**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

**x**                              Quarterlyreport under Section 13 or 15(d) of the Securities Exchange Act of 1934.

** **

**For the quarter ended March 31, 2007**

** **

**OR**

** **

**o**                                 Transitionreport under Section 13 or 15(d) of the Exchange Act.

** **

**For the transition period from                 to**

** **

**Commission file number 000-50733**

** **

**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

(Exact name of small business issuer as specified inits charter)

 

| **Wisconsin**                                                    |   | **39-2032455**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
| ** **                                                       |   | ** **                            |
| **W1231  Tessmann Drive, Friesland, Wisconsin 53935-0247**       |
| (Address of  principal executive offices)                        |

 

**(920) 348-5016**

(Issuer’s telephonenumber)

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.
|  | x  Yes      o  No |
|--|-----------------------------------------------------------|

 

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

| Large Accelerated  Filer o |   | Accelerated  Filer o |   | Non-Accelerated  Filer x |
|---------------------------------|--------|---------------------------|--------|-------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).
|  | o  Yes      x  No |
|--|-----------------------------------------------------------|

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common equity, as of thelatest practicable date:

As of May 10, 2007, therewere 28,780 membership units outstanding.

** **

 

----

**INDEX**
|                                                                                                        | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------|
| **PART I.   FINANCIAL  INFORMATION**                                                         | ** ** | **3**      |
| ** **                                                                                             | ** ** | ** ** |
| **Item 1. Financial Statements**                                                                       | ** ** | **3**      |
| **Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operation** | ** ** | **11**     |
| **Item 3. Quantitative and Qualitative Disclosures About  Market Risk**                                | ** ** | **19**     |
| **Item 4. Controls and Procedures**                                                                    | ** ** | **20**     |
| ** **                                                                                             | ** ** | ** ** |
| **PART  II.   OTHER  INFORMATION**                                                           | ** ** | **20**     |
| ** **                                                                                             | ** ** | ** ** |
| **Item  1. Legal Proceedings**                                                                         | ** ** | **20**     |
| **Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds**                               | ** ** | **20**     |
| **Item 3. Defaults Upon Senior Securities**                                                            | ** ** | **20**     |
| **Item 4. Submission of Matters to a Vote of Security  Holders**                                       | ** ** | **21**     |
| **Item  5. Other Information**                                                                         | ** ** | **21**     |
| **Item 6.  Exhibits**                                                                                  | ** ** | **21**     |
| ** **                                                                                             | ** ** | ** ** |
| **SIGNATURES**                                                                                         | ** ** | **22**     |

 

2

----

**PART I.   FINANCIALINFORMATION**

**Item 1.**                          FinancialStatements

**UNITED WISCONSINGRAIN PRODUCERS, LLC**

Condensed BalanceSheets
| ** **                                 | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                 | ** ** | **(Unaudited)**    | ** ** | **(Audited)**         | ** ** |
| **      ASSETS**       | ** ** | ** **         | ** ** | ** **            | ** ** |
| ** **                                 | ** ** | ** **         | ** ** | ** **            | ** ** |
| **Current Assets**                         | ** ** | ** **         | ** ** | ** **            | ** ** |
| Cash and cash  equivalents                 |       | $                  | 21,678,217 |                  | $          | 29,981,331 |   |
| Restricted cash                            |       | 2,010,775          |       | 411,587               |       |
| Derivative  instruments                    |       | —             |       | 150,463               |       |
| Accounts  receivable                       |       | 4,377,348          |       | 4,298,190             |       |
| Prepaid expenses  and other current assets |       | 779,847            |       | 937,669               |       |
| Inventory                                  |       | 1,715,888          |       | 1,702,855             |       |
| Total current  assets                      |       | 30,562,075         |       | 37,482,095            |       |
|                                       |       |               |       |                  |       |
| **Property, Plant and Equipment**          | ** ** | ** **         | ** ** | ** **            | ** ** |
| Land and land  improvements                |       | 5,806,181          |       | 5,806,181             |       |
| Office equipment                           |       | 448,708            |       | 447,453               |       |
| Administration  building                   |       | 488,455            |       | 488,454               |       |
| Plant and  process equipment               |       | 47,113,111         |       | 47,100,121            |       |
| Construction in  process                   |       | 2,511,276          |       | 1,326,435             |       |
| Total property,  plant and equipment       |       | 56,367,731         |       | 55,168,644            |       |
| Less accumulated  depreciation             |       | 9,007,078          |       | 7,804,420             |       |
| Net property,  plant and equipment         |       | 47,360,653         |       | 47,364,224            |       |
|                                       |       |               |       |                  |       |
| **Other Assets**                           | ** ** | ** **         | ** ** | ** **            | ** ** |
| Investment                                 |       | 140,000            |       | 100,000               |       |
| Total other  assets                        |       | 140,000            |       | 100,000               |       |
|                                       |       |               |       |                  |       |
| **Total Assets**                           |       | $                  | 78,062,728 |                  | $          | 84,946,319 |   |

 

Notes to Condensed Financial Statements are anintegral part of this Statement.

3

----

**UNITED WISCONSINGRAIN PRODUCERS, LLC**

CondensedBalance Sheets
| ** **                                                          | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                          | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                                          | ** ** | **(Unaudited)**    | ** ** | **(Audited)**         | ** ** |
|                                                                |       |               |       |                  |       |
| **      LIABILITIES AND  MEMBERS’ EQUITY** | ** ** | ** **         | ** ** | ** **            | ** ** |
| ** **                                                          | ** ** | ** **         | ** ** | ** **            | ** ** |
| **Current Liabilities**                                             | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current  maturities of long-term debt                               |       | $                  | 1,183,512  |                  | $          | 1,164,740 |   |
| Accounts payable                                                    |       | 1,501,847          |       | 2,672,641             |       |
| Derivative  instruments                                             |       | 1,994,419          |       | —                |       |
| Accrued  liabilities                                                |       | 1,172,338          |       | 1,345,536             |       |
| Total current  liabilities                                          |       | 5,852,116          |       | 5,182,917             |       |
|                                                                |       |               |       |                  |       |
| **Long-Term Debt, less current  maturities**                        |       | 14,044,231         |       | 14,349,890            |       |
|                                                                |       |               |       |                  |       |
| **Commitments and Contingencies**                                   | ** ** | ** **         | ** ** | ** **            | ** ** |
| ** **                                                          | ** ** | ** **         | ** ** | ** **            | ** ** |
| **Members’ Equity, 28,780 units  issued and outstanding**      |       | 58,166,381         |       | 65,413,512            |       |
|                                                                |       |               |       |                  |       |
| **Total Liabilities and Members’  Equity**                     |       | $                  | 78,062,728 |                  | $          | 84,946,319 |   |

 

Notes to CondensedFinancial Statements are an integral part of this Statement.

