**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

----

**FORM 10-K**

**x****        ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**For the fiscal year endedDecember 31, 2006**

**o**** ****TRANSITION REPORT PURSUANT TOSECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**COMMISSION FILE NO.  000-50253**

**SOUTH DAKOTA SOYBEAN PROCESSORS, LLC**(Exact Name of Registrant as Specified in its Charter)

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

 

**100 Caspian Avenue, Post Office Box500, Volga, South Dakota 57071**(Address of Principal Executive Offices)

**(605) 627-9240**(Registrant’s Telephone Number)

----

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

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

**CLASS A CAPITAL UNITS**

----

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act.o  Yes      x  No

Indicateby check mark if the registrant is not required to file reports pursuant toSection 13 or Section 15(d) of the Act.o  Yes      x  No

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

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained in this form, and nodisclosure will be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference inPart III of this Form 10-K or any amendment to thisForm 10-K.  x

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

o  LargeAccelerated Filer                    o  Accelerated Filer                    x  Non-AcceleratedFiler

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act).  o  Yes      x  No

Theaggregate market value of the registrant’s common stock held by non-affiliatesat June 30, 2006 was approximately $38,397,450. The aggregate market value wascomputed by reference to the last sales price during the registrant’s mostrecently completed second fiscal quarter.

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

  **DOCUMENTSINCORPORATED BY REFERENCE**

**None.**

 

----

**CAUTIONARY STATEMENT REGARDING****FORWARD-LOOKING INFORMATION**

This Annual Report on Form 10-K and other reportsissued by South Dakota Soybean Processors, LLC (including reports filed withthe Securities and Exchange Commission (the “SEC” or “Commission”), contain “forward-lookingstatements” that deal with future results, expectations, plans andperformance.  Forward-looking statements may include statements which usewords such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,”“hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or thenegatives of these words, and all similar expressions. These forward-lookingstatements are made based on our expectations and beliefs concerning futureevents affecting us and are subject to uncertainties and factors relating toour operations and business environment, all of which are difficult to predictand many of which are beyond our control, that could cause our actual resultsto differ materially from those matters expressed in or implied by theseforward-looking statements. We do not undertake any responsibility to releasepublicly any revisions to these forward-looking statements to take into accountevents or circumstances that occur after the date of this prospectus. Additionally,we do not undertake any responsibility to update you on the occurrence of anyunanticipated events which may cause actual results to differ from thoseexpressed or implied by the forward-looking statements contained in this AnnualReport.  Important factors that couldcause actual results to differ materially from our expectations are disclosedunder “Risk Factors” and elsewhere in this report. As stated elsewhere in thisreport such factors include, among others:

2

----

·                                          Changesin the weather or general economic conditions impacting the availability andprice of soybean and natural gas;

·                                          Theavailability and cost of raw materials for the production process, particularlysoybeans.

·              Changesin business strategy, capital improvements or development plans;

·                                          Damageto or loss of our facilities due to casualty, weather, mechanical failure orany extended or extraordinary maintenance or inspection that may berequired;

·                                          Theavailability of additional capital to support capital improvements, developmentand projects;

·              Changesin perception of food quality and safety;

·              Otherfactors discussed under the item below entitled “Risk Factors.”

We are not under any duty to update theforward-looking statements contained in this report. We cannot guarantee futureresults or performance or what future business conditions will be like. Wecaution you not to put undue reliance on any forward-looking statements, whichspeak only as of the date of this report.

**PART I**

**Item 1.   Business.**

**Overview**

South Dakota Soybean Processors, LLC (“we,” “us,” “our”or the “Company”) owns and operates a soybean processing plant, a soybean oilrefinery, and a bio-based polyurethane production facility in Volga, SouthDakota. We began producing crude soybean oil, soybean meal and soybean hulls inlate 1996, and since then we have expanded our business to include thedevelopment of new, vertically integrated product lines and services. In 2002,we began refining crude soybean oil into a product known as refined andbleached oil.  In 2003, we became themajority owner and assumed management control of Urethane Soy Systems Company(USSC), which produces SoyolTM, a bio-based polyurethane product made from soybean oil.We also offer and provide construction, management and consulting services tosoybean processing facilities.

Our core business consists of processing locally grownsoybeans into soybean meal and soybean oil. Soybean meal is primarily sold toresellers, feed mills, and to livestock producers as livestock feed. Since thecompletion of our refining facility in 2002, we process most of our crudesoybean oil into refined and bleached oil. We sell this oil to a manufacturerof various retail and bulk food products where it is further processed forhuman consumption.

3

----

We plan to maintain a competitive position in themarketplace by producing high quality products, operating a highly efficientoperation at the lowest possible cost, and adding value to our core products tocapture larger margins. We plan to increase our cost efficiency by increasingdaily production capacity and, consistent with our strategy to increasevertical integration, add value to our products by investing in furtherprocessing of our products and developing and reviewing new applications forour products in the plastics and energy fields. A potential investment in thefuture is biodiesel production, the type and scope of which is still unknown atthis time.  Our primary businessobjective is to maximize cash distributions to our members from the profitsgenerated through our operations and investments. At the same time, werecognize the need to maintain our financial strength, and to consider andimplement growth strategies that will allow us to continue meeting theseobjectives over time.

**Reorganization History**

We were originally organized as a South Dakotacooperative in 1993 and our members are primarily farmers in South Dakota andneighboring states. As a South Dakota cooperative, we were entitled tosingle-level, pass-through tax treatment on income generated through ourmembers’ patronage. This allowed us to pass our income onto our members in theform of distributions without first paying taxes at the company level,similar to a partnership. However, as we grew, the continuing availability ofthis advantageous tax treatment became less secure. Accordingly, in 2001 thecooperative’s board of directors approved a plan to reorganize into a SouthDakota limited liability company.

The plan of reorganization was approved by our membersat a meeting held on June 20, 2002, and the reorganization becameeffective July 1, 2002. The transaction was an exchange of interestswhereby the assets and liabilities of the cooperative were transferred forcapital units of the newly formed limited liability company, SoybeanProcessors, LLC. The capital units were distributed to our members upondissolution of the cooperative at a rate of one capital unit of the limitedliability company for each share of equity stock owned in the cooperative. Thedistribution of capital units to our members was registered under theSecurities Act of 1933, as amended. For financial statement purposes, no gainor loss was recorded as a result of the exchange transaction. Upon completionof the reorganization, the name of the limited liability company was changed toSouth Dakota Soybean Processors, LLC. As a limited liability company, whichmay elect to be taxed as either a partnership or a corporation, we electedto be taxed as a partnership in order to retain our historic single-levelincome tax treatment at the member level.

**Industry Information**

The soybean processing industry converts soybeans intosoybean meal, soybean hulls and soybean oil. Food ingredients are the primaryend use for the oil, while the meal and hulls are mostly consumed by animals.Crude soybean oil is refined by our customer 

4

----

for useas salad and cooking oil, baking and frying fat, and to a more limited extent,for industrial uses.

Soybean production is concentrated in the centralUnited States, Brazil, China and Argentina. In the 2006 harvest season, theUnited States produced approximately 3.18 billion bushels of soybeans orapproximately 40% of estimated world production. The industry’s tradeassociations and the USDA estimate that approximately 55% of United Statesproduced soybeans are processed domestically, 27% are exported as wholesoybeans, and 18% are retained for seed and residual use. Historically, therehas been adequate soybean production in the upper Midwest to supply the localsoybean processing industry. In 2006, South Dakota produced 130 million bushelsof soybeans, and the top five soybean producing states in the United Stateswere the following:
| State     | ** ** | **Production (bushels)** |
|-----------|------------|--------------------------|
| Illinois  |       | 513 million              |
| Iowa      |       | 503 million              |
| Minnesota |       | 304 million              |
| Indiana   |       | 290 million              |
| Nebraska  |       | 255 million              |

 

Soybean processing facilities are generally locatedclose to adequate sources of soybeans and a strong demand for meal to decreasetransportation costs. Poultry and swine dominate soybean meal consumption inthe United States. On average, exports of soybean meal account for 15% to 20%of total production. A bushel of soybeans typically yields approximately 44pounds of meal and 11 pounds of crude oil when processed.

Soybean oil refineries are generally located close toprocessing plants. Oil is shipped throughout the United States and for export.Approximately 90% of domestic oil production is used in food applications and10% in industrial applications.

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

The soybean industry has worked diligently tointroduce soy products as bio-based substitutes for various petroleum-basedproducts. Such products include biodiesel, soy ink, lubricants, candles andplastics. Demand for biodiesel, in particular, is expected to expand, inpart due to new federal incentives and supports. Biodiesel is a substitutefor standard, petroleum-based diesel fuel that is made from approximately 90%vegetable oil (such as soybean oil) or animal fat and 10% alcohol (methanol).The chemical reaction resulting from the combination of these componentsproduces biodiesel and glycerin. Although the long-term average pricedifferential of biodiesel is currently higher than standard diesel fuel, the2004 Jobs Creation Act, which took effect on January 1, 2005, establishesa blender’s tax credit that reduces this differential. This new tax credit hasreduced the price gap between standard diesel fuel and biodiesel.

5

----

**Products & Services**

*Soybean Processing*

We crush and process soybeans to extract the soybeanoil from the protein and fiber portions of the soybean. Approximately 80% ofthe weight of the soybeans that we process annually is sold as soybean meal orhulls. The meal and hulls are shipped out by truck and rail car. Primarymarkets include the local markets within 200 miles of our plant, the PacificNorthwest, and exports to Canada. Currently, our significant meal customersinclude Land O’ Lakes of St. Paul, Minnesota, and Commodity Specialists ofMinneapolis, Minnesota and Shawnee Mission, Kansas. We currently extract crudesoybean oil at a level equal to approximately 20% of the weight of the soybeansthat we process annually. We process most of the crude soybean oil produced atour facilities into refined and bleached oil. Depending upon market conditions,excess crude soybean oil is sold to other soybean oil refiners, stored forfuture use, or delivered against Chicago Board of Trade (CBOT) futures’contracts since our Volga plant site is a registered delivery point for theCBOT soybean oil futures contract. We receive a storage payment through CBOTfor all oil that is delivered into this program.

*Refining*

We began refining operations in August 2002 withthe start-up of our on-site refining facility adjacent to our crushing plant inVolga. Refining consists of processing the crude soybean oil produced at ourplant through a series of processes and filters to create a product knownas refined and bleached oil. In 2006, we produced 220 million pounds of refined oil most of which is supplied to ACHFoods Companies, Inc. of Memphis, Tennessee, under a supply agreement. Thepremium we receive under the supply agreement is fixed through August 2007. Theoil is transported by rail from our plant to one of ACH Foods’ facilities,where it is further processed for the human consumption oil market.

*Polyurethane*

We produce a bio-based polyol called SoyolTM for thepolyurethane plastic industry. SoyolTM is made from specially processed crudesoybean oil. SoyolTM is a polyol, which is a key chemical compoundthat reacts with other ingredients to form polyurethane plastics.Polyurethanes are used in a variety of products such as insulation in buildingsand appliances; carpet backing and padding; shoe soles; roof coatings;mattresses and pillows; rigid panels, and bumpers and interiors in cars,tractors and trucks. SoyolTM has been developed for use as a replacementfor petrochemical based polyols. USSC is responsible for marketing, formulationand technical support of SoyolTM and related systems. Currently, along withSoyolTM polyol, USSC markets four completepolyurethane systems:

·      SoyThermTM.  SoyThermTM is a polyurethane insulationproduct used in the insulation process of residential homes and commercialbuildings.

6

----

·      SoyComfortTM. SoyComfortTM is a polyurethaneflexible foam product used for application to furniture and automobiles.

·      SoyMatrixTM.  SoyMatrix TM is a polyurethane resin used formanufacturing composite materials, typically with fiberglass.

·      BioTuffTM. BioTuffTM is a spray-based product used in various applications,including for moisture and abrasion barriers and to various surfaces such asmetal, concrete, fiberglass and paper stock.

SoyolTM polyol and our systems are relatively new inthe market, having undergone significant research and development in recentyears. Thus, sales of SoyolTM and the polyrurethane systems are limited todate.

USSC owns and holds ten patents for SoyolTM. We have the exclusive rightsto supply soybean oil for USSC’s sales of SoyolTM until 2014 and have agreed not to sell soybeanoil to any other company in the plastics industry. We also own a patent andhave developed and filed for a second patent relating to the modification ofcrude soybean oil to produce soy-based polyol(s) which provides a costadvantage over other process techniques. USSC’s research and development lab isbased at the Volga site.

We currently hold a 66.74% equity interest in USSCwith the right to obtain additional interests upon the conversion ofconvertible subordinates notes we hold. We hold six of the nine seats on USSC’sboard of directors, and our CEO is the president of USSC. Since October 2005,we have provided to USSC additional working capital by purchasing convertiblesubordinated notes issued by USSC. In October 2005, we purchasedconvertible subordinated notes for a sum of $657,100, and in November 2006 wepurchased an additional sum of convertible notes for a sum of $1.011 million.The convertible notes may be converted by us to equity in USSC at any time. Ifwe elect to convert all of the convertible notes to equity, we will hold up toa 91.6% equity interest in USSC.

**Other Business**

We also generate income by managing soybean companies,as well as miscellaneous income for consulting fees, feasibility studies, orother projects. Currently, we manage Minnesota Soybean Processors (MnSP), asoybean processing facility of Brewster, Minnesota, under a service andmanagement agreement. Our agreement with MnSP, however, is scheduled fortermination on September 1, 2007. Until then, we plan on continuing to manageand market services to MnSP, including the day-to-day operations of MnSP’splant. We are paid primarily on a cost-sharing basis. Costs for variousemployees, such as commercial, accounting, and engineering employees, and otheradministrative expenses are allocated between us and MnSP based on the volumeof soybeans processed at each plant. Our CEO has general management andoversight responsibilities of MnSP until the contract terminates. We are also amember of MnSP, owning Class A and B stock.

7

----

**Raw Materials and Suppliers**

We procure soybeans from local soybean producers andelevators, processing approximately 27.8 million bushels of soybeans annually. In 2006, soybeanproduction in South Dakota was approximately 130.9 million bushels, compared to134.7 million bushels in 2005 and 140 million bushels in 2004. We control theflow of soybeans into the plant with a combination of pricing and contractingoptions. Threats to the soybean supply include weather, changes in governmentprograms, and competition from other processors and export markets. Ourrefining plant and polyurethane production receive the substantial majority ofcrude soybean oil supply from our crushing plant.

##### **Utilities**

We use natural gas and electricity to operate thecrushing and refining plants. Natural gas is used in the boilers for processingheat and for drying soybeans. NorthWestern Corporation of Sioux Falls, SouthDakota, provides natural gas service to the plant on an interruptible basis. Weare at risk to adverse price fluctuations in the natural gas market, but wehave the capability to use fuel oil and biofuel as a back up for natural gas ifdelivery is interrupted or market conditions dictate. We also employ forwardcontracting to offset some of this risk. Our electricity is supplied by theCity of Volga.

**Employees**

We currently employ approximately 106 individuals. Allbut 19 of our employees are full-time. We have no unions or other collectivebargaining agreements.

**Sales, Marketing and Customers**

Our primary meal markets are the local market(typically within 200 miles of our Volga plant), the Western United States,(Washington, Oregon and California), and exports (to Canada). Our primarysoybean oil market is Illinois which is served by rail. Our rail service isprovided by the Dakota, Minnesota and Eastern (DM&E) rail line, with connectionsto the Burlington-Northern Santa Fe (BNSF) and the Union Pacific (UP) raillines. The table presented below lists the percentage of sales by quantity ofproduct sold within various markets for 2006.
|                            | ** ** | **Soybean Meal** | ** ** | **Crude Soybean  Oil** | ** ** | **Refined Oil** | ** ** |
|----------------------------|------------|-----------------------|------------|-----------------------------|------------|----------------------|------------|
|                       |       |                  |       |                        |       |                 |       |
| Local                      |       | 20                    | %          | 1                           | %          | 5                    | %          |
| Other U.S. States          |       | 49                    | %          | 99                          | %          | 95                   | %          |
| Export (including  Canada) |       | 31                    | %          | —                      |       | —               |       |

 

8

----

**Dependence upon a Single Customer**

We currently sell most of the refined and bleachedsoybean oil that we produce to ACH Foods Companies, Inc. under a supplyagreement. The premium we receive from ACH Foods for processing crude soybeanoil is fixed through August 2007, after which we are able to request anincrease in the premium starting September 1, 2007. In the event ACH Foods andwe are unable to reach an agreement on an increase, the supply agreementterminates August 31, 2008. If this agreement is terminated or if ACH Foodsbreaches its obligations under this agreement and we are unable to locate othercustomers for our refined oil, we may have to sell the oil at discountedprices and our business could be materially harmed.

**Competition**

We are in direct competition with several othersoybean processing companies in the United States, many of which havesignificantly greater resources than we. The United States soybean processingindustry is comprised primarily of 16 different companies operating 65 plantsin the United States. It is a mature, consolidated and vertically-integratedindustry with four companies controlling nearly 85% of the processing industry.Those four companies are Archer Daniels Midland (ADM), Bunge, Cargill and AgProcessing, Inc. (AGP). The United States’ vegetable oil (includingsoybean oil) refining industry is divided between oilseed processors and independentvegetable oil refiners. The oilseed processors operate approximately 83% of thevegetable oil refining capacity in the United States, and ADM, Bunge, Cargilland AGP operate approximately 70% of the oil refining capacity. The threelargest independent vegetable oil refiners are ACH Foods, Smuckers(Proctor & Gamble), and ConAgra (Hunt-Wesson).

We are the only significant hexane extraction andprocessing plant in South Dakota, and we believe that we have approximately 7%of the soybean processing capacity in the Upper Midwest and about 1.5% in theUnited States.  We plan to maintain our competitive position in the marketby producing high quality products and operating a highly efficient operationat the lowest possible cost, and adding value to our products. We plan toincrease our cost efficiency by increasing daily production capacity, addingvalue to our products by investing in further processing of our products, anddeveloping and reviewing new applications for our products in the plastics andenergy fields.

**Government Regulation and Environmental Matters**

The recovery of hexane, a special-use solvent used toextract oil from soybeans, is closely monitored by the United StatesEnvironmental Protection Agency. The Environmental Protection Agency requiresthat the amount of hexane lost in the extraction process not exceed 0.2 gallonsper ton of soybean oil produced on a rolling 12-month average. Our productionprocess currently meets this requirement.

9

----

As part of a Compliance Plan with the SouthDakota Departments of Environment and Natural Resources, we have a zero processdischarge system and are currently in compliance with our surface waterdischarge permits. We are also obligated to provide ongoing compliance reportsto the Department of Environment and Natural Resources. We maintain a spillprevention plan that contains the necessary procedures to minimize spill eventsand provide emergency notification, if necessary. It also contains the requiredinformation pertaining to spill containment procedures in the event a spilldoes occur, and the proper spill clean-up procedures. The plan places us incompliance with the provision of 40 CFR, Part 112, of the FederalRegulations on oil pollution prevention, and the provisions of SARA, *Superfund Amendments and Reauthorization Act, 1986*.It also addresses all known potentially polluting materials at our plant. Atthis time, we do not generate any known hazardous wastes at our plant.

**Item 1A.   Risk Factors.**

**Operating Risks**

***Higher thananticipated operating costs, including but not limited to increased prices forsoybeans that are not accompanied by increased prices for soybean meal orsoybean oil, could reduce our profitability.*** In additionto general market fluctuations and economic conditions, we could experiencesignificant cost increases associated with the ongoing operation of the soybeanprocessing and refining plant or our interest in USSC caused by a variety offactors, many of which are beyond our control. These cost increases could arisefrom an inadequate local supply and resulting increased price for soybeans thatis not accompanied by an increase in the price for soybean oil and meal.  Labor costs can also increase over time,particularly if there is any shortage of labor, or shortage of persons with theskills necessary to operate the plant. Adequacy and cost of electric andnatural gas utilities could also affect our operating costs. Changes in price,operation and availability of truck and rail transportation may affect ourprofitability with respect to the transportation of soybean meal, oil and otherproducts to our customers.

In addition, the operation of the soybean processingand refining plant is subject to ongoing compliance with all applicablegovernmental regulations, such as those governing pollution control, and othermatters. If any of these regulations were to change, it could cost ussignificantly more to comply with them. Further, other regulationsmay arise in future years regarding the operation of the plant, includingthe possibility of required additional permits and licenses. We might havedifficulty obtaining any such additional permits or licenses, and they couldinvolve significant unanticipated costs. We will be subject to all of theseregulations without regard to whether the operation of the plant is profitable.

***We may find it more difficult toobtain in the future an adequate supply of soybeans at reasonable prices if theethanol industry continues to grow.***To accommodate therapid growth in the ethanol industry, additional acres of corn will need to beplanted in 2007 and 2008. By the end of 2007, industry experts anticipate thatanother 1.4 billion bushels of corn could be needed to provide an adequatesupply of corn 

10

----

to atleast 53 new or expanded ethanol plants. As a result, a certain number of acresof land previously planted as soybeans will need to be planted as corn. Iffewer acres of land for soybeans are planted, this will reduce the supply ofsoybeans and possibly drive up prices. An increase in the price of soybeanscould have an adverse effect on our result of operations and financialcondition.

***We have made asignificant investment in Urethane Soy Systems Company, which has a history ofoperating losses.***Since 2003, we have been the majorityowner of USSC, a development stage company that has limited operating history.To date, USSC has been engaged primarily in research, development and limitedsales of SoyolTM, apolyol made from soybean oil used to make polyurethane foam products. USSC hasexperienced significant losses to date, and has generated limited revenues. IfUSSC does not achieve profitable operations, the profitability of ouroperations will be adversely affected and the value of our investment in USSCwill further diminish.

USSC’s ability to commercialize SoyolTM will depend, among other things, on theperformance of the product as compared to alternative polyols, successfulcompletion of its ongoing development activities, its ability to market theproduct, and the relative cost to the customer of SoyolTM ascompared to alternative polyols. If SoyolTM is notsuccessfully commercialized or marketed and fails to achieve market acceptance,USSC will likely not achieve or sustain profitable operations and wemay be required to abandon our investment in USSC.

***The success of ourownership in USSC is dependent upon market acceptance of Soyol*****TM*.***USSC’s future success, if any, issignificantly dependent on acceptance of SoyolTM inthe markets targeted by USSC. USSC developed SoyolTM in1998 and has experienced limited success in having manufacturers that usepolyols substitute SoyolTM for petroleum-based polyols. Common acceptanceof USSC’s technology will be dependent, among other things, upon the ease ofuse, reliability, price and increased consumer demand for bio-based products.Even if the advantages of SoyolTM are established, we are unable to predict howquickly, if ever, SoyolTM will be generally accepted by manufacturers asa substitute for petroleum-based polyols.

***The producers ofpetroleum-based polyols have economic resources superior to USSC, whichmay make it******difficult for USSC to compete with them.***USSCcompetes with producers of petroleum-based polyols, such as Dow BASF andHuntsman. These companies have significantly greater resources than either weor USSC to market SoyolTM.

***USSC is reliant onits patents and other proprietary rights related to Soyol*****TM*.***USSC has ten United States patentsrelated to SoyolTM;however, USSC’s right to manufacture and market SoyolTM may be limited if it infringes on validpatents held by others. USSC has not undertaken or conducted any comprehensivepatent infringement searches or studies. If any such third parties hold anysuch conflicting rights, USSC may be required to resort to litigation todefend such rights, resulting in substantial costs and diversion of management’sattention. In the future, if USSC lost such litigation, 

11

----

USSCmay be required to stop making, using or selling SoyolTM or to obtain licenses from and pay royaltiesto others, which could have a significant and material adverse effect on itsoperations. In addition, other companies may develop substantiallyequivalent proprietary information which is not covered by USSC’s patentrights. If USSC is not able to adequately protect its registered trademarkSoyolTM, tradesecrets, know-how and continuing technological innovations to develop andmaintain a competitive advantage, USSC could be forced to abandon itsproduction and marketing of SoyolTM.

USSC also relies on unpatented trade secrets toprotect its proprietary technology. USSC attempts to protect its proprietarytechnology through confidentiality, non-compete and other similar agreementswith its employees, but the confidentiality provisions in these agreementsmay not be enforceable under the applicable laws of certain states. Otherentities may independently develop or otherwise acquire equivalenttechnology or gain access to USSC’s proprietary technology, which could decreaseits value to USSC.

