SOUTH DAKOTA SOYBEAN PROCESSORS LLC - Annual Report: 2021 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

☐ 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

x Non-Accelerated Filer

☐ Smaller Reporting Company

☐ Emerging Growth 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 ☒ No

The aggregate market value of the registrant’s Class A units held by non-affiliates at June 30, 2021 was approximately $128,536,053 computed by reference to the most recent public offering price on Form S-1. The registrant's Class A units are not listed on an exchange or otherwise publicly traded. Additionally, the Class A units are subject to significant restrictions on transfer under the registrant's operating agreement.

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 Definitive Proxy Statement to be filed with the Securities Exchange Commission within 120 days after the close of the registrant's fiscal year (December 31, 2021).

Table of Contents


		Page
PART I.
Item 1.	Business	3
Item 1A.	Risk Factors	7
Item 2.	Properties	10
Item 3.	Legal Proceedings	10
Item 4.	Mine Safety Disclosures	10

PART II.
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
Item 6.	Selected Financial Data	12
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk	19
Item 8.	Financial Statements and Supplementary Data	19
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	19
Item 9A.	Controls and Procedures	20
Item 9B.	Other Information	21

PART III.		21

PART IV.		21
Item 15.	Exhibits, Financial Statement Schedules	21

SIGNATURES		22

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;

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

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

•Changes in perception of food quality and safety;

•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;

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

•Changes in the availability of credit and interest rates;

•The availability of additional capital to support capital improvements, development and projects; 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, which we have been operating since 1996 and 2002, respectively. We also own and operate an oilseed processing plant near Miller, South Dakota, which we have been operating since 2015. On February 9, 2022, we announced plans to construct another oilseed processing plant near Mitchell, South Dakota, which we expect to be operational in 2025.

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 plants for processing.

Our core business consists of processing locally grown soybeans into soybean meal and soybean 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 under 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, and adding value to our core products to capture larger margins. We continue to research ways to improve overall efficiencies by analyzing new methods of vertical integration, adding value to our products through further investment in processing, and studying new applications for our products in the food and energy fields. Although a primary objective is 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 and making capital improvements in our operations facilities.

General Development of Business

We were originally organized and operated as a South Dakota cooperative in 1993. In 2002, we reorganized and converted from a cooperative into a South Dakota limited liability company. As a limited liability company, we are taxed as a partnership for U.S. tax purposes, which allows us to pass through our income and losses to our members for inclusion in their tax returns.

We began processing soybeans into soybean meal, crude soybean oil, and soybean hulls in 1996. Since this time 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 May 2011, we completed the construction and start-up of a deodorizer at our facility, which allows us to deodorize refined soybean oil and sell the oil directly to customers in the food industry. In December 2014, we purchased an oilseed processing plant located near Miller, South Dakota, approximately 100 miles west of our main facility in Volga. The Miller plant has allowed us to expand into new markets by processing identity-preserved soybeans, including non-genetically modified organisms (GMO) and organic soybeans. On February 9, 2022, we announced plans to construct a third oilseed processing plant near Mitchell, South Dakota, which is expected to be operational in 2025.

Industry Information

Global soybean production is concentrated in the U.S., Brazil, Argentina and China. The United States Department of Agriculture (“USDA”) reported that, for the 2021 crop year, the U.S. produced approximately 4.42 billion bushels of soybeans, or approximately 33% of estimated world production, with Brazil production at 5.1 billion bushels, and Argentina at 1.7 billion bushels. Global production may fluctuate year-to-year due to any number of factors which may include, but is not limited to, weather, government policy, economic conditions, and commodity prices. Similarly, global soybean consumption may fluctuate year to-year due to any number of reasons which may include, but is not limited to, economic conditions, global health concerns, population growth and international trade policy. Soybeans are a staple commodity used pervasively across the globe so that any contractions in consumption may only be temporary as has historically been the case.

The soybean processing industry converts soybeans into soybean meal, soybean hulls and soybean oil. A bushel of soybeans typically yields approximately forty-four pounds of meal, four pounds of hulls, and eleven pounds of crude oil when processed. Soybean meal and hulls are mostly used by livestock producers and the fish farming industry as feed. Soybean oil is sold in multiple grades and is used by the food, petroleum and chemical industries. The food industry uses soybean oil in cooking and salad dressings, baking and frying fats, and butter substitutes, among other uses.

In the U.S., the USDA estimates that approximately 51% of soybeans produced in the U.S. are processed domestically, 47% are exported as whole soybeans, and 3% are retained for seed and residual use. Soybean processing facilities are generally located close to adequate sources of soybeans and where theres is a strong demand for soybean meal. Soybean meal is predominantly consumed by poultry and swine in the U.S. On average, exports of soybean meal account for 20% to 30% of total production.

Soybean oil refineries are generally located close to soybean processing plants. Oil is shipped throughout the U.S. and for export. The USDA estimates that approximately 54% of domestic oil production is used in food, feed and industrial applications, 41% in biofuels production, and 5% is exported for various uses.

The soybean industry continues to introduce soy-based products as substitutes to various petroleum-based products including lubricants, plastics, ink, crayons and candles. Soybean oil is converted to biofuels such as biodiesel or renewable diesel. Biodiesel and renewable diesel, substitute for standard, petroleum-based diesel fuel,

has experienced rapid growth recently following the expansion of the Renewable Fuel Standard (RFS) program and resumption of the biodiesel blenders’ tax credit.

Soybean crushing and refining margins are generally cyclical in nature. 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.

Raw Materials and Suppliers

We purchase soybeans for processing from local soybean producers and elevators. The State of South Dakota and the upper Midwest, historically produced and provided an adequate supply of soybean for our procurement and the soybean processing industry in general. In 2021, farm producers in South Dakota produced 223 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						675 million
Iowa						601 million
Minnesota						374 million
Nebraska						344 million
Indiana						324 million
Missouri						282 million
Ohio						270 million
South Dakota						223 million
Kansas						197 million
North Dakota						188 million

By comparison, producers in South Dakota grew and harvested approximately 224 million in 2020, 146 million bushels in 2019, 275 million bushels in 2018, and 241 million bushels in 2017. Of this amount, we processed 34.9 million bushels in 2021, compared to 34.3 million bushels in 2020, 33.0 million bushels in 2019, 33.2 million bushels in 2018, and 31.6 million bushels in 2017. 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.

Products and Services

We process soybeans at our two crushing plants which extract the soybean oil from the protein and fiber portions of the soybean. Approximately 80% of a soybean bushel (60 pounds) is processed and sold as soybean meal or hulls. The remaining 20% is extracted as crude soybean oil.

Sales, Marketing and Customers

Our soybean meal is primarily sold to resellers, feed mills, and livestock producers as livestock feed. The meal is primarily sold to customers in the local area (typically within 200 miles of our Volga facility), Western U.S., and Canada. Our crude soybean oil is sold to refining companies for further processing, or it is refined at our facilities and sold directly to the food industry for human consumption or the biofuel industry as transportation fuel.

The table presented below represents the percentage of sales by quantity of product sold within various markets for 2021.


Market	Soybean Meal	Crude Soybean Oil	Refined Oil
Local	48%	34%	27%
Other U.S. States	24%	66%	63%
Export	28%	—%	10%

Over half of our products are shipped by rail, the service of which is provided by the Rapid City, Pierre & Eastern (RCP&E) rail line, with connections to the Burlington-Northern Santa Fe, Canadian Pacific (CP), and the Union Pacific rail lines. On June 1, 2014, our rail line was sold by CP to RCP&E, which is owned and operated by Genesee & Wyoming, Inc.

All of our assets and operations are domiciled in South Dakota, and all of the products sold are produced in South Dakota.

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 which operate 62 plants in the U.S. The industry is generally characterized as mature, consolidated and vertically-integrated, with four companies - Archer Daniels Midland (ADM), Bunge, Cargill and Ag Processing (AGP) - controlling nearly 84% of the processing industry. 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 one of two operating soybean processing companies with operations in South Dakota. AGP operates a processing facility in Aberdeen, South Dakota. Our processing facilities represent approximately 7% of the total soybean processing capacity in the upper Midwest and about 1.3% in the U.S. We continue to maintain our competitive position in the market by producing high quality products and operating highly efficient operations at the lowest possible cost. Adding value to our products is a consistent objective. We are a principal investor in Prairie AquaTech, an early-stage company engaged in the research and development of high quality protein ingredients derived from soybeans. Our investment led to the construction and operation of a new production facility immediately adjacent to our Volga plant in 2019.

Utilities

Volga, South Dakota

We use natural gas and electricity to operate the crushing and refining plants in Volga, South Dakota. Natural gas is used for processing heat and for drying soybeans. Our natural gas provider is NorthWestern Corporation, Sioux Falls, South Dakota. 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 to natural gas if delivery is interrupted or market conditions dictate. We also employ forward contracting to offset some of this risk. Our electricity provider is the City of Volga, South Dakota.