4

----

** **

**UNITED WISCONSINGRAIN PRODUCERS, LLC**

CondensedStatement of Operations
| ** **                                                             | ** ** | **Quarter Ended** | ** ** | **Quarter Ended** | ** ** |
|------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                             | ** ** | **March 31,**     | ** ** | **March 31,**     | ** ** |
| ** **                                                             | ** ** | **2007**               | ** ** | **2006**               | ** ** |
| ** **                                                             | ** ** | **(Unaudited)**        | ** ** | **(Unaudited)**        | ** ** |
|                                                                   |       |                   |       |                   |       |
| **Revenues**                                                           |       | $                      | 29,104,330 |                   | $          | 22,817,707 |   |
|                                                                   |       |                   |       |                   |       |
| **Cost of Goods Sold**                                                 |       | 21,075,948             |       | 17,428,968             |       |
|                                                                   |       |                   |       |                   |       |
| **Gross Profit**                                                       |       | 8,028,382              |       | 5,388,739              |       |
|                                                                   |       |                   |       |                   |       |
| **Operating Expenses**                                                 |       | 868,156                |       | 661,363                |       |
|                                                                   |       |                   |       |                   |       |
| **Operating Income**                                                   |       | 7,160,226              |       | 4,727,376              |       |
|                                                                   |       |                   |       |                   |       |
| **Other Income (Expense)**                                             | ** ** | ** **             | ** ** | ** **             | ** ** |
| Interest income                                                        |       | 254,917                |       | 67,456                 |       |
| CCC Bio-Energy  income                                                 |       | —                 |       | 287,084                |       |
| Interest expense                                                       |       | (286,711               | )          | (395,810               | )          |
| Miscellaneous  income                                                  |       | 14,437                 |       | 17,314                 |       |
| Total other  expense, net                                              |       | (17,357                | )          | (23,956                | )          |
| ** **                                                             |       |                   |       |                   |       |
| **Net Income**                                                         |       | $                      | 7,142,869  |                   | $          | 4,703,420 |   |
|                                                                   |       |                   |       |                   |       |
| **Net Income Per Unit**(28,780  weighted****average units outstanding) |       | $                      | 248.19     |                   | $          | 163.43 |   |
|                                                                   |       |                   |       |                   |       |
| **Distributions Per Unit**                                             |       | $                      | 500.00     |                   | $          | 200.00 |   |

 

Notes to CondensedFinancial Statements are an integral part of this Statement.

5

----

 

**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

CondensedStatements of Cash Flows
| ** **                                                               | ** ** | **Quarter Ended** | ** ** | **Quarter Ended** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                               | ** ** | **March 31,**     | ** ** | **March 31,**     | ** ** |
| ** **                                                               | ** ** | **2007**               | ** ** | **2006**               | ** ** |
| ** **                                                               | ** ** | **(Unaudited)**        | ** ** | **(Unaudited)**        | ** ** |
| **Cash Flows from Operating  Activities**                                | ** ** | ** **             | ** ** | ** **             | ** ** |
| Net Income                                                               |       | $                      | 7,142,869  |                   | $          | 4,703,420 |   |
| Adjustments to  reconcile net income to net cash provided by operations: |       |                   |       |                   |       |
| Depreciation                                                             |       | 1,202,658              |       | 1,192,212              |       |
| Loss on  derivative instruments                                          |       | 1,076,925              |       | 379,024                |       |
| Changes in  assets and liabilities:                                      |       |                   |       |                   |       |
| Restricted cash                                                          |       | (1,599,188             | )          | 12,430                 |       |
| Derivative  instruments                                                  |       | 1,067,957              |       | (186,274               | )          |
| Accounts  receivable                                                     |       | (79,158                | )          | (1,473,985             | )          |
| Inventory                                                                |       | (13,033                | )          | (207,971               | )          |
| Prepaid expenses  and other current assets                               |       | 157,822                |       | (9,595                 | )          |
| Accounts payable                                                         |       | (1,170,794             | )          | (326,127               | )          |
| Accrued  liabilities                                                     |       | (173,198               | )          | 40,580                 |       |
| Net cash  provided by operating activities                               |       | 7,612,860              |       | 4,123,714              |       |
|                                                                     |       |                   |       |                   |       |
| **Cash Flows used in Investing  Activities**                             | ** ** | ** **             | ** ** | ** **             | ** ** |
| Capital  expenditures                                                    |       | (14,245                | )          | (180,492               | )          |
| Payments for  construction in process                                    |       | (1,184,842             | )          | —                 |       |
| Other  investments                                                       |       | (40,000                | )          | —                 |       |
| Net cash used in  investing activities                                   |       | (1,239,087             | )          | (180,492               | )          |
|                                                                     |       |                   |       |                   |       |
| **Cash Flows used in Financing  Activities**                             | ** ** | ** **             | ** ** | ** **             | ** ** |
| Proceeds from  revolving line of credit                                  |       | —                 |       | 1,398,094              |       |
| Payments for  long term debt                                             |       | (286,887               | )          | (7,955,768             | )          |
| Payment of  member distribution                                          |       | (14,390,000            | )          | (5,756,000             | )          |
| Net cash used in  financing activities                                   |       | (14,676,887            | )          | (12,313,674            | )          |
|                                                                     |       |                   |       |                   |       |
| **Net Decrease in Cash and Cash  Equivalents**                           |       | (8,303,114             | )          | (8,370,452             | )          |
| ** **                                                               |       |                   |       |                   |       |
| **Cash and Cash Equivalents**—Beginning  of Period                  |       | 29,981,331             |       | 8,786,477              |       |
|                                                                     |       |                   |       |                   |       |
| **Cash and Cash Equivalents**—End  of Period                        |       | $                      | 21,678,217 |                   | $          | 416,025 |   |
|                                                                     |       |                   |       |                   |       |
| **Supplemental Cash Flow  Information**                                  | ** ** | ** **             | ** ** | ** **             | ** ** |
|                                                                     |       |                   |       |                   |       |
| Cash paid during the  period for:                                        |       |                   |       |                   |       |
| Interest                                                                 |       | $                      | 286,711    |                   | $          | 395,810 |   |

 

Notes to CondensedFinancial Statements are an integral part of this Statement.

6

----

**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

Condensed Notes to Unaudited Condensed FinancialStatements

March 31, 2007

**1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

The accompanyingunaudited condensed financial statements have been prepared pursuant to therules and regulations of the Securities and Exchange Commission.  Certaininformation and footnote disclosures normally included in annual financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America have been condensed or omitted as permitted bysuch rules and regulations.  These financial statements and related notesshould be read in conjunction with the financial statements and notes theretoincluded in the Company’s audited financial statements for the year endedDecember 31, 2006, contained in the Company’s annual report on Form 10-KSB for2006.

In the opinion ofmanagement, the interim condensed financial statements reflect all adjustmentsconsidered necessary for fair presentation.  The adjustments made to thesestatements consist only of normal recurring adjustments.

*Nature ofBusiness*

United Wisconsin GrainProducers, LLC (a Wisconsin limited liability company) is a 40 million gallonnameplate ethanol plant located near the town of Friesland in the township ofRandolph, Wisconsin.  The company sellsits production of ethanol and distillers grains, a co-product of ethanolproduction, within the United States. The plant commenced operations on May 5, 2005.

*AccountingEstimates*

Management uses estimatesand assumptions in preparing these financial statements in accordance withgenerally accepted accounting principles.  Those estimates and assumptionsaffect the reported amounts of assets and liabilities, the disclosure ofcontingent assets and liabilities, and the reported revenues and expenses.  Actual results could differ from thoseestimates.

*Revenue Recognition*

The Company generallysells ethanol and related products pursuant to marketing agreements.  Revenues are recognized when the customer hastaken title, which occurs when the product is shipped, and has assumed therisks and rewards of ownership; prices are fixed or determinable.

