**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **x**                                                                                                                                                                   | **Quarterly report under Section 13 or 15(d) of  the Securities Exchange Act of 1934.** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|
|                                                                                                                                                                    |
| **For the  quarter ended March 31, 2008**                                                                                                                          |
|                                                                                                                                                                    |
| **OR**                                                                                                                                                                  |
|                                                                                                                                                                    |
| **o**                                                                                                                                                                   | **Transition report 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 businessissuer as specified in its charter)

 

| **Wisconsin**                                                        | ** ** | **39-2032455**                            |
|----------------------------------------------------------------------|------------|-------------------------------------------|
| **(State or  other jurisdiction of  incorporation or organization)** | ** ** | **(I.R.S.  Employer Identification No.)** |

 

**W1231Tessmann Drive,  Friesland, Wisconsin53935-0247**

(Address of principal executiveoffices)

 

**(920)348-5016**

(Issuer’s telephone number)

** **

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.
|   |  x Yes          o  No |
|--------|----------------------------------------------------------------------------------------|

 

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

 

| Large  accelerated filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer x                       |   | Smaller  reporting company o |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).
|   |  o Yes          x  No |
|--------|----------------------------------------------------------------------------------------|

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date:

 

Asof May 7, 2008, there were 28,502 membership units outstanding.

 

 

----

 

**INDEX**

** **
| ** **                                                           | **Page No.**                                                                                       |       |
|----------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|------------|
| ** **                                                           | ** **                                                                                              |       |
| **PART I.     FINANCIAL  INFORMATION** | **3**                                                                                                   |       |
| ** **                                                           | ** **                                                                                              |       |
|                                                                 | **Item 1. Financial Statements.**                                                                       | **3**      |
|                                                                 | **Item 2. Management’s Discussion and Analysis of Financial  Condition and Results of Operations** | **13**     |
|                                                                 | **Item 3. Quantitative and Qualitative Disclosures About  Market Risk**                                 | **21**     |
|                                                                 | **Item 4. Controls and Procedures**                                                                     | **23**     |
|                                                                 | ** **                                                                                              | ** ** |
|                                                                 | **PART II.   OTHER  INFORMATION**                                                   | **23**     |
|                                                                 | ** **                                                                                              | ** ** |
|                                                                 | **Item  1. Legal Proceedings**                                                                          | **23**     |
|                                                                 | **Item 1A. Risk Factors**                                                                               | **23**     |
|                                                                 | **Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds**                                | **23**     |
|                                                                 | **Item 3. Defaults Upon Senior Securities**                                                             | **24**     |
|                                                                 | **Item 4. Submission of Matters to a Vote of Security  Holders**                                        | **24**     |
|                                                                 | **Item  5. Other Information**                                                                          | **24**     |
|                                                                 | **Item 6. Exhibits**                                                                                    | **24**     |
|                                                                 | ** **                                                                                              | ** ** |
|                                                                 | **SIGNATURES**                                                                                          | **25**     |
|                                                                      |                                                                                                         |            |  |  |

 

2

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**PART I.     FINANCIALINFORMATION**

 

**Item 1. FinancialStatements.**

 

**UNITED**** ****WISCONSIN**** ****GRAIN**** ****PRODUCERS,**** ****LLC**

 

CondensedBalance Sheets

 
| ** **                                                                                        | ** ** | **March 31,**   | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------|------------|------------------|------------|
| ** **                                                                                        | ** ** | **2008**        | ** ** | **2007**         | ** ** |
| ** **                                                                                        | ** ** | **(Unaudited)** | ** ** | ** **       | ** ** |
| **ASSETS**                                                                                        |       |            |       |             |       |
| ** **                                                                                        |       |            |       |             |       |
| **Current Assets**                                                                                |       |            |       |             |       |
| Cash and cash equivalents                                                                         |       | $               | 20,219,287 |             | $          | 24,759,614 |   |
| Restricted cash                                                                                   |       | 2,152,803       |       | 248,383          |       |
| Derivative instruments                                                                            |       | 2,361,338       |       | 5,189            |       |
| Accounts receivable, net of allowance for  doubtful accounts of $81,000 and $69,000, respectively |       | 5,602,863       |       | 5,486,721        |       |
| Inventory                                                                                         |       | 3,656,081       |       | 2,785,264        |       |
| Prepaid expenses and other current assets                                                         |       | 726,393         |       | 634,869          |       |
| Total current assets                                                                              |       | 34,718,765      |       | 33,920,040       |       |
|                                                                                              |       |            |       |             |       |
| **Property, Plant and Equipment**                                                                 |       |            |       |             |       |
| Land and land improvements                                                                        |       | 5,864,889       |       | 5,864,889        |       |
| Office equipment                                                                                  |       | 568,951         |       | 567,547          |       |
| Buildings                                                                                         |       | 2,192,293       |       | 2,192,293        |       |
| Plant and process equipment                                                                       |       | 52,812,431      |       | 52,812,431       |       |
|                                                                                              |       | 61,438,564      |       | 61,437,160       |       |
| Less accumulated depreciation                                                                     |       | 14,089,047      |       | 12,718,946       |       |
|                                                                                              |       | 47,349,517      |       | 48,718,214       |       |
| Construction in process                                                                           |       | 4,049,045       |       | 2,906,876        |       |
| Net property, plant and equipment                                                                 |       | 51,398,562      |       | 51,625,090       |       |
|                                                                                              |       |            |       |             |       |
| **Other Assets**                                                                                  |       |            |       |             |       |
| Investment                                                                                        |       | 979,986         |       | 993,065          |       |
| Total other assets                                                                                |       | 979,986         |       | 993,065          |       |
|                                                                                              |       |            |       |             |       |
| **Total Assets**                                                                                  |       | $               | 87,097,313 |             | $          | 86,538,195 |   |

 

Notes toCondensed Unaudited Financial Statements are an integral part of thisStatement.

 

3

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| ** **                                                                                          | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                          | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ** **                                                                                          | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
| **LIABILITIES AND MEMBERS’ EQUITY**                                             |       |               |       |                  |       |
|                                                                                                |       |               |       |                  |       |
| **Current Liabilities**                                                                             |       |               |       |                  |       |
| Revolving line of credit                                                                            |       | $                  | 1,585,961  |                  | $          | — |   |
| Current maturities of long-term debt                                                                |       | 14,050,481         |       | 1,258,252             |       |
| Accounts payable                                                                                    |       | 2,556,530          |       | 3,242,911             |       |
| Accounts payable - related party                                                                    |       | 9,875              |       | 15,878                |       |
| Accrued liabilities                                                                                 |       | 1,009,205          |       | 794,853               |       |
| Total current liabilities                                                                           |       | 19,212,052         |       | 5,311,894             |       |
|                                                                                                |       |               |       |                  |       |
| **Long-Term Debt, less current maturities**                                                         |       | —             |       | 13,097,887            |       |
|                                                                                                |       |               |       |                  |       |
| **Commitments and Contingencies**                                                                   |       |               |       |                  |       |
|                                                                                                |       |               |       |                  |       |
| **Members’ Equity, 28,531 and 28,710 units  authorized, issued and outstanding, respectively** |       | 67,885,261         |       | 68,128,414            |       |
|                                                                                                |       |               |       |                  |       |
| **Total Liabilities and Members’ Equity**                                                      |       | $                  | 87,097,313 |                  | $          | 86,538,195 |   |

 

Notes to Condensed UnauditedFinancial Statements are an integral part of this Statement.

 

4

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

 

CondensedStatements of Operations

(Unaudited)

 
| ** **                                                                               | ** ** | **Quarter Ended** | ** ** | **Quarter Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                                               | ** ** | **March 31,**     | ** ** | **March 31,**     | ** ** |
| ** **                                                                               | ** ** | **2008**          | ** ** | **2007**          | ** ** |
|                                                                                     |       |              |       |              |       |
| **Revenues,**  including $29,339 and $132, respectively from related parties             |       | $                 | 34,237,387 |              | $          | 29,001,792 |   |
|                                                                                     |       |              |       |              |       |
| **Cost of Goods Sold,**including  $455,687 and $804,608, respectively to related parties |       | 25,790,966        |       | 21,075,948        |       |
|                                                                                     |       |              |       |              |       |
| **Gross Profit**                                                                         |       | 8,446,421         |       | 7,925,844         |       |
|                                                                                     |       |              |       |              |       |
| **Operating Expenses**                                                                   |       | 953,403           |       | 765,618           |       |
|                                                                                     |       |              |       |              |       |
| **Operating Income**                                                                     |       | 7,493,018         |       | 7,160,226         |       |
|                                                                                     |       |              |       |              |       |
| **Other Income (Expense)**                                                               |       |              |       |              |       |
| Interest income                                                                          |       | 269,110           |       | 254,917           |       |
| Interest expense                                                                         |       | (268,669          | )          | (286,711          | )          |
| Equity in net loss of investment                                                         |       | (13,079           | )          | —            |       |
| Miscellaneous income                                                                     |       | 12,167            |       | 14,437            |       |
| Total other expense, net                                                                 |       | (471              | )          | (17,357           | )          |
|                                                                                     |       |              |       |              |       |
| **Net Income**                                                                           |       | $                 | 7,492,547  |              | $          | 7,142,869 |   |
|                                                                                     |       |              |       |              |       |
| **Weighted Average Units Outstanding - Basic  and Diluted**                              |       | 28,635            |       | 28,780            |       |
|                                                                                     |       |              |       |              |       |
| **Net Income Per Unit - Basic and Diluted**                                              |       | $                 | 261.66     |              | $          | 248.19 |   |
|                                                                                     |       |              |       |              |       |
| **Distributions Per Unit - Basic and Diluted**                                           |       | $                 | 250.00     |              | $          | 500.00 |   |

 

Notes to Condensed Unaudited FinancialStatements are an integral part of this Statement.