Miller, South Dakota

We use electricity and propane to operate the mechanical press plant in Miller, South Dakota, as natural gas distribution lines are not located in the area. Our electricity provider is NorthWestern Corporation, Sioux Falls, South Dakota. CHS Farmers Alliance, Mitchell, South Dakota, is our propane provider.

Employees

We currently employ approximately 121 individuals, all but five of whom are full-time. We have no unions or other collective bargaining agreements.

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.

The sale of soybean oil for human consumption is impacted by the regulation of trans-fat, which results from the hydrogenation process of products such as soybean oil and plant oils. The U.S. Food and Drug Administration requires 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 included in their products or switched to other oils containing lower amounts of trans-fat.

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. These reports and other information filed by us with the SEC are available on the SEC website (www.sec.gov). 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.

Our business operations and demand for our products are highly dependent on certain global and regional factors that are outside our control. 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 business. Our business and operations may be affected by weather conditions that are outside our control. Weather conditions, for example, during the spring planting season and fall harvest season may cause changes in agricultural production, which could adversely affect our ability to purchase soybeans and drive up costs.

Our business and operations have been and may continue to be adversely affected by COVID-19 or other similar outbreaks. Outbreaks of contagious diseases, including COVID-19, and other adverse public health developments could have an adverse effect on our business. COVID-19 created a widespread health crisis in 2020 that affected and may continue to affect the economies and financial markets of the U.S. and other countries, which may affect the demand for our products and services. The extent to which COVID-19 may affect our business in the future will depend on future developments, including the containment of the virus, the extent of any reoccurrence of

the virus, and the type and duration of actions that may be taken by various governmental authorities in response to the outbreak and the impact on the U.S. and the global economy.

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 plants 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 a resulting price increase which is not accompanied by an increase in the price for soybean meal and oil. Labor costs can also increase over time, particularly if there is a 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 become 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 and soybean oil refining plants. We do not have any other lines of business or other sources of revenue if we are unable to operate our soybean processing and soybean oil refining plants. 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. Key employees are in high demand and are often subject to competing employment offers in the agricultural value-added industries within the local and regional area. Any loss of the key employees or the failure of these 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. AGP's processing facility in Aberdeen, South Dakota, could increase the competition for soybeans and adversely affect our business.

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 two soybean crushing plants are 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 plants 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. The price of electricity, natural gas and propane, the primary sources of energy for our plants, have steadily increased the last few years. If the trend in electricity, natural gas and propane prices continues, our energy costs will remain high and could 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 locations in Volga and Miller are more remote than that of most of our competitors. Today, most of our products are sold FOB Volga or Miller, 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.

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. AGP's new processing plant, for example, in Aberdeen, South Dakota, has been operational since 2019. Without a corresponding increase in the demand for soybean meal and oil, increased soybean meal and oil production may lead to lower prices for soybean meal and oil.

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 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 that could adversely affect our operating results. These risks 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. Any liability resulting from 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. 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. Over the last several years, some soybean producers in our area have been planting genetically modified, or GMO, 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.

There is no public market for our units. There is no public trading market for our units. While we have established a private online matching service in order to facilitate the transfer of units among our members, the transfer of units on this service is severely limited. The service has been designed to comply with federal tax laws and IRS regulations governing a “qualified matching service,” as well as state and federal securities laws. Under these rules, there are detailed timelines and restrictions that must be followed with respect to offers and sales of units. As a result, units held by our members may not be easily resold and members may be required to hold their units indefinitely. Even if a member is able to resell units, the price may be less than the member's original investment for the units or may otherwise be unattractive to the member.

There are significant restrictions on the transfer of our units. To protect our status as a partnership for federal income tax purposes and to assure no public trading market for our units develops or exists, our units are subject to significant restrictions on transfer. All transfers of units must comply with the transfer provisions of our operating agreement and the capital units transfer system and are subject to approval by our board of managers. Our board of managers reserves the right not to approve any transfer of units that could cause us to lose our partnership tax status or violate federal or state securities laws. As a result, members may not be able to transfer their units and may be required to assume the risks of the investment for an indefinite period of time.

Item 2. Properties.

We conduct our operations principally at our two facilities in Volga, South Dakota and Miller, South Dakota.

At our Volga facility, we own the land, consisting of 98 acres, on which most 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.

At our Miller facility, we own the land, consisting of approximately 24 acres, on which the soybean processing plant and operations building rest.

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 December 31, 2021 and March 1, 2022, there were 2,211 members of record and a total of 30,419,000 Class A capital units issued and outstanding. We did not make any repurchases of Class A units during the fiscal year 2021.

Trading Activity

Our capital units are not traded on an exchange or otherwise publicly traded and are subject to significant restrictions on transfer. Most transfers of capital units are conducted through 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 a strict set of rules and conditions set forth under the federal tax code and by us; plus, all matching and transfers are subject to approval by our board of managers. Our qualified matching service is operated through www.AgStockTrade.com, an SEC-registered and regulated Alternative Trading Service which is owned and operated by Variable Investment Advisors, Inc., Tea, South Dakota, a registered broker-dealer with the SEC, FINRA, and various states. The following table contains historical information by quarter for the past two years regarding the matching of capital units through the qualified matching service:


Quarter	Low Price (1)		High Price (1)		Average Price		# of Capital Units Matched
First Quarter 2020	$	3.49	$	3.51	$	3.49	26,000
Second Quarter 2020	$	3.35	$	3.43	$	3.37	37,000
Third Quarter 2020	$	3.10	$	3.31	$	3.22	28,000
Fourth Quarter 2020	$	3.04	$	3.15	$	3.10	75,250
First Quarter 2021	$	3.23	$	3.40	$	3.37	141,750
Second Quarter 2021	$	3.39	$	4.26	$	3.80	108,750
Third Quarter 2021	$	4.31	$	4.83	$	4.58	82,250
Fourth Quarter 2021	$	4.29	$	4.55	$	4.31	64,000

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

Transfer Restrictions

As a limited liability company, we must severely restrict trading and transfers of our capital units in order to preserve our preferential single-level "partnership" tax status at the member level. To preserve this, our operating agreement prohibits transfers of capital units other than through the procedures specified under our capital units transfer system, or CUTS, which may be amended from time to time by our board of managers. Under the CUTS, our capital units cannot be traded on any national securities exchange or in any over-the-counter market. Also, we cannot permit the total number of capital units traded annually through the qualified matching service to exceed 10% of our total issued and outstanding capital units. All transactions, including any trades on the qualified matching service, must be approved by the board of managers, 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 or entity for membership, and no member may own more than 10% of our total outstanding capital units.

Distributions to Members

We issued to our members a cash distribution of $9.4 million (31.0¢ per capital unit) and $6.7 million (22.0¢ per capital unit) in the years ended December 31, 2021 and 2020, respectively. On February 1, 2022, our board of

managers approved a cash distribution to our members of approximately $17.3 million (57.0¢ per capital unit), which was issued to our members on or about February 3, 2022. Our distributions are declared at the discretion of our board of managers and are issued in accordance with the terms of our operating agreement and distribution policy. Distributions are also 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.


	2021		2020		2019		2018		2017
Bushels processed	34,876,323		34,306,674		33,045,418		33,232,663		31,577,132
Statement of Operations Data:
Revenues	$	590,150,153	$	415,025,765	$	371,275,766	$	391,764,683	$	375,759,337
Costs & expenses:
Cost of goods sold	(556,675,807)		(395,772,460)		(356,475,930)		(362,601,571)		(364,150,130)
Operating expenses	(4,590,227)		(3,819,645)		(3,624,306)		(3,834,845)		(3,211,255)
Operating profit (loss)	28,884,119		15,433,660		11,175,530		25,328,267		8,397,952
Non-operating income (loss)	758,163		1,239,018		723,812		1,448,980		(1,171,034)
Interest expense	(1,634,367)		(1,090,951)		(919,157)		(897,942)		(457,909)
Income tax benefit (expense)	—		—		(600)		(1,960)		(1,941)
Income (loss) from continuing operations	28,007,915		15,581,727		10,979,585		25,877,345		6,767,068
Gain (loss) on discontinued operations	—		—		—		—		—
Net income (loss)	$	28,007,915	$	15,581,727	$	10,979,585	$	25,877,345	$	6,767,068
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	$	0.921	$	0.512	$	0.361	$	0.851	$	0.222
Balance Sheet Data:
Working capital	$	37,448,081	$	31,391,916	$	21,322,260	$	19,425,996	$	15,668,312
Net property, plant & equipment	72,532,608		64,231,194		64,517,204		59,068,014		55,531,308
Total assets	245,286,123		225,823,047		158,104,992		144,854,183		123,216,647
Long-term obligations	20,122,452		23,613,702		15,307,727		5,796,382		5,102,818
Members’ equity	113,414,905		94,836,880		85,947,333		90,177,248		69,375,206
Other Data:
Capital expenditures	$	13,442,955	$	4,652,368	$	10,066,719	$	8,026,131	14,494,447
Distributions to members	$	9,429,890	$	6,692,180	$	15,209,500	$	5,075,303	$	9,444,789
Distributions to members per capital unit	$	0.310	$	0.220	$	0.500	$	0.167	$	0.310

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 net income of $28.0 million in 2021, an increase of $12.4 million from 2020. While several factors contributed to our record profit, including an improvement in the quality and quantity of soybeans from the 2020 crop year, soybean oil was the principal factor. Strong demand for soybean oil, principally driven by a growing renewable diesel industry, elevated profit margins to an all-time high in 2021.