In accordance with theCompany’s agreements for the marketing and sale of ethanol and relatedproducts, marketing fees and commissions due to the marketers are deducted fromthe gross sales price at the time payment is remitted to the Company.  Because the Company is the primary obligor inthe sales arrangement with the customer, these marketing fees and commissionsare recorded gross in Operating Expenses in the accompanying statements ofoperations.

The Company recordsrevenue from federal and state incentive programs related to the production ofethanol when the Company has sold the ethanol and completed all the knownrequirements of the applicable incentive program.

*DerivativeInstruments*

The Company accounts forderivatives in accordance with Statement of Financial Accounting Standards(SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities”.  SFAS No. 133 requires the recognition ofderivatives in the balance sheet and the measurement of these instruments atfair value.

7

----

 

In order for a derivativeto qualify as a hedge, specific criteria must be met and appropriatedocumentation maintained.  Gains andlosses from derivatives that do not qualify as hedges, or are undesignated,must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature ofthe hedge, changes in the fair value of the derivative will be either offsetagainst the change in fair value of the hedged assets, liabilities, or firmcommitments through earnings or recognized in other comprehensive income untilthe hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recorded incost of goods sold.

Additionally, SFAS No.133 requires a company to evaluate its contracts to determine whether thecontracts are derivatives.  Certaincontracts that literally meet the definition of a derivative may be exempted as“normal purchases or normal sales”. Normal purchases and normal sales are contracts that provide for thepurchase or sale of something other than a financial instrument or derivativeinstrument that will be delivered in quantities expected to be used or soldover a reasonable period in the normal course of business.  Contracts that meet the requirements ofnormal purchases or sales are documented as normal and exempted from theaccounting and reporting requirements of SFAS No. 133, and therefore, are notmarked to market in our financial statements.

Cash flows associatedwith derivative instruments are presented in the same category on theStatements of Cash Flow as the item being hedged.

*Reclassifications*

The presentation ofcertain items in the condensed statements of operations for March 31, 2006has been changed to conform to the classifications used at March 31, 2007.These reclassifications had no effect on members’ equity, net income, or cashflows previously reported.

**2. INVENTORY**

Inventory consists of thefollowing at March 31, 2007:

| Raw materials   |   | $       | 805,473   |   |
|-----------------|--------|---------|-----------|--------|
| Work in process |   | 287,500 |      |
| Finished Goods  |   | 622,915 |      |
| Total           |   | $       | 1,715,888 |   |

**3. DERIVATIVE INSTRUMENTS**

At March 31, 2007, theCompany had recorded a liability for derivative instruments related to corn andethanol option and futures positions of approximately $1,994,419.  None of these open positions, at March 31,2007 were designated as hedges.  Realizedand unrealized gains and losses related to these derivative contracts relatedto corn purchases are included as a component of cost of goods sold.  The Company has recorded a combined realizedand unrealized loss on corn hedging of approximately $690,566 and a combinedrealized and unrealized loss of $379,024 for the quarters ended March 31, 2007and 2006, respectively.  Realized andunrealized gains and losses related to these derivative contracts related toethanol sales are included as a component of revenues.  The Company has recorded a combined realized andunrealized loss on ethanol hedging of approximately $386,359 for the quarterended March 31, 2007 and no gain or loss for the quarter ending March 31, 2006.

The company is requiredto maintain cash balances at its broker related to derivative instrumentpositions.  At March 31, 2007, restrictedcash totaled $2,010,775 and is not included in cash and cash equivalents on thebalance sheet or the statements of cash flows.

8

----

 

**4. GOVERNMENT INCENTIVE PAYMENTS**

For the three-monthperiod ending March 31, 2007 and March 31, 2006 the Company recorded as otherincome $0 and $287,084, respectively, from the Commodity Credit CorporationBioenergy Program, a department of the United States Department ofAgriculture.  The Commodity Credit Corporation Bioenergy Program wasterminated on June 30, 2006; therefore, the Company does not anticipaterecording any more revenue from this program.

**5.  BANK FINANCING**

On May 25, 2006 theCompany closed on a mortgage in the amount of $21,040,376, which included arevolving credit agreement in the amount of $5,000,000, and a term creditagreement in the amount of $16,040,376 with Farmers & Merchants Union Bankto refinance the existing debt with AgStar Financial Services, PCA.  The term debt consists of a five-yearbusiness note in the amount of $16,040,376 at a fixed interest rate of 7.4% andrequires monthly payments based on a ten-year amortization beginning July 1,2006.   As of March 31, 2007, theCompany had outstanding debt of $15,227,743 on the term debt and did not haveany borrowings on the revolving credit commitment.

There is an annualservice fee of $10,000 for the revolving credit agreement and an annualfacility fee of $20,000 beginning on the closing date, May 25, 2006, and uponeach anniversary until its maturity.  If therevolving line of credit is terminated prior to its maturity, the $10,000annual service fee will no longer be incurred. No prepayment fees exist on either loan.

These loans are subjectto protective covenants requiring the Company to maintain various financialratios.  The Company has not violated any financial debt covenants duringthe three months ending March 31, 2007 or in the year 2006 and the Companybelieves the likelihood of default of the financial debt covenants in the nextquarter to be remote.  The loan issecured by substantially all the Company’s assets.

Long term debt consistsof the following:

|                                    | ** ** | **March 31, 2007** | ** ** |
|------------------------------------|------------|--------------------|------------|
| Bank Financing                     |       | $                  | 15,227,743 |   |
| Less: amounts  due within one year |       | 1,183,512          |       |
| Total long term  debt              |       | $                  | 14,044,231 |   |

 

The estimatedmaturities of long term debt at March 31, 2007 are as follows:

| 2007  |   | $         | 1,183,512  |   |
|-------|--------|-----------|------------|--------|
| 2008  |   | 1,278,216 |       |
| 2009  |   | 1,377,485 |       |
| 2010  |   | 1,484,463 |       |
| 2011  |   | 9,904,067 |       |
| Total |   | $         | 15,227,743 |   |

 

9

----

 

**6.  MEMBERS’ EQUITY**

As specified inthe Company’s operating agreement, the Company has one class of membershipunits.  The Company is authorized toissue up to 28,000 membership units in addition to the 1,280 seed capital unitsissued prior to the Company’s initial registered offering.

As of March 31, 2007 the Company had 28,780 unitsoutstanding.

**7.  COMMITMENTS AND CONTINGENCIES**

*Corn and Natural Gas Contracts*

At March 31, 2007, theCompany had forward corn purchase contracts totaling approximately 12.2 millionbushels for various delivery periods from April 2007 to November 2009 of whichapproximately 40% are with members.  Theprices on these contracts range from $2.35 to $4.04 per bushel or have a basislevel established by the CBOT futures between $-0.07 and $-0.40.  At March 31, 2007, the Company had forwardcontracts to purchase approximately 128,000 million British thermal units(MMBTU) of natural gas during the months of April through June 2007 at anaverage price of approximately $7.06 per MMBTU.

