SOUTH DAKOTA SOYBEAN PROCESSORS LLC - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended September 30, 2015



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

For the transition period from to

COMMISSION FILE NO. 000-50253

South Dakota Soybean Processors, LLC

(Exact name of registrant as specified in its charter)



South Dakota		46-0462968
(State 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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

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



¨ Large Accelerated Filer	¨ Accelerated Filer	¨ Non-Accelerated Filer	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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: On November 10, 2015, the registrant had 30,419,000 capital units outstanding.

Table of Contents



			Page

Part I.	FINANCIAL INFORMATION		3

	Item I.	Financial Statements (Unaudited)	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19

	Item 4.	Controls and Procedures	20

Part II.	OTHER INFORMATION		20

	Item 1.	Legal Proceedings	20

	Item 1A.	Risk Factors	20

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20

	Item 3.	Defaults among Senior Securities	20

	Item 4.	Mine Safety Disclosures	21

	Item 5.	Other Information	21

	Item 6.	Exhibits	21

Signatures			21

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

South Dakota Soybean Processors, LLC

Condensed Financial Statements

September 30, 2015 and 2014

South Dakota Soybean Processors, LLC

Condensed Balance Sheets



	September 30, 2015			December 31, 2014
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	9,099,718		$	10,743,946
Trade accounts receivable, less allowance for uncollectible accounts of $360,000 and $0 at September 30, 2015 and December 31, 2014, respectively	18,972,951			23,107,816
Inventories	25,599,068			33,688,242
Margin deposits	6,180,394			2,549,865
Prepaid expenses	957,683			1,455,776
Total current assets	60,809,814			71,545,645

Property and equipment	82,774,086			78,583,353
Less accumulated depreciation	(41,750,303		)	(39,832,461		)
Total property and equipment, net	41,023,783			38,750,892

Other assets
Investments in cooperatives	6,225,008			6,836,461
Other intangible assets, net	7,447			4,346
Total other assets	6,232,455			6,840,807

Total assets	$	108,066,052		$	117,137,344

Liabilities and Members' Equity
Current liabilities
Excess of outstanding checks over bank balance	$	3,469,474		$	4,552,153
Current maturities of long-term debt	58,344			57,246
Accounts payable	1,104,297			1,318,838
Accrued commodity purchases	33,884,241			39,747,857
Accrued expenses	2,381,775			2,638,130
Accrued interest	411,543			359,896
Deferred liabilities - current	155,702			961,967
Total current liabilities	41,465,376			49,636,087

Long-term liabilities
Long-term debt, less current maturities	787,096			844,478
Deferred liabilities, less current maturities	10,529			51,782
Total long-term liabilities	797,625			896,260

Commitments and contingencies

Members' equity
Class A Units, no par value, 30,419,000 units issued and outstanding at September 30, 2015 and December 31, 2014	65,803,051			66,604,997

Total liabilities and members' equity	$	108,066,052		$	117,137,344

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

South Dakota Soybean Processors, LLC

Condensed Statements of Operations (Unaudited)

For the Three and Nine-Month Periods Ended September 30, 2015 and 2014



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014

Net revenues	$	91,353,462		118,489,094			$	280,726,457		$	333,586,864

Cost of revenues:
Cost of product sold	71,609,350			100,675,489			225,260,250			285,374,186
Production	6,121,910			4,875,581			16,568,588			15,431,924
Freight and rail	7,601,840			7,807,310			23,044,805			20,905,512
Brokerage fees	185,450			185,375			478,108			484,951
Total cost of revenues	85,518,550			113,543,755			265,351,751			322,196,573

Gross profit	5,834,912			4,945,339			15,374,706			11,390,291

Operating expenses:
Administration	752,752			672,129			2,556,144			3,456,583

Operating income	5,082,160			4,273,210			12,818,562			7,933,708

Other income (expense):
Interest expense	(114,681		)	(240,502		)	(402,554		)	(848,181		)
Other non-operating income	295,017			419,710			1,015,299			1,440,075
Patronage dividend income	—			—			815,798			1,518,032
Total other income (expense)	180,336			179,208			1,428,543			2,109,926

Income from continuing operations before income taxes	5,262,496			4,452,418			14,247,105			10,043,634