Entering 2022, increased demand for soybean oil has continued to drive margins and expansion of the soybean processing industry in the U.S. In direct response to this growth, we recently announced plans to construct a new oilseed processing plant near Mitchell, South Dakota. The Mitchell plant will be capable of processing not only soybeans but other crops which contain a much higher percentage of oil such as sunflowers. We believe the plant's location is ideally suited to access the growing region to the west which possesses the best economics for the production of high oil seeds. The location is also close to growing hog production which will provide an additional outlet for the sale of meal.

We believe 2022 will be another year of growth and profit due largely to soybean oil. Undoubtedly, there will be potential challenges, including the after-effects of COVID-19, higher energy and soybean prices, effects of a possible slow-down in the economy, and possibility of a poor crop year in 2022. Yet, we believe we are positioned well to meet these potential challenges and make 2022 an excellent year.

Results of Operations

Comparison of Years Ended December 31, 2021 and 2020


	Year Ended December 31, 2021			Year Ended December 31, 2020
	$		% of Revenue	$		% of Revenue
Revenue	$	590,150,153	100.0	$	415,025,765	100.0
Cost of revenues	(556,675,807)		(94.3)	(395,772,460)		(95.4)
Operating expenses	(4,590,227)		(0.8)	(3,819,645)		(0.9)
Other income (expense)	(876,204)		(0.1)	148,067		—
Income tax (expense), net	—		—	—		—
Net income (loss)	$	28,007,915	4.7	$	15,581,727	3.8

Revenue – Revenue increased $175.1 million, or 42.2%, for the year ended December 31, 2021, compared to the same period in 2020. The increase in revenues was primarily due to increases in the average sales prices of all soybean products, especially refined soybean oil. The average sales price of soybean oil increased approximately 75% from 2020 to 2021, due to surging demand for soybean oil from the renewable diesel and food sectors. In addition, soybean meal prices increased approximately 21% during the year ended December 31, 2021, due largely to concerns about the prospect of a heavily diminished soybean supply prior to the 2021 harvest resulting from strong demand in the soybean export sector.

Gross Profit/Loss – Gross profit increased $14.2 million, or 73.9%, for the year ended December 31, 2021, compared to the same period in 2020. The increase in gross profit was primarily due to surging in demand for oil from the renewable diesel sector as more diesel plants were opened. In addition, the quantity and quality of soybeans grown in the U.S., especially in our local procurement area, improved in 2020 from 2019 because of more favorable weather conditions.

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $771,000, or 20.2%, during the year ended December 31, 2021, compared to the same period in 2020. The increase was primarily due to increases in personnel costs and professional fees.

Interest Expense – Interest expense increased $543,000, or 49.8%, during the year ended December 31, 2021, compared to the same period in 2020. The increase in interest expense was due primarily to an increase in borrowings from our lines of credit, as we borrowed more due to higher commodity prices and to pay for capital improvements. The average debt level during 2021 was approximately $61.6 million, compared to $32.9 million in 2020.

Other Non-Operating Income (Expense) – Other non-operating income, including patronage dividend income, decreased $481,000, or 38.8%, for the year ended December 31, 2021, compared to the same period in 2020. The decrease was primarily due to the forgiveness of the $1.2 million Payment Protection Plan loan by the U.S. Small Business Administration in November 2020. Partially offsetting the decrease in other income was a $585,000 improvement in gains (losses) on our interest rate hedge instruments. In 2021, gains on interest rate hedges totaled $246,000, compared to losses of $339,000 in 2020.

Net Income/Loss – We generated a net income of $28.0 million during the year ended December 31, 2021, a $12.4 million increase from 2020. The increase is primarily attributable to an increase in gross profit.

Comparison of Years Ended December 31, 2020 and 2019


	Year Ended December 31, 2020			Year Ended December 31, 2019
	$		% of Revenue	$		% of Revenue
Revenue	$	415,025,765	100.0	$	371,275,766	100.0
Cost of revenues	(395,772,460)		(95.4)	(356,475,930)		(96.0)
Operating expenses	(3,819,645)		(0.9)	(3,624,306)		(1.0)
Other income (expense)	148,067		—	(195,345)		(0.1)
Income tax (expense), net	—		—	(600)		—
Net income (loss)	$	15,581,727	3.8	$	10,979,585	3.0

Revenue – Revenue increased $43.7 million, or 11.8%, for the year ended December 31, 2020, compared to the same period in 2019. The increase in revenues was primarily due to increases in the quantity of soybeans processed and sales of soybean oil. We processed an additional 3.8% in soybeans from 2019 to 2020, which increased the volume of soybean products available for sale to our customers. In addition, our soybean oil sales increased 10.4% from 2019 to 2020 because of an increase in production capacity in the renewable diesel industry.

Gross Profit/Loss – Gross profit increased $4.5 million, or 30.1%, for the year ended December 31, 2020 compared to the same period in 2019, due primarily to improved weather conditions in our soybean procurement area and decreased maintenance costs. Severe flooding caused by heavy snow and rainfall in the spring of 2019 forced local farmers to delay or reduce planting, or elect to not plant at all. As a result, soybean production in South Dakota decreased nearly 50% from 2018 to 2019, which increased local soybean prices and narrowed soybean crush margins. Crush margins were also adversely affected by increased moisture and decreased protein content in the 2019 crop year, both of which reduced our product yield. In 2020, soybean quality and yield in our procurement area greatly improved. In addition, production expenses decreased $1.4 million, or 4.7%, between 2019 and 2020 due to a decrease in maintenance costs. In August 2019, we had an extended shutdown of our Volga facility, which required us to make extensive repairs and replace certain processing equipment.

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased $195,000, or 5.4%, for the year ended December 31, 2020, compared to 2019. The increase was primarily due to an increase in personnel costs.

Interest Expense – Interest expense increased $172,000, or 18.7%, for the year ended December 31, 2020 compared to the same period in 2019. The increase in interest expense was due primarily to an increase in borrowings from our lines of credit, as we borrowed more to pay for capital improvements and increased soybean prices. During the year ended December 31, 2020, the average debt level was approximately $32.9 million,

compared to $19.1 million in 2019. Partially offsetting the increase in borrowings is a decrease in interest rates on our senior debt with CoBank. As of December 31, 2020, the interest rate on our revolving long-term loan was 2.60%, compared to 4.24% as of December 31, 2019.

Other Non-Operating Income (Expense) – Other non-operating income, including patronage dividend income, increased $515,000, or 71.2%, for the year ended December 31, 2020 compared to the same period in 2019. The increase was primarily due to the forgiveness of the Payment Protection Plan loan by the U.S. Small Business Administration in November 2020.

Net Income/Loss – We generated a net income of $15.6 million during the year ended December 31, 2020, an increase of $4.6 million from 2019. The increase was primarily attributable to an increase gross profit.

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by operations and borrowings under our two revolving lines of credit which are discussed below under “Indebtedness.” On December 31, 2021, we had working capital, defined as current assets less current liabilities, of approximately $37.4 million, compared to working capital of $31.4 million on December 31, 2020. Working capital increased between periods primarily due to increases in net income in 2021. We will continue funding our capital and operating needs from cash from operations and revolving lines of credit.

Comparison of the Years Ended December 31, 2021 and 2020


	2021		2020
Net cash from (used for) operating activities	$	18,016,268	$	14,206,832
Net cash (used for) investing activities	(13,237,991)		(4,949,271)
Net cash from (used for) financing activities	(7,595,489)		(6,231,292)

Cash Flows From (Used For) Operating Activities

The $3.8 million increase in cash flows provided by operating activities was primarily attributed to a $12.4 million increase in net income. Partially offsetting the increase in net income was a $9.3 million increase in inventories and accounts receivable in 2021. We increased inventories by $26.9 million in 2021 compared to $20.6 million in 2020. Accounts receivable increased $7.6 million in 2021, compared to only $4.6 million in 2020. The increase in inventories and accounts receivable was the result of increased commodity prices.

Cash Flows From (Used For) Investing Activity

The $8.3 million increase in cash flows used for investing activities between 2021 and 2020 was due to an increase in capital improvements in 2021. In 2021, we spent approximately $13.4 million on capital improvements to enhance the quality and efficiency of operations, compared to $4.7 million in 2019.