***Hedgingtransactions involve risks that could harm our profitability.***Toreduce our price change risks associated with holding fixed price commoditypositions, we generally take opposite and offsetting positions by entering intocommodity futures contracts (either a straight futures contract or an optionsfutures contract) for soybeans and soybean meal and crude soybean oil on theChicago Board of Trade. While hedging activities reduce our risk of loss fromincreasing market values of soybeans, such activities also limit the gainpotential which otherwise could result from significant decreases in marketprices of soybeans. Our policy is to maintain hedged positions within limits,but we can be long or short at any time. In addition, at any one time, ourinventory and purchase contracts for delivery to the plant may besubstantial, which could limit our ability to adjust our hedged positions. Ifour risk management policies and procedures that guide our net position limitsare inadequate, we could suffer adverse financial consequences.

***We are reliant onone customer to purchase the refined and bleached oil produced at our plant.***Wecurrently sell most of the refined and bleached soybean oil that is produced toACH Foods Company, Inc. under an eight year supply agreement. Thisagreement expires in 2010 and possibly as early as August 2008 if we are unableto renegotiate a price modification to the existing supply contract. If ACHFoods breaches its obligations under this contract and we are unable to locateother customers for our refined and bleached oil, or if we are unable to locateother customers for our excess crude oil, we may have to sell our oil atdiscounted prices and our business could be materially harmed.

***There is a limitedmarket for the refined and bleached oil that we produce.***Therefined and bleached soybean oil that we produce must be deodorized before itcan be used in food products. There are a limited number of customers whopurchase refined and bleached soybean oil that has not been deodorized. If ACHFoods breaches its obligations under its supply agreement with us or does notrenew its supply agreement, we may have difficulty locating othercustomers for our refined and bleached oil and may be required 

12

----

toacquire additional equipment to deodorize our refined and bleached oil so thatwe can sell it directly to food manufacturers.

***We may not beable to manage the scope of our operations of soybean oil refining, polyolproduction, management of other processing facilities, and potentiallybiodiesel production.*** Soybean oil refining and theexpansion of our management role in USSC have placed increased demands on ourexisting management and operations. In addition, while our management of MnSP’soperations in Brewster, Minnesota is scheduled to expire in September 2007, weplan to continue to offer management services to prospective processingfacilities in the United States, as well as manage our soybean processing andrefining plant in Volga. We are also considering entering the biodieselbusiness. Because of this, our management may be presented with unforeseenchallenges in effectively managing the diversification and expansion of ourbusiness. Our inability to manage our growth effectively could have a materialadverse effect on our business, financial condition and results of operations.

***We******may enter a new line of business, biodieselproduction, which will be subject to the risks inherent with a start-upbusiness.*** For some time,we have considered entering into biodiesel production, but we still do not ownor operate a biodiesel facility, nor do we know the scope of our involvement inthe future. We also have limited experience in constructing or operating abiodiesel plant other than constructing and managing MnSP’s facility inBrewster, Minnesota. If we do decide to construct or operate a biodieselfacility, such facility will be subject to all the risks inherent in theestablishment of a new business enterprise and the biodiesel industry ingeneral. There is no assurance that we can manage a biodiesel productioneffectively. Our inability to manage the operations of a biodiesel facilitycould have a material adverse effect on our business, financial condition andresults of operations.

***We are dependent onour management and other key personnel, and loss of their servicesmay adversely affect our business.***Our success andbusiness strategy is dependent in large part on our ability to attract andretain key management and operating personnel. This can present particularchallenges for us because we operate in a specialized industry and because ourbusiness is located in a rural area. Such individuals are in high demand andare often subject to competing employment offers. In particular, our success isdependent on our ability to retain the services of Mr. Christianson, ourCEO, and Mr. Kersting, our Commercial Manager. The loss of the services ofMessrs. Christianson or Kersting or the failure of such individuals toperform their job functions in a satisfactory manner, would have amaterial adverse effect on our business operations and prospects.

**Industry Risks**

***We operate in anintensely competitive industry and we may not be able to continue tocompete effectively.***We may not be able to continueto penetrate successfully the markets for our products. The soybean processingbusiness is highly competitive, and other companies presently in the market, orthat could enter the market, could adversely 

13

----

affectprices for the products we sell. We compete with other soybean processors suchas Archer-Daniels Midland (ADM), Cargill, Bunge, and Ag Processing (AGP), amongothers, all of which are capable of producing significantly greater quantitiesof soybean products than we do, and may achieve higher operatingefficiencies and lower costs due to their scale.

***To produce soybeanoil and meal, we must purchase significant amounts of soybeans, which aresubject to disease and other agricultural risks.***Productionof soybean oil and meal at the plant requires significant amounts of soybeans.Soybeans, like other crops, are affected by weather conditions. A significantreduction in the quantity of soybeans harvested due to adverse weatherconditions, disease or other factors could result in increased soybean costswith adverse financial consequences to our operations. Significant variationsin actual growing conditions from normal growing conditions may adverselyaffect our ability to procure soybeans for the plant. We also have nodefinitive agreements with any soybean producers to provide soybeans to ourplant.

***The detection andspread of the Avian Flu virus into the United States could adversely affect oursales of soybean meal.***The spread of the Avian Flu virus,otherwise known as the “bird flu virus,” has adversely affected the poultry industriesglobally, particularly in parts of Asia, the Middle East and Europe. In effortto combat the virus, several countries have ended up exterminating largequantities of poultry, including chicken, ducks and other kinds of fowl.Moreover, because of this virus, the demand for poultry in these areas in termsof human consumption has declined. While the virus has yet to be detected inthe United States, many experts predict the virus will eventually appear. Ifthis were to occur, the supply and demand for poultry may decline in theUnited States. Because soybean meal is a feed product for poultry, especiallychickens, any significant decline in the supply and demand for poultry in theUnited States could adversely affect the demand for soybean meal.  Accordingly,our sales of soybean meal and financial operations could be adversely affectedby the detection and spread of this virus in the United States.

***Our profitabilityis also influenced by the protein and moisture content of the soybeans in thelocal growing area.***The northern portion of the westernsoybean belt, where our plant is located, typically produces a lower proteinsoybean resulting in a lower protein soybean meal. Because lower proteinsoybean meal is sold at a lower price, we may not be able to operate asprofitably as soybean processing plants in other parts of the country. Ifadverse weather conditions further reduce the protein content of the soybeansgrown in our area, our business may be materially harmed because we willbe required to sell our soybean meal at discounted prices to our customers.

In addition, the moisture content of the soybeans thatare delivered to our plant also influences our profitability and the efficiencyof our plant operations. Soybeans with high moisture content require moreenergy to dry them before they can be processed. While we may recover someof these extra energy costs by paying producers less for high moisturesoybeans, these savings may not be sufficient to offset our additionaloperating expenses.

14

----

***Interruptions inenergy supplies could have a material adverse impact on our business.***Soybeanprocessing requires a constant and consistent supply of energy. If there is anyinterruption in our supply of energy for whatever reason, such as delivery ormechanical problems, we may be required to halt production. If productionis halted for any extended period of time, it will have a material adverseeffect on our business. If we were to suffer interruptions in our energysupply, our production would likely fall and the profitability of our businesswould be harmed.

***Because soybeanprocessing and refining is energy intensive, our business will be materiallyharmed if natural gas and electricity prices increase substantially.***Historically**,****naturalgas and electricity prices have fluctuated significantly. While we have theability to convert our natural gas burning boiler to diesel fuel on a day’snotice, increases in the price of natural gas or electricity would harm ourbusiness by increasing our energy costs.

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

***Increases in theproduction of soybean meal or refined and bleached soybean oil could result inlower prices for soybean meal or refined and bleached soybean oil and haveother adverse effects.***We expect that existing soybeanprocessing and refining plants will construct additions to increase theirproduction and that new soybean processing and refining plants will beconstructed as well. If there is not a corresponding increase in the demand forsoybean meal and refined and bleached soybean oil or if the increased demand isnot significant, the increased production of soybean meal and refined andbleached soybean oil may lead to lower prices for soybean meal and refinedand bleached soybean oil. The increased production of soybean meal and refinedand bleached soybean oil could have other adverse effects as well. For example,the increased production of soybean meal and refined and bleached soybean oilcould result in increased demand for soybeans which could in turn lead tohigher prices for soybeans, resulting in higher costs of production and lowerprofits if we are not able to lock in satisfactory margins on future soybeanpurchases and soybean meal and refined and bleached soybean oil sales.

15

----

**Legal, Regulatory, Tax, and Debt Risks**

***Legislative, legal or regulatorydevelopments could adversely affect our profitability.***The regulation of the environment is aconstantly changing area of the law and we are regulated by numerous federaland state environmental rules or regulations. For example, theEnvironmental Protection Agency currently requires monitoring of unrecoveredlevels of chemical hexane, which is used in our oil extraction process. If thestandard is revised to require lower loss levels or for some reason we areunable to meet the standard in the future, we could face fines or otherconsequences that could increase our operating costs and reduce profits. It ispossible that changes to other federal or state environmental rules orregulations could be adopted that would increase our operating costs andexpenses or require additional capital investment.

Although our production of refined and bleachedsoybean oil and soybean meal is not directly regulated by the Food &Drug Administration, we must comply with the FDA’s content and labelingrequirements, which are monitored at our customers’ facilities. Failure tocomply with these requirements could result in fines, liability to ourcustomers or other consequences that could increase our operating costs andreduce profits. In addition, changes to the FDA’s rules or regulationscould be adopted that would increase our operating costs and expenses, orrequire capital investment.

***We could faceincreased operating costs if we were required to segregate genetically modifiedsoybeans and the products generated from these soybeans.***Inthe last several years, some soybean producers in our area have been plantinggenetically modified soybeans, commonly known as Round-up Ready beans. Neitherthe United States Department of Agriculture nor the FDA currently requires thatgenetically modified soybeans be segregated from other soybeans. If theseagencies or our customers were to require that we process these geneticallymodified soybeans separately, we would face increased storage and processingcosts and our profitability could be harmed.

***If we are treatedas a corporation for federal income tax purposes, our members’ capital unitscould decline in value.***We have elected to be treated asa partnership for federal income tax purposes. This means that we do not payincome tax at the company level and that members pay tax on their proportionateshare of our net income. In the event there are changes in the law or IRSinterpretations, or trading in capital units that could result inclassification of us as a publicly traded partnership, for example, if ourcapital units trading system is not operated as a qualified matching service asdefined by the Treasury regulations, we may be treated as a corporationrather than a partnership for federal income tax purposes. In that case, wewould pay tax on our income at corporate rates and no income, gains, losses,deductions or credits would flow through to our members. Currently, the maximumeffective federal corporate rate is 35%. In addition, distributions wouldgenerally be taxed to members upon receipt as corporate dividends. Because atax would be imposed upon us at the entity level, the cash available fordistribution to members would be reduced by the amount of the tax paid. Reduceddistributions could reduce the value of our members’ capital units.

16

----

***There aresignificant restrictions on transferring the capital units.***Tomaintain preferential partnership tax status, our capital units may not betraded on an established securities market or readily tradable on a secondarymarket. To help ensure that a market does not develop, our operating agreementprohibits transfers other than through the procedures specified in our CapitalUnits Transfer System. Under this system, all transactions must be approved bythe Board of Managers. The Board approves transfers that fall within “safeharbors” contained in the publicly traded partnership rules under thefederal tax code. Permitted transfers include transfers by gift or sale toqualified family members, transfers upon death, or transfers through aqualified matching service. Transfers through the qualified matching serviceare limited annually to no more than 10% of our total capital unitsoutstanding. If a member transfers units in violation of the publicly tradedpartnership rules or without the prior written consent of the Board, thetransfer is considered null and void and the Board has the option to redeem themember’s capital units at a substantial discount. These restrictions ontransfer could reduce the value of a member’s capital units.

***Our third partydebt financing may reduce profitability and increase the risk of the lossto our members.***As of December 31, 2006, we hadapproximately $12.9 million of outstanding long term and short termindebtedness, and an additional $18.0 million available under our lines ofcredit. The use of debt financing increases the risk that we will not be ableto continue operating profitably because we will need to make principal andinterest payments on this indebtedness. Debt financing also exposes our membersto the risk that their entire investment could be lost in the event of adefault on the indebtedness and a foreclosure and sale of our assets for anamount that is less than the outstanding debt.

***We are subject tocertain restrictions in making distributions to our members.*** Our operating agreement contains certainrestrictions in connection with making distribution to our members. If ourminimum net income is below $500,000 or a cash distribution to our memberswould violate or cause a default under the terms of our debt financing, we willnot make any distributions to our members, but rather will retain all of thenet income generated for future operating purposes, including general workingcapital. In addition, cash distributions in excess of 30% of our net income areentirely at the discretion of our Board, and there is no guarantee as to whenor if we will generate sufficient profits to make distributions at anyparticular level or that we will make any distributions at all. There may alsobe distribution restrictions added to our operating agreement in 2007 and inthe future.

**Item 2.    Properties.**

We conduct our operations principally from ourfacilities in Volga. We own these facilities which serve as collateral for ourdebt instruments. These facilities, which are located on 46 acres of land, areserved by multiple state highways and are near Interstate Highway 29.  Rail service is provided to our facilities bythe Dakota, Minnesota and Eastern (DM&E) rail line, with connections to theBurlington-Northern Santa Fe (BNSF) and the Union Pacific (UP) rail lines.

17

----

**Item 3.    Legal Proceedings.**

From time to time in the ordinary course of ourbusiness, we may be named as a defendant in legal proceedings related tovarious issues, including without limitation, workers’ compensation claims,tort claims, or contractual dispute. Currently, we are not involved in anymaterial legal proceedings. In the event we become involved, or in the case ofproceeding not deemed material, we carry insurance that provides protectionagainst general commercial liability claims, claims against our directors,officers and employees, business interruption, automobile liability, andworkers’ compensation claims.

**Item 4.    Submission of Matters to a Vote of SecurityHolders.**

There were no matters submitted to a vote of securityholders in the fourth quarter ending December 31, 2006.

**Part II**

**Item 5.    Market for Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities.**

As of March 1, 2007, the total number of capitalunits outstanding was 30,419,000, owned and held by 2,210 members.

*Trading Activity*

Our capital units are not traded on an establishedpublic market such as a stock exchange or The NASDAQ Stock Market. Our capitalunits must be traded and transferred in accordance with our operating agreementand Capital Units Transfer System, which provides for transfers to familymembers, upon death, by gift, and through a “qualified matching service,”subject to the Board’s final approval. Our qualified matching service isoperated through Variable Investment Advisors, Inc., a Sioux Falls, SouthDakota based broker-dealer whose trading service (www.agstocktrade.com) isregistered with the Commission as an alternative trading system. The followingtable contains historical information regarding the trading of capital unitsthrough our trading or qualified matching service:

|                      | ** ** | ** **         | ** ** | ** **          | ** ** | ** **             | ** ** | **# of Capital** | ** ** |
|----------------------|------------|--------------------|------------|---------------------|------------|------------------------|------------|----------------------------|------------|
| **Quarter**          | ** ** | **Low Price** | ** ** | **High Price** | ** ** | **Average Price** | ** ** | **Units Traded**      | ** ** |
| First Quarter 2005   |       | NA                 |       | NA                  |       | NA                     |       | NA                         |       |
| Second Quarter  2005 |       | NA                 |       | NA                  |       | NA                     |       | NA                         |       |
| Third Quarter 2005   |       | $                  | 1.54       |                | $          | 1.75                   |       | $                          | 1.57       |   | 37,000 |   |
| Fourth Quarter  2005 |       | $                  | 1.50       |                | $          | 1.54                   |       | $                          | 1.51       |   | 23,500 |   |
| First Quarter 2006   |       | $                  | 1.22       |                | $          | 1.27                   |       | $                          | 1.25       |   | 21,000 |   |
| Second Quarter  2006 |       | $                  | 1.29       |                | $          | 1.32                   |       | $                          | 1.30       |   | 76,000 |   |
| Third Quarter 2006   |       | $                  | 1.32       |                | $          | 1.60                   |       | $                          | 1.45       |   | 152,250 |   |
| Fourth Quarter 2006  |       | $                  | 1.43       |                | $          | 1.49                   |       | $                          | 1.46       |   | 92,000 |   |

 

18

----

There were no issuer purchases of equity securitiesduring the fourth quarter ending December 31, 2006.

*Trading Restrictions*

As a limited liability company, we must strictlyrestrict transfers of our capital units in order to preserve our preferentialsingle-level tax status. Our capital units may not be traded on anynational securities exchange or in any over-the-counter market. All transfersmust be in accordance with our Capital Unit Transfer System, which may beamended by the Board from time to time. Our Capital Unit Transfer Systemprohibits any transfer that would result in the loss of our partnership taxstatus.

Pursuant to our operating agreement, a minimum of2,500 capital units is required to be owned by an individual for membership,and no member may own more than 1.5% of the total outstanding capitalunits. In addition to the transfer restrictions described above, under certainlimited circumstances the Board retains the right to redeem the capital unitsat the greater of $0.20 per capital unit or the original purchase price paidupon issuance of such capital units less cumulative distributions paid withrespect to such capital units. The Board’s right to redeem is available in theevent a member breaches the operating agreement or other contract with us orupon a failure to fulfill the membership requirements, including the foregoingminimum and maximum ownership requirements, but only if the member fails tocure the default after we send written notice. Under the qualified matchingservice, we cannot permit the number of capital units traded through theservice each year to exceed 10% of our total issued and outstanding capitalunits. This is necessary in order to ensure that the qualified matching servicefalls within certain “safe harbors” contained in the publicly tradedpartnership rules under the federal tax code.

Our operating agreement prohibits transfers other thanthrough the procedures specified in our Capital Units Transfer System. Underthis system, all transactions must be approved by the Board. The Boardgenerally approves transfers that fall within “safe harbors” contained in thepublicly traded partnership rules under the federal tax code. Permittedtransfers include transfers by gift or death, sales to qualified familymembers, and trades through the qualified matching service subject to the 10%restriction

*Distributions*

In 2002, we paid total cash distributions to ourmembers in the amount of $5.5 million (19.53¢ per capital unit on a post-splitadjusted basis). In 2003, we paid total cash distributions to our members inthe amount of $2.5 million (9.0¢ per capital unit). In 2004, we made onecash distribution to our members in the amount of approximately $3.3 million(11.64¢ per capital unit). In 2005 and 2006, we made no cash distributions toour members.

On March 1, 2007, we paid a cash distribution to ourmembers of $6.4 million (21.0¢ per capital unit).

19

----

Our operating agreement contains conditions andrestrictions on the issuance of distributions. The Board is required to distribute30% of available net income (i.e. gross cash proceeds from operations afterdeducting amounts used to pay expenses or establish reserves at the Board’sdiscretion) to members each year, unless available net income does not exceed$500,000 or such a distribution would violate or cause a default under theterms of our debt financing or other credit facilities or is otherwiseprohibited by law. Any other distributions are entirely at the discretion ofthe Board and there is no guarantee as to when or if we will make distributionsin any particular amount or at all and actual distributions will depend uponprofitability, expenses and other factors. Earnings, losses and cashdistributions are currently allocated to members based on their percentage ofcapital unit ownership. Additional conditions and restrictions may be added in2007 and in the future.

Our ability to issue distributions in the future issubstantially dependent upon our profitability, the discretion of our Boardsubject to the provisions of our operating agreement, and the approval of ourlenders.

  **Item 6.   ****Selected Financial Data**

The followingtable sets forth selected financial data of South Dakota Soybean Processors,LLC and our predecessor cooperative for the periods indicated. The historicalfinancial information in the table below includes audited financial data of ourpredecessor cooperative prior to the effectiveness of the reorganization onJuly 1, 2002. The financial statements for the years ended December 31, 2006,2005, 2004 and 2003 included in Item 8 of this report were audited by Gordon,Hughes & Banks, LLP.  The financialstatements for the year ended December 31, 2002 included in Item 8 of thisreport were audited by Eide Bailly LLP.
| ** **                                     | ** ** | **2006**     | ** **  | **2005**     | ** ** | **2004**     | ** ** | **2003**     | ** **  | **2002**     | ** ** |
|------------------------------------------------|------------|--------------|-------------|--------------|------------|--------------|------------|--------------|-------------|--------------|------------|
|                                           |       |         |        |         |       |         |       |         |        |         |       |
| Bushels  Processed                             |       | 27,775,724   |        | 28,003,640   |       | 26,823,093   |       | 28,384,272   |        | 27,963,507   |       |
|                                           |       |         |        |         |       |         |       |         |        |         |       |
| **Statement  of Operations Data:**             |       |         |        |         |       |         |       |         |        |         |       |
| Revenues                                       |       | $            | 212,721,926 |         | $          | 210,370,966  |       | $            | 238,211,056 |         | $          | 207,256,575 |   | $ | 159,488,645 |   |
| Costs &  Expenses:                         |       |         |        |         |       |         |       |         |        |         |       |
| Cost of goods sold                             |       | (203,525,766 | )           | (209,992,802 | )          | (232,703,866 | )          | (203,022,360 | )           | (152,583,964 | )          |
| Marketing & Admin Expense                  |       | (3,487,773   | )           | (3,826,823   | )          | (4,476,511   | )          | (3,639,442   | )           | (2,679,633   | )          |
| Operating Profit (Loss)                        |       | 5,708,387    |        | (3,448,659   | )          | 1,030,679    |       | 594,773      |        | 4,233,687    |       |
| Non-Operating  Income                          |       | 2,574,350    |        | 840,489      |       | 408,022      |       | 3,013,135    |        | 3,441,259    |       |
| Interest Expense                               |       | (629,070     | )           | (1,400,403   | )          | (1,425,849   | )          | (802,178     | )           | (542,220     | )          |
| Income Tax  Expense                            |       | (2,308       | )           | —       |       | (1,032       | )          | 131,474      |        | (520,000     | )          |
| Minority  Interest in Loss of Subsidiary       |       | —       |        | 368,403      |       | 676,792      |       | 457,620      |        | —       |       |
| Net Income  (Loss)                             |       | $            | 7,651,359   |         | $          | (3,640,170   | )          | $            | 688,612     |         | $          | 3,394,824 |   | $ | 6,612,726 |   |
|                                           |       |         |        |         |       |         |       |         |        |         |       |
| Weighted Average  Capital Units Outstanding(1) |       | 30,419,000   |        | 29,758,885   |       | 28,250,139   |       | 28,258,500   |        | 28,258,500   |       |
| Net Income  (Loss) per Capital Unit            |       | $            | 0.252       |         | $          | (0.122       | )          | $            | 0.024       |         | $          | 0.120 |   | $ | 0.235 |   |
|                                           |       |         |        |         |       |         |       |         |        |         |       |
| **Balance  Sheet Data:**                       |       |         |        |         |       |         |       |         |        |         |       |
| Working Capital                                |       | $            | 11,951,704  |         | $          | 5,599,709    |       | $            | (2,865,135  | )            | $          | 9,499,231 |   | $ | 5,363,332 |   |
| Net Property, Plant & Equipment            |       | 25,526,402   |        | 27,756,941   |       | 30,130,219   |       | 31,825,619   |        | 33,761,185   |       |
| Total Assets                                   |       | 82,070,372   |        | 73,630,296   |       | 72,499,888   |       | 81,617,064   |        | 70,284,896   |       |
| Long-Term Obligations                          |       | 12,007,955   |        | 14,712,635   |       | 9,115,496    |       | 17,664,442   |        | 10,234,523   |       |
| Members’ Equity                           |       | 40,409,808   |        | 32,768,497   |       | 32,122,573   |       | 34,730,590   |        | 33,875,593   |       |
|                                           |       |         |        |         |       |         |       |         |        |         |       |
| **Other  Data:**                               |       |         |        |         |       |         |       |         |        |         |       |
| Capital  Expenditures                          |       | $            | 660,397     |         | $          | 600,739      |       | $            | 1,209,852   |         | $          | 1,016,849 |   | $ | 4,645,020 |   |

 

----

(1)Adjusted for two-for-one capital unit split effective June 17, 2003.

20

----

**Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

*You should read the following discussion along withour financial statements and the notes to our financial statements includedelsewhere in this report. The following discussion contains forward-lookingstatements that are subject to risks, uncertainties and assumptions. Our actualresults, performance and achievements may differ materially from thoseexpressed in, or implied by, such forward-looking statements. See “CautionaryStatement Regarding Forward-Looking Information” at the beginning of thisreport.*

**Executive Overview and Summary**

Our core business and primary source of incomegeneration is our soybean processing plant located in Volga, South Dakota. Weprocess approximately 28 million bushels of soybeans annually to produceapproximately 680 tons of high protein soybean meal and 310 million pounds ofcrude soybean oil. We represent approximately 1.5% of total United States’soybean processing capacity. In addition to our processing plant, we operate asoybean oil refinery in Volga which produces a partially refinedsoybean oil.The partially refined soybean oil is sold to an independent soybean oil foodrefiner and as a feedstock to industrial applications, such as plastics andbiodiesel. The refining operations provide us with alternative option formarketing of soybean oil.  Otheractivities that generate income are our investment in MnSP, oil storage incomeand management and consulting agreements.