Income tax expense	—			—			(570		)	(1,870		)

Net income	$	5,262,496		4,452,418			$	14,246,535		$	10,041,764

Basic and diluted earnings per capital unit	$	0.17		$	0.15		$	0.47		$	0.33

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

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

South Dakota Soybean Processors, LLC

Condensed Statements of Cash Flows (Unaudited)

For the Nine Months Ended September 30, 2015 and 2014



	2015			2014
Operating activities
Net income	$	14,246,535		$	10,041,764
Charges and credits to net income from continuing operations not affecting cash:
Depreciation and amortization	1,965,107			1,602,271
Gain on sales of property and equipment	(6,846		)	30,067
Non-cash patronage dividends	—			(896,799		)
Change in current assets and liabilities	1,961,220			25,849,813
Net cash from operating activities of continuing operations	18,166,016			36,627,116
Net cash from operating activities of discontinued operations	—			500
Net cash from for operating activities	18,166,016			36,627,616

Investing activities
Retirement of patronage dividends	—			124,819
Proceeds from sale of investments	611,453			—
Decrease in member loans	—			145,707
Proceeds from sales of property and equipment	14,600			52,500
Purchase of property and equipment	(4,242,353		)	(3,144,609		)
Net cash used for investing activities of continuing activities	(3,616,300		)	(2,821,583		)
Net cash from investing activities of discontinued activities	—			3,500
Net cash used for investing activities	(3,616,300		)	(2,818,083		)

Financing activities
Change in excess of outstanding checks over bank balances	(1,082,679		)	(8,112,782		)
Distributions to members	(15,048,481		)	(11,000,000		)
Payments for debt issue costs	(6,500		)	—
Proceeds from long-term debt	68,154,464			20,103,229
Principal payments on long-term debt	(68,210,748		)	(23,289,220		)
Net cash used for financing activities	(16,193,944		)	(22,298,773		)

Net change in cash and cash equivalents	(1,644,228		)	11,510,760

Cash and cash equivalents, beginning of period	10,743,946			50

Cash and cash equivalents, end of period	$	9,099,718		$	11,510,810

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	350,907		$	719,681

Income taxes	$	600		$	10,730

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

South Dakota Soybean Processors, LLC

Notes to Condensed Financial Statements

Note 1 - Principal Activity and Significant Accounting Policies

The unaudited condensed financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although South Dakota Soybean Processors, LLC (the “Company”, “LLC”, “we”, “our”, or “us”) believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included in the accompanying condensed financial statements. The results of operations and cash flows for interim periods are not necessarily indicative of results for a full year due in part to the seasonal nature of some of the Company’s businesses. The balance sheet data as of December 31, 2014 has been derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

These statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2014, included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2015.

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.

Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements. The Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (Revenue from Contracts with Customers), which is effective for annual reporting periods beginning after December 15, 2018. Management has not yet assessed the impact, if any, of adopting this standard.

The FASB issued ASU No. 2015-03 (Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs), which is effective for annual reporting periods beginning after December 15, 2015. Management has not yet assessed the impact, if any, of adopting this standard.

The FASB issued ASU No. 2015-11 (Inventory: Simplifying the Measurement of Inventory), which is effective for annual reporting periods beginning after December 15, 2016. Management has not yet assessed the impact, if any, of adopting this standard.

Note 2 - Accounts Receivable

Accounts receivable are considered past due when payments are not received on a timely basis in accordance with the Company’s credit terms, 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.

South Dakota Soybean Processors, LLC

Notes to Condensed Financial Statements

The following table presents the aging analysis of trade receivables as of September 30, 2015 and December 31, 2014:



	September 30, 2015		December 31, 2014
Past due:
Less than 30 days past due	$	3,121,778	$	1,732,449
30-60 days past due	169,237		430,672
60-90 days past due	334,859		23,500
Greater than 90 days past due	489,479		38,892
Total past due	4,115,353		2,225,513
Current	15,217,598		20,882,303

Totals	$	19,332,951	$	23,107,816

The following table provides information regarding the Company’s allowance for doubtful accounts receivable as of September 30, 2015 and December 31, 2014:



	September 30, 2015			December 31, 2014

Balances, beginning of period	$	—		$	—
Amounts charged (credited) to costs and expenses	376,404			1,516,052
Additions (deductions)	(16,404		)	(1,516,052		)

Balances, end of period	$	360,000		$	—

In general, cash 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.