 

5

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

 

Condensed Statements of Cash Flows

(Unaudited)

 
| ** **                                                                         | ** ** | **Quarter Ended** | ** ** | **Quarter Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **March 31,**     | ** ** | **March 31,**     | ** ** |
| ** **                                                                         | ** ** | **2008**               | ** ** | **2007**               | ** ** |
| **Cash Flows from Operating Activities**                                           |       |                   |       |                   |       |
| Net Income                                                                         |       | $                      | 7,492,547  |                   | $          | 7,142,869 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                   |       |                   |       |
| Depreciation                                                                       |       | 1,370,101              |       | 1,202,658              |       |
| Allowance for doubtful accounts receivable                                         |       | 11,850                 |       | —                 |       |
| Change in fair value of derivative instruments                                     |       | (2,709,752             | )          | 1,076,925              |       |
| Equity in net loss of investment                                                   |       | 13,079                 |       | —                 |       |
| Changes in operating assets and liabilities:                                       |       |                   |       |                   |       |
| Restricted cash                                                                    |       | (1,904,420             | )          | (1,599,188             | )          |
| Derivative instruments                                                             |       | 353,603                |       | 1,067,957              |       |
| Accounts receivable                                                                |       | (127,992               | )          | (79,158                | )          |
| Inventory                                                                          |       | (870,817               | )          | (13,033                | )          |
| Prepaid expenses and other current assets                                          |       | (91,524                | )          | 157,822                |       |
| Accounts payable                                                                   |       | (692,384               | )          | (1,170,794             | )          |
| Accrued liabilities                                                                |       | 214,352                |       | (173,198               | )          |
| Net cash provided by operating activities                                          |       | 3,058,643              |       | 7,612,860              |       |
|                                                                               |       |                   |       |                   |       |
| **Cash Flows used in Investing Activities**                                        |       |                   |       |                   |       |
| Capital expenditures                                                               |       | (1,405                 | )          | (14,245                | )          |
| Payments for construction in process                                               |       | (1,142,168             | )          | (1,184,842             | )          |
| Net cash used in investing activities                                              |       | (1,143,573             | )          | (1,199,087             | )          |
|                                                                               |       |                   |       |                   |       |
| **Cash Flows used in Financing Activities**                                        |       |                   |       |                   |       |
| Net proceeds from revolving line of credit                                         |       | 1,585,961              |       | —                 |       |
| Payments on long term debt                                                         |       | (305,658               | )          | (286,887               | )          |
| Repurchase of membership units                                                     |       | (560,700               | )          | (40,000                | )          |
| Payment of member distribution                                                     |       | (7,175,000             | )          | (14,390,000            | )          |
| Net cash used in financing activities                                              |       | (6,455,397             | )          | (14,716,887            | )          |
|                                                                               |       |                   |       |                   |       |
| **Net Decrease in Cash and Cash Equivalents**                                      |       | (4,540,327             | )          | (8,303,114             | )          |
|                                                                               |       |                   |       |                   |       |
| **Cash and Cash Equivalents–**Beginning  of Period                            |       | 24,759,614             |       | 29,981,331             |       |
|                                                                               |       |                   |       |                   |       |
| **Cash and Cash Equivalents–**End  of Period                                  |       | $                      | 20,219,287 |                   | $          | 21,678,217 |   |
|                                                                               |       |                   |       |                   |       |
| **Supplemental Cash Flow Information**                                             |       |                   |       |                   |       |
|                                                                               |       |                   |       |                   |       |
| Interest expensed                                                                  |       | $                      | 268,669    |                   | $          | 286,711 |   |
| Interest capitalized                                                               |       | 12,634                 |       | —                 |       |
| Total interest paid                                                                |       | $                      | 281,303    |                   | $          | 286,711 |   |

 

Notes to Condensed Unaudited FinancialStatements are an integral part of this Statement.

 

6

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**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

 

Notesto Condensed Financial Statements (Unaudited)

 

March 31,2008

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

Theaccompanying condensed balance sheet as of December 31, 2007 is derivedfrom audited financial statements. The unaudited interim condensed financialstatements of United Wisconsin Grain Producers, LLC (the “Company”) reflect alladjustments consisting only of normal recurring adjustments that are, in theopinion of management, necessary for a fair presentation of their financialposition and results of operations and cash flows. The results for the threemonth ended March 31, 2008 are not necessarily indicative of the resultsthat may be expected for a full fiscal year. Certain information and notedisclosures normally included in annual financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America (“GAAP”) are condensed or omitted pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”), although theCompany believes that the disclosures made are adequate to make the informationnot misleading. These condensed financial statements should be read inconjunction with the Company’s audited financial statements and notes theretoincluded in its annual report for the year ended December 31, 2007 filedon Form 10-K with the SEC.

 

*Nature of Business*

 

UnitedWisconsin Grain Producers LLC (a Wisconsin limited liability company) is a 60million gallon ethanol plant located near the town of Friesland in the townshipof Randolph, Wisconsin. During 2007, the Company substantially completed PhaseI of an expansion project which increased the plant production capacity fromthe initial nameplate production capacity of 40 million gallons per year to 60million gallons per year. The Company sells its production of ethanol anddistillers grains, a co-product of ethanol production, within the UnitedStates. The plant commenced operations in May of 2005.

 

*Accounting Estimates*

 

Managementuses estimates and assumptions in preparing these financial statements inaccordance with generally accepted accounting principles. Those estimates andassumptions affect the reported amounts of assets and liabilities, thedisclosure of contingent assets and liabilities, and the reported revenues andexpenses. The Company uses estimates and assumptions in accounting for thefollowing significant matters, among others: allowances for doubtful accounts,useful lives of property and equipment, and long-lived asset impairments. Actual results may differ frompreviously estimated amounts, and such differences may be material to ourcondensed financial statements. We periodically review estimates andassumptions, and the effects of revisions are reflected in the period in whichthe revision is made.

 

*Revenue Recognition*

 

TheCompany generally sells ethanol and related products pursuant to marketingagreements. Revenues are recognized when the customer has taken title and hasassumed the risks and rewards of ownership, prices are fixed or determinable,and collectibility is reasonably assured. The Company’s products are generallysold FOB shipping point.

 

Inaccordance with the Company’s agreements for the marketing and sale of ethanoland related products, marketing fees and commissions due to the marketers arededucted from the gross sales price at the time payment is remitted to theCompany. These fees and commissions, which totaled $77,629 and $102,538 at March 31,2008 and 2007, respectively, are recorded net of revenues as they do notprovide an identifiable benefit that is sufficiently separable from the sale ofethanol and related products. Shipping costs incurred by the Company in thesale of ethanol are not specifically identifiable and as a result, recordedbased on the net selling price reported to the Company by the marketer.Shipping costs incurred by the Company in the sale of ethanol related productsare included in cost of goods sold.

 

7

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**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

 

Notesto Condensed Financial Statements (Unaudited)

 

March 31,2008

 

*Derivative Instruments*

 

TheCompany accounts for derivatives in accordance with Statement of FinancialAccounting Standards (SFAS) No. 133, “Accounting for DerivativeInstruments and Hedging Activities”. SFAS No. 133 requires the recognitionof derivatives in the balance sheet and the measurement of these instruments atfair value.

 

Inorder for a derivative to qualify as a hedge, specific criteria must be met andappropriate documentation maintained. Gains and losses from derivatives that donot qualify as hedges, or are undesignated, must be recognized immediately inearnings. 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 ofundesignated derivatives are recorded in cost of goods sold.

 

Additionally,SFAS No. 133 requires a company to evaluate its contracts to determinewhether the contracts are derivatives. Certain contracts that literally meetthe definition of a derivative may be exempted as “normal purchases or normalsales”. 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 meetthe requirements of normal purchases or sales are documented as normal andexempted from the accounting and reporting requirements of SFAS No. 133,and therefore, are not marked to market in our financial statements.

 

Inorder to reduce the risk caused by market fluctuations, the Company hedges itsanticipated corn purchases and ethanol sales by entering into options andfutures contracts. These contracts are used with the intention to fix thepurchase price of our anticipated requirements of corn in production activitiesand the sales price of ethanol. The fair value of these contracts is based onquoted prices in active exchange-traded or over-the-counter markets. The fairvalue of the derivatives is continually subject to change due to changingmarket conditions. The Company does not formally designate these instruments ashedges and, therefore, records in current earnings the changes in fair value ofthe underlying derivative instrument. The Company records withdrawals andpayments against the trade equity of derivative instruments as a reduction orincrease in the value of the derivative instruments.

 

*Recently Issued Accounting Pronouncements*

 

InSeptember 2006, the FASB issued Statement of Financial AccountingStandards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157defines fair value, establishes a framework for measuring fair value, andexpands disclosure about fair value measurements. The Company adopted SFAS 157as of January 1, 2008****except as noted below, and it did not have amaterial impact on its financial position and results of operations. Relativeto SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1 and 157-2. FSP157-1 amends SFAS 157 to exclude SFAS No. 13, “Accounting for Leases,”(SFAS 13) and its related interpretive accounting pronouncements that addressleasing transactions, while FSP 157-2 delays the effective date of theapplication of SFAS 157 to fiscal years beginning after November 15, 2008for all nonfinancial assets and nonfinancial liabilities that are recognized ordisclosed at fair value in the financial statements on a nonrecurring basis.The Company adopted SFAS 157 as of January 1, 2008, with the exception ofthe application of the statement to non-recurring nonfinancial assets andnonfinancial liabilities. The Company is currently evaluating the impact ofSFAS 157 for non-financial assets and liabilities.