Cash Flows From (Used For) Financing Activity

The $1.4 million increase in cash flows used for financing activities was due to a $2.7 million increase in cash distributions to members in 2021, compared to 2020. In 2021, we distributed $9.4 million to our members, compared to $6.7 million in 2020

Comparison of the Years Ended December 31, 2020 and 2019


	2020		2019
Net cash from operating activities	$	14,206,832	$	(3,347,017)
Net cash used for investing activities	(4,949,271)		(9,968,606)
Net cash used for financing activities	(6,231,292)		6,743,222

Cash Flows From (Used For) Operating Activities

The $17.6 million change in cash flows provided by (used for) from operating activities was primarily attributed to a $17.7 million change in accrued commodity purchases and a $4.6 million increase in net income. In 2020, we increased accrued commodity purchases by $1.6 million, compared to a reduction of $4.1 million in 2019. Partially offsetting the change in accrued commodity purchases was a $6.2 million increase in inventories in 2020. We increased inventories by $20.6 million in 2020, compared to $14.3 million in 2019. Increases in accrued commodity purchases and inventories were the result of increased commodity prices.

Cash Flows From (Used For) Investing Activity

The $5.0 million decrease in cash flows used for investing activities between 2019 and 2020 was due to a decrease in capital improvements in 2020. In 2020, we spent approximately $4.7 million on capital improvements to enhance the quality and efficiency of operations, compared to $10.1 million in 2019.

Cash Flows From (Used For) Financing Activity

The $13.0 change in cash flows provided by (used for) financing activities was due to a $17.3 million reduction in net proceeds (payments) on borrowings from our credit facilities in 2020. In 2020, net proceeds from borrowings was $0.4 million, compared to $17.7 million in 2019. The change in net proceeds (payments) on borrowings was partially offset by an $8.5 million decrease in cash distributions to members from 2019 to 2020.

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 this loan, we may borrow funds as needed up to the credit line maximum, or $18.0 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 decreases by $2.0 million every six months until the credit line’s maturity on March 20, 2026. We pay a 0.40% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan was $16.9 million and $17.5 million as of December 31, 2021 and 2020, respectively. Under this loan, $1.1 million was available to be borrowed as of December 31, 2021.

The second credit line is a revolving working capital (seasonal) loan. The primary purpose of this loan is to finance our operating needs. The maximum we can borrow under this line is $70.0 million until the loan's maturity on December 1, 2022. 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 credit agreement to avoid the commitment fee. As of December 31, 2021 and 2020, there were no advances outstanding on the seasonal loan; therefore allowing us to borrow $70.0 million as of as of December 31, 2021.

Both the revolving and seasonal 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 2.56% and 2.60% as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the interest rate on the seasonal loan is 2.31% and 2.35%, respectively. We were in compliance with all covenants and conditions under the loans as of December 31, 2021.

On April 20, 2020, we entered into an unsecured promissory note for $1,215,700 under the U.S. Small Business Administration's Paycheck Protection Program (“PPP Loan“), a loan program created under the Coronavirus Aid, Relief and Economic Security (the "CARES Act"). The PPP Loan, which was scheduled to mature on July 20, 2022 and had a 1.0% interest rate, was made through First Bank & Trust, N.A., Brookings, South Dakota. The PPP Loan

has since been forgiven in full by the SBA, with $1,205,700 being forgiven in November 2020, and 10,000 being forgiven in February 2021.

Capital Expenditures

We made a total of $13.4 million in capital expenditures on property and equipment in 2021 compared to approximately $4.7 million in 2020. Improvements were made to enhance the quality and efficiency of our soybean crushing facility and oil refinery in Volga, South Dakota, and our small oilseed processing plant near Miller, South Dakota. Depending upon profitability, we anticipate spending between $6.0 million and $10.0 million for capital improvements in 2022, which will be financed from cash flows from operating activities and long-term debt financing.

Off Balance Sheet Financing Arrangements

We do not utilize variable interest entities or other off-balance sheet financial arrangements.

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)	$	19,045,000	$	4,302,000	$	8,520,000	$	6,223,000	$	—

Operating Lease Obligations	12,735,000		2,575,000		2,883,000		2,104,000		5,173,000

Total	$	31,780,000	$	6,877,000	$	11,403,000	$	8,327,000	$	5,173,000

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

Recent Accounting Pronouncements

See page F-10, 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.

Revenue Recognition

We account for all of our revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers, which became effective January 1, 2018. As part of the adoption of ASC 606, we applied the new standard on a modified retrospective basis analyzing open contracts as of January 1, 2018. However, no cumulative effect adjustment to retained earnings was necessary as no revenue recognition differences were identified when comparing the revenue recognition criteria under ASC 606 to previous requirements.

We principally generate revenue from merchandising and transporting manufactured agricultural products used as ingredients in food, feed, energy and industrial products. Revenue is measured based on the consideration

specified in the contract with a customer, and excludes any amounts collected on behalf of third parties (e.g. - taxes). We follow a policy of recognizing revenue at a single point in time when we satisfy our performance obligation by transferring control over a product to a customer. Control transfer typically occurs when goods are shipped from our facilities or at other predetermined control transfer points (for instance, destination terms). Shipping and handling costs related to contracts with customers for sale of goods are accounted for as a fulfillment activity and are included in cost of revenues. Accordingly, amounts billed to customers for such costs are included as a component of revenues.

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. Our management does not anticipate that hedging activities will have a significant impact on our 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.

An adverse change in market prices would not materially affect our profitability since we generally take opposite and offsetting positions by entering into commodity futures and forward contracts as economic hedges of price risk.

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.

As of December 31, 2021, we had $0 in fixed rate debt and $88 million in variable rate debt available to borrow. Interest rate changes impact the amount of our interest payments and, therefore, our future earnings and cash flows. Assuming other variables remain constant, a one percentage point (1%) increase in interest rates on our variable rate debt could have an estimated impact on profitability of approximately $880,000 per year.

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, 2021, 2020 and 2019.

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 of December 31, 2021, our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control- Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this assessment using those criteria, management concluded that, as of December 31, 2021, our internal control over financial reporting is 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, 2021 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 a Definitive Proxy Statement to be filed with the Commission within 120 days after the close of the fiscal year covered by this Report (December 31, 2021).

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, 2021. 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 - Exhibits required to be filed by Item 601 of Regulation S-K are set forth in the Exhibit Index accompanying this Annual Report on Form 10-K and are incorporated herein by reference.


Exhibit Number						Description
3.1(i)						Articles of Organization (1)
3.1(ii)						Operating Agreement, as amended and restated
3.1(iii)						Articles of Amendment to Articles of Organization
4.1						Form of Class A Unit Certificate
10.1						Railroad Car Lease Agreement with Trinity Industries dated February 12, 2002
10.2						Railroad Car Lease Agreements with Wells Fargo Rail Corporation, dated November 10, 2003 and November 25, 2003 (2)
10.3						Security Agreement with CoBank dated June 17, 2004
10.4						Credit Agreement with CoBank dated December 28, 2016
10.5						Amendment to Credit Agreement with CoBank dated March 28, 2017
10.6						Amendment to Credit Agreement with CoBank dated February 27, 2018
10.7						Amendment to Credit Agreement with CoBank dated January 28, 2020
10.8						Amendment to Credit Agreement with CoBank dated December 10, 2020
10.9						Amendment to Credit Agreement with CoBank dated December 14, 2021
10.10						Monitored Revolving Credit Supplement dated December 28, 2016
10.11						Amended and Restated Revolving Credit Promissory Note dated January 28, 2020
10.12						Amended and Restated Revolving Credit Promissory Note dated December 10, 2020
10.13						Amended and Restated Revolving Credit Promissory Note dated February 5, 2021
10.14						Amended and Restated Revolving Credit Promissory Note dated March 1, 2021
10.15						Amended and Restated Revolving Credit Promissory Note dated April 6, 2021
10.16						Amended and Restated Revolving Credit Promissory Note dated April 30, 2021
10.17						Amended and Restated Revolving Credit Promissory Note dated December 14, 2021
10.18						Amended and Restated Revolving Term Promissory Note dated January 28, 2020
10.19						Amended and Restated Revolving Term Promissory Note dated December 14, 2021


Exhibit Number						Description
10.20						Thomas Kersting Employment Agreement dated January 1, 2020
10.21						Mark Hyde Employment Agreement dated March 21, 2017
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) Assigned by General Electric Railcar Services Corporation to Wells Fargo Rail Corporation on August 1, 2016.

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

Dated:	March 17, 2022	By	/s/ Thomas Kersting
			Thomas Kersting, Chief Executive Officer
			(Principal Executive Officer)

Dated:	March 17, 2022		/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.