Note 3 - Inventories

The Company’s inventories consist of the following at September 30, 2015 and December 31, 2014:



	September 30, 2015		December 31, 2014
Finished goods	$	15,547,666	$	16,712,923
Raw materials	9,771,751		16,695,668
Supplies & miscellaneous	279,651		279,651

Totals	$	25,599,068	$	33,688,242

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

South Dakota Soybean Processors, LLC

Notes to Condensed Financial Statements

Note 4 - Investments in Cooperatives

The Company’s investments in cooperatives consist of the following at September 30, 2015 and December 31, 2014:



	September 30, 2015		December 31, 2014
Minnesota Soybean Processors:
Common stock and Class A Preferred Shares	$	4,710,158	$	4,785,158
Class B Preferred Shares, 8% non-cumulative, convertible	—		575,000
CoBank	1,514,850		1,476,303

Totals	$	6,225,008	$	6,836,461

Note 5 - Property and Equipment

The following is a summary of the Company's property and equipment at September 30, 2015 and December 31, 2014:



	2015							2014
	Cost		Accumulated Depreciation			Net		Net
Land	$	543,816	$	—		$	543,816	$	443,816
Land improvements	785,243		(192,971		)	592,272		630,082
Buildings and improvements	17,240,380		(7,355,487		)	9,884,893		9,610,552
Machinery and equipment	57,738,905		(33,285,047		)	24,453,858		19,191,883
Company vehicles	127,965		(45,825		)	82,140		43,332
Furniture and fixtures	1,482,936		(870,973		)	611,963		699,388
Construction in progress	4,854,841		—			4,854,841		8,131,839

Totals	$	82,774,086	$	(41,750,303	)	$	41,023,783	$	38,750,892

Depreciation of property and equipment was $1,961,708 and $1,600,822 for the nine months ended September 30, 2015 and 2014, respectively.

Note 6 - Note Payable – Seasonal Loan

The Company has entered into a revolving credit agreement with CoBank which expires September 30, 2016. The purpose of the credit agreement is to finance inventory and accounts receivable. Under this agreement, the Company may borrow up to $1 million between May 1 and September 30 and up to $15 million between October 1 and April 30. Interest accrues at a variable rate (2.40% at September 30, 2015). 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 $0 at September 30, 2015 and December 31, 2014, respectively. The remaining funds available to borrow under the terms of the revolving credit agreement are $1.0 million as of September 30, 2015.

South Dakota Soybean Processors, LLC

Notes to Condensed Financial Statements

Note 7 - Long-Term Debt

The following is a summary of the Company's long-term debt at September 30, 2015 and December 31, 2014:



	September 30, 2015			December 31, 2014
Revolving term loan from CoBank, interest at variable rates (2.65% and 3.16% at September 30, 2015 and December 31, 2014, respectively), secured by substantially all property and equipment. Loan matures September 20, 2020.	$	—		$	—
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.	845,440			901,724
	845,440			901,724
Less current maturities	(58,344		)	(57,246		)

Totals	$	787,096		$	844,478

The Company entered into an agreement as of July 15, 2015 with CoBank to amend and restate its Master Loan Agreement (MLA), which includes both the revolving term and seasonal loans. Under the terms and conditions of the MLA, CoBank agreed to make advances to the Company for up to $10,000,000 on the revolving term loan. The available commitment decreases in scheduled periodic increments of $1,250,000 every six months starting March 20, 2017 until maturity on September 20, 2020. The Company pays a 0.40% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan was $0 and $0 as of September 30, 2015 and December 31, 2014, respectively. The remaining commitments available to borrow on the revolving term loan are approximately $10.0 million as of September 30, 2015.

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 September 30, 2015.

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 facility 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 for the full amount of the loan, plus interest. This guaranty was converted into 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.