 

In March 2008, the FASB issued SFAS 161, *Disclosures about Derivative Instruments and HedgingActivities*, which requires enhanced disclosures about how theseinstruments and activities affect the entity’s financial position, financialperformance and cash flows. The standard requires disclosure of the fair valuesof derivative instruments and their gains and losses in a tabular format. Italso provides more information about an entity’s liquidity by requiringdisclosure of derivative features that are credit risk-related. Finally, itrequires cross-referencing within footnotes to enable financial statement usersto locate important information about derivative instruments. SFAS 161 is effectivefor financial statements issued for fiscal years and interim periods beginningafter November 15, 2008. Because SFAS 161 requires enhanced disclosuresbut does not modify the accounting treatment of derivative 

 

8

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**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

 

Notesto Condensed Financial Statements (Unaudited)

 

March 31,2008

 

instruments and hedging activities, the Companybelieves the adoption of this standard will have no impact on its financialposition, results of operations or cash flows.

 

*Reclassifications*

 

Thepresentation of certain items in the condensed statement of operations forthe quarter ended March 31, 2007 has been changed to conform to theclassifications used for the quarter ended March 31, 2008. Thesereclassifications had no effect on net income as previously reported.

 

**2. INVENTORY**

 

Inventoryconsists of the following:

 
| ** **      | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------|------------|-------------------------|------------|----------------------------|------------|
| Raw materials   |       | $                       | 1,313,953  |                       | $          | 545,467 |   |
| Supplies        |       | 528,800                 |       | 496,348                    |       |
| Work in process |       | 532,767                 |       | 412,772                    |       |
| Finished goods  |       | 1,280,561               |       | 1,330,677                  |       |
| Total           |       | $                       | 3,656,081  |                       | $          | 2,785,264 |   |

 

**3. DERIVATIVE INSTRUMENTS**

 

TheCompany recorded an asset for derivative instruments related to corn andethanol option and futures positions of $2,361,338 and $5,189 at March 31,2008 and December 31, 2007, respectively. None of these open positions, atMarch 31, 2008 and December 31, 2007 were designated as hedges. TheCompany recorded a combined realized and unrealized gain on corn hedging of$2,709,786 for the quarter ended March 31, 2008 and a combined realizedand unrealized loss on corn hedging of $690,566 for the quarter ended March 31,2007. Realized and unrealized gains and losses related to derivative contractsthat are related to corn purchases are included as a component of cost of goodssold. The Company recorded a combined realized and unrealized loss on ethanolhedging of approximately $34 and $386,359 for the quarters ended March 31,2008 and 2007, respectively. Realized and unrealized gains and losses relatedto derivative contracts that are related to ethanol sales are included as acomponent of revenues.

 

Thecompany is required to maintain cash balances at its broker related toderivative instrument positions. At March 31, 2008 and December 31,2007, restricted cash totaled $2,152,803 and $248,383, respectively, and is notincluded in cash and cash equivalents on the balance sheet or the statements ofcash flows.

 

**4. FAIR VALUE MEASUREMENTS**

 

EffectiveJanuary 1, 2008, the Company adopted Statement of Financial AccountingStandard No. 157, “Fair Value Measurements” (SFAS 157), as it applies tothe financial instruments, and Statement of Financial Accounting Standard No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities –Including an amendment of FASB Statement No. 115” (SFAS 159). SFAS 157defines fair value, outlines a framework for measuring fair value, and detailsthe required disclosures about fair value measurements. SFAS 159 permitscompanies to irrevocably choose to measure certain financial instruments andother items at fair value. SFAS 159 also establishes presentation anddisclosure requirements designed to facilitate comparison between entities thatchoose different measurement attributes for similar types of assets andliabilities.

 

UnderSFAS 157, fair value is defined as the price that would be received to sell anasset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date in the principal or most advantageousmarket. SFAS 157 establishes a hierarchy in determining the fair value of anasset or liability. The fair value hierarchy has three levels of inputs, bothobservable and unobservable. SFAS 157 requires the utilization of the lowestpossible level of input to determine fair value. Level 1 inputs include quotedmarket prices in an active market for identical assets or liabilities. Level 2inputs are market data, other than Level 1, that are observable either directlyor indirectly. Level 2 inputs include quoted market prices for similar assetsor liabilities, quoted market 

 

9

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**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

 

Notesto Condensed Financial Statements (Unaudited)

 

March 31,2008

 

pricesin an inactive market, and other observable information that can becorroborated by market data. Level 3 inputs are unobservable and corroboratedby little or no market data.

 

Exceptfor those assets and liabilities which are required by authoritative accountingguidance to be recorded at fair value in our Balance Sheet, we have elected notto record any other assets or liabilities at fair value, as permitted by SFAS159. No events occurred during the first quarter 2008 which would requireadjustment to the recognized balances of assets or liabilities which arerecorded at fair value on a nonrecurring basis.

 

Thefollowing table provides information on those assets and liabilities measuredat fair value on a recurring basis.

 
| ** **             | ** ** | **Carrying Amount**     | ** ** | ** **              | ** ** | ** **                       |
|------------------------|------------|-------------------------|------------|-------------------------|------------|----------------------------------|
| ** **             | ** ** | **In Balance Sheet**    | ** ** | **Fair Value**          | ** ** | **Fair Value Measurement Using** |
| ** **             | ** ** | **March 31, 2008** | ** ** | **March 31, 2008** | ** ** | **Level 1**                      | ** ** | **Level 2** | ** ** | **Level 3** |
| Derivative Instruments |       | $                       | 2,152,803  |                    | $          | 2,152,803                        |   | $ | 2,152,803 |   | $ | — |   | $ | — |
|                        |            |                         |            |                         |            |                                  |  |  |  |  |  |  |  |  |  |

 

The fair value of the derivative instructions are based on quotedmarket prices in an active market.

 

**5. BANK FINANCING**

 

OnMay 25, 2006, the Company closed on a mortgage in the amount of$21,040,376, which included a revolving credit agreement in the amount of$5,000,000, and a term credit agreement in the amount of $16,040,376 withFarmers & Merchants Union Bank to refinance the existing debt withAgStar Financial Services, PCA. The term debt consisted of a five-year businessnote in the amount of $16,040,376 at a fixed interest rate of 7.4% and requiredmonthly payments based on a ten-year amortization beginning July 1, 2006. Asof March 31, 2008 and December 31, 2007, the Company had outstandingdebt of $14,050,481 and $15,227,743, respectively, on the term debt and$1,585,961 and $0, respectively, outstanding on the revolving creditcommitment.

 

Thereis an annual service fee of $10,000 for the revolving credit agreement and anannual facility fee of $20,000 that began on the closing date, May 25,2006, and continues upon each anniversary until maturity. If the revolving lineof credit is terminated prior to maturity, the $10,000 annual service fee willno longer be incurred. No prepayment fees exist on either loan.

 

Theseloans are subject to protective covenants requiring the Company to maintainvarious financial ratios. The Company has not violated any financial debtcovenants during the quarter ended March 31, 2008 or in the year 2007 andthe Company believes the likelihood of default of the financial debt covenantsin the next quarter to be remote. The loan is secured by substantially all theCompany’s assets.

 

On January 10, 2008 the board voted to retire the balance of theCompany’s existing long-term debt with Farmers & Merchants Union Bank.The Company retired the term debt in April 2008 and has classified thenentire amount as a current liability on the condensed balance sheet as of March 31,2008.

 

**6. MEMBERS’ EQUITY**

 

Asspecified in the Company’s operating agreement, the Company has one class ofmembership units. The Company is authorized to issue up to 28,000 membership unitsin addition to the 1,280 seed capital units issued prior to the Company’sinitial registered offering.

 

10

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**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

 

Notesto Condensed Financial Statements (Unaudited)

 

March 31,2008

 

OnJune 11, 2007 the board approved up to $1 million over the next 12 monthsto explore/pursue the option of redeeming membership units offered for sale atthe market price. As of March 31, 2008 the board approved unit redemptionsof 263 units totaling $783,950 effective on various dates from September 1,2007 to April 1, 2008.

 

Asof March 31, 2008 and December 31, 2007 the Company had 28,531 and 28,710membership units outstanding, respectively.

 

**7. COMMITMENTS AND CONTINGENCIES**

 

*Corn and Natural Gas Contracts*

 

At March 31, 2008, the Company hadforward corn purchase contracts totaling approximately 10.3 million bushels forvarious delivery periods from April 2008 to December 2009 of whichapproximately 40% are with members. The prices on these contracts range from$2.95 to $5.94 per bushel or have a basis level established by the CBOT futuresbetween $0.03 and $-0.28. At March 31, 2008, the Company had forwardcontracts to purchase approximately 80,000 million British thermal units(MMBTU) of natural gas during the months April and May 2008 at anaverage price of approximately $9 per MMBTU.

 

*Plant Expansion*

 

As of March 31, 2008, the Company incurred $1.5million for expansion of the storage, shipping, and receiving in the grainsarea which is expected to cost $2.4 million in total. The Company also incurredcosts of approximately $820,000 as of March 31, 2008 for a distillersgrain cooling and conveying system which is expected to cost approximately $2million in total. As of March 31, 2008, the Company incurred costs ofapproximately $1 million for a dehydration, distillation, and evaporationsystem which is expected to cost approximately $18 million in total. TheCompany also approved the addition of a cooling tower and a regenerativethermal oxidizer expected to total $4.4 million in costs and incurred costs ofapproximately $80,000 as of March 31, 2008.