Soybean processing is basically a commodity drivenbusiness and is cyclical in nature. Our industry is dependent on the annualsoybean crop production (supply side) and world economic growth (demand sidefor food). Soybean processing is also a highly consolidated industry with four companiesin the United States controlling 85% of the soybean processing industry and 70%of the soybean oil refining capacity for food applications. We compete in thisindustry by producing high quality products and operating a highly efficientoperation at the lowest possible cost.

21

----

In efforts to increase the value of the products weproduce, we continue to invest in our subsidiary, USSC, for the research,marketing and development of soy-based polyol and soy-based polyurethanesystems. USSC’s technical staff and research lab facilities are located inVolga. USSC’s marketing focus in 2007 includes the auto industry, sprayapplications including insulation, carpet rebound and padding, and polyurethanesystem houses.  We also plan to diversifybeyond USSC by entering the biodiesel industry in some capacity, a growingindustry spurred by our nation’s need to decrease its reliance on foreignpetroleum supplies.

We generated a net profit of $7.7 million for 2006,compared to a loss of $3.6 million for the same period in 2005, an improvementof $11.3 million, or $0.40 per bushel processed.  We attribute thisimprovement to three primary factors: 1) improved margin structure; 2)decreased production (energy), interest and general administration expenses;and 3) increased miscellaneous income. Improved market and margin conditionswere driven by a more stable local soybean market, as the soybean basis paidand soybean meal basis received (sold) relationship widened to historicalaverages.

Biofuels and industrial utilization of food productssuch as corn, soybeans and other crops open up new opportunities and challengesfor us and our industry. Over the last 30 years, the soybean industry has beendriven by the number of people in the world and their capability to buy thefood products produced from soybeans, meat and oil. As a result, the UnitedStates soybean industry has experienced an average growth rate of 1.0% to 2.0%percent annually. Increased demand for industrial soybean oil utilization, suchas biodiesel and plastics, could drive United States soybean growth to 6.0%annually. Potentially offsetting the new industrial demand are health concernswith consumption of soybean oil containing *trans fats*. Oursuccess during this period will be dependent upon our ability to manage theprice volatility and price relationships of soybeans and soybean products, aswell as our ability to deal with and adapt to technology advances in corn andsoybean germ plasma, energy prices, public policy and technology advances inthe production of biofuels and industrial products. These and other factorswill present challenges in 2007 and in the foreseeable future.

**Results of Operations**

***Comparison of Years Ended December 31, 2006 and 2005***

 
| ** **              | ** ** | **Year Ended December 31, 2006** | ** **  | **Year Ended December 31, 2005** | ** ** |
|-------------------------|------------|------------------------------------------------------|-------------|------------------------------------------------------|------------|
| ** **              | ** ** | **$**                                                | ** **  | **%   of Revenue**                         | ** ** | **$** | ** ** | **% of   Revenue** | ** ** |
|                    |       |                                                 |        |                                                 |       |   |   |   |   |
| Revenue                 |       | $                                                    | 212,721,926 |                                                 | 100.0      |   | $ | 210,370,966 |   | 100.0 |   |
| Cost of revenues        |       | (203,525,766                                         | )           | (95.7                                                | )          | (209,992,802 | ) | (99.8 | ) |
| Operating  expenses     |       | (3,487,773                                           | )           | (1.6                                                 | )          | (3,826,823 | ) | (1.8 | ) |
| Other income  (expense) |       | 1,945,280                                            |        | 0.9                                                  |       | (559,914 | ) | (0.3 | ) |
| Minority  interest      |       | —                                               |        | —                                               |       | 368,403 |   | 0.2 |   |
| Income tax  expense     |       | (2,308                                               | )           | 0.0                                                  |       | — |   | — |   |
|                    |       |                                                 |        |                                                 |       |   |   |   |   |
| Net income  (loss)      |       | $                                                    | 7,651,359   |                                                 | 3.6        |   | $ | (3,640,170 | ) | (1.7 | ) |

 

22

----

*Revenue* – Revenueincreased $2.4 million, or 1.1%, from the year ended December 31, 2005 to theyear ended December 31, 2006.  Theincrease in revenues was primarily driven by an increase in sales volume ofcrude soybean oil.  During the year endedDecember 31, 2006, we registered with the Chicago Board of Trade (CBOT)warehouse receipts for approximately 135.8 million pounds of crude soybean oil,or $33.1 million in revenue, compared to 30.0 million pounds and $6.2 millionin revenue in 2005.  This increase wasslightly offset by a decreased sales volume of refined and bleached soybean oil(27.8%) and soybean meal (2.6%), and a reduction in the average sales price ofsoybean meal (5.7%), decreasing revenue by approximately $29.8 million.

*Gross Profit/Loss* –For the year ended December 31, 2006, we generated a gross profit of $9.2million compared to $0.4 million for the year ended December 31, 2005.  In addition to an increase in revenues of$2.4 million, our cost of revenues declined by $6.5 million.  Cost of revenues declined due to a decreasein cost of product sold, a decrease in natural gas costs and a decrease infreight and rail costs.  Our cost ofproduct sold decreased by $4.2 million between periods because of an improvedlocal soybean market. In 2005, local farmers were reluctant to sell theirsoybeans when soybean prices decreased from over $8 per bushel to less than $6per bushel, which increased the local basis adjustment we paid for soybeans andincreased our costs of product sold.  In2006, however, the local basis adjustment decreased and returned to historicalaverages.  In addition, natural gasprices decreased in 2006 due to an increase in supply nationwide, resulting inan approximately $0.7 million reduction in production expenses compared to2005.

*Administrative Expense*– Administrative expense, including all selling, general and administrativeexpenses, decreased $339,000, or 8.9%, for the year ended December 31, 2006compared to the same period in 2005. This decrease was the result of lower labor costs in USSC, and chargesto MnSP of $243,000 in administrative expenses that had not been previouslyinvoiced prior to 2006.  The lower laborcosts in USSC were due to a restructuring of USSC’s staff and narrowing ofmarket focus in July 2005. Administrative expenses are expected to increase in 2007 due to thetermination of cost-sharing management agreement with MnSP which is scheduledfor termination on September 1, 2007.

*Interest Expense* –In 2006, interest expense decreased by $771,000, or 55.1%, compared to2005.  The decrease was due to lower debtlevels resulting from the decrease in soybean prices and improvedprofitability. This decrease was partially offset by higher interest rates onour senior debt. On December 31, 2006, we had outstanding debt of $12.9million, the majority of which bore interest at an annual rate of 7.75%.  On December 31, 2005, in contrast, we hadoutstanding debt of $15.8 million, the majority of which bore interest at anannual rate of 7.05%.

*Other Non-Operating Income* –Other non-operating income increased from $0.6 million in 2005 to $2.4 millionfor the year ended December 31, 2006. The increase of $1.8 million was primarily due to increases in oilstorage income and our investment in MnSP.

23

----

*Net Income/Loss* –We recorded net income of $7.7 million for the year ended December 31, 2006,compared to net loss of $3.6 million for the same period in 2005.  The increase of $11.3 million was primarilyattributable to an increase in gross margin on products sold as a result of adecrease in cost of revenues as well as an increase in other non-operatingincome.

***Comparison of YearsEnded December 31, 2005 and 2004***
| ** **              | ** ** | **Year Ended December 31, 2005** | ** **  | **Year Ended December 31, 2004** | ** ** |
|-------------------------|------------|------------------------------------------------------|-------------|------------------------------------------------------|------------|
| ** **              | ** ** | **$**                                                | ** **  | **% of   Revenue**                         | ** ** | **$** | ** ** | **% of   Revenue** | ** ** |
|                    |       |                                                 |        |                                                 |       |   |   |   |   |
| Revenue                 |       | $                                                    | 210,370,966 |                                                 | 100.0      |   | $ | 238,211,056 |   | 100.0 |   |
| Cost of revenues        |       | (209,992,802                                         | )           | (99.8                                                | )          | (232,703,866 | ) | (97.7 | ) |
| Operating  expenses     |       | (3,826,823                                           | )           | (1.8                                                 | )          | (4,476,511 | ) | (1.9 | ) |
| Other income  (expense) |       | (559,914                                             | )           | (0.3                                                 | )          | (1,017,827 | ) | (0.4 | ) |
| Minority  interest      |       | 368,403                                              |        | 0.2                                                  |       | 676,792 |   | 0.3 |   |
| Income tax  expense     |       | —                                               |        | —                                               |       | (1,032 | ) | (0.0 | ) |
|                    |       |                                                 |        |                                                 |       |   |   |   |   |
| Net income  (loss)      |       | $                                                    | (3,640,170  | )                                                    | (1.7       | ) | $ | 688,612 |   | 0.3 |   |

 

*Revenue* – Revenuedecreased $27.8 million, or 11.7%, from the year ended December 31, 2004 to theyear ended December 31, 2005.  Thedecrease was a result of lower market prices of soybean meal, crude soybeanoil, and refined and bleached soybean oil. The average sales prices for soybean meal, crude soybean oil, andrefined and bleached soybean oil decreased by 20.9%, 13.1%, and 20.0%,respectively.  The decrease in marketprices was attributable to an improved U.S. soybean crop, which resulted in anincreased supply of soybeans in 2005. The price decreases were offset by an increase in sales volume of allproducts: soybean meal volume increased by 4.6%; crude soybean oil volumeincreased by 271.1%; and refined and bleached soybean oil volume increased by10.3%. The increase in sales volume of crude soybean oil was the result ofincreases in the delivery and issuance of warehouse receipts to the CBOT.  The increase in refined oil sales was due tosales made to MnSP’s biodiesel plant at a time when MnSP’s refinery was notfully operational.

*Gross Profit/Loss* –For the year ended December 31, 2005, we generated a gross profit of $378,000,compared to a gross profit of $5.5 million for the year ended December 31,2004.  Our gross profit decreasedsignificantly because, while cost of revenues decreased by $22.7 millionbetween periods, or 9.8%, this decrease was offset by our decrease in revenuesof $27.8 million, or 11.7%.

*Administrative Expense*– Administrative expense, including all selling, general and administrativeexpenses, decreased by $650,000, or 14.5%, for the year ended December 31,2005, compared to the same period in 2004. This decrease resulted primarily from lower general and administrativeexpenses in USSC when, in July 2005, USSC restructured its staff and narrowedits market focus to enhance profitability.

24

----

*Interest Expense* —In 2005, interest expense decreased by $25,000, or 1.8%, compared to 2004.  The decrease was due to lower debt levelsresulting from the decrease in soybean prices. The average debt level in 2005 was approximately $17.2 million, comparedto an average debt level in 2004 of approximately $23.6 million. The decreasein interest expense due to the lower debt levels was partially offset by higherinterest rates on our senior debt. On December 31, 2005, we had outstandingdebt of $15.8 million, the majority of which bore interest at an annual rate of7.05%.  On December 31, 2004, we hadoutstanding debt of $10.2 million, the majority of which bore interest at anannual rate of 4.85%.

*Net Income/Loss* —We recorded a net loss of $3.6 million for the year ended December 31, 2005,compared to net income of $689,000 in 2004. The decrease of $4.3 million in net income was primarily attributable toa decrease in gross profit.

**Liquidity and Capital Resources**

Our primary sources of liquidity are cash provided byoperations and borrowings under our two lines of credit which are discussedbelow under “Indebtedness.” On December 31, 2006, we had working capital,defined as current assets less current liabilities, of $11.95 million and acurrent ratio, defined as current assets divided by current liabilities of 1.4to 1, compared to working capital of $5.6 million and a current ratio of1.2 to 1 on December 31, 2005. Working capital increased in 2006 by $6.4million when compared to 2005, primarily because of improved earnings.

***Comparison of the years ended December 31,2006 and 2005***
| ** **                                     | ** ** | **2006**   | ** ** | **2005**  | ** ** |
|------------------------------------------------|------------|------------|------------|-----------|------------|
|                                           |       |       |       |      |       |
| Net cash from  (used for) operating activities |       | $          | 8,685,354  |      | $          | (6,298,040 | ) |
| Net cash from  (used for) investing activities |       | (1,167,641 | )          | (776,192  | )          |
| Net cash from (used  for) financing activities |       | 723,497    |       | 7,138,365 |       |
|                                                |            |            |            |           |            |  |  |

 

*Cash Flows from Operating Activities*

The increase in net cash flow from operatingactivities between 2006 and 2005 was primarily attributed to an increase in netincome and a decrease in accounts receivable. The increase in net income resulted primarily from an improved localsoybean market which decreased our cost of products sold.  All of these increases to net cash flows fromoperating activities were slightly offset by increases in inventory.

*CashFlows from Investing Activity*

The increase in cash used for investing activitiesbetween 2006 and 2005 was attributed to an additional investment of $420,000 inMnSP in 2006, as expenditures made on property and equipment between periodswere virtually the same.

25

----

*Cash Flows from Financing Activity*

The decrease in net cash provided by financingactivities was principally due to a $2.9 million reduction in debt in 2006,compared to a $5.6 million (net of principal payments) increase in debt duringthe same period in 2005. During the year ended December 31, 2005, we used the$5.6 million in proceeds from long-term debt to finance an increase ininventory, reduce accrued commodity purchases, and fund net loss.  In addition, the decrease in net cash wascaused by the absence of any cash raised from the sale of equity in 2006,compared to 2005 when $4.3 million in proceeds was raised in connection with apublic offering.

We anticipate in the next 12 months having sufficientcash flows from operating activities and our revolving debt to fund working capital,to cover operating, administrative, and capital expenditures, and to meet debtservice obligations.

***Comparison of the years ended December 31,2005 and 2004***
| ** **                                     | ** ** | **2005**  | ** ** | **2004**    | ** ** |
|------------------------------------------------|------------|-----------|------------|-------------|------------|
|                                           |       |      |       |        |       |
| Net cash from  (used for) operating activities |       | $         | (6,298,040 | )           | $          | 11,963,776 |   |
| Net cash from  (used for) investing activities |       | (776,192  | )          | (1,891,791  | )          |
| Net cash from (used  for) financing activities |       | 7,138,365 |       | (10,590,259 | )          |
|                                                |            |           |            |             |            |  |  |

 

*Cash Flows from Operating Activities*

The decrease in net cash flow from operatingactivities between 2005 and 2004 was primarily attributed to a decrease in netincome and increases in working capital requirements. The increase in workingcapital requirements was related to increases in accounts receivable andinventory, along with decreases in accrued commodity purchases and accountspayable. Accounts receivable increased primarily due to placing crude oil instorage with CBOT in late December 2005. The increase in inventory was mainlydue to holding an increased quantity of soybeans compared to 2004. The decreasein accrued commodity purchases was attributed to possessing fewer soybeans onour deferred payment program at December 31, 2005 compared to 2004. Theseincreases to the working capital requirements were offset by a decrease in ourmargin deposit accounts from 2004 to 2005.

*CashFlows from Investing Activity*

The decrease in cash used for investing activitiesbetween 2005 and 2004 was attributed to a decrease in the purchase of capitalimprovements and investments in 2005, which were delayed due to lower marginsin 2005.  In 2005, we spent approximately$609,000 less cash on purchases of property and equipment than in 2004. In2004, we spent approximately $1.2 million on equipment to increase the energyefficiency of the boiler, for improvements in our crushing operations, andincreased storage for SoyolTM.  We alsopurchased in 2004 additional shares in MnSP for approximately $601,000.

26

----

*Cash Flows from Financing Activity*

The increase in net cash provided by financingactivities between 2005 and 2004 was due to increasing our long-term debt, theissuance of capital units and not paying out a distribution to our members in2005. In order to finance the increasing working capital requirements in 2005,we increased our long-term debt by approximately $5.6 million compared todecreasing our debt by $8.3 million in 2004. Also in 2005, we acquired proceedsof $4.3 million from the issuance of 2,190,500 capital units during our publicoffering. Further, although no distributions were made in 2005, $3.3 million indistributions were made to our members in 2004.

***Indebtedness***

We have two lines of credit with CoBank, our primarylender, to meet the short and long-term needs of our operations. The firstcredit line is a revolving long-term loan agreement. Under the terms of thisloan, we began with a $17.1 million credit line. It reduces by $1.3 millionevery six months. The final payment will be equal to the remaining unpaidprincipal balance of the loan on March 20, 2012. The revolving loan is set upso that we may borrow funds as needed up to the credit line maximum, and thenpay down the principal whenever excess cash is available. Repaid amounts may bereborrowed up to the available credit line. We pay a 0.50% annual commitmentfee on any funds not borrowed.

The second credit line is a revolving working capitalloan that expires on September 1, 2007. The primary purpose of this loan is to finance inventory andreceivables. The maximum availability under this credit line is $16 million.  Borrowing base reports and financialstatements are required monthly to justify the balance borrowed on thisline.  We pay a 0.25% annual commitmentfee on any funds not borrowed; however, we have the option to reduce thesecredit lines during any given commitment period listed in the agreement toavoid the commitment fee.

Both CoBank loans are set up with a variable rateoption. The variable rate is set by CoBank and changes weekly on the firstbusiness day of each week. We also have a fixed rate option on both loansallowing us to fix rates for any period between one day and the entirecommitment period. We can get a fixed rate quote from CoBank at any time andlock-in the interest rate on all or a part of our borrowings that are availablefor fixing. Both CoBank loans are secured by substantially all of ourassets.  In addition, both loans aresubject to compliance with standard financial covenants and the maintenance ofcertain financial ratios, including but not limited to, a fixed debt servicecoverage ratio of not less than 1.2:1.00 and a minimum working capital of notless than $6 million including the amount available and outstanding balance onthe revolving long-term loan.  Thebalance borrowed on the revolving term loan was $11.9 million and$14.5 million as of December 31, 2006 and 2005, respectively. There wereno advances outstanding on the working capital loan at December 31, 2006 and2005.  The annual interest rate on boththe working capital and revolving term loans as of December 31, 2006 was 7.75%.

27

----

We also have other long-term contracts and notestotaling approximately $1.0 million, with a weighted average annual interestrate of 4.4% as of December 31, 2006. These arrangements include a no interest$621,000 long-term note payable to the other USSC shareholders relating to ourpurchase of their tendered USSC shares. The obligation is secured by thepurchased shares. Our highest interest payable during 2006 was a $250,000 loanheld by USSC at 15% per annum.  We made principal payments of $342,000 and$965,000 on these additional long-term obligations during the years endedDecember 31, 2006 and 2005, respectively.

Out indebtedness is expected to increase in 2008 as aresult of improvements to our facility’s railway infrastructure.  We are currently guaranteeing a $1.81 millionloan between the State of South Dakota Department of Transportation and theBrookings County Regional Railway Authority. This guaranty, however, will become a direct obligation of oursbeginning in 2008, at which time we will begin making principal and interestpayments on an annual basis.  For furtherdetails of this transaction, please see “Off-Balance Sheet FinancingArrangements-Guaranty” below.

***CapitalExpenditures***

We invested approximately $660,000 in capital expendituresfor property and equipment during the year ended December 31, 2006, compared toapproximately $601,000 in capital expenditures during the year ended December31, 2005.  Depending on our profitabilityin 2007, we anticipate spending between 2.0 million and $4.0 million on capitalexpenditures during the year ended December 31, 2007 to enhance the quality andefficiency of our soybean crushing facility. One such project will be toimprove our railway infrastructure at our facility. Our principal sources offunds are anticipated to be cash flows from operating activities, borrowingsunder our revolving and working capital loans with CoBank, and a low interestloan from the South Dakota Railroad Fund administrated by South Dakota’sDepartment of Transportation.

**OffBalance Sheet Financing Arrangements**

Except as described below, we do not utilizevariable interest entities or other off-balance sheet financial arrangements.

*Guaranty*

On March 6, 2007, we became a guarantor of a loanbetween State of South Dakota Department of Transportation and the BrookingsCounty (South Dakota) Regional Railway Authority. On March 6, 2007, the Stateof South Dakota Department of Transportation agreed to loan the BrookingsCounty Regional Railroad Authority a total sum of $1.81 million for purposes ofmaking improvements to the railway infrastructure near our soybean processingfacility in Volga, South Dakota. The interest rate on the loan is 4.857% peryear. Principal and interest payments are due annually, with the first paymentdue on October 1, 2008 and the final payment due at maturity in October 2017.In consideration of this unsecured loan, we agreed to guarantee to the State ofSouth Dakota Department of Transportation the full loan amount, plus interest.  This guaranty, however, will become a directobligation of ours in October 2008, when we will be responsible for paying theabove-described principal and interest payments on an annual basis.

28

----

*Lease Commitments*

We have commitments under various operating leases forrail cars, various types of vehicles, and lab and office equipment.  Ourmost significant lease commitments are the rail car leases we use to distributeour products.  We have a number of long-term leases with GE Capital andTrinity Capital for hopper rail cars and oil tank cars. Total lease expenseunder these arrangements was approximately $2.1 million for both years endedDecember 31, 2006 and 2005. The hopper rail cars earn mileage credit from therailroad through a sublease program, which totaled $1.9 million and $2.2million for the years ended December 31, 2006 and 2005, respectively.

In addition to rail car leases, we have severaloperating leases for various equipment and storage facilities. Total leaseexpense under these arrangements was $147,000 and $283,000 for the years endedDecember 31, 2006 and 2005, respectively. Some of these leases include purchaseoptions; however, none are for a value less than fair market value at the endof the lease.

**Contractual Obligations**

The following table showsour contractual obligations for the periods presented:

* *
| ** **                   | ** ** | **Payment due by period** | ** ** |
|------------------------------|------------|------------------------------------------|------------|
| **CONTRACTUAL  OBLIGATIONS** | ** ** | **Total**                                | ** ** | **Less than   1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than 5  years** | ** ** |
| ** **                   | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Long-Term Debt  Obligations  |       | $                                        | 12,854,294 |   | $ | 947,931 |   | $ | 5,206,363 |   | $ | 5,200,000 |   | $ | 1,500,000 |   |
|                         |       |                                     |       |   |   |   |   |   |   |   |   |
| Operating Lease  Obligations |       | 16,306,926                               |       | 1,975,978 |   | 3,341,304 |   | 3,251,204 |   | 7,738,440 |   |
|                         |       |                                     |       |   |   |   |   |   |   |   |   |
| Other Long-Term  Liabilities |       | 101,592                                  |       | 11,000 |   | — |   | — |   | 90,592 |   |
|                         |       |                                     |       |   |   |   |   |   |   |   |   |
| Total                        |       | $                                        | 29,262,812 |   | $ | 2,934,909 |   | $ | 8,547,667 |   | $ | 8,451,204 |   | $ | 9,329,032 |   |

 

**RecentAccounting Pronouncements**

In September 2006, the SEC released Staff AccountingBulletin No. 108, “Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements” (“SAB 108”).  SAB 108 provides interpretive guidance on theSEC’s views regarding the process of quantifying materiality of financialstatement misstatements.  SAB 108 iseffective for fiscal years ending after November 15, 2006.  The adoption of SAB 108 has not had asignificant impact on our results of operations or financial position.

29

----

In September 2006, the FASB issued FAS 157, “FairValue Measurements” (“SFAS 157”).  Thisstandard defines fair value, establishes a framework for measuring fair valuein generally accepted accounting principles, and expands disclosures about fairvalue measurements.  This statement iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007, although earlier application is encouraged.  We are currently evaluating the impact ofadopting SFAS 157 on our financial statements, but do not believe the adoptionof this standard will have a significant impact on our results of operations orfinancial position.

On February 15, 2007, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards No. 159, “The Fair ValueOption for Financial Assets and Financial Liabilities — Including an Amendmentof FASB Statement No. 115” (“SFAS 159”). This standard permits an entity to measure financial instruments andcertain other items at estimated fair value. Most of the provisions of SFAS 159 are elective; however, the amendmentto FASB 115, “Accounting for Certain Investments in Debt and Equity Securities,”applies to all entities that own trading and available-for-salesecurities.  The fair value optioncreated by SFAS 159 permits an entity to measure eligible items at fair valueas of specified election dates.  The fairvalue option (a) may generally be applied instrument by instrument, (b) isirrevocable unless a new election date occurs, and (c) must be applied to theentire instrument and not to only a portion of the instrument.  SFAS 159 is effective as of the beginning ofthe first fiscal year that begins after November 15, 2007.  Early adoption is permitted as of thebeginning of the previous fiscal year provided that the entity (i) makes thechoice in the first 120 days of that year, (ii) has not yet issued financialstatements for any interim period of such year, and (iii) elects to apply theprovisions of FASB 157.  Management iscurrently evaluating the impact of SFAS 159, if any, on the Company’s financialstatements.

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

Preparation of our financial statements requires estimatesand judgments to be made that affect the amounts of assets, liabilities,revenues and expenses reported. Such decisions include the selection of theappropriate accounting principles to be applied and the assumptions on which tobase accounting estimates. Management continually evaluates these estimatesbased on historical experience and other assumptions we believe to bereasonable under the circumstances.