*Plant Expansion*

The Company startedconstruction on Phase I of a plant expansion in December 2006.  Project costs for Phase I of the plantexpansion through March 31, 2007 were approximately $2.2 million and areexpected to total $7 million.  Phase Iwill increase the expected plant capacity to 60 million gallons per year.  The Company is also in the process of addinga new maintenance building and expanding the grains shipping and receivingarea, which is expected to cost $1.5 million in total.  As of March 31, 2007 the Company had incurredapproximately $310,000 on this project.

*Investment in Missouri Facility*

On February 12, 2007 theboard of directors approved a $10 million investment in First Missouri Energy,LLC, which will result in a 28% ownership interest.  First Missouri Energy, LLC intends toconstruct a 55 million gallon per year ethanol plant near Cape Girardeau,Missouri.  It is presently anticipatedthat the production of ethanol at this new plant will commence in the fall of2008.  Subsequently, on April 14, 2007,at the Annual Meeting of Members, the Company disclosed to its members itsparticipation in the First Missouri Energy, LLC joint venture.  With the pending financing offer it isexpected the investment will be reduced to $6.3 million as opposed to the $10million originally approved by the board. As of March 31, 2007 the company has invested $140,000 in thisproject.  On April 30, 2007 the Companymade an additional investment payment of $600,000 for this project.

10

----

 

**Item 2.**                          Management’sDiscussion and Analysis of Financial Condition and Results of Operation.

Weprepared the following discussion and analysis to help you better understandour financial condition, changes in our financial condition, and results ofoperations for the three-month period ended March 31, 2007 compared to the sameperiod of the prior fiscal year.  Thisdiscussion should be read in conjunction with the financial statements andnotes and the Management’s Discussion and Analysis section for the fiscal yearended December 31, 2006, included in the Company’s Annual Report on Form10-KSB.

**DisclosureRegarding Forward-Looking Statements**

This report contains historical information, as wellas forward-looking statements that involve known and unknown risks and relateto future events, our future financial performance, or our expected futureoperations and actions.  In some cases,you can identify forward-looking statements by terminology such as “may,” “will,”“should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,”“could,” “hope,” “predict,” “target,” “potential,” or “continue” or thenegative of these terms or other similar expressions.  These forward-looking statements are only ourpredictions based upon current information and involve numerous assumptions,risks and uncertainties.  Our actualresults or actions may differ materially from these forward-looking statementsfor many reasons, including the reasons described in this report.  While it is impossible to identify all suchfactors, factors that could cause actual results to differ materially fromthose estimated by us include:

·                    Incorrect assumptions related to industrygrowth, overcapacity or increased competition in the ethanol market in which weoperate;

 

·                    Fluctuations in the price and market forethanol and distillers grains;

 

·                    Availability and costs of products and rawmaterials, particularly corn and natural gas;

 

·                    Changes in planned production, variations inactual ethanol and distillers grains production from expectations or technicaldifficulties in operating the plant;

 

·       Our ability to market and our reliance onthird parties to market our products;

 

·       Changes in or elimination of governmentallaws, tariffs, trade or other controls or enforcement practices such as:

 

·                  federal ethanol tax incentives;

 

·                  national, state or local energy policy;

 

·                  legislation establishing a renewable fuel standard or other legislationmandating the use of ethanol or other oxygenate additives;

 

·                  state and federal regulation restricting or banning the use of MTBE; or

 

·                  environmental laws and regulations that apply to our plant operations andtheir enforcement;

 

·       Changes in the weather or generaleconomic conditions impacting the availability and price of corn and naturalgas;

 

·       Total U.S. consumption of gasoline;

 

·       Fluctuations in petroleum prices;

 

·       Costs of construction and equipment;

 

·       Changes in our business strategy, capitalimprovements or development plans;

 

·       Financial impacts of our hedgingstrategies;

 

·       Our ability to generate free cash flow toinvest in our business and service our debt;

 

·       Changes and advances in ethanolproduction technology; 

 

·       Competition from alternative fuels andalternative fuel additives; and

 

·       Other factors described elsewhere in thisreport.

 

Thecautionary statements referred to in this section also should be considered inconnection with any subsequent written or oral forward-looking statements thatmay be issued by us or persons acting on our behalf.  We undertake no duty to update theseforward-looking statements, even though our situation may change in the future.Furthermore, we cannot guarantee future results, events, levels of activity,performance, or achievements.  We cautionyou not to put undue reliance on any forward-looking statements, which speakonly as of the date of this report.  You should read this report and thedocuments that we reference in this report and have filed as exhibitscompletely and with the understanding that our actual future results may bematerially different from what we currently expect.  We qualify all of ourforward-looking statements by these cautionary statements.

11

----

**Overview**

UnitedWisconsin Grain Producers, LLC was formed as a Wisconsin limited liabilitycompany on November 2, 2001, for the initial purpose of constructing andoperating a 40 million gallon per year nameplate ethanol plant near Friesland,Wisconsin.   Since May 2005, we have beenengaged in the production of ethanol and distillers grains. Our revenues arederived from the sale and distribution of our ethanol throughout thecontinental United States and in the sale and distribution of our distillers grainslocally, throughout the continental United States and overseas.   In December of 2006 we commencedconstruction of an expansion that, when complete, we expect will increase ourproduction capacity to 60 million gallons per year.  We expect completion of this expansion in thethird quarter of 2007.

Weexpect to fund our operations during the next 12 months using cash flow fromcontinuing operations and our credit facilities.  We expect to undertake research anddevelopment activities in the next 12 months in the form of commissioningstudies on internal energy generation in conjunction with our plant expansion,in particular the possibility of using post-fermentation corn solids an asenergy source, thereby offsetting our natural gas usage.

Weare subject to industry-wide factors that affect our operating and financialperformance.  Our operating results arelargely driven by the prices at which we sell ethanol and distillers grains andthe costs related to their production. Historically, the price of ethanol tends to fluctuate in the samedirection as the price of unleaded gasoline and other petroleum products.  Surplus ethanol supplies also tend to putdownward pressure on prices.  Inaddition, the price of ethanol is generally influenced by factors such asgeneral economic conditions, the weather, the season, and government policiesand programs.  The price of distillersgrains is generally influenced by supply and demand, seasonal fluctuations andthe price of substitute livestock feed, such as corn and soybean meal and otheranimal feed proteins.  Surplus cornand/or protein supplies tend to put downward pressure on distillers grainspricing.  In addition, our revenues arealso impacted by such factors as our dependence on one or a few major customerswho purchase and distribute our products; the intensely competitive nature ofour industry; possible legislative changes at the federal, state and/or locallevel; changes in federal ethanol tax incentives; and the rapid growth inethanol production capacity.

Ourtwo largest costs of production are corn and natural gas.  Both of these costs are affected by factorslargely out of our control.  The cost ofcorn is affected primarily by the market’s perception of supply and demandfactors such as crop production, industry year end inventories, exports,government policies and programs, risk management and weather.  The growth of the ethanol industry itself hasincreased the average price of corn and is expected to continue to increase theaverage price of corn as demand for corn continues to rise.  Natural gas prices fluctuate with the energycomplex in general, but also have independent cost factors such as weather inthe production areas, production disruption, storage levels, pipeline capacity,and weather in use areas.  Over the lastfew years, natural gas prices have trended higher than average and it appearsprices will continue to remain above previous averages due to the high price ofalternative fuels such as fuel oil.  Ourcosts of production are also affected by the cost of complying with theextensive environmental laws that regulate our industry.