 

*Other Investments*

 

On February 12, 2007, theboard of directors approved up to a $10 million investment in First MissouriEnergy, LLC. First Missouri Energy, LLC intends to construct a 55 milliongallon per year ethanol plant near Cape Girardeau, Missouri. During April 2008,the Company determined that the viability of this project in the near futurewas in question. The Company based this determination on the proposals todelay, modify, or repeal state and federal subsidies and programs which wouldhave a negative impact on this project. Accordingly, the Company is recording an impairment loss ofapproximately $866,000 on this investment in the second quarter of 2008. TheCompany believes the remaining asset, primarily land, is recoverable. The boardof First Missouri Energy is currently assessing its options to delay furtherwork and development of the project. As of March 31, 2008, the Company hasinvested $1,155,000 in this project. The Company accounts for this investmentusing the equity method of accounting and recorded a net loss on the investmentof $13,079 for the three month period ended March 31, 2008.

 

11

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**8.  QUARTERLY FINANCIAL DATA (UNAUDITED)**

 

Summary quarterly results are as follows:

 
| ** **                                  | ** ** | **First**   | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|---------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                                  | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| Year ending  December 31, 2008         |       |        |       |        |       |        |       |        |       |
| Total revenues                              |       | $           | 34,237,387 |        | $          | —      |       | $           | —     |   | $ | — |   |
| Gross profit                                |       | 8,446,421   |       | —      |       | —      |       | —      |       |
| Income from operations                      |       | 7,493,018   |       | —      |       | —      |       | —      |       |
| Net income                                  |       | 7,492,547   |       | —      |       | —      |       | —      |       |
| Basic and diluted earnings per unit         |       | 261.66      |       | —      |       | —      |       | —      |       |
|                                        |       |        |       |        |       |        |       |        |       |
| Year ended  December 31, 2007          |       |        |       |        |       |        |       |        |       |
| Total revenues                              |       | $           | 29,001,792 |        | $          | 28,245,629  |       | $           | 26,714,846 |   | $ | 28,038,797 |   |
| Gross profit                                |       | 7,925,844   |       | 6,720,317   |       | 5,047,735   |       | 4,932,426   |       |
| Income from operations                      |       | 7,160,226   |       | 5,775,498   |       | 4,221,247   |       | 4,053,821   |       |
| Net income                                  |       | 7,142,869   |       | 5,694,717   |       | 4,251,754   |       | 4,152,892   |       |
| Basic and diluted earnings per unit         |       | 248.19      |       | 197.87      |       | 147.74      |       | 144.62      |       |
|                                        |       |        |       |        |       |        |       |        |       |
| Year ended  December 31, 2006          |       |        |       |        |       |        |       |        |       |
| Total revenues                              |       | $           | 22,817,707 |        | $          | 30,578,904  |       | $           | 29,725,303 |   | $ | 28,649,689 |   |
| Gross profit                                |       | 5,388,739   |       | 12,898,450  |       | 12,604,043  |       | 13,397,942  |       |
| Income from operations                      |       | 4,727,376   |       | 12,206,974  |       | 11,908,415  |       | 12,063,024  |       |
| Net income                                  |       | 4,703,420   |       | 11,298,262  |       | 11,804,154  |       | 12,212,013  |       |
| Basic and diluted earnings per unit         |       | 163.43      |       | 392.57      |       | 410.15      |       | 424.32      |       |
|                                        |       |        |       |        |       |        |       |        |       |
| Year ended  December 31, 2005          |       |        |       |        |       |        |       |        |       |
| Total revenues                              |       | $           | —     |        | $          | 10,109,672  |       | $           | 21,893,544 |   | $ | 22,473,829 |   |
| Gross profit                                |       | —      |       | 565,100     |       | 5,003,229   |       | 5,265,525   |       |
| Income (loss) from operations)              |       | (365,107    | )          | 113,590     |       | 4,456,021   |       | 4,343,121   |       |
| Net income (loss)                           |       | (124,949    | )          | 750,051     |       | 5,768,486   |       | 4,341,807   |       |
| Basic and diluted earnings (loss) per unit) |       | (4.34       | )          | 26.06       |       | 200.43      |       | 150.87      |       |

 

The above quarterly financial data is unaudited, butin the opinion of management, all adjustments necessary for a fair presentationof the selected data for these periods presented is included.

 

12

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

** **

We prepared the following discussion and analysis tohelp you better understand our financial condition, changes in our financialcondition, and results of operations for the period ended March 31, 2008compared to the same period of the prior fiscal year. This discussion should beread in conjunction with our annual report on Form 10-K for the fiscalyear ended December 31, 2007, including the financial statements and notesand the Management’s Discussion and Analysis contained within that report.

 

**Disclosure Regarding Forward-Looking Statements**

 

This report containshistorical information, as well as forward-looking statements that involveknown and unknown risks and relate to future events, our future financialperformance, or our expected future operations and actions. In some cases, youcan 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 the negative ofthese terms or other similar expressions. These forward-looking statements areonly our predictions based upon current information and involve numerousassumptions, risks and uncertainties. Our actual results or actions may differmaterially from these forward-looking statements for many reasons, includingthe reasons described in this report. While it is impossible to identify allsuch factors, factors that could cause actual results to differ materially fromthose estimated by us include:

 
| · | Incorrect assumptions related to industry  growth, overcapacity or increased competition in the ethanol market in which  we operate;                               |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Fluctuations in the price and market for  ethanol and distillers grains;                                                                                           |
| · | Availability and costs of products and  raw materials, particularly corn and natural gas;                                                                          |
| · | Changes in planned production, variations  in actual ethanol and distillers grains production from expectations or  technical difficulties in operating the plant; |
| · | Our ability to market and our reliance on  third parties to market our products;                                                                                   |
| · | Changes in or elimination of governmental  laws, 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 legislation mandating 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 and their enforcement; |
|   |                                                                                                                                                               |   |   |
| · | Changes in general economic conditions or  the weather, or the occurrence of certain events causing an impact in the  agriculture, oil or automobile industries;   |
| · | Lack of transport, storage and blending  infrastructure preventing ethanol from reaching high demand markets;                                                      |
| · | Changes in total U.S. consumption of  gasoline;                                                                                                                    |
| · | Fluctuations in petroleum prices;                                                                                                                                  |
| · | Costs of construction and equipment;                                                                                                                               |
| · | Our ability to implement our expansion  plans;                                                                                                                     |
| · | The loss of, or inability to obtain, any  license or permit;                                                                                                       |
| · | Changes in our business strategy, capital  improvements or development plans;                                                                                      |
| · | Changes in interest rates and the  availability of credit to support capital improvements, development,  expansion and operations;                                 |
| · | Our liability resulting from litigation;                                                                                                                           |
| · | Our ability to retain key employees and  maintain labor relations;                                                                                                 |
| · | Financial impacts of our hedging strategies;                                                                                                                       |
| · | Our ability to generate free cash flow to  invest in our business and service our debt;                                                                            |
| · | Additional ethanol plants built in close  proximity to our ethanol facility in south central Wisconsin;                                                            |
| · | The ability of First Missouri Energy LLC,  an ethanol production facility in which we have invested, to obtain equity  and debt financing;                         |
| · | Changes and advances in ethanol  production technology;                                                                                                            |
| · | Competition from alternative fuels and  alternative fuel additives; and                                                                                            |
| · | Other factors described elsewhere in this  report.                                                                                                                 |

 

13

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The cautionarystatements referred to in this section also should be considered in connectionwith any subsequent written or oral forward-looking statements that may beissued by us or persons acting on our behalf. We undertake no duty to updatethese forward-looking statements, even though our situation may change in thefuture. Furthermore, we cannot guarantee future results, events, levels ofactivity, performance, or achievements. We caution you not to put unduereliance on any forward-looking statements, which speak only as of the date ofthis report.  You should read this report and the documents that wereference in this report and have filed as exhibits completely and with theunderstanding that our actual future results may be materially different fromwhat we currently expect.  We qualify all of our forward-lookingstatements by these cautionary statements.

 

**Overview**

 

References to “we,” “us,” “our” and the “Company”refer to United Wisconsin Grain Producers, LLC. United Wisconsin GrainProducers, LLC is a Wisconsin limited liability company that manages thebusiness and day-to-day operations of a 60 million gallon per year (“MGY”)ethanol plant near Friesland, Wisconsin. The ethanol plant was originallyconstructed as a 40 MGY facility, but in late 2007 the plant’s productioncapacity was expanded to 60 MGY. We expect to operate at this expandedproduction capacity by June 2008. We anticipate further increasing ourproduction capacity to 90 MGY by June 2009.

 

We have been engaged in the production ofethanol and distillers grains at our plant near Friesland, Wisconsin since May 2005.Our revenues are derived from the sale and distribution of ethanol anddistillers grains throughout the continental United States and overseas. Infiscal year 2008, we anticipate producing approximately 56.7 million gallons ofethanol and 168,000 tons of distillers grains from approximately 19.9 millionbushels of corn. However, there is no guarantee that we will be able to operateat these production levels.

 

We are subject toindustry-wide factors that affect our operating and financialperformance.  Our operating results are largely driven by the prices atwhich we sell ethanol and distillers grains and the costs related to theirproduction, particularly corn and natural gas costs.  Historically, theprice of ethanol tends to fluctuate in the same direction as the price ofunleaded gasoline and other petroleum products.  However, more recentlysurplus ethanol supplies due to increased production capacity in the industryhave put significant downward pressure on ethanol prices even though unleadedgasoline prices have increased.  In addition, the price of ethanol isgenerally influenced by factors such as general economic conditions, theweather, the season, and government policies and programs.  The price ofdistillers grains is generally influenced by supply and demand, seasonalfluctuations and the price of substitute livestock feed, such as corn andsoybean meal and other animal feed proteins.  Recently, increasing demandfor corn and/or protein supplies has caused an upward trend in distillersgrains pricing.  In addition, our revenues are also impacted by factorssuch as our dependence on one or a few major customers who purchase anddistribute our primary product; the intensely competitive nature of ourindustry; possible legislative changes at the federal, state and/or local leveland changes in federal ethanol tax incentives.

