UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM 10-K





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


SECURITIES
EXCHANGE ACT OF 1934





For
the fiscal year ended December 31, 2009





 ̈
           TRANSITION
REPORT PURSUANT TO SECTION 13 OR


15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934





COMMISSION
FILE NO.  000-50253





SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


(Exact
Name of Registrant as Specified in its Charter)





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





100
Caspian Avenue, Post Office Box 500, 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









Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


o   Yes       x   No





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


o   Yes       x   No





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





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained in this form, and no
disclosure will be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this
Form 10-K.   x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of accelerated filer, large accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.





o   Large
      Accelerated Filer
              o   Accelerated
      Filer
              o   Non-Accelerated
      Filer
              x  Smaller
      Reporting Company(do
      not check if a smaller reporting company)





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





The
aggregate market value of the registrant’s common stock held by non-affiliates
at June 30, 2009 was approximately $26,444,700. The aggregate market value
was computed by reference to the last sales price during the registrant’s most
recently completed second fiscal quarter.





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





DOCUMENTS
INCORPORATED BY REFERENCE





Part III
of Form 10-K - Portions of the Information Statement for 2010 Annual
Meeting of Members.







CAUTIONARY
STATEMENT REGARDING


FORWARD-LOOKING
INFORMATION





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





·
              Changes in the weather or general
      economic conditions impacting the availability and price of soybeans and
      natural gas;




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




·
              Changes in the availability of
      credit and interest
rates;




·
              Damage to or loss of our
      facilities due to casualty, weather, mechanical failure or any extended or
      extraordinary maintenance or inspection that may be
      required;




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




·
              The availability of additional
      capital to support capital improvements, development and
      projects;




·
              Changes in perception of food
      quality and safety;
and




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




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





PART I





Item
1.   Business.





Overview





South
Dakota Soybean Processors, LLC (“we,” “us,” “our” or the “Company”) owns and
operates a soybean processing plant, a soybean oil refinery, and a bio-based
polyurethane production facility in Volga, South Dakota. We are owned by
approximately 2,200 members who principally reside in South Dakota and
neighboring states.





Our core
business consists of processing locally grown soybeans into soybean meal and
soybean oil. Approximately 80% of a bushel of soybeans (60 pounds) is processed
into soybean meal or hulls, and the remaining 20% is extracted as oil. We sell
the soybean meal primarily to resellers, feed mills, and livestock producers as
livestock feed. We market and sell multiple grades of soybean oil –
crude, refined, and a soy-based polyol.  Crude
and refined soybean oil are marketed and sold to the food, biodiesel and
chemical industries.  Our soy-based polyol, Soyol®, and its
resin systems, are sold to the polyurethane industry.  Under certain
market conditions, we may register and deliver warehouse receipts for crude oil
according to the terms and conditions of a Chicago Board of Trade (CBOT) soybean
oil futures contract.




2




We strive
to maintain a competitive position in the marketplace by producing high quality
products, operating a highly efficient operation at the lowest possible cost,
and adding value to our core products to capture larger margins. We continue to
search for ways to improve our efficiencies by analyzing new methods of vertical
integration, adding value to our products by investing in further processing of
our products, and reviewing new applications for our products in the plastics
and energy fields. While it is our objective to maximize the issuance of cash
distributions to our members from profits generated through operations, we
recognize the need to maintain our financial strength by reinvesting for our
future.





General
Development of Business





We were
originally organized as a South Dakota cooperative in 1993. As a South Dakota
cooperative, we were entitled to single-level, pass-through tax treatment on
income generated through our members’ patronage. This allowed us to pass our
income onto our members in the form of distributions without first paying taxes
at the company level, similar to a partnership. However, as we grew, the
continuing availability of this advantageous tax treatment became less secure.
Accordingly, in 2001 the cooperative’s board of directors approved a plan to
reorganize into a South Dakota limited liability company, which became effective
on July 1, 2002. The transaction was an exchange of interests whereby the assets
and liabilities of the cooperative were transferred for capital units of the
newly formed limited liability company, Soybean Processors, LLC. The capital
units were distributed to our members upon dissolution of the cooperative at a
rate of one capital unit of the limited liability company for each share of
equity stock owned in the cooperative. The distribution of capital units to our
members was registered under the Securities Act of 1933, as amended. For
financial statement purposes, no gain or loss was recorded as a result of the
exchange transaction. Upon completion of the reorganization, the name of the
limited liability company was changed to South Dakota Soybean Processors,
LLC.