**Results ofOperations**

***Comparison of the three months ended March 31, 2007 and 2006***

The following table shows the results of ouroperations and the percentage of revenues, cost of goods sold, operatingexpenses and other items to total revenues in our statement of operations forthe three months ended March 31, 2007 and 2006:
| ** **                 | ** ** | **Three Months Ended  March 31, 2007** | ** ** | **Three Months Ended  March 31, 2006** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **Amount**                                                 | ** ** | **%**                                                      | ** ** | **Amount** | ** ** | **%** | ** ** |
| **Income  Statement Data** | ** ** | ** **                                                 | ** ** | ** **                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                   |       | $                                                          | 29,104,330 |                                                       | 100.0      |   | $ | 22,817,707 |   | 100.0 |   |
|                       |       |                                                       |       |                                                       |       |   |   |   |   |
| Cost of Goods  Sold        |       | $                                                          | 21,075,948 |                                                       | 72.4       |   | $ | 17,428,968 |   | 76.4 |   |
|                       |       |                                                       |       |                                                       |       |   |   |   |   |
| Gross Profit               |       | $                                                          | 8,028,382  |                                                       | 27.6       |   | $ | 5,388,739 |   | 23.6 |   |
|                       |       |                                                       |       |                                                       |       |   |   |   |   |
| Operating Expenses         |       | $                                                          | 868,156    |                                                       | 3.0        |   | $ | 661,363 |   | 2.9 |   |
|                       |       |                                                       |       |                                                       |       |   |   |   |   |
| Operating Income           |       | $                                                          | 7,160,226  |                                                       | 24.6       |   | $ | 4,727,376 |   | 20.7 |   |
|                       |       |                                                       |       |                                                       |       |   |   |   |   |
| Other Expense              |       | $                                                          | (17,357    | )                                                          | (0.1       | ) | $ | (23,956 | ) | (0.1 | ) |
|                       |       |                                                       |       |                                                       |       |   |   |   |   |
| **Net Income**             |       | $                                                          | 7,142,869  |                                                       | 24.5       |   | $ | 4,703,420 |   | 20.6 |   |

 

12

----

*Revenues*.  Revenues from operations for the three monthsended March 31, 2007 totaled $29,104,330. In the three months ended March 31, 2007 ethanol comprised 90% of ourrevenue and DDGS comprised 10% of our revenue. Revenues from operations for the three months ended March 31, 2006totaled $22,817,707, of which ethanol comprised 88% and DDGS comprised12%.  The increase in revenues fromoperations for the three months ended March 31, 2007 compared to the threemonths ended March 31, 2006 is substantially a result of a 16% increase in theprice per gallon of ethanol and a 12% increase in gallons produced.  The increase in production is due tocontinued improvement in plant efficiencies and our corn to alcohol conversionrate.

Theprice of ethanol in the three months ending March 31, 2007 was up 16% from theprice for the same three months in 2006. Prices remained favorable and relatively stable from the precedingquarter.  Ethanol values are lower thantheir peak in July 2006 but continue to exceed historical averages.  Management currently expects short-term andmid-term ethanol prices to remain higher than historical averages due to a highdemand for ethanol, which may be contributed to by a number of factors,including the use of ethanol as an oxygenate to replace MTBE, the high price ofgasoline encouraging voluntary blending, and the growing recognition of ethanolas an alternative energy source. However, management believes the industry will need to continue to growdemand in order to sustain these higher prices. According to the Renewable Fuels Association, as of April 25, 2007 therewere 116 ethanol plants in operation nationwide with the capacity to producemore than 5.9 billion gallons annually, with an additional 81 new plants and 8expansions under construction expected to add an additional estimated 6.6billion gallons of annual production capacity in the next 12 to 18 months.  Unless the new supply is equally met withincreased demand, downward pressure on ethanol prices could occur.  If ethanol prices start to decline, ourearnings will also decline, particularly if corn costs continue to rise.

Our revenues include a loss of $386,359 for thethree months ended March 31, 2007 related to our ethanol derivativeinstruments.  We did not hold any ethanol derivative instruments in thethree months ended March 31, 2006.  Werecognize the gains or losses that result from the changes in the value of ourethanol-related derivative instruments in revenues as the changes occur. As ethanol prices fluctuate, the value of our ethanol-related derivativeinstruments are impacted, which affects our financial performance.  Weexpect the volatility in these derivative instruments to continue to have animpact on our revenues due to the timing of the changes in value of the derivativeinstruments relative to our sales.  These instruments are the primary tools of our risk management programfor ethanol revenues.

Thesales price for our distillers grains has remained relatively unchanged for thethree months ended March 31, 2007 compared to the three months ended March 31,2006.  Distillers grains prices areexpected to follow the price of corn for the foreseeable future unless theprice of soybean meal or other protein sources change significantly.  Additionally, an increased supply of distillersgrains resulting from additional ethanol production may put downward pressureon distillers grain prices.

*Cost of Goods Sold*.  Our cost of goods sold from the production ofethanol and distillers grains is primarily made up of raw grains expenses (corn)and energy expenses (natural gas and electricity).  Cost of goods sold for the three months endedMarch 31, 2007 totaled $21,075,948 as compared to $17,428,968 for the threemonths ended March 31, 2006.  The 21%increase in cost of goods sold in the three months ended March 31, 2007 ascompared to the same three months the previous year is a net result of a 42%increase in the cost of corn and other ingredients, and a 32% decrease in thecost of natural gas (energy).

13

----

The increase in the cost of corn is due to a 5%increase in volume of corn ground and a 42% increase in the price of corn andrelated hedging costs.  Corn pricesduring the three months ending March 31, 2007 exceeded historical averages inanticipation of lower carryout supplies. Increased emphasis on alternative fuel sources and use of corn in theproduction of ethanol has impacted corn prices and may continue to put upwardpressure on corn prices for the long term. The current USDA carryout supply projection indicates supplies of 893 millionbushels on hand September 1, 2007 versus supplies of 1.967 billion bushels theprior year.    Although the carryoutsupplies for the 2007 marketing year are projected to be adequate, supplieshave historically been tight, and any production shortfall during the 2007growing season will create volatility and may increase our cost of corn.  Tight supplies of corn could increase thevolatility in the market and changes to supply or demand, or perceived changesto supply or demand, could cause the market to react with higher prices toencourage demand rationing.  These higherprices will have a negative impact to our costs of goods sold.

Our cost of goods sold includes a loss of $690,566for the three months ended March 31, 2007 related to our corn derivativeinstruments as compared to a $379,024 loss for the three months ended March 31,2006.  We recognize the gains or losses that result from the changes inthe value of our corn-related derivative instruments in cost of goods sold asthe changes occur.  As corn prices fluctuate, the value of our derivativeinstruments are impacted, which affects our financial performance.  Weanticipate continued volatility in our cost of goods sold due to the timing ofthe changes in value of the derivative instruments relative to the cost and useof the commodity being hedged.  These instruments are the primary tools of our risk management programfor corn prices.