The minimum principal payments on long-term debt obligations are as follows as of September 30, 2015:



For the twelve-month periods ending September 30:
2016	$	58,344
2017	59,558
2018	60,749
2019	61,964
2020	604,825

Total	$	845,440

South Dakota Soybean Processors, LLC

Notes to Condensed Financial Statements

Note 8 - Member Distribution

On February 3, 2015, the Company’s Board of Managers approved a cash distribution of approximately $15.0 million, or 49.5¢ per capital unit. The distribution was paid in accordance with the Company’s operating agreement and distribution policy on February 5, 2015.

Note 9 - Derivative Instruments and Hedging Activities

In the ordinary course of business, the Company enters into contractual arrangements as a means of managing exposure to changes in commodity prices. The Company’s derivative instruments primarily consist of commodity futures, options and forward contracts. Although these contracts may be effective economic hedges of specified risks, they are not designated as, nor accounted for, as hedging instruments. These contracts are recorded in inventory on the Company’s condensed balance sheets at fair value as discussed in Note 10, Fair Value of Financial Instruments.

As of September 30, 2015 and December 31, 2014, the value of the Company’s open futures, options and forward contracts was approximately $921,161 and $(1,870,229), respectively.



		As of September 30, 2015
	Balance Sheet Classification	Asset Derivatives		Liability Derivatives
Derivatives not designated as hedging instruments:
Commodity contracts	Current Assets	$	9,744,675	$	8,759,655
Foreign exchange contracts	Current Assets	30,446		94,305

Totals		$	9,775,121	$	8,853,960



		As of December 31, 2014
	Balance Sheet Classification	Asset Derivatives		Liability Derivatives
Derivatives not designated as hedging instruments:
Commodity contracts	Current Assets	$	8,242,480	$	10,057,448
Foreign exchange contracts	Current Assets	50,540		105,801

Totals		$	8,293,020	$	10,163,249

During the three and nine-month periods ended September 30, 2015 and 2014, net realized and unrealized gains (losses) on derivative transactions were recognized in the condensed statement of operations as follows:



	Net Gain (Loss) Recognized on Derivative Activities for the					Net Gain (Loss) Recognized on Derivative Activities for the
	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015		2014
Derivatives not designated as hedging instruments:
Commodity contracts	$	2,672,791	$	2,034,294		$	560,552	$	(2,104,794	)
Foreign exchange contracts	11,523		(9,430		)	158,622		(16,897		)

Totals	$	2,684,314	$	2,024,864		$	719,174	$	(2,121,691	)

The Company recorded gains (losses) of $719,174 and $(2,121,691) in cost of goods sold related to its commodity derivative instruments for the nine-month periods ended September 30, 2015 and 2014, respectively.

South Dakota Soybean Processors, LLC

Notes to Condensed Financial Statements

Note 10 - 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 Board of Trade (“CBOT”).


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


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

The following tables set forth financial assets and liabilities measured at fair value in the condensed balance sheets and the respective levels to which fair value measurements are classified within the fair value hierarchy as of September 30, 2015 and December 31, 2014:



	Fair Value as of September 30, 2015
	Level 1		Level 2		Level 3		Total
Financial assets:
Inventory	$	985,020	$	24,129,969	$	—	$	25,114,989
Margin deposits	$	6,180,394	$	—	$	—	$	6,180,394



	Fair Value as of December 31, 2014
	Level 1			Level 2		Level 3		Total
Financial assets:
Inventory	$	(1,814,969	)	$	34,913,326	$	—	$	33,098,357
Margin deposits	$	2,549,865		$	—	$	—	$	2,549,865

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 CBOT. The Company estimates the fair market value of their finished goods and raw materials inventories using the market price quotations of similar forward future contracts listed on the CBOT and adjusts for the local market adjustments derived from other grain terminals in our area.

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.

South Dakota Soybean Processors, LLC

Notes to Condensed Financial Statements

The following table presents the changes in Level 3 instruments measured on a recurring basis as of September 30, 2015 and December 31, 2014:



	2015		2014
Beginning balance	$	—	$	155,421
Transfers	—		(150,421		)
Sales	—		(5,000		)
Settlements	—		—
Net gains (losses) included in earnings	—		—

Ending balance	$	—	$	—

Note 11 - Subsequent Event

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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The information in this quarterly report on Form 10-Q for the three-month and nine-month periods ended September 30, 2015, (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contains “forward-looking statements” that deal with future results, expectations, plans and performance, and should be read in conjunction with the consolidated financial statements and Annual Report on Form 10-K for the year ended December 31, 2014. Forward-looking statements may include statements which use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions. Forward-looking statements involve numerous assumptions, risks and uncertainties. Actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements are identified in our Form 10-K for the year ended December 31, 2014.