Dated:	March 17, 2022	By	/s/ Thomas Kersting
			Thomas Kersting, Chief Executive Officer
			(Principal Executive Officer)

Dated:	March 17, 2022	By	/s/ Mark Hyde
			Mark Hyde
			Chief Financial Officer (Principal Financial Officer)

Dated:	March 17, 2022	By	/s/ Ronald Anderson
			Ronald Anderson, Manager

Dated:	March 17, 2022	By	/s/ Lewis Bainbridge
			Lewis Bainbridge, Manager

Dated:	March 17, 2022	By	/s/ Mark Brown
			Mark Brown, Manager


Dated:	March 17, 2022	By	/s/ Wayne Enger
			Wayne Enger, Manager

Dated:	March 17, 2022	By	/s/ Spencer Enninga
			Spencer Enninga, Manager

Dated:	March 17, 2022	By	/s/ Gary Goplen
			Gary Goplen, Manager

Dated:	March 17, 2022	By	/s/ Jeffrey Hanson
			Jeffrey Hanson, Manager

Dated:	March 17, 2022	By	/s/ Kent Howell
			Kent Howell, Manager

Dated:	March 17, 2022	By	/s/ Jonathan Kleinjan
			Jonathan Kleinjan, Manager

Dated:	March 17, 2022	By	/s/ Gary Kruggel
			Gary Kruggel, Manager

Dated:	March 17, 2022	By	/s/ Robert Nelsen
			Robert Nelsen, Manager

Dated:	March 17, 2022	By	/s/ Michael Reiner
			Michael Reiner, Manager

Dated:	March 17, 2022	By	/s/ Doyle Renaas
			Doyle Renaas, Manager

Dated:	March 17, 2022	By	/s/ Ned Skinner
			Ned Skinner, Manager

Dated:	March 17, 2022	By	/s/ Craig Weber
			Craig Weber, Manager

South Dakota Soybean Processors, LLC

Financial Statements

December 31, 2021, 2020, and 2019

SOUTH DAKOTA SOYBEAN PROCESSORS, LLC

Index to Financial Statements


			Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 286)			F-3

FINANCIAL STATEMENTS
Balance Sheets			F-5
Statements of Operations			F-6
Statements of Changes in Members’ Equity			F-7
Statements of Cash Flows			F-8
Notes to Financial Statements			F-9


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Managers and Members

South Dakota Soybean Processors, LLC

Volga, South Dakota

Opinion on the Financial Statements

We have audited the accompanying balance sheets of South Dakota Soybean Processors, LLC (the Company) as of December 31, 2021 and 2020, and the related statements of operations, changes in members’ equity, and cash flows for the years ended December 31, 2021, 2020, and 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of South Dakota Soybean Processors, LLC as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the entity's management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to South Dakota Soybean Processors, LLC in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. South Dakota Soybean Processors, LLC is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgement. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory Basis Adjustment

Description of the Matter

As explained under the Critical Accounting Policies and Estimates in the financial statements, the estimated fair values for inventories carried at market and forward commodity purchase and sale contracts are based on exchange-quoted prices adjusted for differences in local markets and/or quality, referred to as basis. Market valuations for inventories or fair values for forward commodity purchase and sales contracts are adjusted for

location and quality differences (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The stated fair values as of December 31, 2020 for inventories, commodity contracts in an asset position, and commodity contracts in a liability position were $69.6 million, $28.4 million and $41.9 million, respectively.

Auditing the estimated fair values for inventories carried at market and forward commodity purchase and sale contracts is complex due to the judgment involved in determining market prices, specifically related to determining the estimated basis adjustment. The basis adjustment is impacted by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices also impact the basis adjustment.

How we addressed the matter in our audit

We obtained an understanding over the Company’s determination of the estimated fair values for inventories carried at market and forward commodity purchase and sale contracts.

To test the estimated fair values of inventories carried at market and forward commodity purchase and sale contracts, our audit procedures included, among others, evaluating (i) the reasonableness of the significant assumptions used by management including comparison of quoted commodity pricing to local and regional market conditions, (ii) the historical adjustments to inventory balances as compared to the current year’s adjustment, and (iii) the completeness and accuracy of the underlying data supporting the basis adjustments. Specifically, we compared the basis adjustments used by management to local grain elevators and recent trade prices, including recently executed transactions. We also evaluated the adequacy of the Company’s financial statement disclosures related to the estimated fair value of inventories carried at market and forward commodity purchase and sale contracts.

We have served as South Dakota Soybean Processors, LLC’s auditor since 2008.

/s/ Eide Bailly LLP

Fargo, North Dakota

March 17, 2022

South Dakota Soybean Processors, LLC

Balance Sheets

December 31, 2021 and 2020

___________________________________________________________________________________________________________________


	2021		2020
Assets
Current assets
Cash and cash equivalents	$	833,738	$	3,650,950
Trade accounts receivable	36,571,001		28,990,655
Inventories	95,066,385		69,593,473
Commodity derivative instruments	11,933,759		28,417,680
Margin deposits	2,099,626		6,018,001

Prepaid expenses	2,692,338		2,093,622

Total current assets	149,196,847		138,764,381

Property and equipment	133,919,053		122,195,099
Less accumulated depreciation	(61,386,445)		(57,963,905)
Total property and equipment, net	72,532,608		64,231,194

Other assets
Investments in related parties	10,764,310		9,327,890
Investments in cooperatives	1,559,800		1,539,293
Right-of-use lease asset, net	11,232,558		11,960,289


Total other assets	23,556,668		22,827,472

Total assets	$	245,286,123	$	225,823,047

Liabilities and Members' Equity
Current liabilities
Excess of outstanding checks over bank balance	$	10,698,239	$	8,263,020
Current maturities of long-term debt	2,902,473		—
Note payable - seasonal loan	—		—
Current operating lease liabilities	1,958,707		5,846,456
Accounts payable	1,931,911		1,506,779

Accrued commodity purchases	60,892,294		44,962,904
Commodity derivative instruments	27,644,858		41,940,744
Accrued expenses	4,305,749		3,083,591
Accrued interest	67,126		40,564
Deferred liabilities - current	1,347,409		1,728,407
Total current liabilities	111,748,766		107,372,465

Long-term liabilities
Long-term debt, net of current maturities and unamortized debt issuance costs	13,991,458		17,499,868
Long-term operating lease liabilities	6,130,994		6,113,834

Total long-term liabilities	20,122,452		23,613,702

Commitments and contingencies (Notes 8, 9, 10, 16 & 18)

Members' equity Class A Units, no par value, 30,419,000 units issued and outstanding	113,414,905		94,836,880

Total liabilities and members' equity	$	245,286,123	$	225,823,047

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

South Dakota Soybean Processors, LLC

Statements of Operations

For the Years Ended December 31, 2021, 2020, and 2019

___________________________________________________________________________________________________________________


	2021		2020		2019

Net revenues	$	590,150,153	$	415,025,765	$	371,275,766

Cost of revenues:
Cost of product sold	481,430,381		327,346,105		289,379,275
Production	31,980,845		29,452,928		30,889,789
Freight and rail	42,487,645		38,301,610		35,572,737
Brokerage fees	776,936		671,817		634,129
Total cost of revenues	556,675,807		395,772,460		356,475,930

Gross profit	33,474,346		19,253,305		14,799,836

Operating expenses:
Administration	4,590,227		3,819,645		3,624,306
Operating income	28,884,119		15,433,660		11,175,530

Other income (expense):
Interest expense	(1,634,367)		(1,090,951)		(919,157)
Other non-operating income (expense)	393,016		1,043,465		554,356
Patronage dividend income	365,147		195,553		169,456
Total other income (expense)	(876,204)		148,067		(195,345)

Income before income taxes	28,007,915		15,581,727		10,980,185

Income tax (expense), net	—		—		(600)





Net income	$	28,007,915	$	15,581,727	$	10,979,585




Basic and diluted earnings (loss) per capital unit:	$	0.92	$	0.51	$	0.36

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 financial statements.