Natural gas is also an important input to ourmanufacturing process.  The 32% decreasein our natural gas cost is generally a net result of a 5% increase in volumeand a 35% decrease in our price of natural gas.   In the three months ended March 31, 2007 weused 5% more gas in the production of ethanol and distillers grains, but weenjoyed much lower purchase costs for our natural gas compared to the sameperiod in the previous year.  We estimate that our natural gas usage isapproximately 123,000 million British thermal units (“MMBTU”) per month. We use natural gas to dry a majority of our distillers grains products tomoisture contents at which they can be stored for long periods and transportedgreater distances, so that we can market them to broader livestock markets,including poultry and swine markets in the continental United States andto markets in Asia.  Natural gashas recently been available only at prices exceeding historical averages. Theseheightened prices increased our costs of production.  Although natural gasprices trended lower as the year progressed, we expect natural gas prices toremain higher than historic values given the higher value of energy sourcesgenerally.  This could increase our gas costs substantially, which willadversely impact our cost of goods sold. We have secured a marketing firm and energy consultant for our naturalgas supply and will continue to work with them on an on-going basis to mitigateour exposure to volatile gas prices.   Wehave also secured firm pipeline capacity for natural gas delivery of 4,000MMBTU per day.

*Gross Profit*. Gross profit for the three months ending March 31, 2007 wasapproximately $8,028,382, a 49% increase over the gross profit of $5,388,739for the three months ending March 31, 2006.   This increase is due primarily to increased production and, to a lesserextent, increased efficiency at the plant and an increase in the favorablespread between the selling prices of our products and the costs of the rawmaterials required to produce our products as discussed in “Revenues” and “Costof Goods Sold” above.

In the three months ending March 31, 2007 we enjoyeda very favorable spread between the selling price of the ethanol and distillersgrains we sold and the cost of the raw materials we require to produce ourethanol and distillers grains.  We do notexpect the spread between the price we receive for our products and the costsof our raw materials to continue to exist at such a favorable rate in thefuture.  The increasing cost of corn isanticipated to erode our margins.  Adecrease in this spread will adversely affect our financial performance.

*Operating Expenses*.  Operating expenses of $868,156 for the threemonths ending March 31, 2007 represented 3% of our revenues as compared tooperating expenses of $661,363 for three months ending March 31, 2006, whichrepresented 3% of revenues.    The increase in operating expenses forthe three months ended March 31, 2007 was primarily due to an increase ingeneral and administrative expenses.

*Operating Income*. Operating income for the three months ending March 31, 2007 totaled $7,160,226 or approximately 25% ofrevenues.  Operating income for thethree months ending March 31, 2006totaled $4,727,376 or approximately 21% of revenues.  The increase in operating income forthe three months ending March 31, 2007 

14

----

compared to thethree months ending March 31, 2006 is a combined result of the increase in “GrossProfit” (discussed above) and the improvement in our alcohol yields on a perbushel basis.

*Other Expense*.  Ourother expense for the three months ending March 31, 2007 was an expense of $17,357 as compared to anexpense of $23,956 for the three months ending March 31, 2006.  Ourother expense items at March 31, 2007 consisted primarily of interest incomeand expense.  Our other expense items atMarch 31, 2006 consisted primarily of USDA Commodity Credit Corporation (CCC)Bioenergy program payments and interest income and expense.  The changes in other income (expense) itemsincluded a reduction in CCC Bioenergy program payments, a decrease in interestexpense and an increase in interest income.

We did not receive any payments from the USDA CCCBioenergy program in the three months ending March 31, 2007 as compared toreceipt of payments totaling $287,084 for the three months ending March 31,2006.  The CCC announced that its funds would be exhausted in the thirdquarter of the government’s 2006 fiscal year and the program terminated as ofJune 30, 2006.  For this reason, we willnot receive any further income from this program.

**Changes in Financial Condition for the Three MonthsEnded March 31, 2007 Compared to the Fiscal Year Ended December 31, 2006.**

Assets totaled $78,062,728 on March 31, 2007, ascompared to $84,946,319 on December 31, 2006. Current assets totaled $30,562,075 on March 31, 2007, as compared to$37,482,095 on December 31, 2006.  Thischange resulted from (i) a reduction in cash and cash equivalents on hand,which is primarily a net result of an increase in cash from operations less the$14,390,000 cash used for our member distribution in February 2007 and (ii) a$1,599,188 increase in the restricted cash required by our broker for ourderivative instruments.

Current liabilities totaled $5,852,116 on March 31,2007, as compared to $5,182,917 on December 31, 2006. This change resultedprimarily from our derivative instruments which is a reflection of the marketsat the close of the period in comparison to the prices at the time the variouscontracts were entered into.  Long termdebt, net of current maturities, totaled $14,044,231 on March 31, 2007, as comparedto $14,349,890 on December 31, 2006. This reduction is a direct reflection of the principal payments made onour long-term debt as required by our loan agreement.

Member’s Equity totaled $58,166,381 on March 31,2007, as compared to $65,413,512 on December 31, 2006.  This change is a net result of earnings fromoperations less the $14,390,000 membership distribution paid out in February2007.

**Liquidity andCapital Resources**

The following table shows cash flows for the threemonths ended March 31, 2007 and 2006:

|                                            | ** ** | **Three months ended March 31** | ** **  |
|--------------------------------------------|------------|-----------------------------------------------------|-------------|
| ** **                                 | ** ** | **2007**                                            | ** **  | **2006** | ** ** |
| Net cash  provided by operating activities |       | $                                                   | 7,612,860   |   | $ | 4,123,714 |   |
| Net cash used in  investing activities     |       | $                                                   | (1,239,087  | ) | $ | (180,492 | ) |
| Net cash used in  financing activities     |       | $                                                   | (14,676,887 | ) | $ | (12,313,674 | ) |

 

*Cash Flow from Operations. *Our net cash flow provided from operatingactivities for the three months ending March 31, 2007 was $7,612,860, ascompared to $4,123,714 for the same period the previous year.  The increase in net cash flow provided fromoperating activities for the three months ending March 31, 2007 compared to thethree months ending March 31, 2006 was primarily due to our increase inearnings.  Our capital needs are being adequately met through cash fromour operating activities and our current credit facilities.

*Cash Flow Used In InvestingActivities. *Our net cash flow used in investing activities for the three monthsending March 31, 2007 constituted expenditures of $1,239,087, as compared toexpenditures of $180,492 for the same period the previous year.  The increase in expenditures for the threemonths ending March 31, 2007 compared 

15

----

to the three months ending March 31, 2006 is primarily due toconstruction in process payments of $1,184,842 for Phase I of the plantexpansion. 

Management estimates that approximately $3,500,000in capital expenditures will be made in the next six months for generaloperational improvements, grains shipping, receiving and storage improvements,and construction of the new maintenance building; an additional $7,000,000 willbe spent to complete Phase I of the plant production expansion.

It is presently estimated an additional $30,000,000will be spent in 2007 and 2008 for Phase II of the plant capacity expansion(See ***“Plant Expansion”***below), all of which is expected to be financed from a portion of cash flowsfrom operations and additional debt financing. Utilizing cash generated from operations for the plant expansion mayimpact our ability to pay out future member distributions.  Our projections are based upon our historicaloperating costs and historical revenues. However, our past financial performance may not accurately predictfuture results.  We currently estimate that both Phase I and Phase II ofthe plant expansion will be complete by December 2008; however, constructionmay not stay on schedule and we may not be able to operate at the expandedproduction levels by the end of 2008.