 

 Our two largest costs of production are cornand natural gas.  Both of these costs are affected by factors largely outof our control.  The cost of corn is affected primarily by the market’sperception of supply and demand factors such as crop production, industryyear-end inventories, exports, government policies and programs, riskmanagement and weather.  The growth of the ethanol industry itself hasincreased the average price of corn and is expected to continue to support theincreased average price of corn as the global demand for corn continues torise.  Natural gas prices fluctuate with the energy complex in general,but also have independent cost factors such as weather in the production areas,production disruption, storage levels, pipeline capacity and weather in useareas.  Over the last few years, natural gas prices have remained muchhigher than historical averages and it appears prices will continue to remainabove previous averages due to the high price of alternative fuels such as fueloil.  Our costs of production are also affected by the cost of complyingwith the extensive environmental laws that regulate our industry.

 

We expect to fund ouroperations during the next twelve months using cash flow from continuingoperations and our credit facilities. We expect to continue ongoing researchand development activities in the next twelve months in the form ofcommissioning studies on internal energy generation in conjunction with ourplant production capacity increases, in particular the possibility of using post-fermentationcorn solids or other renewable fuel as an energy source, thereby offsetting ournatural gas usage. Because of this evaluation and analysis work, we

 

14

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have postponed the completion date for the planned60 to 90 MGY capacity increase because our energy technology choice will impactthe design of the additional 30 MGY of capacity.

 

**Results of Operations**

 

***Comparison of the three monthsended March 31, 2008 and 2007***

 

The following tableshows the results of our operations and the percentage of revenues, cost ofgoods sold, operating expenses and other items to total revenues in ourstatement of operations for the three months ended March 31, 2008 and2007:

 
| ** **                                      | ** ** | **Three months ended  March 31, 2008  (Unaudited)** | ** ** | **Three months ended  March 31, 2007  (Unaudited)** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| **Statement of Operations Data** | ** ** | **Amount**                                                              | ** ** | **%**                                                                   | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                                        |       | $                                                                       | 34,237,387 |                                                                    | 100.0      |   | $ | 29,001,792 |   | 100.0 |   |
|                                            |       |                                                                    |       |                                                                    |       |   |   |   |   |
| Cost of Goods Sold                              |       | $                                                                       | 25,790,966 |                                                                    | 75.3       |   | $ | 21,075,948 |   | 72.7 |   |
|                                            |       |                                                                    |       |                                                                    |       |   |   |   |   |
| Gross Profit                                    |       | $                                                                       | 8,446,421  |                                                                    | 24.7       |   | $ | 7,925,844 |   | 27.3 |   |
|                                            |       |                                                                    |       |                                                                    |       |   |   |   |   |
| Operating Expenses                              |       | $                                                                       | 953,403    |                                                                    | 2.8        |   | $ | 765,618 |   | 2.6 |   |
|                                            |       |                                                                    |       |                                                                    |       |   |   |   |   |
| Operating Income                                |       | $                                                                       | 7,493,018  |                                                                    | 21.9       |   | $ | 7,160,226 |   | 24.7 |   |
|                                            |       |                                                                    |       |                                                                    |       |   |   |   |   |
| Other Expense                                   |       | $                                                                       | (471       | )                                                                       | 0.0        |   | $ | (17,357 | ) | (0.1 | ) |
|                                            |       |                                                                    |       |                                                                    |       |   |   |   |   |
| **Net Income**                                  |       | $                                                                       | 7,492,547  |                                                                    | 21.9       |   | $ | 7,142,869 |   | 24.6 |   |

 

*Revenues*. Revenues from operations for the threemonths ended March 31, 2008 totaled $34,237,387. In the three months endedMarch 31, 2008 ethanol comprised approximately 84% of our revenues anddistillers grain sales (DGS) comprised approximately 16% of our revenues. Revenuesfrom operations for the three months ended March 31, 2007 totaled$29,001,792 of which ethanol comprised approximately 90% and distillers grainscomprised approximately 10%. The 18% increase in revenues for the three monthsended March 31, 2008 as compared to the same period in the previous yearis due to a 3.5% increase in gallons sold, a 13% increase in tons of distillersgrain sold, a 9% increase in the price of ethanol and a 60% increase in theprice of distillers grains.

 

The volume of ethanol sold in the three months endedMarch 31, 2008 increased by 3.5% over the same quarter in 2007. Thisvolume increase is due to the planned increase in production capacity resultingfrom the plant expansion substantially completed in December 2007. See “**Management’s Discussion and Analysis of FinancialCondition and Results of Operations - Plant Expansion and Construction inProcess**.” Our 13% increase in the amount of distillers grains soldresulted from our increased production capacity, gains in efficiency andvariations in inventory.

 

The price of ethanol in the three months ended March 31,2008 was up approximately 9% from the price for the three months ended March 31,2007. Ethanol prices have trended higher in the last few months. The lowestrecent prices were seen in October 2007, following a downward trend thatbegan after ethanol prices peaked in July 2006. Management currentlyexpects short-term and mid-term ethanol prices to remain higher than historicalaverages due to a high demand for ethanol which may be contributed to by anumber of factors, including the use of ethanol as an oxygenate to replaceMTBE, the high price of gasoline encouraging voluntary blending of ethanol andthe growing recognition of ethanol as an alternative energy source. However,management believes the industry will need to continue to grow demand in orderto increase or sustain current prices. According to the Renewable FuelsAssociation, as of April 2, 2008 there were 147 ethanol plants inoperation nationwide with the capacity to produce more than 8.52 billiongallons of ethanol annually, with an additional 55 new plants and sixexpansions under construction expected to add an additional estimated 5.1billion gallons of annual production capacity in the next 12 to 18 months. Unlessthis new supply is equally met with increased demand, ethanol prices may be

 

15

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pressureddownward. If ethanol prices decline, our earnings will also decline,particularly if corn prices remain substantially higher than historic averages.

 

Our revenues include aloss of $34 and $386,359 for the three months ended March 31, 2008 and March 31,2007, respectively, related to our ethanol derivative instruments.  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 changes, affecting our financial performance.  We expect thevolatility in these derivative instruments to continue to have an effect on ourrevenues due to the timing of the changes in value of the derivative instrumentsrelative to our sales.   Theseinstruments are the primary tools of our risk management program for ethanolrevenues.

 

The sales prices for our distillers grains for thethree months ended March 31, 2008 were up 60% from the three months ended March 31,2007. The rising cost of corn and other alternative feed sources has pusheddistillers grains prices upward. Distillers grains prices are expected tofollow the price of corn for the foreseeable future unless the price of soybeanmeal or other protein sources changes significantly. Additionally, an increasedsupply of distillers grains resulting from additional ethanol production mayput downward pressure on distillers grains prices. To date, additionaldistillers grains demand has come from increased domestic usage and increasedoverseas demand for distillers grains.

 

*Cost of Goods Sold*. Our cost of goods sold from the productionof ethanol and distillers grains is primarily made up of raw grains expenses(corn) and energy expenses (natural gas and electricity). Cost of goods soldfor the three months ended March 31, 2008 totaled $25,790,966 as comparedto $21,075,948 for the three months ended March 31, 2007. The 22% increasein cost of goods sold in the three months ended March 31, 2008 as comparedto the same period in 2007 is a net result of a 23% increase in the cost ofcorn and other ingredients, a 24% increase in the cost of natural gas, and a45% increase in electricity, partially offset by a 35% decrease in the cost ofproduction supplies, maintenance and repairs.

 

The average corn price for the three months ended March 31,2008 was 48% higher than the average for the three months ended March 31,2007. Corn prices have continued to trend higher in price over the last 3months. The weak value of the dollar has kept exports of corn strong and highinput costs have led to producers planning on planting fewer acres to corn thisyear, as indicated by the planting intentions report released March 31,2008. Producers are indicating planting 86 million acres to corn this year, areduction of nearly 7.6 million acres versus last year, which has increasedvolatility surrounding the supply and demand picture for corn. World suppliesfor all coarse grains are in tight supply, and any potential supply-reducingevent such as reductions in acres grown or poor weather will likely be acatalyst for higher prices. Currently cool, wet weather is preventing thetimely planting of crops, and potentially could further reduce corn acres,keeping further upward pressure on prices. Current corn carry out is projectedto be 1.368 billion bushels on September 1, 2008, which is a decrease fromprevious projections of over 2 billion bushels. The 2009 projected carry out ispegged at only 694 million bushels, which is extremely tight and will keep cornprices firm for some time to come. Recently, ethanol margins have tightenedconsiderably and livestock feeding margins are quite slim. It is possible thatthese factors may reduce the domestic demand for corn. All in all, it appearslikely that our cost of feedstock will be higher than historic levels due thesupply versus demand imbalance surrounding the 2008/2009 crop years.

 

Our cost of goods soldincludes a gain of $2,709,786 for the three months ended March 31, 2008related to our corn derivative instruments as compared to a $690,566 loss forthe three months ended March 31, 2007.  We recognize the gains orlosses that result from the changes in the value of our corn-related derivativeinstruments in cost of goods sold as the changes occur.  As corn pricesfluctuate, the value of our derivative instruments changes, which affects ourfinancial performance.  We anticipate continued volatility in our cost ofgoods sold due to the timing of the changes in value of the derivative instrumentsrelative to the cost and use of the commodity being hedged.   These instruments are the primary tools ofour risk management program for corn prices.