South Dakota Soybean Processors, LLC

Statements of Changes in Members’ Equity

For the Years Ended December 31, 2021, 2020, and 2019

___________________________________________________________________________________________________________________


	Class A Units
	Units	Amount

Balances, January 1, 2019	30,419,000	$	90,177,248

Net income	—	10,979,585

Distribution to members	—	(15,209,500)

Balances, December 31, 2019	30,419,000	85,947,333

Net income	—	15,581,727

Distribution to members	—	(6,692,180)

Balances, December 31, 2020	30,419,000	94,836,880

Net income	—	28,007,915

Distributions to members	—	(9,429,890)

Balances, December 31, 2021	30,419,000	$	113,414,905

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

South Dakota Soybean Processors, LLC

Statements of Cash Flows

For the Years Ended December 31, 2021, 2020, and 2019

___________________________________________________________________________________________________________________


	2021		2020		2019
Operating activities
Net income	$	28,007,915	$	15,581,727	$	10,979,585
Charges and credits to net income not affecting cash:
Depreciation and amortization	5,092,868		4,909,271		4,489,614
Net (gain) loss recognized on derivative instruments	10,042,360		8,925,177		4,150,476

(Gain) loss on sales of property and equipment	(96,506)		(7,454)		64,244
Loss on equity method investment	—		—		135,588
Non-cash patronage dividends and interest income	(75,411)		(43,405)		(42,364)
Forgiveness of Paycheck Protection Program loan	(10,000)		(1,205,700)		—
Change in current operating assets and liabilities	(24,944,958)		(13,952,784)		(23,124,160)
Net cash (used for) from operating activities	18,016,268		14,206,832		(3,347,017)

Investing activities

Purchase of investments	—		(404,329)		—
Retirement of patronage dividends	54,904		66,210		32,288


Proceeds from sales of property and equipment	150,060		41,216		65,825
Purchase of property and equipment	(13,442,955)		(4,652,368)		(10,066,719)
Net cash (used for) investing activities	(13,237,991)		(4,949,271)		(9,968,606)

Financing activities
Change in excess of outstanding checks over bank balances	2,435,219		98,268		4,271,573
Net (payments) proceeds from seasonal borrowings	—		(1,743,029)		1,743,029
Distributions to members	(9,429,890)		(6,692,180)		(15,209,500)

Payments for debt issue costs	—		(10,000)		—
Proceeds from long-term debt	20,344,412		35,999,802		71,476,467
Principal payments on long-term debt	(20,945,230)		(33,884,153)		(55,538,347)
Net cash from (used for) financing activities	(7,595,489)		(6,231,292)		6,743,222

Net change in cash and cash equivalents	(2,817,212)		3,026,269		(6,572,401)

Cash and cash equivalents, beginning of year	3,650,950		624,681		7,197,082

Cash and cash equivalents, end of year	$	833,738	$	3,650,950	$	624,681

Supplemental disclosures of cash flow information
Cash paid (received) during the year for:
Interest	$	1,607,805	$	1,125,157	$	855,060
Income taxes	$	—	$	—	$	—

Noncash investing activities:
Soybean meal contributed as investment in related party	$	1,436,420	$	1,049,834	$	—

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

South Dakota Soybean Processors, LLC

Notes to the 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 meal, oil, and hulls. The Company’s principal operations are located where we have plants in Volga and Miller, South Dakota.

Cash and cash equivalents

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

Inventories

Finished goods (soybean meal, oil, refined oil, and hulls) and raw materials (soybeans) are valued at estimated market value, which approximates net realizable 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 lower of cost or net realizable value.

Investments

The Company accounts for its equity investments in Prairie AquaTech, LLC, Prairie AquaTech Manufacturing, LLC, and Prairie AquaTech Investments, LLC using Accounting Standards Update (ASU) No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. All equity securities that do not result in consolidation and are not accounted for under the equity method are measured at fair value with changes therein reflected in net income. We have elected to utilize the measurement alternative for equity investments that do not have readily determinable fair values and measure these investments at cost less any impairment plus or minus observable price changes in orderly transactions.

Prior to October 1, 2019, the Company accounted for its investment in Prairie AquaTech, LLC using the equity method due to the Company's ability to influence management decisions of Prairie AquaTech, LLC, due to its Board position on the Entity's Board of Managers. While the Company still holds its position on that entity's Board of Managers, the Company's ability to influence management decisions has been reduced due to additional quantity of board seats outstanding. Therefore, the Company ceased its accounting for its investment in Prairie AquaTech, LLC under the equity method, and began accounting for the investment using ASU No. 2016-01.

Investments in cooperatives are recorded in a manner similar to equity investments without readily determinable fair values, 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
Railcars			50 years

South Dakota Soybean Processors, LLC

Notes to the Financial Statements

___________________________________________________________________________________________________________________

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. The Company did not recognize any impairment on property and equipment during the years ended December 31, 2021, 2020, and 2019.

Deferred revenue

The Company recognizes revenues as earned. Amounts received in advance of the period in which service is rendered are recorded as a liability under “Deferred liabilities”. The Company's deferred revenues as of January 1, 2020 was $101,111.

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

The Company accounts for all of its revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers.

The Company principally generates revenue from merchandising and transporting manufactured agricultural products used as ingredients in food, feed, energy and industrial products. Revenue is measured based on the consideration specified in the contract with a customer, and excludes any amounts collected on behalf of third parties (e.g. - taxes). The Company follows a policy of recognizing revenue at a single point in time when it satisfies its performance obligation by transferring control over a product to a customer. Control transfer typically occurs when goods are shipped from our facilities or at other predetermined control transfer points (for instance, destination terms). Shipping and handling costs related to contracts with customers for sale of goods are accounted for as a fulfillment activity and are included in cost of revenues. Accordingly, amounts billed to customers for such costs are included as a component of revenues.

Payments received in advance to the transfer of goods, or "contract liabilities", are included in "Deferred liabilities - current" on the Company's balance sheets. These customer prepayments totaled $1,347,409 and $1,728,407 as of December 31, 2021 and 2020, respectively. All of the $1,728,407 balance as of December 31, 2020 was recognized as revenue during the year ended December 31, 2021. All of the $313,347 balance as of December 31, 2019 was recognized as revenue during the year ended December 31, 2020.

The following table presents a disaggregation of revenue from contracts with customers for the years ended December initiated 31, 2021, 2020, and 2019, by product type:


	2021		2020		2019

Soybean meal and hulls	$	335,175,830	$	268,163,989	$	244,012,663
Soybean oil and oil byproducts	254,974,323		146,861,776		127,263,103

Totals	$	590,150,153	$	415,025,765	$	371,275,766

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.

South Dakota Soybean Processors, LLC

Notes to the Financial Statements

___________________________________________________________________________________________________________________

Advertising costs

Advertising and promotion costs are expensed as incurred. The Company incurred $66,000, $65,000, and $76,000, of advertising costs in the years ended December 31, 2021, 2020, and 2019, 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, as well as the interest rate swaps, caps and floors, 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.

The Company uses interest rate swaps, caps and floors offered through regulated commodity exchanges. The Company is exposed to risk of loss resulting from potential increases in interest rates on their variable rate debt. To reduce that risk, the Company has purchased interest rate swaps, caps and floors. Unrealized gains and losses on interest rate swaps, caps and floors are reflected in current earnings immediately.

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.

The Company has evaluated the provisions of FASB ASC 740-10 for uncertain tax positions. As of December 31, 2021 and 2020, 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, 2021, the book value of the Company’s net assets exceeds the tax basis of those assets by approximately $25.5 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 2018. We currently have no tax years under examination.

Recent accounting pronouncements

Any recent accounting pronouncements are not expected to have a material impact on our financial statements.

South Dakota Soybean Processors, LLC

Notes to the Financial Statements

___________________________________________________________________________________________________________________

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.

The following table presents the aging analysis of trade receivables as of December 31, 2021 and 2020:


	2021		2020
Past due:
Less than 30 days past due	$	11,431,358	$	4,827,150
30-59 days past due	693,286		85,177
60-89 days past due	56,831		11,366
Greater than 90 days past due	144,572		43,524
Total past due	12,326,047		4,967,217
Current	24,244,954		24,023,438
Totals	$	36,571,001	$	28,990,655

The following table provides information regarding the Company’s allowance for doubtful accounts receivable as of December 31, 2021, 2020, and 2019:


	2021		2020		2019
Balances, beginning of year	$	—	$	—	$	—
Amounts charged (credited) to costs and expenses	258,747		—		—
Additions (deductions)	(258,747)		—		—
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 1.5% per month on past due receivables.

The Company's accounts receivable as of January 1, 2020 was $24,418,443.

Note 3 - Inventories

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


	2021		2020
Finished goods	$	60,233,567	$	35,502,780
Raw materials	34,501,561		33,824,265
Supplies & miscellaneous	331,257		266,428
Totals	$	95,066,385	$	69,593,473

Finished goods and raw materials are valued at estimated market value, which approximates net realizable value. Supplies and other inventories are stated at lower of cost or net realizable value.

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, 2021, the Company’s futures contracts all mature within 12 months.

South Dakota Soybean Processors, LLC

Notes to the Financial Statements

___________________________________________________________________________________________________________________

Note 5 - Investments in Related Parties

The Company's investment in related parties consists of the following at December 31:


	2021		2020

Prairie AquaTech, LLC	$	1,553,727	$	1,553,727
Prairie AquaTech Investments, LLC	5,000,000		5,000,000
Prairie AquaTech Manufacturing, LLC	4,210,583		2,774,163
Totals	$	10,764,310	$	9,327,890

The Company accounts for the investments in Prairie AquaTech, LLC, Prairie AquaTech Investments, LLC and Prairie AquaTech Manufacturing, LLC using the fair value method in ASU No. 2016-01. The Company has elected to utilize the measurement alternative for equity investments that do not have readily determinable fair values and measure these investments at their cost less any impairment plus or minus any observable price changes in orderly transactions.