In addition to capital investment to increase thecapacity and efficiency of our Friesland facility, on February 12, 2007 ourboard approved a $10,000,000 investment in a joint venture to construct andoperate a 55 million gallon capacity ethanol plant at Cape Girardeau,Missouri.  We anticipate that our equityrequirement may be reduced to $6,300,000, or a 28% ownership interest in thefacility, due to a favorable proposal from a lender to finance approximately80% of the project.  As of March 31, 2007we had paid out $140,000 on this project. We paid out an additional $600,000 on April 30, 2007.  We expect to pay our remaining capitalcontribution in June 2007.  We antitipatethat the production of ethanol at this new plant will commence in the fall of2008.

*Cash Flow Used In FinancingActivities. *Our net cash flow used in financing activities for the three monthsending March 31, 2007 constituted expenditures of $14,676,887, as compared toexpenditures of $12,313,674 for the same period the previous year.  We used cash to pay down our debt by $286,887during the three months ending March 31, 2007 compared to $7,955,768 used fordebt payments for the three months ending March 31, 2006.  The principal paid in the three months endingMarch 31, 2007 was pursuant to the ten-year amortization required by ourexisting loan agreement with Farmers & Merchants Union Bank.  The principal paid during the three monthsending March 31, 2006 included additional principal payments allowed for by ourloan agreement with our previous lender, AgStar Financial Services, in aneffort to reduce debt.  During the threemonths ending March 31, 2007 we made cash distributions to our members in theaggregate amount of $14,390,000 as compared to $5,756,000 in the three monthsending March 31, 2006.

***Short-Term and Long-Term DebtSources***

On May 25, 2006, we signed credit agreements with Farmers& Merchants Union Bank of Friesland, Wisconsin and refinanced our initialterm debt and revolving loan commitment. The credit facility is secured by substantially all of our assets.   The term loan of $16,040,376 is for fiveyears with a ten-year amortization. Payments on the term loan are paid in monthly installments includingprincipal and interest.  The interestrate is fixed at 7.4% for both the term and revolving loan for 5 years.  Interest is due monthly on the revolving loancommitment.

As of March 31, 2007, we had outstanding debt of$15,227,743 on the term debt and did not have any borrowings on the revolvingloan.

There is an annual facility fee of $20,000 on theterm loan beginning on the closing date, May 25, 2006, and upon each anniversaryuntil its maturity.  There is anadditional $10,000 annual service fee for the revolving credit agreement whichcan be terminated prior to its maturity, thereby discontinuing the service fee.  No prepayment fees exist on either loan.

These loans are subject to protective covenantsrequiring us to maintain various financial ratios. We are required to maintaina minimum tangible net worth of $24,000,000 and to increase our tangible networth annually by the lesser of $500,000 or an amount equal to retainedearnings.  Our owners’ equity is to be atleast 45% of tangible net assets and we must maintain a working capitalposition of at least $4,000,000.  We mustreceive written 

16

----

approval from our lender to exceed $1,000,000 in annual capitalexpenditures and we must obtain consent prior to making membershipdistributions in excess of 65% of the previous year’s net income, excludingstate and federal incentive payments.  On June 25, 2006, Farmers & Merchants Union Bank approved our August2006 membership distribution totaling $5,756,000.  Farmers & Merchants Union Bank approvedour capital expenditures in excess of $1,000,000 for 2006, our memberdistribution of $14,390,000 in February 2007 and has also approved our anticipatedcapital expenditures in excess of $1,000,000 for 2007.  As of March 31, 2007, we are in compliancewith all of our financial debt covenants. The loan is secured by substantially all of the Company’s assets.

**Plant Expansion**

Wehave engaged an engineering firm to assist in developing a plan to increase thedesign capacity of our plant to 80 million gallons of ethanol productionannually from our current name-plate capacity of 40 million gallons peryear.  Our current production rate isapproximately 52 million gallons per year. The scope of the project being studied includes shipping and receivingcapacity increases, plant processing capacity increases, additional productstorage, and logistics improvements.  Weexpect the project will be completed in at least two phases. Phase I of the plantexpansion was approved in June 2006 and construction began in December2006.  Phase I is expected to result inan increase in production capacity to 60 million gallons annually by August2007.  However, it is possible thatconstruction will not stay on schedule or that we will not be able to operateat expanded production levels by that date.

PhaseI entails increasing the cook and fermentation system capacity by 65%.  On December 15, 2006, the WisconsinDepartment of Natural Resources approved our application for an air pollutioncontrol construction permit to construct the Phase I scope of work andinitially operate our plant up to the increased capacity of 60 million gallonsof ethanol per year.   Sixty million gallonsis the estimated capacity of the downstream processing of raw products offermentation.  As of March 31, 2007 wehad made approximately $2.2 million construction-in-process payments for PhaseI of our expansion. Project costs for Phase I are expected to total $7,000,000.

PhaseII of our expansion project involves post-fermentation capacity expansion andis expected to increase overall production capacity to 80 million gallons by2008.  The estimated cost of Phase II isapproximately $30,000,000, although we have not finalized the design and thescope of work at this time.  On July 10,2006 the board approved expenditures for a fractionation project.  Fractionation is a process that separates thecorn kernel into separate components prior to fermentation, allowing a purerstream of starch for fermentation, requiring less water and energy, andproducing a higher throughput of ethanol. Although approved by the board, we have not made any commitment on theprospective purchase of a fractionation system. Changes in our perception of the risk and reward situation have resultedin a new round of evaluation of the suitability of fractionation for ourfacility versus other operational cost savings projects that are available.

OnOctober 10, 2006 the board approved $535,000 for the construction of a newmaintenance building.  The new buildingis to provide additional area for plant maintenance to minimize lost opportunity due to plant interruptions, allowing themaintenance department to entertain multiple projects simultaneously rangingfrom large pipe fabrication to complex electrical circuit design.  The construction of this new facility iscurrently underway.  As of March31, 2007, we had made approximately $300,000 construction-in-process paymentsfor this maintenance building.

Weexpect to finance the plant expansions through a combination of earnings fromoperations and additional debt financing. This could limit our ability to make member distributions as they haveoccurred in the past.  We may not be ableto finance the projects as anticipated.

**Off Balance SheetArrangements.**

We currently do not have any off-balance sheetarrangements.

**Application ofCritical Accounting Estimates**

There were no material changes in the Company’saccounting estimates during the three months ended March 31, 2007.

17

----

**Item 3.**                          Quantitativeand Qualitative Disclosures About Market Risk.

We are exposed to the impactof market fluctuations associated with commodity prices as discussedbelow.  We have no exposure to foreigncurrency risk, as all of our business is conducted in U.S. Dollars, or tointerest rate risk, as the interest rate for our existing term debt andrevolving loan commitment is fixed at 7.4% until May 2011.  We use derivative financial instruments aspart of an overall strategy to manage market risk.  We use cash, futures and option contracts tohedge changes to the commodity prices of corn and gasoline. We do not enterinto these derivative financial instruments for trading or speculativepurposes, nor do we designate these contracts as hedges for accounting purposespursuant to the requirements of SFAS 133, *Accounting for DerivativeInstruments and Hedging Activities*.