 

Natural gas is also animportant input to our manufacturing process. The price of our natural gasincreased 18% for the three months ended March 31, 2008 as compared to thesame period in 2007. The volume of natural gas we used increased 5%, relativeto the increase in our ethanol production, for the three months ended March 31,2008 as compared to the same period in 2007. These increases in price andvolume required resulted in a 24% increase in the cost of natural gas in thethree months ended March 31, 2008 as compared to the same period in 2007. 

 

16

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We estimate that our natural gas usage isapproximately 126,000 million British thermal units (“MMBTU”) per month. We expect our natural gas usage to increase to 140,000 MMBTU per month once weare operating at a production rate of 60 million gallons per year. We usenatural gas to dry a majority of our distillers grains products to moisturecontents at which they can be stored for longer periods and transported greaterdistances, so that we can market them to broader livestock markets, includingpoultry and swine markets in the continental United States and to markets in Asia.  Over thepast two to three years natural gas has been available only at prices exceedinghistorical averages. These heightened prices increase our costs ofproduction.  Although natural gas prices have trended lower since theirpeak in late 2005, we expect natural gas prices to remain higher than historicprices given the higher prices of energy sources generally.  We expect ournatural gas costs to remain at or near costs experienced over the past year,which will continue to have a negative impact on our cost of goods sold. Wehave secured a marketing firm and energy consultant for our natural gas supplyand will continue to work with them on an ongoing basis to mitigate our exposureto volatile gas prices. We have also secured firm pipeline capacity for naturalgas delivery of 4,000 MMBTU per day, although we may need to secure additionalpipeline capacity to operate at our expanded production rate.

 

*GrossProfit*. Gross profit for the three months ended March 31 2008 was$8,446,421, a 6.5% increase from the gross profit of $7,925,844 for the threemonths ended March 31, 2007. This increase is due primarily to the$2,709,786 gain recognized from our corn derivative instruments (see “Cost ofGoods Sold” above) and the 9% increase in the price of ethanol (see “Revenues”above), partially offset by the 48% increase in the price of corn (see “Cost ofGoods Sold” above).

 

In the three monthsended March 31, 2008, our ethanol-corn price spread was approximately$1.64, as compared to a spread of approximately $2.79 for the same period in2007, a 41.22% decrease. However, despite this decrease, our margin remainedrelatively steady due to the hedge gain we recognized in the three months endedMarch 31, 2008. Our gross profit margins for the three months ended March 31,2008 and 2007 were approximately 24.7% and approximately 27.3%, respectively. Wecalculate our spread as the price we receive per gallon of ethanol, multipliedby the number of gallons of ethanol produced per bushel of corn, minus theprice we paid per bushel of corn. The calculation of our spread does not takeinto account sale of distillers grains or expenses from inputs other than corn,including the natural gas we use to dry our distillers grains. The spreadbetween the price we receive for our products and the costs of our rawmaterials may not continue at a favorable rate in the future. The rapidlyincreasing supply of ethanol may outpace the demand for ethanol, placing additionaldownward pressure on our selling price and further eroding our margins. Theincreased production of ethanol from corn in the industry may contribute to thealready increasing demand for corn and exceed the supply of corn, increasingour cost of corn and reducing our profit margin. A decrease in profit marginwill adversely affect our financial performance.

 

*Operating Expenses*. Operating expenses were $953,403 for thethree months ended March 31, 2008 as compared to $765,618 for three monthsended March 31, 2007. The increase in operating expenses is primarily aresult of an increase in general and administrative labor expense andprofessional fees for the three months ended March 31, 2008 over the sameperiod in 2007. Operating expenses as a percentage of revenues were 2.8% and2.6% for the three months ended March 31, 2008 and March 31, 2007,respectively.

 

*OperatingIncome*. Operating income for threemonths ended March 31, 2008 totaled $7,493,018, or 21.9% of revenues. Operatingincome for the three monthsended March 31, 2007 totaled $7,160,226, or 24.7% of revenues. The increase in operating income for thethree months ended March 31, 2008 compared to the three months ended March 31,2007 is primarily a net result of the net increase in “Gross Profit” (discussedabove) and the increase in “Operating Expenses” (discussed above).

 

*OtherIncome (Expense)*. Our other income (expense) for the three monthsended March 31, 2008 was an expense of$471 as compared to an expense of $17,357 for the three months ended March 31,2007. Our other income (expense) items at March 31, 2008 consisted primarily of interest income, interestexpense, and a net loss on investment. Our other income (expense) items at March 31, 2007 consistedprimarily of a net interest expense. The changes in other income (expense)items were due primarily to an increase in interest income and a decrease ininterest expense.

 

17

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**Changes in Financial Condition for the Threemonths ended March 31, 2008 Compared to the Fiscal Year ended December 31,2007.**

** **

Assets totaled$87,097,313 on March 31, 2008, as compared to $86,538,195 on December 31,2007.  Current assets totaled $34,718,765on March 31, 2008, as compared to $33,920,040 on December 31,2007.  This change resulted from (i) areduction in cash and cash equivalents on hand, which is primarily a net resultof an increase in cash from operations, less the $7,175,000 cash used for ourmember distributions in February 2008, approximately $1,000,000 used forcapital expenditures and construction in process, and $560,700 used for therepurchase of membership units, (ii) a $4,260,569 increase in ourrestricted cash and derivative instruments and (iii) an $870,817 increasein our inventory balance.

 

Current liabilities were$19,212,052 on March 31, 2008, as compared to $5,311,894 on December 31,2007. This increase is primarily a result of reclassifying our long-term debtto current due to our plans to retire such debt in April 2008 andborrowings on our revolving line of credit. Long term debt, net of currentmaturities, totaled $0 on March 31, 2008, as compared to $13,097,887 on December 31,2007.  This reduction in long-term debtis also a direct reflection of the reclassification of our long-term debt tocurrent.

 

Members’ equity totaled$67,885,261 on March 31, 2008, as compared to $68,128,414 on March 31,2007.  This change is a net result ofearnings for the three months less the $7,175,000 membership distribution paidout in February 2008 and $560,700 paid out for the repurchase ofmembership units during the quarter.  OnJune 11, 2007 the board approved up to $1,000,000 to explore/pursue theoption of buying back membership units offered for sale.  As of March 31, 2008, we haverepurchased of a total of 249 membership units for $743,350.

 

**Liquidity and Capital Resources**

** **

***Comparison of the three monthsended March 31, 2008 and 2007***

 

The following tableshows cash flows for the three months ended March 31, 2008 and 2007:

 
| ** **                                | ** ** | **Three months ended March 31** | ** **       |
|-------------------------------------------|------------|-----------------------------------------------------|------------------|
| ** **                                | ** ** | **2008**                                            | ** **       | **2007** | ** ** |
| Net cash provided by operating activities |       | $                                                   |  3,058,643  |   | $ | 7,612,860 |   |
| Net cash used in investing activities     |       | $                                                   |  (1,143,573 | ) | $ | (1,199,087 | ) |
| Net cash used in financing activities     |       | $                                                   |  (6,455,397 | ) | $ | (14,716,887 | ) |

** **

*CashFlow Provided by Operations.** *Our net cash flow provided from operatingactivities for the three months ended March 31, 2008 was $3,058,643, ascompared to $7,612,860 for the same quarter the previous year.  The decrease in net cash flow provided fromoperating activities for the three months ended March 31, 2008 compared tothe three months ended March 31, 2007 was primarily due to a change in thefair value of our derivative instruments, changes in inventory value related toincreasing corn prices and changes in restricted cash related to our margindeposit requirement, netted against changes to accounts payable and accruedliabilities.  Our capital needs are adequately met through cash from our operatingactivities and our current credit facilities.

 

*CashFlow Used In Investing Activities.** *Our net cash flow used in investingactivities for the three months ended March 31, 2008 constitutedexpenditures of $1,143,573, as compared to expenditures of $1,199,087 for thethree months ended March 31, 2007.

 

Management estimatesthat approximately $1,000,000 in capital expenditures will be made in the nextthree months to complete the operational improvements in grains shipping,receiving and storage area, bringing the expected total cost to approximately$2,440,000.  Also, approximately$1,000,000 in capital expenditures will be made to complete the new distillers grains cooling and conveyingsystem, a $2,050,000 project approved by our board on June 11, 2007.

 

We presently estimatethat an additional $35,000,000 will be spent over the next fifteen months foran additional 30 million gallon per year ethanol production facility at ourplant site, all of which is expected to be 

 

18

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financed from a portion of cash flows fromoperations and additional debt financing. See “**Plant Expansion and Construction in Process**”below for details regarding additional debt financing.  Weare in the process of determining whether this 30 million gallon facility willbe a stand-alone facility or part of an expansion to our existing plant.  Utilizing cash generated from operations forthe plant expansion may impact our ability to pay out future memberdistributions.  Our projections are basedupon our historical operating costs and historical revenues.  However, our past financial performance maynot accurately predict future results.  We currently estimate the 30million gallon per year expansion facility will be complete by June 2009;however, construction may not stay on schedule and we may not be able tooperate at the expanded production levels by June 2009.

 

On February 12, 2007 our board approved a$10,000,000 investment for an ownership interest in a joint venture to constructand operate a 55 million gallon capacity ethanol plant at Cape Girardeau,Missouri.  As of March 31, 2008 we hadpaid out a total of $1,155,000 on this project. If First MissouriEnergy does not raise additional equity or is unable to obtain debt financing,we do not expect to contribute any additional capital to the project.  During April 2008, the Company determinedthat the viability of this project in the near future was in question.  The Company based this determination on theproposals to delay, modify, or repeal state and federal subsidies and programswhich would have a negative impact on this project.  Accordingly, the Company is recording animpairment loss of approximately $866,000 on this investment in the secondquarter of 2008.  The Company believesthe remaining asset, primarily land, is recoverable.  The board of First Missouri Energy iscurrently assessing its options to delay further work and development of theproject.