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

30

----

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

*Commitmentsand Contingencies*

Contingencies, by their nature relate to uncertaintiesthat require management to exercise judgment both in assessing the likelihoodthat a liability has been incurred, as well as in estimating the amount of thepotential expense.  In conformity with accounting principles generallyaccepted in the United States, we accrue an expense when it is probable that aliability has been incurred and the amount can be reasonably estimated.

*Inventory Valuation*

We account for our inventories at estimated marketvalue. These inventories are agricultural commodities that are freely traded,have quoted market prices, may be sold without significant further processing,and have predictable and insignificant costs of disposal. We derive ourestimates from local market prices determined by grain terminals in our area.Processed product price estimates are determined by the ending sales contractprice as of the close of the final day of the period. This price is determinedby the closing price on the Chicago Board of Trade, net of the local basis.Changes in the market values of these inventories are recognized as a componentof cost of goods sold.

*Long-Lived Assets*

Depreciation and amortization of our property, plantand equipment is provided on the straight-lined method by charges to operationsat rates based upon the expected useful lives of individual or groups ofassets. Economic circumstances or other factors may cause management’sestimates of expected useful lives to differ from actual.

Long-lived assets, including property, plant andequipment and investments are evaluated for impairment on the basis ofundiscounted cash flows whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. An impaired assetis written down to its estimated fair market value based on the bestinformation available. Considerable management judgment is necessary toestimate undiscounted future cash flows and may differ from actual.

We evaluate the recoverability of identifiableintangible assets whenever events or changes in circumstances indicate that anintangible asset’s carrying value may not be recoverable.  Such circumstances could include, but are notlimited to: (1) a significant decrease in the market value of an asset, (2) asignificant adverse change in the extent or manner in which an asset is used,or (3) an accumulation of costs significantly in excess of the amountoriginally expected for the acquisition of an asset. We measure the carryingamount of the asset against the estimated undiscounted future cash flowsassociated with it.  Should the sum ofthe expected future net cash flows be less than the carrying value of the assetbeing evaluated, an impairment loss would be recognized.  

31

----

Theimpairment loss would be calculated as the amount by which the carrying valueof the asset exceeded its fair value. The fair value is measured based on quoted market prices, if available.If quoted market prices are not available, the estimate of fair value is basedon various valuation techniques, including the discounted value of estimatedfuture cash flows.  The evaluation ofasset impairment requires us to make assumptions about future cash flows overthe life of the asset being evaluated. These assumptions require significant judgment and actual results maydiffer from assumed and estimated amounts.

*Accounting for Derivative Instruments and Hedging Activities*

We minimize the effects of changes in the price ofagricultural commodities by using exchange-traded futures and options contractsto minimize our net positions in these inventories and contracts. We accountfor changes in market value on exchange-traded futures and option contracts atexchange prices and account for the changes in value of forward purchase andsales contracts at local market prices determined by grain terminals in thearea. Changes in the market value of all these contracts are recognized inearnings as a component of cost of goods sold.

**Item 7A.    Quantitative and Qualitative Disclosure about Market Risk**

***CommoditiesRisk & Risk Management.***To reduce the pricechange risks associated with holding fixed price commodity positions, wegenerally take opposite and offsetting positions by entering into commodityfutures contracts (either a straight or options futures contract) on aregulated commodity futures exchange, the Chicago Board of Trade. While hedgingactivities reduce the risk of loss from increasing market prices of soybeans,such activities also limit the gain potential which otherwise could result fromsignificant decreases in market prices of soybeans. Our policy is generally tomaintain a hedged position within limits, but we can be long or short at anytime. Our profitability is primarily derived from margins on soybeansprocessed, not from hedging transactions. Management does not anticipate thatits hedging activity will have a significant impact on future operating resultsor liquidity. Hedging arrangements do not protect against nonperformance of acash contract.

At any one time, our inventory and purchase contractsfor delivery to the plant may be substantial. We have risk managementpolicies and procedures that include net position limits. They are defined bycommodity, and include both trader and management limits. This policy andprocedure triggers a review by management when any trader is outside ofposition limits. The position limits are reviewed at least annually with theBoard of Managers. We monitor current market conditions and may expand orreduce the limits in response to changes in those conditions.

***Foreign CurrencyRisk.***We conduct essentially all of our business in U.S.dollars and have no direct risk regarding foreign currency fluctuations.Foreign currency fluctuations do, however, impact the ability of foreign buyersto purchase U.S. agricultural products and the competitiveness of and demandfor U.S. agricultural products compared to the same products offered by foreignsuppliers.

32

----

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

**Item8.        Financial Statements andSupplementary Data.**

Reference is made to the “Index to FinancialStatements” of South Dakota Soybean Processors, LLC located at page F-1 ofthis report, and financial statements and schedules for the years endedDecember 31, 2006, 2005 and 2004.

**Item9.        Changes in and Disagreements withAccountants on Accounting and Financial Disclosure**

None.

**Item 9A.    Controls and Procedures.**

***Evaluation ofDisclosure Controls and Procedures****.* Based on his evaluation as of the end ofthe period covered by this Annual Report on Form 10-K, our principalexecutive officer has concluded that our disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) of the SecuritiesExchange Act of 1934) are effective to ensure that information required to bedisclosed by us in reports that it files or submits under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported as andwhen required.

***Changes in InternalControl Over Financial Reporting****.* There were no significant changes in ourinternal control over financial reporting or, to the knowledge of ourmanagement, in other factors that could materially affect these controls duringthe fourth quarter of 2006.

**Item 9B.    Other Information.**

None.

**Part III**

**Item10.      Directors, Officers and Corporate Governance.**

**Board of Managers**

Our Board of Managers consists of three members fromeach of seven geographic districts, for a total of 21 Board members. Boardmembers are elected to staggered three-year terms by the members in theirgeographic district and currently may not serve more than three consecutivethree-year terms. Generally, one Board seat in each of the seven geographicaldistricts is elected at our annual meeting each year as required by ouroperating agreement.

33

----

The table below describes important information aboutthe members of the Board.
| **Name, Address and  Board Position, if any**       | ** ** | **Age** | ** ** | **Board  Member  Since**          | ** ** | **Current  Term  Expiring** | ** ** | **Occupation  and  Background**                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------------------------------------------------------------------------|------------|---------|------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Alan  Christensen******21056 450th Avenue  Arlington, SD   57212-6717 |       | 52      |       | 2006                              |       | 2009                        |       | Alan has been a farmer for the past 32 years. He  served as a director on the Executive Board of the South Dakota Pork  Producers Council from 2001-2006. He is a member of South Dakota Farm Bureau,  South Dakota Soybean Association, and South Dakota Corn Growers Association,  and is a former trustee of Trinity Lutheran Church. He received a B.S. degree  in Ag Business from South Dakota State University, Brookings, South Dakota in  1976.              |
|                                                                         |       |    |       |                              |       |                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Dean  Christopherson**32732 Quine Ave.  Worthington, MN   56187            |       | 58      |       | 2004                              |       | 2007                        |       | Dean has been a farmer for the past 35 years. He is  president of Nobles County Farm Bureau and a 4-H leader. He is a past  director of SouthWest Farm Management and AMPI. Dean is a member of First  Covenant Church in Worthington, Minnesota. He attended Worthington Community  College for two years and the University of Minnesota for one year.                                                                                                              |
|                                                                         |       |    |       |                              |       |                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **David  Driessen**105 4th St. West   Canby, MN 56220                   |       | 51      |       | 2005                              |       | 2008                        |       | David has been a farmer for the past 28 years. He is  past director of the Canby Farmers Grain Coop. He received his B.A. degree  from Southwest State University in Marshall, Minnesota in 1977.                                                                                                                                                                                                                                                                     |
|                                                                         |       |    |       |                              |       |                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Wayne  Enger*******Treasurer*2090 180th Street   Madison, MN 56256         |       | 53      |       | 2004                              |       | 2007                        |       | Wayne has been a farmer for the past 30 years. He is  secretary of the State Line Farmers Cooperative Elevator and was a board  member of the Lac Qui Parle County Soybean Producers. Wayne has served as  president and treasurer of the Midwest Cattlemen’s Association and is a  former member of the Garfield Lutheran Church Board. Wayne received his B.A.  degree in Mathematics and German literature from University of  Minnesota-Morris in 1975. |
| ** **                                                                   |       |    |       |                              |       |                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Dan  Feige**45974 232nd St. Wentworth, SD 57075-9644                  |       | 52      |       | 2006; Also  served from 1996-2005 |       | 2009                        |       | Dan has been a farmer for the past 30 years. He is a  member of the National Corn Growers Association, the American Soybean  Association currently serving as 2nd vice president and biodiesel committee  chairman. He is past vice president past delegate for Associated Milk  Producers. He attended the University of South Dakota at Springfield and  received an Associate Degree in Diesel Technology with a minor in Education  and Business.            |

 

34

----

 
| **Ronald  J. Gorder**19196 471st Ave.  Estelline, SD 57234       |   | 44     |   | 2005                         |   | 2008   |   | Ronald has been a farmer for the past 25 years. He  is president of the Estelline School Board and serves as a director of the  South Dakota Soybean Association. He attended Concordia College in Moorhead,  Minnesota in 1982                                                                                                                                      |
|-----------------------------------------------------------------------|--------|--------|--------|------------------------------|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                  |   |   |   |                         |   |   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| **Kent  Howell**212981 464th Ave.  Volga, SD 57071                    |   | 51     |   | 2005                         |   | 2008   |   | Kent has been a farmer for the past 28 years. He is  a member of the Volga Fire Department. He received his B.S. from South Dakota  State University in Brookings, South Dakota in 1977.                                                                                                                                                                             |
|                                                                  |   |   |   |                         |   |   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| **James  H. Jepsen**48480 231st St.   Flandreau, SD 57028-  6631 |   | 49     |   | 2006; Also  served 1996-2005 |   | 2009   |   | James has been a farmer for the past 30 years. He is  currently a member and was the former president of the South Dakota Soybean  Association. He received an Associate of Arts Degree in General Ag from South  Dakota State University, Brookings, South Dakota in 1977.                                                                                          |
|                                                                  |   |   |   |                         |   |   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| **Jerome  L. Jerzak**2974 County Hwy 5   Ivanhoe, MN 56142            |   | 60     |   | 2005                         |   | 2008   |   | Jerome has been a farmer for the past 41 years. He  is a member of the Minnesota Crop Improvement Association, the Minnesota  Soybean Association and the Minnesota Corn Growers, and is a former board  member of the Ivanhoe Elevator Cooperative and the Ivanhoe School Board.                                                                                    |
| ** **                                                            |   |   |   |                         |   |   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| **Peter  Kontz**47068 223rd St.   Colman, SD 57017               |   | 64     |   | 1998                         |   | 2007   |   | Peter has been a farmer for the past 40 years. He is  a member of the South Dakota Cattlemen’s Association (Treasurer for four  years), South Dakota Corn Growers Association, and the South Dakota Soybean  Association. He attended the School of Agriculture in Brookings, South  Dakota.                                                                    |
|                                                                  |   |   |   |                         |   |   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| **Laron  Krause**47244 181st St.   Clear Lake, SD 57226               |   | 46     |   | 2004                         |   | 2007   |   | Laron has been a farmer for the past 29 years. He is  a member of the South Dakota Soybean Association, South Dakota Pork  Producers, and South Dakota Corn Growers Association, and is a former  president of the South Dakota Soybean Association. Laron graduated with a  degree in Production Agriculture from Canby Vocational Tech, Canby, Minnesota  in 1980. |
|                                                                  |   |   |   |                         |   |   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| **Bryce  Loomis***President*19989 464th Ave.  Bruce, SD 57220    |   | 64     |   | 1998                         |   | 2007   |   | Bryce has been a farmer and seed sales  representative for the past 40 years. He is a member of the National Corn  Growers Association, the South Dakota Soybean Producers Association and the  Farm Bureau.                                                                                                                                                         |
|                                                                  |   |   |   |                         |   |   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| **Robert  Nelsen**1173 280th Ave.  Westbrook, MN 56183           |   | 66     |   | 2005; Also served  1995-2004 |   | 2008   |   | Robert has been a farmer for the past 44 years. He  is a state director of the Minnesota Soybean Growers Association and a board  member of the Murray County Corn and Soybean Growers. He is also on the  executive board of the Lions Club of Westbrook, Minnesota.                                                                                                |
|                                                                  |   |   |   |                         |   |   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| **Robert  Nelson**46338 213th Street   Volga, SD 57071           |   | 61     |   | 2006                         |   | 2009   |   | Robert has been a farmer for the past 38 years at  Nelson Farms, Inc. He received a B.S. degree in Ag from South Dakota State  University, Brookings, South Dakota in 1968.                                                                                                                                                                                          |

 

35

----

 
| **Maurice  Odenbrett**2778 41st St.   Fulda, MN 56131                         |   | 61     |   | 2006; Also  served from 1995-2005    |   | 2009   |   | Maurice has been a farmer for the past 43  years.  He serves as supervisor of the Belfast Township, vice  chairperson of the Murray County Township association and trustee of the  Finance Council of Saint Gabriel’s Catholic Church in Fulda.                                                                                                                                                                                                                                                                                                                            |
|------------------------------------------------------------------------------------|--------|--------|--------|--------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                               |   |   |   |                                 |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Steven  C. Preszler**28708 433rd Ave.   Menno, SD 57045                          |   | 47     |   | 2005                                 |   | 2007   |   | Steven has been a farmer for the past 27 years. He  is director and vice president of Lumber Yard Board. He is also the past  president of Jaycees of Menno and treasurer of the Salem Reformed Church. He  is a brother-in-law of Corey Schnabel who is also a board member.                                                                                                                                                                                                                                                                                                         |
|                                                                               |   |   |   |                                 |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Greg  Schmieding**6213 S. Doral Tr.   Sioux Falls, SD 57108                      |   | 51     |   | 2005                                 |   | 2008   |   | Greg has been a senior vice president of Metavante  since July 1994 and vice president/general manager for  Manpower, Inc. since July 2005. Prior to this, Greg was a senior  vice president of First Data Corp. for two years and employed by IBM for over  eleven years. Greg also currently manages his family farm operations in South  Dakota and Iowa. He received his B.S. degree from South Dakota State  University in 1977 and his M.B.A. degree from the University of South Dakota  in 1981.                                                               |
| ** **                                                                         |   |   |   |                                 |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Corey  Schnabel*********Vice  President*43555 273rd St.   Freeman, SD 57029 |   | 48     |   | 2005; Also  served from 1995 to 2004 |   | 2008   |   | Corey has been a farmer for the past 27 years. He is  a Grandview Township Supervisor. He belongs to the South Dakota and National  Corn Growers Association, the South Dakota and American Simmental  Association. He is also a former director of the South Dakota Corn Growers  Association and National Corn Growers Association. He is a graduate of Lake  Area Technical Institute in Watertown, South Dakota, where he earned an  Associate degree in Ag Business in 1980. He is a brother-in-law of Steven  Preszler who is a board member also representing District 3. |
|                                                                               |   |   |   |                                 |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Lyle R.  Trautman**409 Lakeview St.   Lake Benton, MN   56149                    |   | 53     |   | 2006; Also  served from 1996 to 2005 |   | 2009   |   | Lyle has been a farmer for the past 33 years. He is  a member of the Lincoln County Soybean and Corn Growers Associations and the  Minnesota Soybean and Corn Growers Associations. He is also a member of the  Lake Benton City Council. He attended Mankato State College and University of  Minnesota, Waseca.                                                                                                                                                                                                                                                                     |
|                                                                               |   |   |   |                                 |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Anthony  Van Uden**3461 300th Ave.  Cottonwood, MN 56229                    |   | 69     |   | 1996                                 |   | 2007   |   | Anthony has been a farmer for the past 45 years. He  is a member of Minnesota Soybean Association, and the American Legion. He is  a past director of the Farmers Elevator Company, Cottonwood, MN, Lucas Town  board, as Chairman, and the Lyon County Planning and Zoning Committee.                                                                                                                                                                                                                                                                                                |
|                                                                               |   |   |   |                                 |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Gary  Wertish**26416 County Rd.   Renville, MN 56284                             |   | 56     |   | 2006                                 |   | 2009   |   | Gary has been a farmer for the past 38 years He  serves as supervisor of Emmet Township and as a board member of the Renville Volunteer  Ambulance Association. He received an Associate Degree in Ag Business from  Willmar Area Vocational Technical Institute in 1970.                                                                                                                                                                                                                                                                                                             |

 

36

----

**Committees of Board of Managers**

The Board of Managers formed the following committees:Finance and Audit Committee, Nomination Committee, Governance Committee, PublicRelations Committee, and Planning Committee.  The Board does not have aCompensation Committee. The current members of the Finance and Audit Committeeare Anthony Van Uden, who serves as the chairperson of the committee, WayneEnger, Dan Feige, Jerome Jerzak, Robert Nelsen, Maurice Odenbrett and GregSchmieding.  Because our Board members are generally farmers, as is commonfor producer-based agricultural entities, we do not have an audit committee financialexpert serving on our Finance and Audit Committee.  The Board, however,has selected members for the Finance and Audit Committee based on the Board’sdetermination that they are fully qualified to monitor management, our internalaccounting operations and the independent auditors and are fully qualified tomonitor our disclosures to assure that they fairly present our financialcondition and results of operations. In addition, the Finance and AuditCommittee has the authority to engage advisers as it deems necessary to assistit in carrying out its duties.

The current members of the Nomination Committee areMaurice Odenbrett, who serves as the chairperson of the committee, DaveDriessen, Dan Feige, Ron Gorder, Pete Kontz, Bryce Loomis, and Anthony Van Uden.  Our Nomination Committee Charter is availablefor review on our website at http://www.sdsbp.com.   In order tosubmit to the Nomination Committee for a nomination to the Board for the 2007Annual Meeting, members were required to return to the Nomination Committee anomination petition form no later than March 31, 2007.  Nominationssubmitted from the floor at the Annual Meeting are not allowed. The members ofthe Nomination Committee then review each of the submitted forms during theirselection process and search for and contact additional potential nominees attheir discretion.

**Executive Officers**

The following individuals serve as our executiveofficers in the capacities listed as of the date of this filing. These officersserve at the discretion of the Board of Managers and can be terminated withoutnotice.

| Name                    | ** ** | **Age** | ** ** | **Position**            |
|-------------------------|------------|---------|------------|-------------------------|
|                    |       |    |       |                    |
| Rodney G.  Christianson |       | 53      |       | Chief Executive Officer |
| Thomas J.  Kersting     |       | 44      |       | Commercial Manager      |

 

37

----

**Rodney G. Christianson, *Chief Executive Officer*.**Rodney joined us as the Chief Executive Officer when operations began in 1996.With 20 years of service with Cargill, Inc. in its Food, Industrial, andOilseed Sectors, Rodney came to us with significant operational and managerialexperience in the United States and Brazil. A member of the management team forthe Greenfield construction and start up of Cargill’s sunflower plant in WestFargo, North Dakota, Rodney’s experience helped direct our difficult startuptoward a financially successful first year of operations.

Rodney is a Minnesota farm native, and received hisB.S. in Engineering from North Dakota State University. He holds a ProfessionalEngineer’s License.

Rodney has complete responsibility for our operations.

**Thomas J. Kersting, *Commercial Manager.*** Tomjoined us as the Procurement Manager when operations began in 1996, and since1998 has served as the Commercial Manager. Tom was affiliated with HarvestStates Cooperative from July 1988 until May 1996. Tom held such positionsas Market Analyst/Advisor and Head Procurement Merchandiser for Harvest StatesCooperative throughout North Dakota, South Dakota, and Minnesota. As a marketanalyst, Tom assisted grain elevator profitability by using advanced managementand marketing techniques while incorporating specific risk managementprocedures.

Tom graduated from the University of Minnesota’sCollege of Agriculture with a B.S. in Agricultural Business Administration withan emphasis in operations management. Tom is a licensed commodity broker, adirector of the National Oilseed Processors Association, a voting member of theNational Biodiesel Board and our contact for the Chicago Board of Trade.

Tom is responsible for all futures trading strategies,as well as merchandising commodity products, and soybean and natural gasprocurement.

Our chief financial officer, James A. Seurer, resignedfrom his position effective February 28, 2007.

**Code of Ethics**

We have adopted a written code of ethics, whichapplies to our principal executive officer, principal financial and accountingofficer, controller or persons performing similar functions.  A copy ofthe code of ethics is filed as Exhibit 14.1 to this Report.

**Compliance with Reporting Requirements of Section 16 ofthe Exchange Act**

Under Section 16(a) of the Exchange Act, ourdirectors, executive officers and any persons holding 10% or more of the commonstock are required to report their ownership of our capital units and anychanges in that ownership to the Securities and 

38

----

Exchange Commission (the “SEC”)and to furnish us with copies of such reports. Specific due dates for thesereports have been established and we are required to disclose in this reportany failure to file on a timely basis by such persons. To our knowledge, basedsolely upon a review of copies of such reports received by us which were filedwith the SEC from January 1, 2006 through March 31, 2007, and upon writtenrepresentations from such persons that no other reports were required, webelieve that all reports required to be filed under Section 16(a) for2006 have been timely filed with the SEC.

**Item11.      Executive Compensation.**

**Compensation and Discussion Analysis.**

**Objectivesof the Compensation Program**

Our Board directlyoversees the executive compensation and employee benefit program. We have notdesignated or created a separate compensation committee for this purpose.  The Board designed the compensation programto attract and retain outstanding key officers and to motivate and reward managementfor achieving financial, operational and strategic success, thereby buildingvalue for our members.  The primarypurpose of the compensation program is to reward superior performance; that is,reward management for meeting or exceeding financial and operational goals setby the Board.  When excellent performanceis achieved, compensation is increased. Conversely, deficient performancegenerally results in a decrease or no change in compensation.

**Elementsin Compensation**

This section is anoverview of our compensation program for our principal executive officers(PEOs) and describes the various elements and discusses matters relating tothose items, including why the Board chose to include items in the compensationprogram.  The next section describes how2006 compensation was determined and awarded to the PEOs.  Our executive compensation program iscomprised of three elements: base salary, annual bonus incentive, and otherbenefits.

**BaseSalary**

Base salaries forour PEOs are determined based on individual responsibilities and duties,performance and experience.  Generally,salaries are designed to attract and retain talent.  Our compensation program for PEOs is designedso that approximately 70% to 80% of our total direct compensation is in theform of base salary. Our CEO’s salary is determined and set forth under hisemployment agreement.  Increases insalary, bonus, and other benefits to other PEOs are annually reviewed andapproved by the Board based on recommendations from the CEO.

39

----

**AnnualBonus Incentive**

Annual incentivecompensation in the form of a bonus is made to all full-time employees,including PEOs, under an employee profit-sharing program approved by theBoard.  It is designed to provideincentives for achieving short-term financial goals for the Company.  Under the annual incentive program, cashawards are made to PEOs if and only to the extent that the Company isprofitable. That is, a bonus is awarded to the PEOs based on the Company’s netincome at the end of the fiscal year. The specific percentage allocated to ourCEO is based on the terms of his employment agreement. The specific percentageallocated awarded to other PEOs is based on a formula and an evaluation by ourCEO, who takes into account current base salary level, level of responsibilityand the impact of the PEO’s position on profits.

**OtherBenefits**

Other benefitsprovided to our PEOs include such things as a non-qualified and qualifieddeferred compensation program, post-termination compensation and, solely forour CEO, certain perquisites.  We alsoprovide to our PEOs other benefits such as medical coverage to the same extentas such benefits are provided to our other employees and dental coverage.  These benefits are intended to make our PEOsmore efficient and effective and provide for their health, and well being. TheBoard reviews these other benefits to confirm that they are reasonable andcompetitive in light of the overall goal of designing the compensation programto attract and retain talent while maximizing the interests of our members.

*DeferredCompensation Program*

We offer adeferred compensation plan to permit the deferral of equity-based cashcompensation to facilitate tax and retirement planning and incentivize certainPEOs to perform at a high level and based upon long-term goals of theCompany.  Messrs. Christianson andKersting have a non-qualified deferred plan that provides “phantom” capitalunits.  The awarded phantom capital unitsare valued annually based on fair market value of the Company’s or subsidiary’scapital units at the end of the year. Mr. Kersting initial grants under these plans are fully vested, whereasMr. Christianson’s initial grants are 83% vested and will be fully vested byFebruary 1, 2008.  Upon the beginning oftermination of employment with us or such person’s 65th birthday, we will pay Messrs. Christianson andKersting the amount equal to the fair market value of the participant’s totalvested phantom units in five annual, substantially equal installments.

We also providethe PEOs and all employees of the Company a tax-qualified 401(k) plan of theInternal Revenue Code.  We match fiftypercent of all employee’s contributed earnings, up to a maximum of a threepercent contribution, on a bi-monthly basis.