**Commodity PriceRisk**

We are exposed to marketrisk from changes in commodity prices.  Exposure to commodity price riskresults from our dependence on corn and natural gas in the ethanol productionprocess, and our reliance on sales of ethanol.  We seek to minimize therisks from fluctuations in the prices of corn and ethanol through the use ofderivative instruments.  In practice, as markets move, we actively manageour risk and adjust hedging strategies as appropriate.  Although webelieve our hedge positions accomplish an economic hedge against our futurepurchases, they are not designated as such for hedge accounting purposes, whichwould match the gain or loss on our hedge positions to the specific commoditypurchase being hedged.  We are marking to market our hedge positions,which means as the current market price of our hedge positions changes, thegains and losses are immediately recognized in our cost of goods sold.

The immediate recognition of hedging gains and lossescan cause net income to be volatile from quarter to quarter due to the timingof the change in value of the derivative instruments relative to the cost anduse of the commodity being hedged.  AtMarch 31, 2007 and December 31, 2006, the fair value of our derivativeinstruments for corn and gasoline is a liability in the amount of $1,994,419and an asset in the amount of $150,463, respectively.  At December 31, 2006, we held derivativeinstruments for corn, but no ethanol-related derivative instruments.  There are several variables that could affectthe extent to which our derivative instruments are impacted by pricefluctuations in the cost of corn or gasoline. However, it is likely thatcommodity cash prices will have the greatest impact on the derivativeinstruments with delivery dates nearest the current cash price.

To manage our corn price risk, our hedging strategy isdesigned to establish a price ceiling and floor for our corn purchases. We have taken a net long position on our exchange-traded futures and optionscontracts, which allows us to offset increases or decreases in the market priceof corn.  The upper limit of loss on our futures contracts is the differencebetween the contract price and the cash market price of corn at the time of theexecution of the contract.  The upper limit of loss on our exchange-tradedand over-the-counter option contracts is limited to the amount of the premiumwe paid for the option.

We estimate that our expected corn usage (withouttaking into account our expansion) is approximately 17.9 million bushels peryear for the production of 52 million gallons of ethanol.  We have priceprotection in place for a portion of our expected corn usage through November2009 using forward contracts, CBOT futures and options and over-the-counteroption contracts.  As we move forward, additional protection may benecessary.  As corn prices move in reaction to market trends andinformation, our income statement will be affected depending on the impact suchmarket movements have on the value of our derivative instruments.  As wemove forward, additional price protection may be required to solidify ourmargins.  Depending on market movements, crop prospects and weather, theseprice protection positions may cause immediate adverse effects, but areexpected to produce long-term positive growth for us.

We have also entered into gasoline derivativeinstruments to hedge the variability of ethanol prices.  While not perfectly correlated, we have foundthat ethanol and gasoline prices tend to move in tandem.  Therefore, the gasoline contracts the companyhas entered into are intended to offset cash decreases in the price of ethanolwe receive.

18

----

To manage our natural gas price risk, we have enteredinto forward contracts to purchase approximately 128,000 MMBTU of natural gasfor the period April through June 2007 at an average price of approximately$7.06 per MMBTU.  We may also purchaseadditional natural gas requirements for the 2007 calendar year as we attempt tofurther reduce our susceptibility to price increases.

Asensitivity analysis has been prepared to estimate our exposure to corn andgasoline price risk. The table presents the fair value of our derivative instrumentsas of March 31, 2007 and December 31, 2006 and the potential loss in fair valueresulting from a hypothetical 10% adverse change in such prices.  The fair value of the positions is asummation of the fair values calculated by valuing each net position at quotedmarket prices as of the applicable date. The results of this analysis, whichmay differ from actual results, are as follows:

|                   | ** ** | **Fair Value** | ** ** | **Effect of Hypothetical  Adverse Change —  Market Risk** | ** ** |
|-------------------|------------|---------------------|------------|-----------------------------------------------------------------------------------------|------------|
| March 31, 2007    |       | $                   | (1,994,419 | )                                                                                       | $          | 199,442 |   |
| December 31, 2006 |       | $                   | 150,463    |                                                                                    | $          | 15,046 |   |

 

**Item 4.     Controls and Procedures**

Ourmanagement, including our Chief Executive Officer (the principal executiveofficer), J.F. Robertson, along with our Chief Financial Officer, (theprincipal financial officer), Barb Bontrager, have reviewed and evaluated theeffectiveness of our disclosure controls and procedures as of March 31,2007.  Based upon this review andevaluation, these officers have concluded that our disclosure controls andprocedures are effective in ensuring that information required to be disclosedin the reports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods required by theforms and rules of the Securities and Exchange Commission; and in ensuring thatthe information required to be disclosed in the reports that we file or submitunder the Exchange Act is accumulated and communicated to our management,including our principal executive and principal financial officers, or personsperforming similar functions, as appropriate to allow timely decisionsregarding required disclosure.

Ourmanagement, consisting of our principal executive officer and principalfinancial officer, have reviewed and evaluated any changes in our internalcontrol over financial reporting that occurred as of March 31, 2007 and therehas been no change that has materially affected or is reasonably likely tomaterially affect our internal control over financial reporting.

**PART II.     OTHER INFORMATION**

**Item 1.  LegalProceedings**

None.

**Item 2.  UnregisteredSales of Equity Securities and Use of Proceeds**

None.

**Item 3.  DefaultsUpon Senior Securities**

None.

**Item 4.  Submissionof Matters to a Vote of Security Holders**

None.

**Item 5.  OtherInformation**

None.

19

----

**Item 6.**                       Exhibits

(a)                                  Thefollowing exhibits are filed as part of this report:
| Exhibit No. | ** ** | **Exhibit**                                                                                   | ** ** |
|-------------|------------|-----------------------------------------------------------------------------------------------|------------|
| 10.1        |       | Employment Agreement with Jeff Robertson, Chief  Executive Officer, dated September 27, 2006. |       |
| 10.2        |       | Term Credit Agreement with Farmers & Merchants  Union Bank, dated May 25, 2006.           |       |
| 10.3        |       | Revolving Credit Agreement with Farmers &  Merchants Union Bank, dated May 25, 2006.      |       |
| 10.4        |       | Business Note with Farmers & Merchants Union  Bank, dated May 25, 2006.                   |       |
| 31.1        |       | Certificate pursuant to 17 CFR 240.13a-14(a).                                                 |       |
| 31.2        |       | Certificate pursuant to 17 CFR 240.13a-14(a).                                                 |       |
| 32.1        |       | Certificate pursuant to 18 U.S.C. Section 1350.                                               |       |
| 32.2        |       | Certificate pursuant to 18 U.S.C. Section 1350.                                               |       |

 

20

----

**SIGNATURES**

In accordance withthe requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.
|               | **UNITED WISCONSIN GRAIN  PRODUCERS, LLC**                            |
|--------------------|-----------------------------------------------------------------------|
|               |                                                                  |   |
| Date: May 15, 2007 | /s/  J.F.  Robertson                                        |
|               | J.F. Robertson                                                   |
|               | Chief Executive Officer  (Principal Executive Officer)                |
|               |                                                                  |
| Date: May 15, 2007 |   /s/  Barb Bontrager                                       |
|               | Barb Bontrager                                                        |
|               | Chief Financial Officer  (Principal Financial and Accounting Officer) |

 

** **

21

----