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

Executive Overview and Summary

In the third quarter of 2015, we recorded a profit of approximately $5.3 million, increasing our net income for the year to $14.2 million. Profits increased due primarily to strong domestic demand for soybean meal and the receipt of an ample supply of soybeans within our procurement area. Despite record soybean processing volumes, soybean meal demand remained firm during the third quarter of 2015. Soybean supply to our Volga plant during the third quarter of 2015 was favorable - a sharp contrast to the extremely tight supply of soybeans during the third quarter of 2014. The transition from old crop to new crop went smoothly as new crop supplies became available during the middle of September. In addition, soybean oil demand from the food sector remained steady during the third quarter, while oil demand from the biodiesel sector was hurt by the sharp drop in petroleum prices and the lack of passage of any meaningful biodiesel legislation.

Our strong balance sheet and financial performance assisted us in the renegotiating of our loan agreements during the third quarter of 2015, reducing to a more favorable interest rate and fees.

While we anticipate that soybean quality from this fall's harvest should help aid our profitability during the fourth quarter and early 2016, we do not expect to have as strong of fourth quarter as we did in 2014 and anticipate reduced margins in 2016. The soybean meal market will most likely come under pressure in the fourth quarter and beyond. Industry processing rates are forecast to remain at record levels, and with a projected drop in meal exports, abundant supplies of meal should force values lower. Oil demand should see a slight pickup from the export sector, but demand from the biodiesel industry will continue to be sluggish. On the positive side, the soybean oil content in this fall's crop appears to be elevated from last year, and the moisture content is lower. While the protein content of those soybeans is slightly lower, it should not significantly impact our profitability. It also appears to be a sufficient quantity of soybeans available in our trade area to make it to next fall's crop due to record yields and production in South Dakota.

RESULTS OF OPERATIONS

Comparison of the three months ended September 30, 2015 and 2014



	Three Months Ended September 30, 2015					Three Months Ended September 30, 2014
	$			% of Revenue		$			% of Revenue
Revenue	$	91,353,462		100.0		$	118,489,094		100.0
Cost of revenues	(85,518,550		)	(93.6	)	(113,543,755		)	(95.8	)
Operating expenses	(752,752		)	(0.8	)	(672,129		)	(0.6	)
Other income (expense)	180,336			0.2		179,208			0.2
Income tax expense	—			—		—			—

Net income	$	5,262,496		5.8		$	4,452,418		3.8

Revenue – Revenue decreased $27.1 million, or 22.9%, for the three-month period ended September 30, 2015, compared to the same period in 2014. The decrease in revenues is primarily due to a decrease in the sales price of all our soybean products (meal, oil and hulls). The decrease in sales price is primarily due to an increase in the supply of soybeans resulting from an improved harvest last fall.

Gross Profit/Loss – Gross profit increased $0.9 million, or 18%, for the three-month period ended September 30, 2015, compared to the same period in 2014. The increase in gross profit was primarily due to a drop in the cost of soybeans caused by increased supply compared to the three months ended September 30, 2014 when there was a tight supply of soybeans throughout most of the U.S. Partially offsetting the increase in gross profit was an increase in production expenses.

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, remained relatively unchanged for the three-month period ended September 30, 2015, compared to the same period in 2014.

Interest Expense – Interest expense decreased $126,000, or 52.3%, during the three months ended September 30, 2015, compared to the same period in 2014. The decrease in interest expense is due primarily to decreased debt levels, which resulted from reductions of inventory quantities and commodity prices. The average debt level during the three-month period ended September 30, 2015 was approximately $2.4 million, compared to $12.4 million for the same period in 2014.

Other Non-Operating Income – Other non-operating income, including patronage dividend income, decreased $125,000, or 29.7%, during the three-month period ended September 30, 2015, compared to the same period in 2014. The decrease is due primarily to a decrease in the quantity of crude soybean oil stored for the Chicago Board of Trade (CBOT).