*ChangingControl and Severance Benefits*

The Board believesthat a change in control and severance benefits are an important part of ourcompensation structure for our CEO and less so for other PEOs. 

40

----

The Board believes thatthe CEO’s employment agreement should contain benefits relating to change in controland severance benefits to help to secure the continued employment of our CEOnotwithstanding any concern he might have at such time regarding his owncontinued employment, prior to or following a change in control.  Additional information regarding the changein control and severance benefits to our CEO is found below in the section, “PotentialPayments upon Termination or Change-in-Control.”

*Perquisites*

We provide to ourCEO very limited perquisites intended to serve business needs for the benefit ofus.  It is understood that some may beused for personal reasons as well. When perquisites are used for personalreasons, the cost of value is imputed to the CEO as income and the CEO isresponsible for all applicable taxes.

**How TheAmount Of 2006 Compensation Was Determined**

This sectiondescribes how 2006 compensation was determined and awarded to the PEOs.

*Mr.Christianson’s 2006 base salary.*  The Board previously determined Mr.Christianson’s base salary in 2006 for serving as the CEO solely through anemployment agreement entered into on February 1, 2004. Under this agreement,Mr. Christianson’s annual base salary is $300,000 and, unless renegotiatedbefore such time, will continue to be the same through the term of hisemployment agreement, or August 31, 2008. His annual base salary in 2005 wasalso $300,000.

*OtherNamed PEOs’ 2006 Base Salary*. The Board reviewed and approvedthe CEO’s recommendation for increases to base salaries in 2006. Tom Kersting’sbase salary in 2006 was $135,000 and Jim Seurer’s base salary was $100,000 atthe beginning of 2006. Both Messrs. Kersting and Seurer received a base salaryraise in 2006, with Mr. Kersting receiving a 29.6% increase in August and Mr.Seurer receiving a 25% increase in June. Competitive pressure from the growingbiofuels industry was a key factor in determining base salaries in 2006 forMessrs. Kersting and Seurer.

**HowAnnual Bonus Incentive Was Determined**

*ChiefExecutive Officer*.  For2006, the annual incentive bonus payment to our CEO, Mr. Christianson, wasbased on his employment agreement.  Underhis employment agreement, Mr. Christianson is entitled to a bonus of 1/2 of 1%of our annual net income (before taxes and member distributions on net income)up to $5 million, or if our net income exceeds $5 million, is entitled to abonus of 1% of our net income.  Netincome under Mr. Christianson’s employment agreement is defined as net incomeaccording to our audited financial statements in 2006, excluding any income orexpense that is considered extraordinary and not arising in the ordinary courseof business. Net income in 2006 for purposes of Mr. Christianson’s bonuscalculation was $8,038,000.  Accordingly,Mr. Christianson’s bonus was $80,384, compared to $3,536 in 2005, which theBoard approved.

41

----

*OtherNamed Principal Officer’s 2006 Annual Bonus Incentive.*  For 2006, the annual incentive bonus paymentwas based on our employee profit-sharing program which was approved by theBoard. Under the program, all employees are entitled to receive a bonus based onour profitability and their performance for the year. Specifically, if netincome exceeds $2 million at the end of the year, an aggregate amount, or pool,is set aside for distribution based on the following formula:  [Net Income -$2 million] * 4%. Net income forpurposes of this calculation is defined as non-consolidated net incomeaccording to our audited financial statements in 2006, excluding any income orexpense that is considered extraordinary and not arising in the ordinary courseof business.

Our net income in2006 for purposes of calculating other employees’ incentive bonus pool was$9.76 million. Distribution of bonuses to all employees, including other PEOs,takes into account current salary level, level of responsibility and the impactof the employee’s position on profits. To be eligible, an employee must beemployed by us for a minimum of ten months of the fiscal year and be currentlyemployed at the time of the distribution. Mr. Kersting was awarded a bonus of$34,000 in 2006, compared to $350 in 2005. Mr. Seurer did not receive a bonusin 2006 following his resignation in February 2007.

**HowDeferred Compensation Was Determined**

For 2006, the increase value of the phantom unitsawarded to Messrs. Kersting and Christianson was based on the increase in thefair market value of the Company’s capital units compared to last year. Fairmarket value is defined as the average trading price of the Company’s capitalunits during the most recent three calendar quarters in which the capital unitsare traded. The Company’s capital units are traded through a qualified matchingservice, as defined by the Internal Revenue Code, and registered alternativetrading system. The fair market value of the Company’s capital units was higherin 2006 than in 2005, resulting in an increase in phantom units awarded.

**Conclusion**

The Board isconfident that our compensation program is performance-based and consistentwith companies similarly situated to us. The program is designed to attract, attain and reward our officers andto motivate and reward them for achieving high levels of business performanceand financial results that build member value.

42

----

**Summary Compensation Table**

The tables belowsummarize the total compensation paid or earned by each of the PEOs.  Salary amounts may not match the amountsdiscussed in “Compensation Discussion and Analysis” because that discussionconcerns salary rates; the amounts paid reported in the Summary CompensationTables reflect actual amounts paid during the year including the effect ofchanges in salary rates in 2006. Changes to base salary generally do not takeeffect at any set time of the year as changes are evaluated and made at thediscretion of the CEO.

Bonus amountsreflect the amounts paid under the annual incentive plan on the basis of anofficer’s employment agreement or individual performance.

Stock awardsreflect equity-based cash awards paid under the deferred compensation programwith respect to phantom units awarded to the officer.

**SUMMARY COMPENSATION TABLE**
| **Name and   principal   position  (a)** | ** ** | **Year  (b)** | ** ** | **Salary  ($)  (c)** | ** ** | **Bonus  ($)  See   Note 4  (d)** | ** ** | **Stock   Awards  ($)  See   Note 5  (e)** | ** ** | **Option  Awards  ($)  (f)** | ** ** | **Non-Equity   Incentive Plan  Compensation  ($)  (g)** | ** ** | **Nonqualified  Deferred  Compensation  Earnings ($)  (h)** | ** ** | **All Other   Compensation   ($)  See Note 6  (i)** | ** ** | **Total  ($)  (j)** | ** ** |
|---------------------------------------------------------|------------|---------------|------------|----------------------|------------|---------------------------------------------|------------|-----------------------------------------------------------|------------|------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|---------------------|------------|
| Rodney  Christianson(1)                                 |       | 2006          |       | $                    | 300,000    |                                        | $          | 80,384                                                    |       | $                            | 3,682      |                                                              | NA         |                                                             | NA         |                                                                         | NA         |                | $          | 7,200 |   | $ | 391,266 |   |
| James Seurer (2)                                        |       | 2006          |       | $                    | 114,763    |                                        | 0          |                                                      | 0          |                         | NA         |                                                              | NA         |                                                             | NA         |                                                                         | $          | 3,837               |       | $ | 118,600 |   |
| Tom Kersting (3)                                        |       | 2006          |       | $                    | 151,931    |                                        | $          | 34,000                                                    |       | $                            | 2,440      |                                                              | NA         |                                                             | NA         |                                                                         | NA         |                | $          | 5,750 |   | $ | 194,121 |   |

 

----

(1)          Rodney Christianson isthe Chief Executive Officer of the Company.

(2)          James Seurer served asChief Financial Officer of the Company from March 2005 to February 28, 2007.

(3)          Tom Kersting is theCommercial Manager of the Company.

(4)          Mr.  Christianson’s bonus was solely based on theCompany’s profitability under his employment agreement. Mr. Kersting’s bonuswas based on the Company’s profitability and his overall performance.

(5)          The amounts shown inthis column represent the equity-based cash awards under a deferredcompensation plan with respect to the issuance of phantom units.

(6)          Theamounts shown in this column include the items summarized in the followingtable:

**ALL OTHER COMPENSATION TABLE**

 
| Name of Officer | ** ** | **Company Payments   Relating to Employee   Savings Plan ($)   See Note 7** | ** ** | **Company Paid Life   Insurance Premiums ($)   See Note 8** | ** ** | **Total All Other   Compensation** | ** ** |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| Christianson              |       | $                                                                                                                             | 6,600      |                                                                                                | $          | 600                                               |       | $ | 7,200 |   |
| Seurer                    |       | $                                                                                                                             | 3,437      |                                                                                                | $          | 400                                               |       | $ | 3,837 |   |
| Kersting                  |       | $                                                                                                                             | 5,150      |                                                                                                | $          | 600                                               |       | $ | 5,750 |   |

 

----

(7)        The amount shown in thiscolumn represents the Company’s matching contribution to the  employee’s 401(k) qualified plan.  The 401(k) plan is available to all employeesand the Company will match 3% of the employee’s contribution to the plan.

(8)        Theamount shown in this column represents the premiums paid during 2006 for basicterm life insurance, and accidental and disability insurance policies for allPEOs.

43

----

**Potential Payments uponTermination or Change in Control**

Under theemployment agreement of February 1, 2004 between the Company and Mr.Christianson, Mr. Christianson will continue to serve as Chief ExecutiveOfficer until at least January 31, 2008. In the event that Mr. Christianson is terminated from employment fromthe Company before January 31, 2008 for any reason other than described below,he is entitled to the following benefit:

·      a payment equal to 1.5 times Mr.Christianson’s base salary at the time of termination for a one year period.Payments would be made in 18 equal monthly installments of $25,000 eachbeginning on the first day of the month following termination.

Mr. Christiansonis not entitled to the above severance benefit from the Company for any of thefollowing reasons:

·      his death;

·      his disability;

·      termination is for “cause”;

·      he voluntarily resigns from employment;

·      the Company has ceased all businessactivities, become insolvent and/or has filed a voluntary petition inbankruptcy, or has had filed against it an involuntary petition in bankruptcy;

·      he becomes employed in a similar positionby a successor company that has purchased substantially all of the assets ofCompany, and

·      the Company is merged into another companyand he is retained by the surviving company in a similar position.

“For cause” under the employment agreement means:

·      confession or conviction of theft, fraud,embezzlement, or any other crime involving dishonesty with respect to theCompany;

·      excessive absenteeism (other than byreason of physical injury, disease, or mental illness) without reasonablecause;

·      act or omission constituting a materialbreach of any provision of this employment agreement;

44

----

·      habitual and material negligence in theperformance of his duties;

·      abusing, misusing or destroying Employer’sproperty or the property of customers or other employees;

·      making or publishing false, vicious ormalicious statements concerning employer, its operations, employees or membersof the Board of Managers;

·      habitually reporting for work under theinfluence of intoxicants or drugs; and

·      intentional violation of any law directlyimpacting the Company’s business;

No other PEOs areentitled to the severance benefit provided to Mr. Christianson, or similarbenefit, upon their termination of employment with the Company.

**Board of Manager Compensation**

For their serviceson the Board of the Company, an individual receives compensation shown in thefollowing table and explained in the accompanying notes. No employees serve onthe Board.

**MANAGERCOMPENSATION TABLE**
| **Name**             | ** ** | **Fees   Earned or   Paid  in Cash** | ** ** | **Stock   Awards** | ** ** | **Option   Awards** | ** ** | **Non-Equity   Incentive Plan   Compensation** | ** ** | **Change in Pension   Value and Non-  Qualified Deferred   Compensation** | ** ** | **All other   Compensation** | ** ** | **Total ($)** | ** ** |
|----------------------|------------|----------------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------|------------|
| Alan Christensen     |       | $                                                        | 1,350      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 1,350 |   |
| Dean  Christopherson |       | $                                                        | 3,300      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 3,300 |   |
| David Driessen       |       | $                                                        | 3,525      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 3,525 |   |
| Wayne Enger          |       | $                                                        | 3,900      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 3,900 |   |
| Dan Feige            |       | $                                                        | 1,950      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 1,950 |   |
| Ron Gorder           |       | $                                                        | 3,075      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 3,075 |   |
| Kent Howell          |       | $                                                        | 3,525      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 3,525 |   |
| James Jepsen         |       | $                                                        | 1,275      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 1,275 |   |
| Jerome Jerzak        |       | $                                                        | 3,075      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 3,075 |   |
| Pete Kontz           |       | $                                                        | 3,225      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 3,225 |   |
| Laron Krause         |       | $                                                        | 2,925      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 2,925 |   |
| Bryce Loomis         |       | $                                                        | 4,750      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 4,750 |   |
| Robert E. Nelsen     |       | $                                                        | 3,900      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 3,900 |   |
| Robert Nelson        |       | $                                                        | 1,350      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 1,350 |   |
| Maurice  Odenbrett   |       | $                                                        | 1,500      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 1,500 |   |
| Steven Preszler      |       | $                                                        | 1,950      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 1,950 |   |
| Greg Schmieding      |       | $                                                        | 2,175      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 2,175 |   |
| Corey Schnabel       |       | $                                                        | 4,725      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 4,725 |   |
| Tony Van Uden        |       | $                                                        | 4,850      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 4,850 |   |
| Lyle Trautman        |       | $                                                        | 1,575      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 1,575 |   |
| Gary Wertish         |       | $                                                        | 1,500      |                    | —     |                     | —     |                                                          | —     |                                                                                                         | —     |                                   | —     |               | $          | 1,500 |   |

 

45

----

**Fees Earned or Paid in Cash**

All directorsreceive a $250 fee for each board or committee meeting or function requiringmore than four hours of service, $100 for each board or committee meeting orfunction requiring less than four hours of service, and $75 for conference calls.

**Other Compensation**

Managers arereimbursed at current IRS rates for travel incurred for each board andcommittee meeting or function and when attending other events on behalf of theCompany.

**Item12.      Security Ownership of Certain Beneficial Ownersand Management and Related Stockholder Matters.**

We do not have any compensation plans under which ourcapital units are authorized for issuance.

The following table sets forth the beneficialownership of our outstanding capital units by our Board members and namedexecutive officers as of April 2, 2007.  As of that date, no personbeneficially owned more than 5% of our capital units.
| **Name and Address  of Beneficial Owner (1)** | ** ** | **Number of  Votes  Beneficially  Owned** | ** ** | **Voting  Percentage** | ** ** | **Number of  Capital  Units  Beneficially  Owned** | ** ** | **Ownership  Percentage** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------------------|------------|------------------------|------------|---------------------------------------------------------|------------|---------------------------|------------|
|                                                                   |       |                                           |       |                   |       |                                                    |       |                      |       |
| Alan  Christensen, Manager (2)                                         |       | 1                                              |       | *                      |       | 30,000                                                  |       | *                         |       |
| Rodney  Christianson, CEO (3)                                          |       | 1                                              |       | *                      |       | 23,000                                                  |       | *                         |       |
| Dean  Christopherson, Manager                                          |       | 1                                              |       | *                      |       | 30,000                                                  |       | *                         |       |
| David Driessen,  Manager                                               |       | 1                                              |       | *                      |       | 45,000                                                  |       | *                         |       |
| Wayne Enger, Manager                                                   |       | 1                                              |       | *                      |       | 18,000                                                  |       | *                         |       |
| Dan Feige,  Manager                                                    |       | 1                                              |       | *                      |       | 31,500                                                  |       | *                         |       |
| Ronald Gorder,  Manager (4)                                            |       | 1                                              |       | *                      |       | 72,000                                                  |       | *                         |       |
| Kent Howell,  Manager (5)                                              |       | 1                                              |       | *                      |       | 80,000                                                  |       | *                         |       |
| James Jepsen,  Manager                                                 |       | 1                                              |       | *                      |       | 35,000                                                  |       | *                         |       |
| Jerome Jerzak,  Manager (6)                                            |       | 1                                              |       | *                      |       | 22,500                                                  |       | *                         |       |
| Tom Kersting, Commercial  Manager                                      |       | 1                                              |       | *                      |       | 0                                                       |       | *                         |       |
| Peter Kontz,  Manager (7)                                              |       | 2                                              |       | *                      |       | 119,000                                                 |       | *                         |       |
| Laron Krause,  Manager                                                 |       | 2                                              |       | *                      |       | 20,000                                                  |       | *                         |       |
| Bryce Loomis,  Manager (8)                                             |       | 1                                              |       | *                      |       | 40,000                                                  |       | *                         |       |
| Robert Nelsen,  Manager                                                |       | 1                                              |       | *                      |       | 24,000                                                  |       | *                         |       |
| Robert Nelson,  Manager (9)                                            |       | 1                                              |       | *                      |       | 8,500                                                   |       | *                         |       |
| Maurice  Odenbrett, Manager                                            |       | 1                                              |       | *                      |       | 40,000                                                  |       | *                         |       |
| Steven Preszler,  Manager                                              |       | 1                                              |       | *                      |       | 17,000                                                  |       | *                         |       |
| Greg Schmieding,  Manager (10)                                         |       | 1                                              |       | *                      |       | 8,750                                                   |       | *                         |       |
| Corey Schnabel,  Manager                                               |       | 1                                              |       | *                      |       | 15,000                                                  |       | *                         |       |
| James Seurer  (11)                                                     |       | 0                                              |       | *                      |       | 0                                                       |       | *                         |       |
| Lyle Trautman,  Manager(12)                                            |       | 1                                              |       | *                      |       | 14,500                                                  |       | *                         |       |
| Tony Van Uden,  Manager                                                |       | 1                                              |       | *                      |       | 60,000                                                  |       | *                         |       |
| Gary Wertish,  Manager (13)                                            |       | 1                                              |       | *                      |       | 163,000                                                 |       | *                         |       |
| **Manager and Executive Officers,  as a group**                        | ** ** | **25**                                         |       |                   | ** ** | **916,750**                                             | ** ** | **3.0**                   | **%**      |

 

46

----

----

| *    |   | Percentage of shares beneficially owned does not  exceed 1% of the class.                                                       |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------|
| (1)  |   | The addresses for each of the individual managers  listed are set forth above under Item 10—”Board of Managers.” |
| (2)  |   | Represents capital units owned jointly with Mr.  Christensen’s wife.                                                       |
| (3)  |   | Represents capital units owned of record by  Mr. Christianson’s wife.                                                 |
| (4)  |   | Represents capital units owned of record by Gorder  Dairy Farm of which Mr. Gorder is an owner.                            |
| (5)  |   | Includes capital units owned of record by Howell  Farms of which Mr. Howell is an owner.                                   |
| (6)  |   | Represents capital units owned jointly with Mr.  Jerzak’s wife.                                                            |
| (7)  |   | Includes 73,000 capital units owned of record by Mr.  Kontz’s wife.                                                        |
| (8)  |   | Represents capital units owned jointly with  Mr. Loomis’s wife.                                                       |
| (9)  |   | Represents capital units owned jointly with Mr.  Nelson’s wife.                                                            |
| (10) |   | Represents capital units owned jointly with Mr.  Schmieding’s wife.                                                        |
| (11) |   | Mr. Seurer resigned from his position as chief  financial officer on February 28, 2007.                                         |
| (12) |   | Represents capital units owned jointly with Mr.  Trautman’s wife.                                                          |
| (13) |   | Includes 14,000 capital units owned of record by Mr.  Wertish’s wife.                                                      |

 

**Item13.      Certain Relationships and RelatedTransactions, and Directors Independence.**

Our individual Board members and executive officershave not entered into, and do not anticipate entering into, any contractual orother transactions between themselves and us, except for continuing employmentagreements, our operating agreement, and soybean purchases that are on the sameterms available to the public. Board members receive a per diem fee and otherreimbursement and compensation for their Board services, as described above.The executive officers receive compensation as executive officers as describedabove.

We do not have any formal policies and procedures forthe review, approval or ratification of transactions between individual Boardmembers or officers and the Company except as set forth under our operatingagreement. Under our operating agreement, all acts of the Board are required tobe conducted by majority vote of disinterested persons serving on the Board. A disinterestedperson is defined as a person who does not have a financial interest oraffiliation in any contract or agreement, or whose family member does not havea financial interest or affiliation. A person who is not disinterested isprecluded from voting on the matter at hand unless such agreement or contractis made available to all members of the Company, such as a soybean deliveryagreement or transfer of capital units. In 2006, these terms and conditionswere fully complied with by all members of the Board.  In addition, we believe that all members ofthe Board and committees are independent within the meaning of the rules ofNASDAQ.

47

----

**Item14.      Principal Accountant Fees and Services.**

**Fees for Fiscal Year Ended December 31, 2006:**

**Audit Fees.  **Gordon,Hughes, & Banks, LLP billed a total amount of $62,250 and $55,000 forprofessional services rendered for the audit of the Company’s various annualfinancial statements for the fiscal year ended December 31, 2006 and 2005,respectively, and the reviews of the financial statements included in theCompany’s Forms 10-Q for the fiscal year ended December 31, 2006 and 2005,respectively.

**Audit Related Fees.  **Gordon,Hughes, & Banks, LLP billed a total amount of $0 and $4,350 forprofessional services rendered for audit related services for fiscal year endedDecember 31, 2006 and December 31, 2005, respectively. The audit related feesin 2005 related to consultation with the Company regarding an SEC review of theCompany’s financial statements.

**Tax Fees.**  Gordon, Hughes, & Banks, LLP performed no professional tax servicesfor the fiscal year ended December 31, 2006 or 2005.

**All Other Fees.  **Gordon,Hughes, & Banks, LLP did not render any other services for which feeswere paid for services rendered in connection with other matters requested bythe Company during the fiscal years ended December 31 2006 and 2005.

The Audit Committee Charter provides that the AuditCommittee shall approve in advance any fees related to non-audit services. Accordingly, our auditor submits to the Audit Committee a notice ofservices proposed to be provided and the associated fees prior to the provisionof any non-audit services.  During 2006 all such non-audit fees werepre-approved by the Audit Committee.

**Part IV**

**Item15.      Exhibits, Financial Statement Schedules.**

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

(a)(1)       Financial Statements and Schedules— Reference is made to the “Index to Financial Statements” of South DakotaSoybean Processors, LLC located at page F-1 of this report for a list of thefinancial statements and schedules for the year ended December 31, 2006included herein.

(2)           N.A.

(3)           Exhibits - SeeExhibit Index following the Signature Page to this report. Thefollowing exhibits constitute management agreements, compensatory plans, orarrangements: Exhibits 10.14, 10.15, 10.16, and 10.17.