 

 

*CashFlow Used In Financing Activities.** *Our net cash flow used in financing activities for the three monthsended March 31, 2008 constituted expenditures of $6,455,397, as comparedto expenditures of $14,716,887 for the three months ended March 31,2007.  We used cash to pay down our debtby $305,658 and $286,887 during the three months ended March 31, 2008 and March 31,2007, respectively.  The principal paidin the three months ended March 31, 2008 and March 31, 2007 waspursuant to the ten-year amortization required by our existing loan agreementwith Farmers & Merchants Union Bank. During the three months ended March 31, 2008, we made cashdistributions to our members in the amount of $7,175,000 as compared to$14,390,000 in the three months ended March 31, 2007.  These distributions were financed with cashfrom operations.  Additionally, duringthe three months ended March 31, 2008, we borrowed $1,585,961 on ourrevolving line of credit for working capital. Also, during the three months ended March 31, 2008, we expended$560,700 for the repurchase of membership units, as compared to membership unitrepurchases of $40,000 for the same period in 2007.  See Part II, Item 2 of this report.

 

We expect to have sufficient cash from cash flowgenerated by continuing operations, our revolving line of credit, cash reservesand the additional debt financing we expect to obtain for our productionexpansions.  See “**Plant Expansion and Construction in Process**” below.  A cash shortage may impact our ability to payout future member distributions.  In theevent of a cash shortage, in addition to seeking additional debt financing wemay also consider seeking equity financing. If we fail to obtaineither debt or equity financing, we will not be able to construct Phase II ofour expansion.

 

***Short-Term andLong-Term Debt Sources***

*** ***

On May 25, 2006, wesigned credit agreements with Farmers & Merchants Union Bank ofFriesland, Wisconsin and refinanced our initial term debt and revolving loancommitment.  The credit facility issecured by substantially all of our assets.  The term loan of $16,040,376 is for five years with a ten-yearamortization.  We secured a $5,000,000revolving loan.  As of March 31,2008, there is an outstanding balance of $1,585,961 on the revolving loan.  Payments on the term loan are paid in monthlyinstallments, including principal and interest. The interest rate is fixed at 7.4% for both the term and revolving loanfor 5 years.  Interest is due monthly onthe revolving loan commitment.

 

As of March 31,2008 and March 31, 2007, we had outstanding debt of $14,050,481 and$14,356,139, respectively, on the term debt; and $1,585,961 and $0,respectively on the revolving line of credit.

 

There is an annualfacility fee of $20,000 on the term loan beginning on the closing date, May 25,2006, and upon each anniversary until its maturity.  There is an additional $10,000 annual servicefee for the revolving 

 

19

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credit agreement which can be terminated prior toits maturity, thereby discontinuing the service fee.  No prepayment fees exist on either loan.

 

These loans are subjectto protective covenants requiring us to maintain various financial ratios. Weare required to maintain a minimum tangible net worth of $24,000,000 and toincrease our tangible net worth annually by the lesser of $500,000 or an amountequal to retained earnings.  Our owners’equity is to be at least 45% of tangible net assets and we must maintain aworking capital position of at least $4,000,000.  We must receive written approval from ourlender to exceed $1,000,000 in annual capital expenditures and we must obtainconsent prior to making membership distributions in excess of 65% of theprevious year’s net income, excluding state and federal incentivepayments.   As of March 31, 2008, weare in compliance with all of our financial debt covenants.  The loan remains secured by substantially allof our assets.

 

On January 10, 2008our board voted to retire the balance of our existing long-term debt with Farmers & Merchants UnionBank.  The term loan was subsequently retired on April 24, 2008 usingprimarily cash from operations.  Weexpect to obtain additional debt financing of between approximately $19,000,000and $29,000,000 over the next twelve months to finance our additionalproduction capacity.  See “**Plant Expansion and Construction in Process**” below.

 

**Plant Expansion and Construction in Process**

** **

We retired our long-term debt with Farmers &Merchants Union Bank on April 24, 2008. However, we expect to obtain between approximately $19,000,000 and$29,000,000 in additional debt financing over the next twelve months to financePhase I and Phase II of our plant expansion. In December 2007, we substantially completed an expansion of ourplant to 60 million gallons per year (“Phase I” of our expansion).  We are gradually bringing various componentsof our capacity expansion online and we expect to be fully operational at 60million gallons per year, the capacity permitted by our construction permit, byapproximately June 30, 2008. However, it is possible that we will not be able to operate at 60million gallons per year by the expected date. This expansion entailed increasing the cook and fermentation systemcapacity.  As of March 31, 2008, wehad incurred approximately $6.7 million in capital expenditures for Phase I,which was the budgeted amount for the expansion.  We expect to finance this amount usingbetween approximately 40%-60% debt financing and between approximately 40%-60%cash from operations.  If we areunsuccessful in obtaining debt financing we may seek other alternatives,including equity financing, or, if we fail to obtain either debt or equityfinancing, we expect to finance the construction of Phase I of our expansionwith cash from operations.

 

Other plant improvements are currentlyunderway.  The grain storage capacity isbeing expanded from 450,000 bushel to 900,000 bushel, a $1,319,000 projectapproved by our board on May 10, 2007. A new loading system, including a separate loading bay, is also underconstruction in the grain receiving area, a $1,124,000 project also approved byour board on May 10, 2007.  A newdistillers grains cooling and conveying system is also underway, a $2,050,000project approved by our board on June 11, 2007.  Whereas these improvements will not increasecapacity and they are not part of our “capacity expansion plans,” they willcontribute to operational efficiency and customer service.  All of these projects are in progress and asof March 31, 2008 we had incurred approximately $2,270,000 inconstruction-in-process costs towards their completion. We expect that theseprojects will be completed in June 2008.

 

We have engaged an engineering firm to assist indeveloping a plan to add an additional 30 million gallons of productioncapacity at our plant site (“Phase II” of our expansion).   The estimated cost of this work isapproximately $35,000,000, although we have not finalized the design and thescope of work at this time.  We expect tofinance this amount using between approximately 40%-60% debt financing andbetween approximately 40%-60% cash from operations.  If we are unsuccessful in obtaining debtfinancing we may seek other alternatives, including equity financing, or, if wefail to obtain either debt or equity financing, we will not be able toconstruct Phase II of our expansion. Some capital expenditures have been made towards the areas of thisproject that have been defined.  On May 10,2007, the board approved an expenditure of $1,350,000 for the centrifuges, on June 11,2007 the board approved an expenditure of $16,700,000 for the expansion of thedistillation, dehydration, and evaporation (DD&E) system, on January 10,2008, the board approved an expenditure of $1,250,000 for the addition of acooling tower, and on March 10, 2008, the board approved an expenditure of$3,150,000 for a regenerative 

 

20

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thermaloxidizer (RTO).  As of March 31,2008, we have incurred construction-in-process costs of approximately$1,240,000 towards Phase II of our expansion.

 

All of the funds expended thus far on our plantexpansions and other plant improvements have been from income derived fromoperations.  However, in the event we areable to obtain debt financing, we expect to finance the added productioncapacity through a combination of earnings from operations and additional debtfinancing.  This could limit our abilityto make member distributions as they have occurred in the past, especially ifcash from operations decreases due to narrowing profit margins.  We may not be able to finance the projects asanticipated.

 

**Subsequent Events**

** **

On April 24, 2008 we retired all of our longterm debt with Farmers & Merchants Union Bank, as approved by theboard on January 10, 2008.  Theretirement of this debt was funded using primarily cash from operations.

 

Effective April 1, 2008, we repurchased 14membership units for a total of $40,600, an average of $2,900 per unit.  Effective May 1, 2008, we repurchased 15membership units for a total of $42,000, an average of $2,800 per unit.

 

DuringApril 2008, we determined that the viability in the near future of the FirstMissouri Energy project, in which we have invested $1,155,000 as of March 31,2008, was in question.  The Company basedthis determination on the proposals to delay, modify, or repeal state andfederal subsidies and programs which would have a negative impact on thisproject.  Accordingly, the Company isrecording an impairment loss of approximately $866,000 on this investment inthe second quarter of 2008.  The Companybelieves the remaining asset, primarily land, is recoverable.  The board of First Missouri Energy iscurrently assessing its options to delay further work and development of theproject.

 

**Off Balance Sheet Arrangements.**

** **

We currently do not haveany off-balance sheet arrangements.

 

**Application of Critical Accounting Estimates**

** **

Management uses estimates and assumptions inpreparing our financial statements in accordance with generally acceptedaccounting principles.  These estimates and assumptions affect thereported amounts of assets and liabilities, the disclosure of contingent assetsand liabilities, and the reported revenues and expenses.  We had the following critical accountingestimates as of the three months ended March 31, 2008, as compared to December 31,2007, when we had no critical accounting estimates.

 

We review long-lived assets forimpairment whenever events or changes in circumstances indicate that therelated carrying amounts may not be recoverable.  Impairment testing for assets requires various estimates andassumptions, including an allocation of cash flows to those assets and, ifrequired, an estimate of the fair value of those assets.  Our estimates are based upon assumptionsbelieved to be reasonable, but which are inherently uncertain and unpredictable.These valuations require the use of management’s assumptions, which do notreflect unanticipated events and circumstances that may occur.  In our analysis, we consider future corncosts and ethanol prices, break-even points for our plant and our riskmanagement strategies in place through our derivative instruments and forwardcontracts.  Given the significantassumptions required and the possibility that actual conditions will differ, weconsider the assessment of impairment of our long-lived assets to be a criticalaccounting estimate.