Net Income/Loss – During the three months ended September 30, 2015, we generated a net income of $5.3 million, compared to $4.5 million for the same period in 2014. The $0.8 million increase in net income is primarily attributable to an improved gross profit associated with an increased supply of soybeans and improved meal demand.

Comparison of the nine months ended September 30, 2015 and 2014



	Nine Months Ended September 30, 2015					Nine Months Ended September 30, 2014
	$			% of Revenue		$			% of Revenue
Revenue	$	280,726,457		100.0		$	333,586,864		100.0
Cost of revenues	(265,351,751		)	(94.5	)	(322,196,573		)	(96.6	)
Operating expenses	(2,556,144		)	(0.9	)	(3,456,583		)	(1.0	)
Other income (expense)	1,428,543			0.5		2,109,926			0.6
Income tax expense	(570		)	—		(1,870		)	—

Net income	$	14,246,535		5.1		$	10,041,764		3.0

Revenue – Revenue decreased $52.9 million, or 15.8%, for the nine-month period ended September 30, 2015, compared to the same period in 2014. The decrease in revenues is primarily due to a decrease in the sales price of all our soybean products (meal, oil and hulls). The decrease in sales price is primarily due to an increase in the supply of soybeans resulting from an improved crop harvest last fall. Partially offsetting the decrease in sales price is a 7.5% increase in the quantity of soybeans harvested during the first nine months of 2015, compared to the same period in 2014, which correspondingly increased the sales volume of our soybean products.

Gross Profit/Loss – Gross profit increased $4.0 million, or 35.0%, for the nine-months ended September 30, 2015, compared to the same period in 2014. The increase is due to a very strong export demand, a tight supply of soybean meal in early 2015, and a decrease in the cost of soybeans. The tight soybean meal supply resulted from last fall's soybean harvest, which was delayed due to rain throughout most of the U.S. This delay caused many U.S. soybean processors to fall behind on meal shipments. Fortunately, the rain avoided our operations during harvest, which allowed us to capitalize on meeting other customers' needs. The decrease in soybean prices was due to an increased supply of soybeans during the nine months ended September 30, 2015, compared to same period in 2014 when there was a very tight supply of soybeans throughout most of the U.S.

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, decreased $900,000 for the nine-month period ended September 30, 2015, compared to the same period in 2014. The decrease is due to accruing a $1.5 million allowance for a potentially uncollectible account receivable in 2014, compared to $0.4 million in the same period in 2015.

Interest Expense – Interest expense decreased $446,000, or 52.5%, during the nine months ended September 30, 2015, compared to the same period in 2014. The decrease in interest expense is due primarily to decreased debt levels, which resulted from reductions of inventory quantities and commodity prices. The average debt level during the nine-month period ended September 30, 2015 was approximately $4.3 million, compared to $21.5 million for the same period in 2014.

Other Non-Operating Income – Other non-operating income, including patronage dividend income, decreased $1.1 million, or 38.1%, during the nine-month period ended September 30, 2015, compared to the same period in 2014. The decrease is due primarily to decreases in patronage allocations from our associated cooperatives, including CoBank and Minnesota Soybean Processors, and the quantity of crude soybean oil stored for the CBOT. During the first nine months of 2015, patronage allocations totaled $0.8 million, compared to $1.5 million during the same period in 2014.

Net Income/Loss – During the nine-months ended September 30, 2015, we generated a net income of $14.2 million, compared to $10.0 million for the same period in 2014. The $4.2 million increase in net income is primarily attributable to an increase in gross profit associated with improved margins, increased production, and decreases in operating and interest expenses.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash provided by operations and borrowings under our two lines of credit which are discussed below under “Indebtedness.” On both September 30, 2015 and 2014, we had working capital, defined as current assets less current liabilities, of approximately $19.3 million. While working capital was positively affected by approximately $24.3 million in net income since September 30, 2014, it was offset by $12.1 million in purchases of

property and equipment and a $15.0 million distribution to members during that same period. 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.