48

----

SIGNATURES

Pursuant to the requirement of Section 13 or15(d) of the Securities Exchange Act, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.
|        | SOUTH DAKOTA SOYBEAN |
|--------|----------------------|
|   | PROCESSORS, LLC      |
|   |                 |
| Date:  |                 | April 2, 2007 |   | /s/ Rodney Christianson |   |   |
|   |                 |   |   | Rodney G. Christianson |   |   |
|   |                 |   |   | Chief Executive Officer |   |   |
|   |                 |   |   |   |   |   |
| Date:  |                 | April 2, 2007 |   | /s/ Mark Hyde |   |   |
|   |                 |   |   | Mark Hyde |   |   |
|   |                 |   |   | Controller, Principal Accounting Officer |   |   |

 

Pursuant to the requirements of the SecuritiesExchange Act, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.
|        |   |          |   | SOUTH DAKOTA SOYBEAN  PROCESSORS, LLC               |   |   |
|--------|--------|---------------|--------|-----------------------------------------------------|--------|--------|
|   |   |          |   |                                                |   |   |
|   |   |          |   |                                                |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Rodney Christianson                             |   |   |
|   |   |          |   | Rodney G. Christianson                              |   |   |
|   |   |          |   | Chief Executive Officer                             |   |   |
|   |   |          |   | (Principal Executive Officer)                       |   |   |
|   |   |          |   |                                                |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Mark Hyde                                       |   |   |
|   |   |          |   | Mark Hyde  Controller, Principal Accounting Officer |   |   |
|   |   |          |   |                                                |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Alan Christensen                                |   |   |
|   |   |          |   | Alan Christensen, Manager                           |   |   |
|   |   |          |   |                                                |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Dean Christopherson                             |   |   |
|   |   |          |   | Dean Christopherson, Manager                        |   |   |
|   |   |          |   |                                                |   |   |
| Date:  |   | April 2, 2007 |   | /s/ David Driessen                                  |   |   |
|   |   |          |   | David Driessen, Manager                             |   |   |
|   |   |          |   |                                                |   |   |
|   |   |          |   |                                                |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Wayne Enger                                     |   |   |
|   |   |          |   | Wayne Enger, Manager                                |   |   |
|   |   |          |   |                                                |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Dan Feige                                       |   |   |
|   |   |          |   | Dan Feige, Manager                                  |   |   |
|   |   |          |   |                                                |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Ronald Gorder                                   |   |   |
|   |   |          |   | Ronald J. Gorder, Manager                           |   |   |
|   |   |          |   |                                                |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Kent Howell                                     |   |   |
|   |   |          |   | Kent Howell, Manager                                |   |   |
|   |   |          |   |                                                |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Jerome Jerzak                                   |   |   |
|   |   |          |   | Jerome L. Jerzak, Manager                           |   |   |

 

49

----

 
| Date:  |   | April 2, 2007 |   | /s/ James Jepsen            |   |   |
|--------|--------|---------------|--------|-----------------------------|--------|--------|
|   |   |          |   | James Jepsen, Manager       |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Peter Kontz             |   |   |
|   |   |          |   | Peter Kontz, Manager        |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Laron Krause            |   |   |
|   |   |          |   | Laron Krause, Manager       |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Bryce Loomis            |   |   |
|   |   |          |   | Bryce Loomis, Manager       |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Robert Nelsen           |   |   |
|   |   |          |   | Robert Nelsen, Manager      |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Robert Nelson           |   |   |
|   |   |          |   | Robert Nelson, Manager      |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Maurice Odenbrett       |   |   |
|   |   |          |   | Maurice Odenbrett, Manager  |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Steven Preszler         |   |   |
|   |   |          |   | Steven C. Preszler, Manager |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Greg Schmieding         |   |   |
|   |   |          |   | Greg Schmieding, Manager    |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Corey Schnabel          |   |   |
|   |   |          |   | Corey Schnabel, Manager     |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/Lyle Trautman            |   |   |
|   |   |          |   | Lyle Trautman, Manager      |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Anthony Van Uden        |   |   |
|   |   |          |   | Anthony Van Uden, Manager   |   |   |
|   |   |          |   |                        |   |   |
| Date:  |   | April 2, 2007 |   | /s/ Gary Wertish            |   |   |
|   |   |          |   | Gary Wertish, Manager       |   |   |
|   |   |          |   |                        |   |   |

50

----

**EXHIBIT INDEX**
| Exhibit  Number | ** ** | **Description**                                                                                                                   | ** ** | **Filed  Herewith** | ** ** | **Incorporated Herein by Reference to**                                                                                                     |
|-----------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 3.1(i)          |       | Articles of Organization                                                                                                          |       |                |       | Appendix A to the Registrant’s Prospectus filed with  the Commission pursuant to Rule 424(b)(3) on May 24, 2002  (File No. 333-75804). |
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 3.1(ii)         |       | Operating Agreement, as amended and restated                                                                                      |       |                |       | Exhibit 3.1(ii) to the Registrant’s  Form 10-K filed on April 15, 2005.                                                                |
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 3.1(iii)        |       | Articles of Amendment to Articles of Organization                                                                                 |       |                |       | Exhibit 3.1(iii) to the Registrant’s Form  10-QSB filed with the Commission on August 14, 2002                                              |
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 4.1             |       | Form of Class A Unit Certificate                                                                                        |       |                |       | Exhibit 4.1 to the Registrant’s Form S-4  filed with the Commission on December 21, 2001 (File No. 333-75804)                          |
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 10.1            |       | Form of Mortgage and Security Agreement with  CoBank dated October 2, 1995                                              |       |                |       | Exhibit 10.1 to the Registrant’s Form S-4  filed with the Commission on December 21, 2001 (File No. 333-75804)                         |
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 10.2            |       | Master Loan Agreement with CoBank dated  June 17, 2004.                                                                      |       |                |       | Exhibit 10.2 to the Registrant’s Form 10-Q  filed with the Commission on August 16, 2004                                                    |
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 10.3            |       | Revolving Term Loan Supplement with CoBank dated  June 17, 2004                                                              |       |                |       | Exhibit 10.3 to the Registrant’s Form 10-Q  filed with the Commission on August 16, 2004                                                    |
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 10.4            |       | Statused Revolving Credit Supplement with CoBank  dated June 17, 2004                                                        |       |                |       | Exhibit 10.4 to the Registrant’s Form 10-Q  filed with the Commission on August 16, 2004                                                    |
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 10.5            |       | Urethane Soy Systems Company, Inc. Stock  Purchase Agreement dated May 30, 2000                                    |       |                |       | Exhibit 10.5 to the Registrant’s Form S-4  filed with the Commission on December 21, 2001 (File No. 333-75804)                         |
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 10.6            |       | Vegetable Oil Supply Agreement with Urethane Soy  Systems Company, Inc. dated August 2, 1999 and January 10,  2001 |       |                |       | Exhibit 10.6 to the Registrant’s Form S-4  filed with the Commission on December 21, 2001 (File No. 333-75804)                         |
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 10.7            |       | MnSP Services and Management Agreement dated  August 25, 2000                                                                |       |                |       | Exhibit 10.7 to the Registrant’s Form S-4  filed with the Commission on December 21, 2001 (File No. 333-75804)                         |
|            |       |                                                                                                                              |       |                |       |                                                                                                                                                            |
| 10.8            |       | Soybean Oil Supply Agreement and Equipment Purchase  Agreement with ACH Food Company, Inc. dated January 15, 2002*      |       |                |       | Exhibit 10.8 to the Registrant’s Form S-4  filed with the Commission on May 10, 2002 (File No. 333-75804)                              |

 

51

----

 
| 10.9   |   | Railcar Leasing Agreement with General Electric  dated May 14, 1996                                                                 |   |   |   | Exhibit 10.9 to the Registrant’s Form S-4  filed with the Commission on December 21, 2001 (File No. 333-75804)  |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                     |   |   |   |                                                                                                                                     |
| 10.10  |   | Track Lease Agreement with DM&E Railroad dated  October 15, 1996                                                                |   |   |   | Exhibit 10.10 to the Registrant’s Form S-4  filed with the Commission on December 21, 2001 (File No. 333-75804) |
|   |   |                                                                                                                                     |   |   |   |                                                                                                                                     |
| 10.11  |   | Land Option Agreement with Howell Farms dated  September 8, 1994 and September 13, 2001                                        |   |   |   | Exhibit 10.11 to the Registrant’s Form S-4  filed with the Commission on December 21, 2001 (File No. 333-75804) |
|   |   |                                                                                                                                     |   |   |   |                                                                                                                                     |
| 10.12  |   | Railroad Car Lease Agreement with Trinity Industries  dated February 12, 2002                                                       |   |   |   | Exhibit 10.15 to the Registrant’s Form S-4  filed with the Commission on March 14, 2002 (File No. 333-75804)    |
|   |   |                                                                                                                                     |   |   |   |                                                                                                                                     |
| 10.13  |   | Stock Purchase Agreement with Urethane Soy Systems,  Co. and certain shareholders                                                        |   |   |   | Exhibit 10.16 to the Registrant’s Form 8-K  filed with the Commission on January 14, 2003                            |
|   |   |                                                                                                                                     |   |   |   |                                                                                                                                     |
| 10.14  |   | Rodney Christianson Employment Agreement dated  February 1, 2004                                                                    |   |   |   | Exhibit 10.14 to the Registrant’s  Form 10-K filed with the Commission on March 30, 2004                             |
|   |   |                                                                                                                                     |   |   |   |                                                                                                                                     |
| 10.15  |   | First Amended and Restated Deferred Compensation Plan  for the benefit of Rodney Christianson, dated February 1, 2004               |   |   |   | Exhibit 10.15 to the Registrant’s  Form 10-K filed with the Commission on March 30, 2004                             |
|   |   |                                                                                                                                     |   |   |   |                                                                                                                                     |
| 10.16  |   | Thomas Kersting Employment Agreement dated  May 20, 1996                                                                            |   |   |   | Exhibit 10.18 to the Registrant’s  Form 10-K filed with the Commission on March 27, 2003                             |
|   |   |                                                                                                                                     |   |   |   |                                                                                                                                     |
| 10.17  |   | Deferred Compensation Plan for the benefit of Thomas  Kersting, dated February 13, 2001                                             |   |   |   | Exhibit 10.20 to the Registrant’s  Form 10-K filed with the Commission on March 27, 2003                             |
|   |   |                                                                                                                                     |   |   |   |                                                                                                                                     |
| 10.18  |   | Polyoil Consulting Services Agreement with Larry  Mahlum dated January 1, 2000                                                      |   |   |   | Exhibit 10.21 to the Registrant’s  Form 10-K filed with the Commission on March 27, 2003                             |
|   |   |                                                                                                                                     |   |   |   |                                                                                                                                     |
| 10.19  |   | Railcar Leasing Agreements with General Electric  Railcar Services Corporation, dated November 10, 2003 and  November 25, 2003 |   |   |   | Exhibit 10.19 to the Registrant’s  Form 10-K filed with the Commission on March 30, 2004                             |
|   |   |                                                                                                                                     |   |   |   |                                                                                                                                     |
| 10.20  |   | Security Agreement with CoBank dated June 17,  2004                                                                                 |   |   |   | Exhibit 10.1 to the Registrant’s Form 10-Q  filed with the Commission on August 16, 2004                             |

 

52

----

 
| 10.21  |   | Master Loan Agreement with CoBank, dated  October 6, 2005                                                                           |   |   |   | Exhibit 10.21 to the Registrant’s  Form 10-K filed with the Commission on March 31, 2006. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                     |   |   |   |                                                                                                          |
| 10.22  |   | Revolving Term Loan Supplement with CoBank dated  October 6, 2005                                                                   |   |   |   | Exhibit 10.22 to the Registrant’s  Form 10-K filed with the Commission on March 31, 2006. |
|   |   |                                                                                                                                     |   |   |   |                                                                                                          |
| 10.23  |   | Statused Revolving Credit Supplement with CoBank  dated October 6, 2005                                                             |   |   |   | Exhibit 10.23 to the Registrant’s  Form 10-K filed with the Commission on March 31, 2006. |
|   |   |                                                                                                                                     |   |   |   |                                                                                                          |
| 10.24  |   | Heads of Agreement with Transocean dated April 28,  2006                                                                                 |   |   |   | Exhibit 10.1 to the Registrants Form 10-Q filed with  the Commission on May 15, 2006.                         |
|   |   |                                                                                                                                     |   |   |   |                                                                                                          |
| 10.25  |   | Loan Agreement with State of South Dakota and  Brookings County Regional Railroad Authority dated March 6, 2007                          |   | X      |   |                                                                                                          |
|   |   |                                                                                                                                     |   |   |   |                                                                                                          |
| 10.26  |   | Promissory Note and Guaranty Agreement with State of  South Dakota and Brookings County Regional Railroad Authority dated March 6,  2007 |   | X      |   |                                                                                                          |
|   |   |                                                                                                                                     |   |   |   |                                                                                                          |
| 14.1   |   | Code of Ethics                                                                                                                           |   | X      |   | Exhibit 14.1 to the Registrant’s Form 10-K filed  with the Commission on March 31, 2006.                 |
|   |   |                                                                                                                                     |   |   |   |                                                                                                          |
| 21.1   |   | Subsidiaries of the Company                                                                                                              |   | X      |   | Exhibit 21.1 to the Registrant’s Form 10-K filed  with the Commission on March 31, 2006.                 |
|   |   |                                                                                                                                     |   |   |   |                                                                                                          |
| 31.1   |   | Rule 13a-14(a)/15d-14(a) Certification                                                                                         |   | X      |   |                                                                                                          |
|   |   |                                                                                                                                     |   |   |   |                                                                                                          |
| 32.1   |   | Section 1350 Certification                                                                                                          |   | X      |   |                                                                                                          |

 

----

* Theredacted portions of Exhibit B (2 pages) and Exhibit C(6 pages) to Exhibit 10.8 were filed separately with the SEC subjectto a request for confidential treatment dated April 25, 2002.

53

----

# **SOUTHDAKOTA SOYBEAN PROCESSORS,LLC**

***CONSOLIDATED FINANCIAL STATEMENTS***

***DECEMBER31, 2006, 2005 AND 2004***

----

**SOUTHDAKOTA SOYBEAN PROCESSORS, LLC**

Index to FinancialStatements
| **REPORT  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** |   |   |
|--------------------------------------------------------------|--------|--------|
| ** **                                                   |   |   |
| **FINANCIAL STATEMENTS**                                     |   |   |
| Consolidated Balance  Sheets                                 |   |   |
| Consolidated  Statements of Operations                       |   |   |
| Consolidated  Statements of Changes in Members’ Equity  |   |   |
| Consolidated  Statements of Cash Flows                       |   |   |
| Notes to  Consolidated Financial Statements                  |   |   |

 

----

## **REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

The Board of ManagersSouth Dakota Soybean Processors, LLCVolga, South Dakota

We have audited theaccompanying consolidated balance sheets of South Dakota Soybean Processors,LLC (the “Company”) as of December 31, 2006 and 2005 and the relatedconsolidated statements of operations, changes in members’ equity and cashflows for each of the three years in the period ended December 31, 2006.  These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted ouraudits in accordance with the standards of the Public Company AccountingOversight Board (United States).  Those standardsrequire that we plan and perform the audits to obtain reasonable assuranceabout whether the consolidated financial statements are free of materialmisstatement.  The Company has determinedthat it is not required to have, nor were we engaged to perform, an audit ofits internal control over financial reporting. Our audit included  considerationof internal  control  over financial  reporting  as a basis for  designing  audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the  effectiveness of the Company’s  internal  control over financial  reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the consolidated financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of South Dakota SoybeanProcessors, LLC as of December 31, 2006 and 2005, and the consolidated resultsof its operations and its cash flows for each of the three years in the periodended December 31, 2006, in conformity with accounting principles generallyaccepted in the United States of America.

***Gordon, Hughes & Banks, LLP***

Greenwood Village, ColoradoMarch 21, 2007

F-1

----

**SOUTH DAKOTA SOYBEAN PROCESSORS, LLC**

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2006 AND 2005**

 
| ** **                                                                       | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|----------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| **ASSETS**                                                                       |       |        |       |        |       |
|                                                                             |       |        |       |        |       |
| CURRENT ASSETS                                                                   |       |        |       |        |       |
| Cash and cash equivalents                                                        |       | $           | 8,316,766  |        | $          | 75,556 |   |
| Trade accounts receivable, less allowance for uncollectible  accounts of $43,000 |       | 15,954,577  |       | 21,618,746  |       |
| Inventories                                                                      |       | 15,813,795  |       | 8,939,662   |       |
| Margin deposits                                                                  |       | 922,207     |       | 546,054     |       |
| Prepaid expenses                                                                 |       | 596,968     |       | 568,855     |       |
| Total current assets                                                             |       | 41,604,313  |       | 31,748,873  |       |
|                                                                             |       |        |       |        |       |
| PROPERTY AND  EQUIPMENT                                                          |       | 52,623,024  |       | 51,965,792  |       |
| Less accumulated depreciation                                                    |       | (27,096,622 | )          | (24,208,851 | )          |
| Total property and equipment                                                     |       | 25,526,402  |       | 27,756,941  |       |
|                                                                             |       |        |       |        |       |
| OTHER ASSETS                                                                     |       |        |       |        |       |
| Investments in cooperatives                                                      |       | 4,267,749   |       | 4,193,673   |       |
| Equity investment in unconsolidated affiliate                                    |       | 3,887,382   |       | 2,799,536   |       |
| Notes receivable - members                                                       |       | 479,130     |       | 481,710     |       |
| Patents, net                                                                     |       | 6,289,475   |       | 6,634,908   |       |
| Other, net                                                                       |       | 15,921      |       | 14,655      |       |
| Total other assets                                                               |       | 14,939,657  |       | 14,124,482  |       |
|                                                                             |       |        |       |        |       |
| Total assets                                                                     |       | $           | 82,070,372 |        | $          | 73,630,296 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

F-2

----

**SOUTH DAKOTA SOYBEAN PROCESSORS,LLCCONSOLIDATED BALANCE SHEETS (continued)DECEMBER 31, 2006 AND 2005**
| ** **                                                                                                                                                                                        | ** ** | **2006**                                                                                                                                               | ** ** | **2005**   | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| **LIABILITIES  AND MEMBERS’ EQUITY**                                                                                                                                                         |       |                                                                                                                                                   |       |       |       |
|                                                                                                                                                                                              |       |                                                                                                                                                   |       |       |       |
| CURRENT  LIABILITIES                                                                                                                                                                              |       |                           |       |       |       |
| Excess of outstanding checks over bank balance                                                                                                                                                    |       | $                                                                                                                                                      | 4,346,087  |       | $          | 670,504 |   |
| Current maturities of long-term debt                                                                                                                                                              |       | 947,931                                                                                                                                                |       | 1,212,768  |       |
| Accounts payable                                                                                                                                                                                  |       | 1,215,204                                                                                                                                              |       | 687,224    |       |
| Accrued commodity purchases                                                                                                                                                                       |       | 20,901,664                                                                                                                                             |       | 21,535,434 |       |
| Accrued expenses                                                                                                                                                                                  |       | 2,206,437                                                                                                                                              |       | 1,943,483  |       |
| Accrued interest                                                                                                                                                                                  |       | 35,286                                                                                                                                                 |       | 99,751     |       |
| Total current liabilities                                                                                                                                                                         |       | 29,652,609                                                                                                                                             |       | 26,149,164 |       |
|                                                                                                                                                                                              |       |                                                                                                                                                   |       |       |       |
| LONG-TERM  LIABILITIES                                                                                                                                                                            |       |                                                                                                                                                   |       |       |       |
| Long-term debt, less current maturities                                                                                                                                                           |       | 11,906,363                                                                                                                                             |       | 14,583,563 |       |
| Deferred compensation                                                                                                                                                                             |       | 101,592                                                                                                                                                |       | 129,072    |       |
| Total long-term liabilities                                                                                                                                                                       |       | 12,007,955                                                                                                                                             |       | 14,712,635 |       |
|                                                                                                                                                                                              |       |                                                                                                                                                   |       |       |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                                                                                    |       |                                                                                                                                                   |       |       |       |
|                                                                                                                                                                                              |       |                                                                                                                                                   |       |       |       |
| TEMPORARY  EQUITY, net of subscriptions receivable of $219,705 and $209,656 at December  31, 2006 and 2005, respectively consisting of 604,750 and 2,190,500 Class A capital  units, respectively |       | 1,005,795                                                                                                                                              |       | 4,286,094  |       |
|                                                                                                                                                                                              |       |                                                                                                                                                   |       |       |       |
| MEMBERS’ EQUITY                                                                                                                                                                              |       |                                                                                                                                                   |       |       |       |
|                                                                                                                                                                                              |       |                                                                                                                                                   |       |       |       |
| Class A Units, no par value 30,419,000 units issued  and outstanding at December 31, 2006 and 2005                                                                                                |       | 39,404,013                                                                                                                                             |       | 28,482,403 |       |
|                                                                                                                                                                                              |       |                                                                                                                                                   |       |       |       |
| Total  liabilities, temporary equity and members' equity                                                                                                                                          |       | $                                                                                                                                                      | 82,070,372 |       | $          | 73,630,296 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

F-3

----

**SOUTHDAKOTA SOYBEAN PROCESSORS, LLCCONSOLIDATED STATEMENTS OF OPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**
| ** **                                                                                                           | ** ** | **2006**    | ** **  | **2005**    | ** ** | **2004**    | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| ** **                                                                                                           | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| NET REVENUES                                                                                                         |       | $           | 212,721,926 |        | $          | 210,370,966 |       | $ | 238,211,056 |   |
|                                                                                                                 |       |        |        |        |       |        |       |
| COST OF REVENUES                                                                                                     |       |        |        |        |       |        |       |
| Cost of product sold                                                                                                 |       | 168,833,417 |        | 172,995,316 |       | 200,374,848 |       |
| Production                                                                                                           |       | 15,754,959  |        | 16,496,432  |       | 14,435,824  |       |
| Freight and rail                                                                                                     |       | 18,651,204  |        | 20,247,481  |       | 17,606,723  |       |
| Brokerage fees                                                                                                       |       | 286,186     |        | 253,573     |       | 286,471     |       |
| Total cost of revenues                                                                                               |       | 203,525,766 |        | 209,992,802 |       | 232,703,866 |       |
|                                                                                                                 |       |        |        |        |       |        |       |
| GROSS PROFIT                                                                                                         |       | 9,196,160   |        | 378,164     |       | 5,507,190   |       |
|                                                                                                                 |       |        |        |        |       |        |       |
| OPERATING  EXPENSES                                                                                                  |       |        |        |        |       |        |       |
| Administration                                                                                                       |       | 3,487,773   |        | 3,826,823   |       | 4,476,511   |       |
| OPERATING PROFIT  (LOSS)                                                                                             |       | 5,708,387   |        | (3,448,659  | )          | 1,030,679   |       |
|                                                                                                                 |       |        |        |        |       |        |       |
| OTHER INCOME  (EXPENSE)                                                                                              |       |        |        |        |       |        |       |
| Interest expense                                                                                                     |       | (629,070    | )           | (1,400,403  | )          | (1,425,849  | )          |
| Other non-operating income                                                                                           |       | 2,426,168   |        | 647,076     |       | 254,061     |       |
| Patronage dividend income                                                                                            |       | 148,182     |        | 193,413     |       | 153,961     |       |
| Total other income (expense)                                                                                         |       | 1,945,280   |        | (559,914    | )          | (1,017,827  | )          |
|                                                                                                                 |       |        |        |        |       |        |       |
| INCOME (LOSS)  BEFORE INCOME TAXES AND MINORITY INTEREST OF SUBSIDIARY                                               |       | 7,653,667   |        | (4,008,573  | )          | 12,852      |       |
|                                                                                                                 |       |        |        |        |       |        |       |
| MINORITY  INTEREST IN NET LOSS OF SUBSIDIARY                                                                         |       | —      |        | 368,403     |       | 676,792     |       |
|                                                                                                                 |       |        |        |        |       |        |       |
| INCOME (LOSS)  BEFORE INCOME TAXES                                                                                   |       | 7,653,667   |        | (3,640,170  | )          | 689,644     |       |
|                                                                                                                 |       |        |        |        |       |        |       |
| INCOME TAX  EXPENSE (BENEFIT)                                                                                        |       | 2,308       |        | —      |       | 1,032       |       |
|                                                                                                                 |       |        |        |        |       |        |       |
| NET INCOME  (LOSS)                                                                                                   |       | $           | 7,651,359   |        | $          | (3,640,170  | )          | $ | 688,612 |   |
|                                                                                                                 |       |        |        |        |       |        |       |
| BASIC AND  DILUTED EARNINGS (LOSS) PER CAPITAL UNIT                                                                  |       | $           | 0.25        |        | $          | (0.12       | )          | $ | 0.02 |   |
|                                                                                                                 |       |        |        |        |       |        |       |
| WEIGHTED AVERAGE NUMBER  OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED EARNINGS (LOSS) PER  CAPITAL UNIT |       | 30,419,000  |        | 29,758,885  |       | 28,250,139  |       |

 

The accompanying notesare an integral part of these consolidated financial statements.

F-4

----

**SOUTHDAKOTA SOYBEAN PROCESSORS, LLCCONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITYFOR THE YEARS ENDEDDECEMBER 31, 2006, 2005 AND 2004**
| ** **                                                          | ** ** | **Class A Units** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                          | ** ** | **Units**                   | ** ** | **Amount** | ** ** |
| ** **                                                          | ** ** | ** **                  | ** ** | ** ** | ** ** |
| **BALANCES,  JANUARY 1, 2004**                                      | ** ** | 28,258,500                  |       | $ | 34,730,590 | ** ** |
| ** **                                                          | ** ** |                        |       |   | ** ** |
| Net income                                                          |       | —                      |       | 688,612 |   |
|                                                                |       |                        |       |   |   |
| Liquidation of  members’ equity                                |       | (30,000                     | )          | (6,000 | ) |
|                                                                |       |                        |       |   |   |
| Distributions to  members                                           |       | —                      |       | (3,290,629 | ) |
|                                                                |       |                        |       |   |   |
| **BALANCES,  DECEMBER 31, 2004**                                    | ** ** | 28,228,500                  |       | 32,122,573 | ** ** |
| ** **                                                          | ** ** |                        |       |   | ** ** |
| Net income                                                          |       | —                      |       | (3,640,170 | ) |
| ** **                                                          | ** ** |                        |       |   | ** ** |
| Issuance of new  capital units                                      |       | 2,190,500                   |       | — |   |
| ** **                                                          | ** ** |                        |       |   | ** ** |
| **BALANCES,  DECEMBER 31, 2005**                                    | ** ** | 30,419,000                  |       | 28,482,403 | ** ** |
| ** **                                                          | ** ** |                        |       |   | ** ** |
| Net income  (loss)                                                  |       | —                      |       | 7,651,359 |   |
| ** **                                                          | ** ** |                        |       |   | ** ** |
| Recognition of  capital units previously issued as temporary equity |       | —                      |       | 3,270,251 |   |
| ** **                                                          | ** ** |                        |       |   | ** ** |
| **BALANCES, DECEMBER 31, 2006**                                     | ** ** | 30,419,000                  |       | $ | 39,404,013 | ** ** |

 

The accompanying notesare an integral part of these consolidated financial statements.