 

Our allowance for doubtful accounts as of March 31,2008 and March 31, 2007 was $81,000 and $69,000, respectively.  These amounts are based on our historicalexperience and take into account factors such as our marketing agreements inplace for the marketing and sale of all of our ethanol and a portion of ourdistillers grains, the payment due date for such ethanol and distillers grainsrelative to when our marketers take possession of the products, and our past successin collecting payment for the ethanol and distillers grains sold pursuant toour marketing agreements.  Because ourallowance for doubtful accounts is based in part on our assumption that ourfuture collection of accounts will be similar to our historical experiences, weconsider this to be a critical accounting estimate.

 

**Item 3.  Quantitative andQualitative Disclosures About Market Risk.**

** **

We are exposed to the impactof market fluctuations associated with commodity prices as discussedbelow.  We have no exposure to foreign currency risk, as all of ourbusiness is conducted in U.S. Dollars, or to interest rate risk, as theinterest rate for our existing term debt and revolving loan commitment is fixedat 7.4% until May 2011.  Further, our term debt was retired on April 24,2008. We use derivative financial instruments as part of an overall

 

21

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strategy to manage market risk.  We use cash,futures and option contracts to hedge changes to the commodity prices of cornand gasoline. We do not enter into these derivative financial instruments fortrading or speculative purposes, nor do we designate these contracts as hedgesfor accounting purposes pursuant to the requirements of SFAS 133, *Accounting for Derivative Instruments and HedgingActivities*.

 

**Commodity Price Risk**

** **

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 mark to market our hedge positions, which meansas the current market price of our hedge positions changes, the gains andlosses are immediately recognized.  Werecognize such gains and losses in our revenues (ethanol) and costs of goodssold (corn and natural gas) because we believe this best matches the gain(loss) with the proper line item.

 

The immediate recognition ofhedging gains and losses can cause net income to be volatile from quarter toquarter due to the timing of the change in value of the derivative instrumentsrelative to the cost and use of the commodity being hedged.  At March 31,2008 and December 31, 2007, the fair value of our derivative instrumentsfor corn and gasoline is an asset in the amount of $2,361,338 and an asset inthe amount of $5,189, respectively. There are several variables that couldaffect the 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 pricerisk, our hedging strategy is designed to establish a price ceiling and floorfor our corn purchases.  We have taken a net long position on ourexchange-traded futures and options contracts, which allows us to offsetincreases or decreases in the market price of corn.  The upper limit ofloss on our futures contracts is the difference between the contract price andthe cash market price of corn at the time of the execution of thecontract.  The upper limit of loss on our exchange-traded andover-the-counter option contracts is limited to the amount of the premium wepaid for the option.

 

We estimate that ourexpected corn usage (without taking into account our additional expansionplans) is approximately 21.5 million bushels per year for the production of 60million gallons of ethanol.  We have price protection in place for aportion of our expected corn usage through December 2009 using forwardcontracts, CBOT futures and options and over-the-counter optioncontracts.  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 intogasoline derivative instruments to hedge the variability of ethanolprices.  While not perfectly correlated, we have found that ethanol andgasoline prices tend to move in tandem.  Therefore, the gasoline contractsthe company has entered into are intended to offset cash decreases in the priceof ethanol we receive.

 

To manage our natural gasprice risk, we have entered into forward contracts to purchase approximately80,000 MMBTU of natural gas through May 2008 at an average price ofapproximately $9.00 per MMBTU.  We may also purchase additional naturalgas requirements for our fiscal year 2008 as we attempt to further reduce oursusceptibility to price increases.

 

A sensitivity analysis hasbeen prepared to estimate our exposure to corn and gasoline price risk. Thetable presents the fair value of our derivative instruments as of March 31,2008 and December 31, 2007 and the potential loss in fair value resultingfrom a hypothetical 10% adverse change in such prices.  The fair value ofthe positions is

 

22

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a summation of the fair values calculated by valuingeach net position at quoted market prices as of the applicable date. Theresults of this analysis, which may differ from actual results, are as follows:

 
| ** **               | ** ** | **Fair Value** | ** **      | **Effect of Hypothetical  Adverse Change —  Market Risk** | ** ** |
|--------------------------|------------|---------------------|-----------------|-----------------------------------------------------------------------------------------|------------|
| March 31, 2008 |       | $                   |  2,361,338 |                                                                                    | $          | (236,134 | ) |
| December 31, 2007   |       | $                   | 5,189           |                                                                                    | $          | (519 | ) |

 

**Item 4.  Controls and Procedures**

 

Our management, includingour Chief Executive Officer (the principal executive officer), J.F. Robertson,along with our Chief Financial Officer, (the principal financial officer), BarbBontrager, have reviewed and evaluated the effectiveness of our disclosurecontrols and procedures as of March 31, 2008.  Based upon this reviewand evaluation, 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 ensuringthat the information required to be disclosed in the reports that we file orsubmit under the Exchange Act is accumulated and communicated to ourmanagement, including our principal executive and principal financial officers,or persons performing similar functions, as appropriate to allow timelydecisions regarding required disclosure.

 

Our management, consistingof our principal executive officer and principal financial officer, havereviewed and evaluated any changes in our internal control over financialreporting that occurred as of March 31, 2008 and there has been no changethat has materially affected or is reasonably likely to materially affect ourinternal control over financial reporting.

 

**PART II.     OTHER INFORMATION**

** **

**Item 1.    Legal Proceedings**

** **

From time to time in theordinary course of business, we may be named as a defendant in legalproceedings related to various issues, including without limitation, workers’compensation claims, tort claims, or contractual disputes.  We are notcurrently involved in any material legal proceedings, directly or indirectly,and we are not aware of any claims pending or threatened against us or any ofthe directors that could result in the commencement of material legal proceedings.

 

**Item 1A.  Risk Factors**

** **

Therisk factors as previously disclosed in our Annual Report on Form 10-K for thefiscal year ended December 31, 2007 have not materially changed. Please referto the risk factors set forth in our Annual Report on Form 10-K.

 

**Item 2.****    Unregistered Sales of Equity Securities and Use ofProceeds**

** **

**IssuerPurchase of Equity Securities**

** **

We made thefollowing membership unit repurchases during the first quarter of ourfiscal year 2008:(1)

 
| **Period**                                              | ** ** | **Total Number of  Units Purchased** | ** ** | **Average Price Paid  per Unit ($)** | ** **     | **Total Number of  Units Purchased as  Part of Publicly  Announced Plans  or Programs** | ** ** | **Approximate  Dollar Value of  Units that May Yet   Be Purchased  Under the Plans or  Programs ($)** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------------|----------------|---------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 1, 2008  - January 31, 2008 | ** ** | 10                                                  | ** ** | $                                                        |  3,000.00 | ** **                                                                                                                      | 10         | ** **                                                                                                                                                   | $          |  746,750 | ** ** |
| February 1, 2008 –  February 29, 2008    |       | 25                                                  |       | $                                                        | 2,900.00       |                                                                                                                            | 25         |                                                                                                                                                         | $          | 674,250 |   |
| March 1, 2008 –  March 31, 2008          |       | 144                                                 |       | $                                                        | 2,900.00       |                                                                                                                            | 144        |                                                                                                                                                         | $          | 256,650 |   |
| **Total**                                               | ** ** | **179**                                             | ** ** | **$**                                                    | **2,905.59**   | ** **                                                                                                                      | **179**    | ** **                                                                                                                                                   | **$**      | **256,650** | ** ** |

 

23

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(1) On June 11, 2007 the board approvedexpenditures of up to $1,000,000 to pursue the option of redeeming membershipunits.  Prior to the purchases listed in the table above, the Company hadrepurchased a total of 70 membership units for a total of $223,250, an averageof $3,189.29 per unit.  As of March 31, 2008, the Company hadrepurchased a total of 249 membership units for a total of $743,350, an averageof $2,985.34 per unit.  Effective April 1, 2008, the Companyrepurchased an additional 14 membership units for a total of $40,600, anaverage of $2,900 per unit. Effective May 1, 2008, the Company repurchasedan additional 15 membership units for a total of $42,000, an average of $2,800per unit. The expiration date of this unit repurchase program is June 10,2008.

 

**Item 3.****    Defaults Upon Senior Securities**

** **

None.

 

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

** **

None.

 

**Item 5.****    Other Information**

** **

None.

 

**Item 6.****    Exhibits**

** **

(a)                                  Thefollowing exhibits are filed as part of this report:

 
| **Exhibit No.** | ** ** | **Exhibit**                                           |
|----------------------|------------|-------------------------------------------------------|
|                 |       |                                                  |
| 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. |

 

24

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** **

**SIGNATURES**

** **

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| ** ** | ** **         | ** ** | **UNITED WISCONSIN GRAIN PRODUCERS, LLC**     |
|------------|--------------------|------------|-----------------------------------------------|
|       |               |       |                                          |
|       |               |       |                                          |
| Date:      | May 15,  2008 |       |   /s/  J.F. Robertson               |
|       |               |       | J.F. Robertson                                |
|       |               |       | Chief Executive Officer                       |
|       |               |       | (Principal Executive Officer)                 |
|       |               |       |                                          |
|       |               |       |                                          |
| Date:      | May 15,  2008 |       |   /s/  Barb Bontrager               |
|       |               |       | Barb Bontrager                                |
|       |               |       | Chief Financial Officer                       |
|       |               |       | (Principal Financial and Accounting  Officer) |

 

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