The following is a summary of our cash flow from operating, investing and financing activities for each of the nine-month periods ended September 30, 2015 and 2014:



	2015			2014
Net cash from (used for) operating activities	$	18,166,016		$	36,627,616
Net cash from (used for) investing activities	(3,616,300		)	(2,818,083		)
Net cash from (used for) financing activities	(16,193,944		)	(22,298,773		)

Cash Flows From (Used for) Operations

The $18.5 million decrease in cash flows from operating activities is primarily attributed to $29.2 million change in the decrease in inventory and an $8.5 million change in the decrease in accounts receivable during the first nine months of 2015, compared to the same period in 2014. During the nine-month period ended September 30, 2015, inventory decreased by approximately $8.1 million, compared to $37.3 million during the same period in 2014. In addition, accounts receivable decreased by $4.1 million during the nine months ended September 30, 2015, compared to $12.6 million during the same period in 2014. The decrease cash flows from inventory and accounts receivable was partially offset by a $21.3 million change in the decrease in accrued commodity purchases during the nine-month period ended September 30, 2015, compared to the same period in 2014. The changes in inventory, accounts receivable and accrued commodity purchases are the result of a drop in commodity prices due to a large U.S. soybean harvest in the fall of 2013.

Cash Flows From (Used For) Investing Activities

The $0.8 million increase in cash flows used for investing activities is due to a $1.1 million increase in capital improvements during the nine-month period ended September 30, 2015, compared to the same period in 2014. On December 19, 2014, we purchased a small soybean processing plant near Miller, South Dakota, making improvements and other modifications to the facility's start up on April 30, 2015.

Cash Flows From (Used For) Financing Activities

The $6.1 million decrease in cash flows used for financing activities is principally due to a $10.2 million decrease in payments on borrowings during the nine months ended September 30, 2015, compared to the same period in 2014. This decrease in cash flows used for financing activities was partially offset by an increase in distributions to members. We distributed a record $15.0 million in cash to members during the nine-month period ended September 30, 2015, compared to $11.0 million during the same period in 2014.

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 $10.0 million, and then pay down the principal whenever excess cash is available. Repaid amounts may be borrowed up to the available credit line. Beginning on March 20, 2017, the available credit line is reduced by $1.25 million every six months until the credit line’s maturity on September 20, 2020. We pay a 0.40% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan was $0 as of September 30, 2015 and December 31, 2014, respectively. There were $10.0 million in additional funds available to borrow under this loan as of September 30, 2015.

The second credit line is a revolving working capital (seasonal) loan that matures on September 30, 2016. The primary purpose of this loan is to finance inventory and receivables. The maximum available to borrow under this credit line is $1 million until October 1, 2015, increases to $15 million until May 1, 2016, at which time it returns to $1 million until the maturity date. Borrowing base reports and financial statements are required monthly to justify the balance borrowed on this line. We pay a 0.20% 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. There

were no advances outstanding on the seasonal loan as of September 30, 2015 and December 31, 2014. Under this loan, there was $1.0 million in available funds to borrow as of September 30, 2015.

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 2.65% and 3.16% as of September 30, 2015 and December 31, 2014, respectively. As of September 30, 2015 and December 31, 2014, the interest rate on the seasonal loan is 2.40% and 2.91%, respectively. We were in compliance with all covenants and conditions under the loans as of September 30, 2015 and the date of this filing.

On 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 facility 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 was converted 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 which began on June 1, 2014. The note payable matures on June 1, 2020.

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 for the rail cars we use to distribute our products. We have a number of long-term leases for hopper rail cars and oil tank cars with American Railcar Leasing, FRS 1, GATX Corporation, GE Capital, and Trinity Capital. Total lease expenses under these arrangements are approximately $2.0 million and $1.8 million for the nine-month periods ended September 30, 2015 and 2014, 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 $86,000 and $87,000 for the nine-month periods ended September 30, 2015 and 2014, 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 had a commitment under a Grain Storage and Transportation Agreement with H&I Grain of Hetland, Inc. (H&I). This agreement, which expired on August 31, 2014, was 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 provided for an annual minimum payment of $200,000. Expenses under this agreement were $0 and $368,000 for the nine-month periods ended September 30, 2015 and 2014, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Preparation of our financial statements requires estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. We continually evaluate these estimates based on historical experience and other assumptions we believe to be reasonable under the circumstances.