F-5

----

**SOUTH DAKOTASOYBEAN PROCESSORS, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**
| ** **                                                    | ** ** | **2006**                                                                                                                                               | ** ** | **2005**   | ** ** | **2004**    | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|
| OPERATING  ACTIVITIES                                         |       |                                                                                                                                                   |       |       |       |        |       |
| Net income (loss)                                             |       | $                                                                                                                                                      | 7,651,359  |       | $          | (3,640,170  | )          | $ | 688,612 |   |
| Charges and credits to net income (loss) not  affecting cash: |       |                           |       |       |       |        |       |
| Depreciation and amortization                                 |       | 3,324,808                                                                                                                                              |       | 3,404,815  |       | 3,733,449   |       |
| Minority interest in net loss of subsidiary                   |       | —                                                                                                                                                 |       | (368,403   | )          | (676,792    | )          |
| Loss on sale of fixed assets                                  |       | —                                                                                                                                                 |       | 6,081      |       | 5,136       |       |
| (Gain) loss on equity method investment                       |       | (667,726                                                                                                                                               | )          | 69,831     |       | 54,626      |       |
| Non-cash patronage dividends                                  |       | (74,076                                                                                                                                                | )          | (116,048   | )          | (107,773    | )          |
| Change in current assets and liabilities                      |       | (1,549,011                                                                                                                                             | )          | (5,654,146 | )          | 8,266,518   |       |
| NET CASH FROM  (USED FOR) OPERATING ACTIVITIES                |       | 8,685,354                                                                                                                                              |       | (6,298,040 | )          | 11,963,776  |       |
|                                                          |       |                                                                                                                                                   |       |       |       |        |       |
| INVESTING  ACTIVITIES                                         |       |                                                                                                                                                   |       |       |       |        |       |
| Purchase of property and equipment                            |       | (660,397                                                                                                                                               | )          | (600,739   | )          | (1,209,852  | )          |
| Patent costs                                                  |       | (89,704                                                                                                                                                | )          | (175,453   | )          | (84,508     | )          |
| Investments in MnSP                                           |       | (420,120                                                                                                                                               | )          | —     |       | (600,931    | )          |
| Proceeds from sales of property and equipment                 |       | —                                                                                                                                                 |       | —     |       | 3,500       |       |
| Decrease (increase) in member loans                           |       | 2,580                                                                                                                                                  |       | —     |       | —      |       |
| NET CASH (USED  FOR) INVESTING ACTIVITIES                     |       | (1,167,641                                                                                                                                             | )          | (776,192   | )          | (1,891,791  | )          |
|                                                          |       |                                                                                                                                                   |       |       |       |        |       |
| FINANCING  ACTIVITIES                                         |       |                                                                                                                                                   |       |       |       |        |       |
| Change in excess of outstanding checks over bank  balances    |       | 3,675,583                                                                                                                                              |       | (2,741,471 | )          | 1,023,039   |       |
| Proceeds from long-term debt                                  |       | —                                                                                                                                                 |       | 6,559,223  |       | —      |       |
| Principal payments on long-term debt                          |       | (2,942,037                                                                                                                                             | )          | (965,481   | )          | (8,316,669  | )          |
| Proceeds from issuance of capital units                       |       | (10,049                                                                                                                                                | )          | 4,286,094  |       | —      |       |
| Distributions to members                                      |       | —                                                                                                                                                 |       | —     |       | (3,290,629  | )          |
| Payments for liquidation of members’ equity              |       | —                                                                                                                                                 |       | —     |       | (6,000      | )          |
| NET CASH FROM  (USED FOR) FINANCING ACTIVITIES                |       | 723,497                                                                                                                                                |       | 7,138,365  |       | (10,590,259 | )          |
|                                                          |       |                                                                                                                                                   |       |       |       |        |       |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                      |       | 8,241,210                                                                                                                                              |       | 64,133     |       | (518,274    | )          |
|                                                          |       |                                                                                                                                                   |       |       |       |        |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF YEAR                 |       | 75,556                                                                                                                                                 |       | 11,423     |       | 529,697     |       |
|                                                          |       |                                                                                                                                                   |       |       |       |        |       |
| CASH AND CASH  EQUIVALENTS, END OF YEAR                       |       | $                                                                                                                                                      | 8,316,766  |       | $          | 75,556      |       | $ | 11,423 |   |

 

(continued on next page)

F-6

----

**SOUTH DAKOTA SOYBEAN PROCESSORS,LLCCONSOLIDATED STATEMENTS OF CASH FLOWS (continued)FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**
| **SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION**  | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash paid during the year for: |       |       |       |       |       |       |       |
| Interest                                                |       | $          | 693,535    |       | $          | 1,350,123  |       | $ | 1,426,694 |   |
|                                                    |       |       |       |       |       |       |       |
| Income taxes                                            |       | —     |       | —     |       | 2,032      |       |
|                                                    |       |       |       |       |       |       |       |
| Non-cash investing and financing activities:            |       |       |       |       |       |       |       |
| Equity investment acquired from exchange of building    |       | —     |       | —     |       | 2,322,561  |       |
|                                                    |       |       |       |       |       |       |       |
| Subscriptions  receivable                               |       | 10,049     |       | 209,656    |       | —     |       |
|                                                         |            |            |            |            |            |            |            |  |  |  |

 

The accompanying notesare an integral part of these consolidated financial statements.

F-7

----

**SOUTH DAKOTA SOYBEAN PROCESSORS, LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1 -    PRINCIPALACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES**

*Organization*

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

The Company ownsapproximately 69% of Urethane Soy Systems Company (“USSC”).  USSC is the manufacturer and patent holder ofSoyol®, apolyol made from soybean oil.  TheCompany consolidates the operations of USSC.

*Principlesof consolidation                                                                                                          *

Investee companies inwhich the Company directly or indirectly owns more than 50% of the outstandingvoting securities or those over which the Company has effective control aregenerally accounted for under the consolidation method of accounting.  Under this method, an Investee company’sbalance sheet and results of operations are reflected within the Company’sConsolidated Financial Statements.  Allsignificant intercompany accounts and transactions have been eliminated.  Minority interest in the net assets andearnings and losses of a consolidated Investee are reflected in the caption “Minorityinterest of consolidated subsidiary” in the Company’s Consolidated BalanceSheet and Statement of Operations. Minority interest adjusts the Company’s results of operations to reflectonly the Company’s share of the earnings or losses of the consolidated Investeecompany.  Upon dilution of control below50%, the accounting method is adjusted to the equity or cost method ofaccounting, as appropriate, for subsequent periods.

*Cash andcash equivalents*

The Companyconsiders all highly liquid investment instruments with maturity of threemonths or less at the time of acquisition to be cash equivalents.

*Accountsreceivable*

Accountsreceivable are considered past due when payments are not received within thirtydays. Generally, these accounts receivable represent amounts due for sale ofsoybean meal, oil, hulls and refined oil.

The carryingamount of trade receivables is reduced by a valuation allowance that reflectsmanagement’s estimate of amounts that will not be collected.  Management reviews all receivable balancesthat exceed 90 days from the invoice date and, based on an assessment ofcurrent creditworthiness, estimates the portion, if any, of the balance thatmay not be collected.

*Inventories*

Finished goods(soybean meal, oil, refined oil, and hulls) and raw materials (soybeans) arevalued at estimated market value.  Thisaccounting policy is in accordance with the guidelines described in AICPAStatement of Position No. 85-3, *“Accounting byAgricultural Producers and Agricultural Cooperatives.”* Supplies andother inventories are stated at the lower of cost, determined by the first-in,first-out method, or market.

(continuedon next page)

F-8

----

**SOUTH DAKOTA SOYBEAN PROCESSORS, LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

*Investments*

Investments incooperatives are carried at cost plus the amount of patronage earningsallocated or estimates of interim allocations to the Company, less any cashdistributions received.

The Companyaccounts for its 6.95% investment in Minnesota Soybean Processors using theequity method due to the related nature of operations and the Company’s abilityto influence management decisions of MnSP. Under the equity method, the initial investment is recorded at cost andadjusted annually to recognize the Company’s share of earnings and losses ofthe entity.

*Propertyand equipment*

Property andequipment is stated at cost. Expenditures for renewals and improvements thatsignificantly add to the productive capacity or extend the useful life of anasset are capitalized.  Expenditures formaintenance and repairs are charged to expense when incurred. When depreciableproperties are sold or retired, the cost and accumulated depreciation areeliminated from the accounts and the resultant gain or loss is reflected inincome.

Depreciation isprovided for over the estimated useful lives of the individual assets using thestraight-line method.  The range of theestimated useful lives used in the computation of depreciation is as follows:
| Buildings and improvements |   | 10-39 years |
|----------------------------|--------|-------------|
| Equipment and  furnishings |   | 3-15 years  |

 

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

*Patents*

The Company’s patents areamortized over their estimated useful lives, using the straight-line methodover a period of 16 to 20 years, which is the shorter of the remainingestimated economic life of the patents acquired or 20 years from the originalfile date.

*Use ofestimates*

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities atthe date of the financial statements and reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.

*RevenueRecognition*

Revenue isrecognized when the related products are shipped, which is when title istransferred to the customer.  Revenuesare presented net of discounts and sales allowances.

*Freight*

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

(continuedon next page)

F-9

----

**SOUTH DAKOTA SOYBEAN PROCESSORS, LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

The Company’s “Shipping and Handling Costs” policy is in accordance withEITF Issue 00-10, *Accounting for Shippingand Handling Fees and Costs*.

*Advertisingcosts*

Advertising andpromotion costs are expensed as incurred. The Company incurred $50,717,$33,942, and $17,614 of advertising costs in the years ended December 31, 2006,2005, and 2004, respectively.

*Environmentalremediation*

It is management’sopinion that the amount of any potential environmental remediation costs willnot be material to the Company’s financial condition, results of operations, orcash flows; therefore, no accrual has been recorded.

*Accountingfor derivative instruments and hedging activities*

All of the Company’sderivatives are designated as non-hedge derivatives.  The futures and options contracts used by theCompany are discussed below.  Although thecontracts may be effective economic hedges of specified risks, they are notdesignated as, nor accounted for, as hedging instruments.

The Company, aspart of its trading activity, uses futures and option contracts offered throughregulated commodity exchanges to reduce risk. The Company is exposed to risk of loss in the market value ofinventories.  To reduce that risk, theCompany generally takes opposite and offsetting positions using futurescontracts or options.

Unrealized gains andlosses on futures and options contracts used to hedge soybean, oil and mealinventories are recognized as a component of net proceeds for financialreporting. Inventories are recorded at estimated market value. Consequently,unrealized gains and losses on derivative contracts are offset by unrealizedgains and losses on inventories and reflected in current earnings.

*Earningsper capital unit*

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

*Incometaxes*

On June 20, 2002,the members approved a plan of reorganization to convert the Cooperative’sstructure from an exempt organization to a limited liability company.  Accordingly, under the Internal Revenue Code, the income ofthe Company flows through to the members to be taxed at the individual leveland there is no corporate income tax provision.

*Reclassifications*

Reclassificationshave been made to the December 31, 2005 and December 31, 2004 financialinformation to conform to the current period presentation. These reclassifications have no effect on previouslyreported net income or members’ equity.

(continuedon next page)

F-10

----

**SOUTH DAKOTA SOYBEAN PROCESSORS, LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

*Recentaccounting pronouncements*

In September 2006,the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements” (“SAB 108”).  SAB108 provides interpretive guidance on the SEC’s views regarding the process ofquantifying materiality of financial statement misstatements.  SAB 108 is effective for fiscal years endingafter November 15, 2006.  The adoption ofSAB 108 has not had a significant impact on the Company’s results of operationsor financial position.

In September 2006,the FASB issued FAS 157, “Fair Value Measurements” (“SFAS 157”).  This standard defines fair value, establishesa framework for measuring fair value in generally accepted accountingprinciples, and expands disclosures about fair value measurements.  This statement is effective for financialstatements issued for fiscal years beginning after November 15, 2007, althoughearlier application is encouraged.  TheCompany is currently evaluating the impact of adopting SFAS 157 on itsfinancial statements, but does not believe the adoption of this standard willhave a significant impact on the Company’s results of operations or financialposition.

On February 15, 2007, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards No. 159, “The Fair ValueOption for Financial Assets and Financial Liabilities – Including an Amendmentof FASB Statement No. 115” (“SFAS 159”). This standard permits an entity to measure financial instruments andcertain other items at estimated fair value. Most of the provisions of SFAS 159 are elective; however, the amendmentto FASB 115, “Accounting for Certain Investments in Debt and Equity Securities,”applies to all entities that own trading and available-for-salesecurities.  The fair value optioncreated by SFAS 159 permits an entity to measure eligible items at fair valueas of specified election dates.  The fairvalue option (a) may generally be applied instrument by instrument, (b) isirrevocable unless a new election date occurs, and (c) must be applied to theentire instrument and not to only a portion of the instrument.  SFAS 159 is effective as of the beginning ofthe first fiscal year that begins after November 15, 2007.  Early adoption is permitted as of thebeginning of the previous fiscal year provided that the entity (i) makes the choicein the first 120 days of that year, (ii) has not yet issued financialstatements for any interim period of such year, and (iii) elects to apply theprovisions of FASB 157.  Management iscurrently evaluating the impact of SFAS 159, if any, on the Company’s financialstatements.

**NOTE2 -    INVENTORIES**
| ** **                    | ** ** | **2006**   | ** ** | **2005**  | ** ** |
|-------------------------------|------------|------------|------------|-----------|------------|
|                          |       |       |       |      |       |
| Finished goods                |       | $          | 4,288,113  |      | $          | 1,551,879 |   |
| Raw materials                 |       | 11,478,020 |       | 7,336,386 |       |
| Supplies &  miscellaneous |       | 47,662     |       | 51,397    |       |
|                          |       |       |       |      |       |
| Totals                        |       | $          | 15,813,795 |      | $          | 8,939,662 |   |

 

Finished goods and rawmaterials are valued at estimated market value. In addition, futures and option contracts are marked to market throughcost of revenues, with unrealized gains and losses recorded in the aboveinventory amounts.  Supplies and otherinventories are stated at the lower of cost, determined by the first-in,first-out method, or market.

(continuedon next page)

F-11

----

**SOUTH DAKOTA SOYBEAN PROCESSORS, LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 3 -    MARGINDEPOSITS**

The Company hasmargin deposits with a commodity brokerage firm used to acquire futures andoption contracts to manage the price volatility risk of soybeans, crude soybeanoil and soybean meal.  Consistent withits inventory accounting policy, these contracts are recorded at market value.  At December 31, 2006, the Company’s futurescontracts all mature within twelve months.

**NOTE 4 -**   INVESTMENTS IN COOPERATIVES
| ** **                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Investments in  associated cooperative companies: |       |     |       |     |       |
| Cenex Harvest States                              |       | $        | 3,516,592  |     | $          | 3,516,592 |   |
| CoBank                                            |       | 751,157  |       | 677,081  |       |
|                                              |       |     |       |     |       |
| Totals                                            |       | $        | 4,267,749  |     | $          | 4,193,673 |   |

 

**NOTE 5 -    EQUITYINVESTMENT IN MINNESOTA SOYBEAN PROCESSORS**
| ** **                                                | ** ** | **2006**      | ** ** | **2005**      | ** ** |
|-----------------------------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                                                | ** ** | **Beginning** | ** ** | ** **    | ** ** | **Net Income** | ** ** | **Asset** | ** ** | **Asset** | ** ** |
| ** **                                                | ** ** | **Balance**   | ** ** | **Purchases** | ** ** | **(Loss)** | ** ** | **Balance** | ** ** | **Balance** | ** ** |
| Minnesota Soybean Processors,  6.95% ownership, at equity |       | $             | 2,799,536  |          | $          | 420,120 |   | $ | 667,726 |   | $ | 3,887,382 |   | $ | 2,799,536 |   |
|                                                           |            |               |            |               |            |  |  |  |  |  |  |  |  |  |  |  |

 

In August 2004,the Company exchanged a storage facility with a net book value of $2,322,561for 1,400,400 Class A shares in Minnesota Soybean Processors (MnSP), aMinnesota cooperative association.  Theshares approximate 6.95% of MnSP’s outstanding equity.  In 2004, the Company also acquired 287,500 8%Class B Non-Cumulative Convertible preferred shares in MnSP for $575,000.  The Company accounts for the investment usingthe equity method due to the related nature of operations and the Company’sability to exercise significant influence. The Company recognized gains (losses) of $667,726, ($69,831) and($54,626) in 2006, 2005 and 2004, respectively, which is included in othernon-operating income (expense).

Summarized financial informationof MnSP as of December 31, 2006 and 2005 and for the years then ended is asfollows (unaudited):
|                         | ** ** | **2006**     | ** **  | **2005**     | ** ** |
|-------------------------|------------|--------------|-------------|--------------|------------|
|                    |       |         |        |         |       |
| Revenues                |       | $            | 261,617,282 |         | $          | 225,256,628 |   |
| Expenses                |       | (249,440,232 | )           | (228,717,400 | )          |
| Other income  (expense) |       | (2,112,319   | )           | 1,756,223    |       |
| Net income  (loss)      |       | $            | 10,064,731  |         | $          | (1,704,549 | ) |
|                    |       |         |        |         |       |
| Assets                  |       | $            | 104,739,408 |         | $          | 108,995,280 |   |
| Liabilities             |       | 51,010,369   |        | 70,898,179   |       |
| Equity                  |       | 53,729,039   |        | 38,097,101   |       |

 

(continuedon next page)

F-12

----

**SOUTH DAKOTA SOYBEAN PROCESSORS, LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 6 -**   PROPERTY AND EQUIPMENT
| ** **                  | ** ** | **2006**   | ** ** | ** **       | ** ** |
|-----------------------------|------------|------------|------------|------------------|------------|
| ** **                  | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** | **2005** | ** ** |
| ** **                  | ** ** | **Cost**   | ** ** | **Depreciation** | ** ** | **Net** | ** ** | **Net** | ** ** |
|                        |       |       |       |             |       |   |   |   |   |
| Land                        |       | $          | 237,643    |             | $          | — |   | $ | 237,643 |   | $ | 237,643 |   |
| Land  improvements          |       | 82,895     |       | 20,028           |       | 62,867 |   | 32,091 |   |
| Buildings and  improvements |       | 14,489,749 |       | 3,773,137        |       | 10,716,612 |   | 11,047,101 |   |
| Machinery and  equipment    |       | 36,268,291 |       | 22,339,048       |       | 13,929,243 |   | 15,896,570 |   |
| Company vehicles            |       | 183,040    |       | 136,838          |       | 46,202 |   | 69,408 |   |
| Furniture and  fixtures     |       | 1,100,095  |       | 827,571          |       | 272,524 |   | 227,871 |   |
| Construction in  progress   |       | 261,311    |       | —           |       | 261,311 |   | 246,257 |   |
|                        |       |       |       |             |       |   |   |   |   |
| Totals                      |       | $          | 52,623,024 |             | $          | 27,096,622 |   | $ | 25,526,402 |   | $ | 27,756,941 |   |

 

**NOTE 7 -    PATENTSAND OTHER INTANGIBLE ASSETS**

On January 1,2003, the Company acquired an additional 54% interest in the outstanding commonstock of USSC to bring its total ownership interest to approximately 58%.  The results of USSC’s operations have beenconsolidated in the Company’s financial statements since that date.  The acquisition of a controlling interest inUSSC allows the Company to develop and market soy-based polyurethane products.

The allocation of the purchase price of USSC resulted in an assignmentof $7,401,245 to patents.  None of thesepatent costs recognized for financial reporting purposes is expected to bedeductible for tax purposes.  The patentsare being amortized using the straight-line method over a period of 16 to 20years, which is the shorter of the remaining estimated economic life of thepatents acquired or 20 years from the original file date.

 

In conjunction with thepurchase of USSC, the Company had a contractual obligation to pay former USSCshareholders a total of $4,050,000.  Oneremaining installment of $621,191 was due on October 31, 2006 (see Note 9).

(continuedon next page)

F-13

----

**SOUTH DAKOTA SOYBEAN PROCESSORS, LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

The following tableprovides information regarding the Company’s other intangible assets as ofDecember 31, 2006 and 2005:

|                            | ** ** | ** **  | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
|----------------------------|------------|-------------|------------|------------|------------|------------------|------------|------------|------------|
| **Intangible Assets** | ** ** | **Life**    | ** ** | **Cost**   | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                       |       |        |       |       |       |             |       |       |       |
| As of December  31, 2006:  |       |        |       |       |       |             |       |       |       |
| Patents                    |       | 16-20  Yrs. |       | $          | 7,991,945  |             | $          | (1,702,470 | )          | $ | 6,289,475 |   |
| Loan Origination Costs     |       | 10  Yrs.    |       | 46,625     |       | (43,556          | )          | 3,069      |       |
| Trademarks                 |       |        |       | 12,852     |       | —           |       | 12,852     |       |
|                       |       |        |       |       |       |             |       |       |       |
|                       |       |        |       | $          | 8,051,422  |             | $          | (1,746,026 | )          | $ | 6,305,396 |   |
|                       |       |        |       |       |       |             |       |       |       |
| As of December  31, 2005:  |       |        |       |       |       |             |       |       |       |
| Patents                    |       | 16-20  Yrs. |       | $          | 7,906,596  |             | $          | (1,271,688 | )          | $ | 6,634,908 |   |
| Loan Origination Costs     |       | 10  Yrs.    |       | 46,625     |       | (40,466          | )          | 6,159      |       |
| Trademarks                 |       |        |       | 8,496      |       | —           |       | 8,496      |       |
|                       |       |        |       |       |       |             |       |       |       |
|                       |       |        |       | $          | 7,961,717  |             | $          | (1,312,154 | )          | $ | 6,649,563 |   |

 

**NOTE 8 -    NOTESPAYABLE – SEASONAL LOAN**

The Company hasentered into a revolving credit agreement with CoBank, which expires September1, 2007. The purpose of the credit agreement is to finance the inventory andaccounts receivable of the Company. The Company may borrow up to $15,400,000.Interest accrues at a variable rate (7.75% at December 31, 2006).  Advances on the revolving credit agreementare secured and limited to qualifying inventory and accounts receivable, net ofaccrued commodity purchases.  There wereno advances outstanding at December 31, 2006 and 2005.

(continuedon next page)

F-14

----

**SOUTH DAKOTA SOYBEAN PROCESSORS, LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 9 -**   LONG-TERM DEBT
| ** **                                                                                                                                                                                                                                                                           | ** ** | **2006**                                                                                                                                               | ** ** | **2005**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
|                                                                                                                                                                                                                                                                                 |       |                           |       |       |       |
| Revolving term  loan from CoBank, interest at variable rates (7.75% and 7.05% at December 31,  2006 and 2005, respectively), secured by substantially all property and  equipment. Loan matures March 20, 2012.                                                                      |       | $                                                                                                                                                      | 11,900,000 |       | $          | 14,500,000 |   |
|                                                                                                                                                                                                                                                                                 |       |                                                                                                                                                   |       |       |       |
| Note payable to  former USSC shareholders, due in annual principal payments of $891,000,  interest at 0%, secured by USSC stock. Note matured on October 31, 2006.                                                                                                                   |       | 621,191                                                                                                                                                |       | 891,000    |       |
|                                                                                                                                                                                                                                                                                 |       |                                                                                                                                                   |       |       |       |
| Note payable to  Brookings County Railroad Authority, due in semi-annual principal and  interest installments of $36,885 at 5%, secured by railroad track assets.  Note matures September 1, 2007.                                                                                   |       | 72,322                                                                                                                                                 |       | 140,064    |       |
|                                                                                                                                                                                                                                                                                 |       |                                                                                                                                                   |       |       |       |
| Note payable to  Richard Kipphart, issued February 13, 2002, with quarterly interest payments  at 15% which began on June 30, 2002, and are paid in quarterly installments thereafter.  No prepayment of principal is allowed prior to maturity. Note matured on  February 13, 2005. |       | 250,000                                                                                                                                                |       | 250,000    |       |
|                                                                                                                                                                                                                                                                                 |       |                                                                                                                                                   |       |       |       |
| Notes payable to  various creditors at rates ranging from 0% to 7.5%. Notes mature on or before  March 16, 2009.                                                                                                                                                                     |       | 10,781                                                                                                                                                 |       | 15,267     |       |
|                                                                                                                                                                                                                                                                                 |       | 12,854,294                                                                                                                                             |       | 15,796,331 |       |
| Less current  maturities                                                                                                                                                                                                                                                             |       | (947,931                                                                                                                                               | )          | (1,212,768 | )          |
|                                                                                                                                                                                                                                                                                 |       |                                                                                                                                                   |       |       |       |
| Totals                                                                                                                                                                                                                                                                               |       | $                                                                                                                                                      | 11,906,363 |       | $          | 14,583,563 |   |

 

The Companyentered into an agreement as of October 6, 2005 with CoBank to amend andrestate its Master Loan Agreement (MLA), which includes both the revolving termloan and the seasonal loan discussed in Note 8. Under the terms and conditions of the MLA, CoBank agreed to makeadvances to the Company for up to $17,100,000 on the revolving term loan. Theavailable commitment decreases in scheduled periodic increments of$1,300,000.  The remaining commitmentavailable on the revolving term loan as of December 31, 2006, was $2,600,000.