Prior to October 2019, the Company accounted for the investment in Prairie AquaTech, LLC using the equity method due to the Company's ability to exercise significant influence based on its board position. The Company recognized losses of $0, $0, and $135,588 in 2021, 2020, and 2019, respectively, which is included in other non-operating income (expense). In October 2019, the Company ceased the accounting for its investment in Prairie AquaTech, LLC under the equity method, and began accounting for the investment at fair value as a result of its decreased ability to exercise significant influence due to an increased quantity of board positions.

The Company invested in Prairie AquaTech Manufacturing, LLC $0 and $404,329 in cash and an additional $1,436,420 and $1,049,834 of soybean meal in 2021 and 2020, respectively, to be used in the entity's operations.

Note 6 - Investments in Cooperatives

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


	2021		2020



CoBank	$	1,559,800	$	1,539,293

Note 7 - Property and Equipment

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


	2021						2020
	Cost		Accumulated Depreciation		Net		Net
Land	$	516,326	$	—	$	516,326	$	516,326
Land improvements	2,538,645		(910,442)		1,628,203		1,647,052
Buildings and improvements	25,988,837		(10,627,414)		15,361,423		12,391,726
Machinery and equipment	91,160,339		(48,422,556)		42,737,783		41,674,080
Railroad cars	5,852,292		(265,055)		5,587,237		5,704,283
Company vehicles	151,682		(108,763)		42,919		59,613
Furniture and fixtures	1,387,880		(1,052,215)		335,665		408,288
Construction in progress	6,323,052		—		6,323,052		1,829,826
Totals	$	133,919,053	$	(61,386,445)	$	72,532,608	$	64,231,194

South Dakota Soybean Processors, LLC

Notes to the Financial Statements

___________________________________________________________________________________________________________________

Depreciation of property and equipment amounts to $5,087,987, $4,904,617, and $4,487,460 for the years ended December 31, 2021, 2020, and 2019, respectively.

Note 8 - Notes Payable - Seasonal Loan

The Company has entered into a revolving credit agreement with CoBank which expires December 1, 2022. The purpose of the credit agreement is to finance the operating needs of the Company. Under this agreement, the Company could borrow up to $70 million, and advances on the revolving credit agreement are secured. Interest accrues at a variable rate (2.31% at December 31, 2021). The Company pays a 0.20% annual commitment fee on any funds not borrowed. There were no advances outstanding at December 31, 2021 and 2020. The remaining available funds to borrow under the terms of the revolving credit agreement were $70.0 million as of December 31, 2021.

Note 9 - Long-Term Debt

The following is a summary of the Company's long-term debt at December 31, 2021 and 2020:


	2021		2020
Revolving term loan from CoBank, interest at variable rates (2.56% and 2.60% at December 31, 2021 and 2020, respectively), secured by substantially all property and equipment. Loan matures March 20, 2026.	$	16,902,473	$	17,503,291
Note payable to U.S. Small Business Administration, due in monthly principal and interest installments, interest rate at 1.00%, unsecured. Note matures July 20, 2022.	—		10,000
Total debt before current maturities and debt issuance costs	16,902,473		17,513,291
Less current maturities	(2,902,473)		—
Less debt issuance costs, net of amortization of $15,458 and $10,577 as of December 31, 2020 and 2019, respectively	(8,542)		(13,423)

Totals	$	13,991,458	$	17,499,868

The Company entered into an agreement as of December 14, 2021 with CoBank to amend and restate its Credit Agreement, which includes both the revolving term and seasonal loans. Under the terms and conditions of the Credit Agreement, CoBank agreed to make advances to the Company for up to $18,000,000 on the revolving term loan with a variable effective interest rate of 2.56%. The amount available for borrowing on the revolving term loan, will decrease by $2,000,000 every six months starting March 20, 2022 until the loan's maturity date of March 20, 2026. The Company pays a 0.40% annual commitment fee on any funds not borrowed. The debt issuance costs of $24,000 paid by the Company will be amortized over the term of the loan. The principal balance outstanding on the revolving term loan was $16.9 million and $17,503,291 as of December 31, 2021 and 2020, respectively. There were approximately $1.1 million in remaining commitments available to borrow on the revolving term loan as of December 31, 2021.

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, 2021.

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 near 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 guarantee 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. On June 1, 2020, the loan was re-paid in full.

On April 20, 2020, the Company entered into an unsecured promissory note for $1,215,700 under the U.S. Small Business Administration's Paycheck Protection Program ("PPP Loan"), a loan program created under the Coronavirus Aid, Relief and Economic Security (the "CARES Act"). The PPP Loan is being made through First Bank

South Dakota Soybean Processors, LLC

Notes to the Financial Statements

___________________________________________________________________________________________________________________

& Trust, N.A. The PPP Loan was scheduled to mature on July 20, 2022 and had a 1% interest rate. The Company submitted to the SBA a loan forgiveness application on November 20, 2020, with the amount which may be forgiven equal to the sum of qualifying expenses such as payroll costs, rent obligations, and covered utility payments. The forgiveness application was approved by the SBA for $1,205,700 on November 25, 2020 and $10,000 on February 19, 2021.

The following are minimum principal payments on long-term debt obligations for the years ended December 31:


2022	$	2,902,473
2023	4,000,000
2024	4,000,000
2025	4,000,000
2026	2,000,000

Total	$	16,902,473

Note 10 - Operating Leases

The Company has several operating leases for railcars. These leases have terms ranging from 3-18 years and most do not have renewal terms provided. The leases require the Company to maintain the condition of the railcars, restrict the use of the railcars to specified products, such as soybean meal, hulls or oil, limit usage to the continental United States, Canada or Mexico, require approval to sublease to other entities, and require the Company's submission of its financial statements. Lease expense for all railcars was $3,026,270, $3,099,585, and $3,086,823 for the years ended December 31, 2021, 2020, and 2019, respectively.

The following is a schedule of the Company's operating leases for railcars as of December 31, 2021:


Lessor	Quantity of Railcars	Commencement Date	Maturity Date	Monthly Payment

American Railcar Leasing	13	6/1/2021	5/31/2024	$	7,150
Andersons Railcar Leasing Co.	10	7/1/2018	6/30/2023	5,000
Andersons Railcar Leasing Co.	20	7/1/2019	6/30/2026	11,300
Andersons Railcar Leasing Co.	15	11/1/2021	10/31/2026	8,250
Farm Credit Leasing	87	9/1/2020	8/31/2032	34,929
Farm Credit Leasing	8	6/1/2021	5/31/2033	5,966
Farm Credit Leasing	9	10/1/2021	9/30/2033	4,624
GATX Corporation	14	7/1/2020	6/30/2024	4,200
Trinity Capital	29	11/1/2020	10/31/2023	17,255
Trinity Capital	20	11/1/2020	10/31/2023	11,900
Trinity Capital	24	2/1/2021	1/31/2026	10,440
Trinity Capital	2	6/1/2021	5/31/2026	980
Wells Fargo Rail	112	8/1/2017	7/31/2022	52,557
Wells Fargo Rail	107	1/1/2018	12/31/2022	35,845
Wells Fargo Rail	7	5/1/2004	4/30/2022	2,926
Wells Fargo Rail	15	5/1/2004	4/30/2022	5,850

Totals	492			$	219,172

The Company also has a number of other operating leases for machinery and equipment. These leases have terms ranging from 3-7 years; however, most of these leases have automatic renewal terms. These leases require monthly payments of $3,779. Rental expense under these other operating leases was $38,606, $41,079, and $56,322, for the years ended December 31, 2021, 2020, and 2019, respectively.

South Dakota Soybean Processors, LLC

Notes to the Financial Statements

___________________________________________________________________________________________________________________

On March 19, 2020, the Company entered into an agreement with an entity in the western United States to provide storage and handling services for the Company's soybean meal. The Company paid the entity $3,300,000, which is included in current operating lease liabilities on the Company's balance sheet, after the entity's construction of additional storage and handling facilities. The agreement began May 1, 2021 and will mature on April 30, 2027 but includes an additional seven-year renewal period at the sole discretion of the Company. Rental expense under this agreement was $157,143, $0, and $0, for the years ended December 31, 2021, 2020, and 2019, respectively.

Operating leases are included in right-to-use lease assets, current operating lease liabilities, and long-term lease liabilities on the Company's balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company's secured incremental borrowing rates or implicit rates, when readily determinable. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.

