initially pay 50% and sign a note payable to the Company for the remaining portion. At December 31, 2013 and 2012, the Company had subscriptions receivable of $0 and 2,259, which is accounted for as a deduction from members’ equity until collected.

On February 7, 2013, the Company's Board of Managers approved a cash distribution of approximately $5.1 million, or 16.7 cents per capital unit. The distribution was paid in accordance with the Company's operating agreement and distribution policy on February 8, 2013.

At December 31, 2013 and 2012, the Company had member distributions payable of $11.0 million and $5.1 million, respectively.

Note 18 - Contingencies

Note 19 - 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, which was classified as a discontinued operation in 2011, manufactured a soy-based polyol called Soyol^® and its resin systems and sold 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.

Segment information for the years ended December 31, 2013, 2012, and 2011 are as follows:

F-20

South Dakota Soybean Processors, LLC

Notes to the Consolidated Financial Statements

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	Soybean Processing		Polyurethane		Total
For the Year Ended December 31, 2013:
Sales to external customers	$	468,833,992	$	2,239	$	468,836,231
Intersegment sales	—		—		—
Depreciation and amortization	2,059,867		—		2,059,867
Interest expense	1,665,339		—		1,665,339
Segment profit (loss)	21,181,775		9,272		21,191,047
Segment assets	135,001,098		155,421		135,156,519
Expenditures for segment assets	5,435,284		—		5,435,284



For the Year Ended December 31, 2012:
Sales to external customers	$	411,985,913	$	457,748		$	412,443,661
Intersegment sales	—		—			—
Depreciation and amortization	1,785,254		—			1,785,254
Interest expense	1,928,660		—			1,928,660
Segment profit (loss)	14,739,933		(236,800		)	14,503,133
Segment assets	140,829,131		216,105			141,045,236
Expenditures for segment assets	1,854,226		—			1,854,226



For the Year Ended December 31, 2011:
Sales to external customers	$	397,228,087		$	1,495,257		$	398,723,344
Intersegment sales	71,959			—			71,959
Depreciation and amortization	2,083,593			222,379			2,305,972
Interest expense	1,308,195			371,555			1,679,750
Segment profit (loss)	(355,522		)	(3,592,800		)	(3,948,322		)
Segment assets	89,217,689			889,739			90,107,428
Expenditures for segment assets	3,139,905			—			3,139,905

Note 20 - Subsequent Events

Except for the events 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.

On February 4, 2014, the Company’s Board of Managers declared a cash distribution to its members of $11.0 million. The distribution was issued and paid to members in accordance with the Company's operating agreement and distribution policy on February 6, 2014.

F-21