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

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

Commitments and Contingencies

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

Inventory Valuation

We account for our inventories at estimated net realizable market value. These inventories are agricultural commodities that are freely traded, have quoted market prices, may be sold without significant further processing, and have predictable and insignificant costs of disposal. We derive our estimates from local market prices determined by grain terminals in our area. Processed product price estimates are determined by the ending sales contract price as of the close of the final day of the period. This price is determined by the closing price on the Chicago Board of Trade (CBOT), net of the local basis, for the last 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 would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeded its fair value. The fair value is measured based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.

Accounting for Derivative Instruments and Hedging Activities

We minimize the effects of changes in the price of agricultural commodities by using exchange-traded futures and options contracts to minimize our net positions in these inventories and contracts. We account for changes in market value on exchange-traded futures and option contracts, as well as our forward purchase and sales contracts, using quoted exchange prices for identical instruments. Changes in the market value of all these contracts are recognized in earnings as a component of cost of goods sold.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Commodities Risk & Risk Management. To reduce the price change risks associated with holding fixed price commodity positions, we generally take opposite and offsetting positions by entering into commodity futures contracts (either a straight or options futures contract) on a regulated commodity futures exchange, the CBOT. While hedging

activities reduce the risk of loss from changing market prices, such activities also limit the gain potential which otherwise could result from these significant fluctuations in market prices. Our policy is generally to maintain a hedged position within limits, but we can be long or short at any time. Our profitability is primarily derived from margins on soybeans processed, not from hedging transactions. We do not anticipate that our hedging activity will have a significant impact on future operating results or liquidity. Hedging arrangements do not protect against nonperformance of a cash contract.

At any one time, our inventory and purchase contracts for delivery to our facility may be substantial. We have risk management policies and procedures that include net position limits. They are defined by commodity, and include both trader and management limits. This policy and procedure triggers a review by management when any trader is outside of position limits. The position limits are reviewed at least annually with the board of managers. We monitor current market conditions and may expand or reduce the limits in response to changes in those conditions.

Foreign Currency Risk. We conduct essentially all of our business in U.S. dollars and have no direct risk regarding foreign currency fluctuations. Foreign currency fluctuations do, however, impact the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of and demand for U.S. agricultural products compared to the same products offered by foreign suppliers.

Interest Rate Risk. We manage exposure to interest rate changes by using variable rate loan agreements with fixed rate options. Long-term loan agreements can utilize the fixed option through maturity; however, the revolving ability to pay down and borrow back would be eliminated once the funds were fixed.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by 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.

Changes in Internal Control Over Financial Reporting. There were no changes to our internal controls over financial reporting that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting during the quarter ended September 30, 2015.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

During the quarter ended September 30, 2015, there were no material changes to the Risk Factors disclosed in Item 1A (Part I) of our 2014 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

See Exhibit Index.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



			SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

Dated:	November 10, 2015	By	/s/ Thomas Kersting
			Thomas Kersting, Chief Executive Officer
			(Principal Executive Officer)

Dated:	November 10, 2015	By	/s/ Mark Hyde
			Mark Hyde, Chief Financial Officer
			(Principal Financial Officer)

EXHIBIT INDEX TO

FORM 10-Q

OF SOUTH DAKOTA SOYBEAN PROCESSORS, LLC



Exhibit Number		Description
3.1(i)		Articles of Organization (1)
3.1(ii)		Operating Agreement, as amended (2)
3.1(iii)		Articles of Amendment to Articles of Organization (3)
4.1		Form of Class A Unit Certificate (4)
31.1		Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer
32.1		Section 1350 Certification by Chief Executive Officer
32.2		Section 1350 Certification by Chief Financial Officer

____________________________________________________________________________

(1) Incorporated by reference from Appendix B to the information statement/prospectus filed as a part of the issuer’s Registration Statement on Form S-4 (File No. 333-75804).

(2) Incorporated by reference from the same numbered exhibit to the issuer’s Form 8-K filed on June 19, 2014.

(3) Incorporated by reference from the same numbered exhibit to the issuer’s Form 10-Q filed on August 14, 2002.

(4) Incorporated by reference from the same numbered exhibit to the issuer’s Registration Statement on Form S-4 (File No. 333-75804).