(continuedon next page)

F-15

----

**SOUTH DAKOTA SOYBEAN PROCESSORS,LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

The minimumprincipal payments on long-term debt obligations will be as follows:
| For the years ending  December 31: |   |      |       |
|------------------------------------|--------|-----------|------------|
| 2007                               |   | $         | 947,931    |   |
| 2008                               |   | 2,605,176 |       |
| 2009                               |   | 2,601,187 |       |
| 2010                               |   | 2,600,000 |       |
| 2011                               |   | 2,600,000 |       |
| Thereafter                         |   | 1,500,000 |       |
|                               |   |      |       |
| Total                              |   | $         | 12,854,294 |   |

 

**NOTE10 -     EMPLOYEE BENEFIT PLANS**

The Companymaintains a Section 401(k) plan for employees who meet the eligibilityrequirements set forth in the plan documents. The Company matches a percentage of employees’ contributedearnings.  The amounts charged to expenseunder this plan were approximately $48,300, $56,000, and $58,000 for the yearsended December 31, 2006, 2005, and 2004, respectively.

The Company has adeferred compensation plan for key employees. The agreements provide benefits, which vest over a three-yearperiod.  The Company shall pay theemployees in five equal annual installments upon retirement.  The future payments have been discounted at8%.  The amount recognized as expense(benefit) during the years ended December 31, 2006, 2005, and 2004 was$(16,861), $10,348, and $18,664, respectively. The Company made payments of approximately $10,600 during each of 2006,2005, and 2004. Deferred compensation payable is recorded at $101,592 and$129,072 as of December 31, 2006 and 2005, respectively.

**NOTE11 -     COMMITMENTS**

The Company has operating leases for 352 rail cars from GECapital.  The leases require monthlypayments of $141,846.  The leases beganin 1996 and have eighteen-year terms. The Company also leases 97 rail cars from Trinity Capital.  This lease requires monthly payments of$37,151.  Lease expense for all rail carswas $2,096,951, $2,066,911, and $2,068,015, for the years ended December 31,2006, 2005, and 2004, respectively.  TheCompany generates revenues from the use of 299 of these rail cars on otherrailroads.  Such revenues were$1,888,207, $2,161,622, and $1,794,012 for the years ended December 31, 2006,2005, and 2004, respectively.

 

The Company has enteredinto a sub-lease agreement with the Dakota, Minnesota & Eastern RailroadCorporation (“DME”) for the hopper rail cars that it leases from GECapital.  The Company recognizes revenuefrom this sub-lease as the hopper rail cars are used by the DME.  The sub-lease is for a twelve-month periodand is renewed annually.  The Company isresponsible for all maintenance of the rail cars.

The Company also has anumber of other operating leases for machinery and equipment. Rental expenseunder these other operating leases was $147,298, $283,273, and $197,864 for theyears ended December 31, 2006, 2005, and 2004, respectively.

# (continued on next page)

F-16

----

**SOUTH DAKOTA SOYBEAN PROCESSORS,LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

# The following is a schedule of future minimum rentalpayments required under these operating leases.

|                         | ** ** | **Rail Cars** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-------------------------|------------|--------------------|------------|-----------|------------|-----------|------------|
| Year ended December 31: |       |               |       |      |       |      |       |
| 2007                    |       | $                  | 1,959,584  |      | $          | 16,394    |       | $ | 1,975,978 |   |
| 2008                    |       | 1,670,652          |       | —    |       | 1,670,652 |       |
| 2009                    |       | 1,670,652          |       | —    |       | 1,670,652 |       |
| 2010                    |       | 1,644,152          |       | —    |       | 1,644,152 |       |
| 2011                    |       | 1,607,052          |       | —    |       | 1,607,052 |       |
| Thereafter              |       | 7,738,440          |       | —    |       | 7,738,440 |       |
|                    |       |               |       |      |       |      |       |
| Totals                  |       | $                  | 16,290,532 |      | $          | 16,394    |       | $ | 16,306,926 |   |

 

We have anexclusive supply agreement with ACH Foods to provide its facilities with aconsistent supply of refined and bleached oil on a general requirements basis.Pricing is fixed until January 15, 2007, with the option to renegotiate theprice thereafter. The oil is transported by rail from our plant to one of ACHFoods’ facilities, where it is further processed for the edible oil.

**NOTE12 -    CASH FLOW INFORMATION**

The following is aschedule of changes in assets and liabilities used to determine cash fromoperating activities:
| ** **                           | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| (Increase) decrease in  assets:      |       |       |       |       |       |       |       |
| Trade accounts  receivable           |       | $          | 5,664,169  |       | $          | (4,172,029 | )          | $ | 6,078,874 |   |
| Inventories                          |       | (6,874,133 | )          | (338,160   | )          | 2,174,900  |       |
| Margin account  deposit              |       | (376,153   | )          | 876,407    |       | (1,611,931 | )          |
| Prepaid expenses                     |       | (28,113    | )          | (26,378    | )          | (24,097    | )          |
|                                 |       | (1,614,230 | )          | (3,660,160 | )          | 6,617,746  |       |
|                                 |       |       |       |       |       |       |       |
| Increase (decrease) in  liabilities: |       |       |       |       |       |       |       |
| Accounts payable                     |       | 527,980    |       | (236,236   | )          | (766,834   | )          |
| Accrued  commodity purchases         |       | (633,770   | )          | (2,105,012 | )          | 2,148,041  |       |
| Accrued expenses  and interest       |       | 198,489    |       | 347,535    |       | 259,521    |       |
| Deferred  compensation               |       | (27,480    | )          | (273       | )          | 8,044      |       |
|                                 |       | 65,219     |       | (1,993,986 | )          | 1,648,772  |       |
|                                 |       |       |       |       |       |       |       |
| Total                                |       | $          | (1,549,011 | )          | $          | (5,654,146 | )          | $ | 8,266,518 |   |

 

# (continued on next page)

F-17

----

**SOUTH DAKOTA SOYBEAN PROCESSORS,LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE13 -    FAIR VALUE OF FINANCIAL INSTRUMENTS**

Estimated fair values ofthe Company’s financial instruments (all of which are held for non-tradingpurposes) are as follows:
| ** **                 | ** ** | **2006**     | ** ** | **2005**   | ** ** |
|----------------------------|------------|--------------|------------|------------|------------|
| ** **                 | ** ** | **Carrying** | ** ** | **Fair**   | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **                 | ** ** | **Amount**   | ** ** | **Value**  | ** ** | **Amount** | ** ** | **Value** | ** ** |
|                       |       |         |       |       |       |   |   |   |   |
| Cash and cash  equivalents |       | $            | 8,316,766  |       | $          | 8,316,766 |   | $ | 75,556 |   | $ | 75,556 |   |
|                       |       |         |       |       |       |   |   |   |   |
| Margin deposits            |       | 922,207      |       | 922,207    |       | 546,054 |   | 546,054 |   |
|                       |       |         |       |       |       |   |   |   |   |
| Long-term debt             |       | 12,854,294   |       | 12,854,003 |       | 15,796,331 |   | 15,746,957 |   |
|                            |            |              |            |            |            |  |  |  |  |  |  |  |  |

 

The carrying amountapproximates fair value of cash and margin deposits.  The fair value of long-term debt is based oncurrent rates at which the Company could borrow funds with similar remainingmaturities. The carrying amount of accounts receivable, accounts payable,investments, and accrued commodity purchases approximates their fair value.

The Company has apatronage investment in other cooperatives and common stock in a privately heldentity.  There is no market for theirpatronage credits or the entity’s common shares, and it was impracticable toestimate fair value of the Company’s investment.  These investments are carried on the balancesheet at original cost.

**NOTE14 -    RELATED PARTY TRANSACTIONS**

During August 2000, theCompany entered into an agreement with Minnesota Soybean Processors Cooperative(MnSP) for certain services and management of a proposed soybean processingplant.  The agreement provided theCompany a fee of 10% of the equity raised by MnSP for the Company’s servicesrelated to business planning and construction management services. Fees earnedunder this arrangement were $0, $0, and $126,250 for the years ended December31, 2006, 2005, and 2004, respectively. The Company agreed to reinvest a minimum of 80% of the fees earned fromMnSP in equity units of MnSP.  During2004, the Company exchanged a storage facility with a net book value of$2,322,561 as its investment and paid cash of $600,931.

The Company has agreed toprovide management and marketing services to MnSP on a cost-sharing basis forautomatically renewing five-year periods beginning in late 2003. The Companyearned fees of $1,603,285, $1,380,155, and $1,047,193 under this arrangementfor the years ended December 31, 2006, 2005, and 2004, respectively. As ofDecember 31, 2006 and 2005, MnSP owed the Company $359,046 and $251,482,respectively.

On August 28, 2006, MnSP’sBoard of Directors gave the Company a one-year notice of termination of theservices and management agreement effective September 1, 2007.  Commencing with that date, the Company mayhave to cease accounting for its investment in MnSP under the equity method.

In addition, the Companyis providing up to $1 million in interest free loans to members of the Companywho chose to invest in MnSP.  The loansare secured by members’ equity in the Company. As of December 31, 2006 and 2005, the Company had outstanding notesreceivable pursuant to this arrangement of $478,131 and $480,710,respectively.  These will be repaid asthe Board of Managers approves distributions of prior earnings.

F-18

----

**SOUTH DAKOTA SOYBEAN PROCESSORS,LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

The Company andMnSP also purchase and sell processed products such as soybean meal, soybeanoil, BioDiesel, etc. For the years ended December 31, 2006, 2005, and 2004, theCompany had sales to MnSP in the amount of $658,120, $10,761,235, and $0,respectively.  During the years endedDecember 31, 2006, 2005, and 2004 the Company also purchased products totaling$13,745,174, $10,179,713, and $0, respectively, from MnSP.

Occasionally the Companysubleases rail cars to MnSP.  The Companycharged MnSP $296,654, $47,505, and $0 for these subleases during the yearsended December 31, 2006, 2005, and 2004, respectively.

**NOTE 15 -    BUSINESSCREDIT RISK AND CONCENTRATIONS**

The Company maintains itscash balances with various financial institutions. At times during the year,the Company’s balances exceeded the $100,000 insurance limit of the FederalDeposit Insurance Corporation. Management believes the risk of loss to be low.

The Company also grantscredit to customers throughout the United States and Canada.  The Company evaluates each customer’s creditworthiness on a case-by-case basis. Accounts receivable are generally unsecured.  These receivables were $15,997,915 and$21,661,903 at December 31, 2006 and 2005, respectively.

Soybean meal salesaccounted for approximately 51% of total revenues for the year ended December31, 2006, 56% of total revenues for the year ended December 31, 2005, and 60%of total revenues for the year ended December 31, 2004.  Approximately 10% of these sales were made toone customer for the year ended December 31, 2006.  At December 31, 2006, this customer owed theCompany approximately $1,705,000. Refined oil sales represented approximately 27% of total revenues forthe year ended December 31, 2006, and 37% of total revenues for the years endedDecember 31, 2005 and 2004.  These saleswere primarily made to one customer. This customer owed the Companyapproximately $2,137,000 and $4,644,000 at December 31, 2006 and 2005,respectively.

Net revenue by geographicarea for the years ended December 31, 2006, 2005 and 2004 are as follows:
|               | ** ** | **2006**   | ** **  | **2005**   | ** ** | **2004**    | ** ** |
|---------------|------------|------------|-------------|------------|------------|-------------|------------|
|          |       |       |        |       |       |        |       |
| United States |       | $          | 195,971,017 |       | $          | 198,933,966 |       | $ | 225,511,056 |   |
| Canada        |       | 16,750,909 |        | 11,437,000 |       | 12,700,000  |       |
|          |       |       |        |       |       |        |       |
|          |       | $          | 212,721,926 |       | $          | 210,370,966 |       | $ | 238,211,056 |   |

 

**NOTE 16 -     MEMBERS’ EQUITY**

A minimum of 2,500capital units is required for an ownership interest in the Company.  Such units are subject to certain transferrestrictions.  The Company retains theright to redeem the units at the greater of $.20 per unit or the originalpurchase price less cumulative distributions through the date of redemption inthe event a member attempts to dispose of the units in a manner not in conformitywith the Operating Agreement, if a member becomes a holder of less than 2,500units, or if a member becomes an owner (directly or indirectly) of more than1.5% of the issued and outstanding capital units.  The Company’s Operating Agreement also includesprovisions whereby cash equal to a minimum of 30% of available net income willbe distributed to unit holders subject to certain limitations.  These limitations include a minimum netincome of $500,000, restrictions imposed by debt and credit instruments or asrestricted by law in the event of insolvency. Earnings, losses and cash distributions are allocated to members basedon their percentage of ownership in the LLC.

F-19

----

**SOUTH DAKOTA SOYBEAN PROCESSORS,LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

The Board of Directors approved a Form S-1 registration statement thatwas filed with the Securities and Exchange Commission on February 14, 2005 forthe sale of additional units in a public offering.  The maximum offering under the statement was$11,250,000.  During 2005, the Companysold 2,190,500 member units for a total of $4,495,750, which is accounted foras temporary equity as described in Note 17. The offering allowed the investorto initially pay 50% and sign a note payable to the Company for the remainingportion. At December 31, 2006 and 2005, the Company had subscriptionsreceivable of $219,705 and $209,656, respectively, which is accounted for as adeduction from temporary equity until collected.

 

**NOTE 17 -    CONTINGENCIES**

From time to time in theordinary course of our 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 carry insurancethat provides protection against general commercial liability claims, claimsagainst our directors, officers and employees, business interruption,automobile liability, and workers’ compensation claims. Except as describedbelow, we are not currently involved in any material legal proceedings and arenot aware of any potential claims.

On June 9, 2003, USSC wasserved with notice that it had been named as a defendant in a breach ofcontract suit filed in circuit court of Cook County, Illinois. The plaintiff,William Blair & Co., LLC, claims that it is entitled to a commission on theCompany’s purchase of USSC’s stock in 2003 based on a broker agreement betweenUSSC and William Blair. In the broker agreement dated October 15, 2001, USSCretained William Blair to render investment banking services in connection witha potential private placement or sale by USSC. William Blair’s claim fordamages against USSC is for $684,000, but USSC strongly denies that WilliamBlain is entitled to such damages.  Thematter is scheduled for trial in circuit court of Cook County, Illinois onJanuary 8, 2007 and for continuance to March 8, 2007.

On June 7, 2005, theCompany received notification from the Securities and Exchange Commission (“SEC”)that the Company’s filings were under review. During the course of the review,the SEC requested additional information about the Company’s change in auditorsfor the audit of its financial statements for the year ended December 31,2004 as disclosed in the Company’s 8-K filing dated January 18, 2005.After considering such information, management determined that the independenceof the audit firm, Eide Bailly LLP, with respect to its audit of financialstatements for the year ended December 31, 2003 was compromised anddecided to have the financial statements for that period reaudited.  As a result, in the latter part of 2005 theCompany’s Board of Managers engaged Gordon, Hughes, & Banks LLP toreaudit the financial statements for the year ended December 31, 2003. There-audit produced an unqualified opinion and there was no effect on previouslyreported net income or member’s equity. During early 2005, prior to receivingnotice of the SEC review, the Company solicited investors through an S-1registration statement which included the 2003 audit opinion letter from EideBailly LLP and the audited financial statements for the year ended December 31,2003.  Because the independence of EideBailly was compromised for that period, the registration statement did not meetthe requirements of federal securities law. The financial statements includedin the Company’s periodic reports for such periods, as amended, are nowcompliant with the independent auditor requirements of applicable securitieslaw, but there remains a possibility that claims could be made against the Companyrelating to the inclusion in the offering materials of the original auditopinion letter. As ofDecember 31, 2005 and December 31, 2006, the Company has not recorded aprovision for this matter, as management believes the likelihood of claimsbeing asserted by investors in the offering is remote under FAS 5. Managementbelieves that any liability the Company may incur would not have amaterial adverse effect on its financial condition or its results ofoperations.  Due to the circumstancesdescribed above, the Company has recorded the net proceeds received to date,reduced by an amount that no longer qualifies as a possible claim under federaland state securities laws, as temporary equity in the accompanying consolidatedbalance sheets.  Amounts recorded astemporary equity totaled $1,005,795 and 

F-20

----

**SOUTH DAKOTA SOYBEAN PROCESSORS,LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

$4,286,094as of December 31, 2006 and 2005, respectively, consisting of 604,750 and2,190,500 Class A capital units, respectively.

**NOTE 18 -    QUARTERLYRESULTS OF OPERATIONS**

The following tablepresents certain unaudited quarterly financial data for each of the quarters inthe years ended December 31, 2006 and 2005. This information has been prepared on the same basis as the consolidatedfinancial statements and includes, in the opinion of the Company, alladjustments (consisting of only normal recurring adjustments) necessary topresent fairly the quarterly results when read in conjunction with consolidatedfinancial statements and related notes thereto. The operating results for any quarter are not necessarily indicative ofresults for any future period or the full year.

***UnauditedConsolidated Statements of Operations***
| ** **                                  | ** ** | **First**  | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| For the Year Ended  December 31, 2006:      |       |       |       |       |       |       |       |       |       |
| Net revenues                                |       | $          | 62,835,648 |       | $          | 53,289,632 |       | $          | 45,195,584 |   | $ | 51,401,062 |   |
| Gross profit                                |       | 1,119,831  |       | 2,978,100  |       | 2,102,232  |       | 2,995,997  |       |
| Operating profit  (loss)                    |       | 252,269    |       | 1,937,289  |       | 1,344,617  |       | 2,174,212  |       |
| Income (loss)  before income taxes          |       | 309,136    |       | 2,412,445  |       | 1,919,658  |       | 3,012,428  |       |
| Net income  (loss)                          |       | 309,136    |       | 2,410,137  |       | 1,919,658  |       | 3,012,428  |       |
| Basic and  diluted earnings (loss) per unit |       | $          | 0.01       |       | $          | 0.08       |       | $          | 0.06       |   | $ | 0.10 |   |
|                                        |       |       |       |       |       |       |       |       |       |
| For the Year Ended  December 31, 2005:      |       |       |       |       |       |       |       |       |       |
| Net revenues                                |       | $          | 46,151,560 |       | $          | 49,665,296 |       | $          | 62,194,975 |   | $ | 52,359,135 |   |
| Gross profit                                |       | (889,104   | )          | (1,318,306 | )          | 1,444,419  |       | 1,141,155  |       |
| Operating profit  (loss)                    |       | (1,992,723 | )          | (2,502,150 | )          | 765,292    |       | 280,922    |       |
| Income (loss)  before income taxes          |       | (2,099,094 | )          | (2,347,475 | )          | 855,261    |       | (48,862    | )          |
| Net income  (loss)                          |       | (2,099,094 | )          | (2,347,475 | )          | 855,261    |       | (48,862    | )          |
| Basic and  diluted earnings (loss) per unit |       | $          | (0.07      | )          | $          | (0.08      | )          | $          | 0.03       |   | $ | (0.00 | ) |
|                                        |       |       |       |       |       |       |       |       |       |
| For the Year Ended  December 31, 2004:      |       |       |       |       |       |       |       |       |       |
| Net revenues                                |       | $          | 58,213,176 |       | $          | 71,177,940 |       | $          | 59,930,785 |   | $ | 48,889,155 |   |
| Gross profit                                |       | (152,916   | )          | 3,021,044  |       | 2,605,040  |       | 34,022     |       |
| Operating profit  (loss)                    |       | (1,077,766 | )          | 1,981,450  |       | 1,514,858  |       | (1,387,863 | )          |
| Income (loss)  before income taxes          |       | (862,481   | )          | 1,684,354  |       | 1,424,552  |       | (1,556,781 | )          |
| Net income (loss)                           |       | (863,513   | )          | 1,684,354  |       | 1,424,552  |       | (1,556,781 | )          |
| Basic and diluted  earnings (loss) per unit |       | $          | (0.03      | )          | $          | 0.06       |       | $          | 0.05       |   | $ | (0.06 | ) |

 

Certain reclassificationshave been made to the quarterly consolidated statements of operations toconform to the annual presentations.

**NOTE 19 -    SUBSEQUENTEVENTS**

On March 1, 2007, we paida cash distribution to our members of $6.4 million (21.0¢ per capital unit).

On March 6, 2007, webecame a guarantor of a loan between State of South Dakota Department ofTransportation and the Brookings County (South Dakota) Regional RailwayAuthority. On March 6, 2007, the State of South Dakota Department ofTransportation agreed to loan the Brookings County Regional Railroad Authoritya total 

F-21

----

**SOUTH DAKOTA SOYBEAN PROCESSORS,LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

sum of $1.81 million forpurposes of making improvements to the railway infrastructure near our soybeanprocessing facility in Volga, South Dakota. The interest rate on the loan is4.857% per year. Principal and interest payments are due annually, with thefirst payment due on October 1, 2008 and the final payment due at maturity inOctober 2017. In consideration of this unsecured loan, we agreed to guaranteeto the State of South Dakota Department of Transportation the full loan amount,plus interest.  This guaranty, however,will become a direct obligation of ours in October 2008, when we will beresponsible for paying the above-described principal and interest payments onan annual basis.

F-22

----

## **REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM ON SCHEDULES**

The Board ofManagersSouth Dakota Soybean Processors, LLCVolga, South Dakota

Under the date of March21, 2007, we reported on the consolidated balance sheets of South DakotaSoybean Processors, LLC as of December 31, 2006 and 2005, and the relatedconsolidated statements of operations, members’ equity, and cash flows for eachof the three years in the period ended December 31, 2006.  In connectionwith our audits of the aforementioned consolidated financial statements, wealso have audited the related financial statement schedules as listed in theaccompanying index.  The financial statement schedules are theresponsibility of the Company’s management.  Our responsibility is toexpress an opinion on the financial statement schedules based on our audits.

In our opinion, suchfinancial statement schedules, when considered in relation to the basicconsolidated financial statements taken as a whole, present fairly, in allmaterial respects, the information set forth therein.

***Gordon, Hughes & Banks, LLP***

Greenwood Village, ColoradoMarch 21, 2007

F-23

----

**SOUTH DAKOTA SOYBEAN PROCESSORS, LLC**

**FINANCIAL STATEMENT SCHEDULE**

** **
| ** **                       | ** ** | ** **                                                                                                                                             | ** ** | **Charged**            | ** ** | ** **     | ** ** | ** **          | ** ** |
|----------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------|------------|---------------------|------------|
| ** **                       | ** ** | ** **                                                                                                                                             | ** ** | **(Credited) to** | ** ** | ** **     | ** ** | ** **          | ** ** |
| ** **                       | ** ** | **Balance at**                                                                                                                                    | ** ** | **Costs and**     | ** ** | ** **     | ** ** | **Balance at** | ** ** |
| ** **                       | ** ** | **Beginning of**                                                                                                                                  | ** ** | **Expenses**           | ** ** | ** **     | ** ** | **End of**     | ** ** |
| **Description**                  | ** ** | **Period**                                                                                                                                             | ** ** | **Additions**          | ** ** | **Deductions** | ** ** | **Period**          | ** ** |
|                             |       |                           |       |                   |       |           |       |                |       |
| Deducted from asset  accounts:   |       |                                                                                                                                                   |       |                   |       |           |       |                |       |
| Year ended  December 31, 2004:   |       |                                                                                                                                                   |       |                   |       |           |       |                |       |
| Allowance for  doubtful accounts |       | $                                                                                                                                                      | 276,878    |                   | $          | (248,987       | )          | $                   | 109        |   | $ | 28,000 |   |
|                             |       |                                                                                                                                                   |       |                   |       |           |       |                |       |
| Deducted from asset  accounts:   |       |                                                                                                                                                   |       |                   |       |           |       |                |       |
| Year ended  December 31, 2005:   |       |                                                                                                                                                   |       |                   |       |           |       |                |       |
| Allowance for  doubtful accounts |       | $                                                                                                                                                      | 28,000     |                   | $          | 15,157         |       | $                   | —     |   | $ | 43,157 |   |
|                             |       |                                                                                                                                                   |       |                   |       |           |       |                |       |
| Deducted from asset  accounts:   |       |                                                                                                                                                   |       |                   |       |           |       |                |       |
| Year ended  December 31, 2006:   |       |                                                                                                                                                   |       |                   |       |           |       |                |       |
| Allowance for doubtful  accounts |       | $                                                                                                                                                      | 43,157     |                   | $          | 529            |       | $                   | (348       | ) | $ | 43,338 |   |

 

F-24

----