Lease expense for these operating leases is recognized on a straight-line basis over the lease terms. The components of lease costs recognized within our statements of operations for the years ended December 31, 2021, 2020, and 2019 were as follows:


	2021		2020		2019

Cost of revenues - Freight and rail	$	3,026,270	$	3,099,585	$	3,086,823
Cost of revenues - Production	29,072		30,611		43,783
Administration expenses	9,534		10,468		12,539
Total operating lease costs	$	3,064,876	$	3,140,664	$	3,143,145

The following summarizes the supplemental cash flow information for the years ended December 31, 2021, 2020, and 2019:


	2021		2020		2019
Cash paid for amounts included in measurement of lease liabilities	$	6,263,277	$	3,007,066	$	2,951,574

Supplemental non-cash information:
Right-of-use assets obtained in exchange for lease liabilities	$	2,577,558	$	8,823,499	$	809,916

The following summarizes the weighted-average remaining lease term and weighted-average discount rate:


	December 31, 2021
Weighted-average remaining lease term - operating leases (in years)	8.1
Weighted-average discount rate - operating leases	2.99	%

The following is a maturity analysis of the undiscounted cash flows of the operating lease liabilities as of December 31, 2021:


	Railcars		Other		Total
Year ended December 31:
2022	$	2,297,068	$	278,062	$	2,575,130
2023	1,375,614		270,101		1,645,715
2024	978,814		258,283		1,237,097
2025	917,864		237,778		1,155,642
2026	711,864		236,402		948,266
Thereafter	3,209,072		1,964,286		5,173,358
Total lease payments	9,490,296		3,244,912		12,735,208
Less amount of lease payments representing interest	(1,496,428)		(6,222)		(1,502,650)
Total present value of lease payments	$	7,993,868	$	3,238,690	$	11,232,558

South Dakota Soybean Processors, LLC

Notes to the Financial Statements

___________________________________________________________________________________________________________________

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 an employee's contributed earnings. The amounts charged to expense under this plan were approximately $249,000, $214,000, and $186,000 for the years ended December 31, 2021, 2020, and 2019, respectively.

The Company's Board of Managers approved payment of a profit-based incentive bonus to be awarded to eligible employees following the close of each fiscal year. The Board has allocated approximately 4.7% of profits over $2 million to fund this benefit. Individual amounts are based upon criteria determined by a formula that considers current pay, level of responsibility, and impact on profits of each position. The amounts charged to expense under this incentive were approximately $1,289,000, $673,000, and $442,000 for the years ended December 31, 2021, 2020, and 2019, respectively.

Note 12 - Cash Flow Information

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


	2021		2020		2019
Changes in operating assets and liabilities:
Trade accounts receivable	$	(7,580,346)	$	(4,572,212)	$	(3,896,533)
Inventories	(26,909,332)		(20,562,734)		(14,338,269)
Commodity derivative instruments	(7,854,325)		(1,358,041)		2,608,222
Margin account deposit	3,918,375		754,159		(4,421,308)
Prepaid expenses	(3,741,574)		(208,880)		(392,579)
Accounts payable	425,132		(3,398,184)		2,579,559
Accrued commodity purchases	15,929,390		13,616,371		(4,037,857)
Accrued expenses and interest	1,248,720		496,788		(881,469)
Deferred liabilities	(380,998)		1,279,949		(343,926)
Totals	$	(24,944,958)	$	(13,952,784)	$	(23,124,160)

Note 13 - 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 and interest rates. The Company’s derivative instruments primarily consist of commodity futures, options and forward contracts, and interest rate swaps, caps and floors. 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 balance sheets at fair value as discussed in Note 14, Fair Value.

As of December 31, 2021 and 2020, the value of the Company’s open futures, options and forward contracts was approximately $(15,711,099) and $(13,523,064), respectively.


		December 31, 2021
	Balance Sheet Classification	Asset Derivatives		Liability Derivatives
Derivatives not designated as hedging instruments:
Commodity contracts	Current Assets/Liabilities	$	11,584,595	$	27,141,888
Foreign exchange contracts	Current Assets/Liabilities	58,673		68,683
Interest rate caps and floors	Current Assets/Liabilities	290,491		434,287
Totals		$	11,933,759	$	27,644,858

South Dakota Soybean Processors, LLC

Notes to the Financial Statements

___________________________________________________________________________________________________________________


		December 31, 2020
	Balance Sheet Classification	Asset Derivatives		Liability Derivatives
Derivatives not designated as hedging instruments:
Commodity contracts	Current Assets/Liabilities	$	28,365,908	$	41,196,628
Foreign exchange contracts	Current Assets/Liabilities	50,979		48,539
Interest rate caps and floors	Current Assets/Liabilities	793		695,577
Totals		$	28,417,680	$	41,940,744

During the years ended December 31, 2021, 2020, and 2019, net realized and unrealized gains (losses) on derivative transactions were recognized in the statements of operations as follows:


	Net Gain (Loss) Recognized on Derivative Activities for the Year Ending December 31:
	2021		2020		2019
Derivatives not designated as hedging instruments:
Commodity contracts	$	(10,308,738)	$	(8,552,207)	$	(4,057,389)
Foreign exchange contracts	20,409		(34,437)		54,966
Interest rate swaps, caps and floors	245,969		(338,533)		(148,053)
Totals	$	(10,042,360)	$	(8,925,177)	$	(4,150,476)

The Company recorded gains (losses) of $(10,042,360), $(8,925,177), and $(4,150,476) in cost of goods sold related to its commodity derivative instruments for the years ended December 31, 2021, 2020, and 2019, respectively.

Note 14 - Fair Value

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 balance sheets and the respective levels to which fair value measurements are classified within the fair value hierarchy as of December 31, 2021 and 2020:

South Dakota Soybean Processors, LLC

Notes to the Financial Statements

___________________________________________________________________________________________________________________


	Fair Value as of December 31, 2021
	Level 1		Level 2		Level 3		Total
Financial assets:
Inventory	$	—	$	94,508,520	$	—	$	94,508,520
Commodity derivative instruments	$	(15,711,099)	$	—	$	—	$	(15,711,099)
Margin deposits	$	2,099,626	$	—	$	—	$	2,099,626


	Fair Value as of December 31, 2020
	Level 1		Level 2		Level 3		Total
Financial Assets:
Inventory	$	—	$	69,127,700	$	—	$	69,127,700
Commodity derivative instruments	$	(13,523,064)	$	—	$	—	$	(13,523,064)
Margin deposits	$	6,018,001	$	—	$	—	$	6,018,001

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 the area.

The Company considers the carrying amount of significant classes of financial instruments on the balance sheets, including cash, accounts receivable, and accounts payable, 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 has patronage investments in other cooperatives and common and preferred stock holdings in privately held entities. There is no market for their patronage credits or the entity’s common and preferred holdings, and it is impracticable to estimate the 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.

Note 15 - Related Party Transactions

The Company sold soybean products to Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC totaling $7,333,479, $1,550,772, and $1,582,064 during the years ended December 31, 2021, 2020, and 2019, respectively. As of December 31, 2021 and 2020, Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC owed the Company $776,767 and $339,967, respectively.

The Company has entered into agreements with Prairie AquaTech Manufacturing, LLC to perform various management services and to serve as the owner's representative during the construction of its new manufacturing facility adjacent to the Company's plant in Volga, South Dakota. The Company received a total of $1.72 million in compensation for those services, which was recorded in deferred liabilities on the Company's balance sheet. The Company recognized revenues from management services of $0, $121,111, and $758,931 during the years ended December 31, 2021, 2020 and 2019, respectively.

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 were $36,568,741 and $28,990,181 at December 31, 2021 and 2020, respectively.

Soybean meal sales accounted for approximately 55%, 62%, and 63% of total revenues for the years ended December 31, 2021, 2020, and 2019, respectively. Soybean oil sales represented approximately 41%, 34%, and 33% of total revenues for the years ended December 31, 2021, 2020, and 2019, respectively.

South Dakota Soybean Processors, LLC

Notes to the Financial Statements

___________________________________________________________________________________________________________________

Net revenue by geographic area for the years ended December 31, 2021, 2020, and 2019 are as follows:


	2021		2020		2019
United States	$	474,313,245	$	343,415,949	$	296,767,276
Canada	115,836,908		71,609,816		74,508,490
Totals	$	590,150,153	$	415,025,765	$	371,275,766

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 10% of the issued and outstanding capital units. Earnings, losses and cash distributions are allocated to members based on their percentage of ownership in the Company.

On February 2, 2021, the Company's Board of Managers approved a cash distribution of approximately $9.4 million, or 31.0 cents per capital unit. The distribution was paid in accordance with the Company's operating agreement and distribution policy on February 4, 2021.

Note 18 - Contingencies

Note 19 - 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 1, 2022, the Company’s Board of Managers declared a cash distribution to its members of approximately $17.3 million. The distribution was issued and paid to members on February 4, 2022 in accordance with the Company's operating agreement and distribution policy.

On February 9, 2022, the Company announced its plans to construct a multi-seed processing plant near Mitchell, South Dakota. Operation of the facility is expected to begin in 2025.