We began
producing crude soybean oil, soybean meal and soybean hulls in late 1996. Since
then we have made significant capital improvements and expanded our business to
include the development of vertically integrated product lines and services. In
2002, we completed the construction of a refining facility and began refining
crude soybean oil. In 2003, we became the majority owner and assumed management
control of Urethane Soy Systems Company (USSC), a company to which we sell
refined oil and Soyol®, which,
in turn, sells such products and Soyol®-based
polyurethane products to its customers.  We currently own 100% of
USSC.





Industry
Information





The
soybean processing industry converts soybeans into soybean meal, soybean hulls
and soybean oil. A bushel of soybeans typically yields approximately 44 pounds
of meal and 11 pounds of crude oil when processed.  While the meal and
hulls are mostly consumed by animals, food ingredients are the primary end use
for the oil. Crude soybean oil is generally refined for use as salad and cooking
oil, baking and frying fat, and to a more limited extent, for industrial uses.
Increasingly, the sale of soybean oil for human consumption is impacted by the
regulation of trans-fat. Trans-fat is created by the hydrogenation process of
products such as soybean oil and plant oils.. Since 2006, the U.S. Food and Drug
Administration has required that food processors disclose the level of
trans-fatty acids contained in their products. In addition, various local
governments in the U.S. have enacted, or are considering enacting, restrictions
on the use of trans-fats in restaurants. As a result, many food manufacturers
have reduced the amount of hydrogenated soybean oil they include in their
products or switched to other oils containing lower amounts of
trans-fat.





Soybean
production is concentrated in the central U.S., Brazil, Argentina and China. In
the 2009 harvest season, the U.S. produced approximately 3.36 billion bushels of
soybeans or approximately 36% of estimated world production. The USDA estimates
that approximately 60% of soybeans produced in the U.S. are processed
domestically, 38% are exported as whole soybeans, and 2% are retained for seed
and residual use. Historically, there has been an adequate supply of soybeans
produced in South Dakota and the upper Midwest for the soybean processing
industry. In 2009, farm producers in South Dakota produced 175 million bushels
of soybeans, and producers in the top five producing states produced the
following:





State
                  
                  Production (bushels)Iowa
                  
                  486
      MillionIllinois
                  
                  430
      MillionMinnesota
                  
                  284
      MillionIndiana
                  
                  266
      MillionNebraska
                  
                  259
      Million


3





Soybean
processing facilities are generally located close to adequate sources of
soybeans and a strong demand for meal to decrease transportation costs. Poultry
and swine dominate soybean meal consumption in the U.S. On average, exports of
soybean meal account for 15% to 20% of total production.




Soybean
oil refineries are generally located close to processing plants. Oil is shipped
throughout the U.S. and for export. Approximately 85% of domestic oil production
is used in food applications and 15% in industrial applications.





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





The
soybean industry continues diligently to introduce soy-based products as
bio-based substitutes for various petroleum-based products. Such products
include biodiesel, soy ink, lubricants, candles and plastics. Biodiesel, a
substitute for standard, petroleum-based diesel fuel, experienced steady growth
in the U.S. until 2008. Since then, however, market conditions, including
overcapacity in the industry, price volatility in the petroleum oil market,
reduced exports and volatile input costs, have resulted in stagnant growth and
more uncertainty in the biodiesel market.





Products &
Services





Soybean
Processing





We
process soybeans at our crushing plant to extract the soybean oil from the
protein and fiber portions of the soybean. Approximately 80% of a soybean bushel
is processed and sold as soybean meal or hulls. The remaining percentage of the
soybean is extracted as crude soybean oil.  In addition to crude
soybean oil, we have the capability at our facility in Volga, South Dakota, to
process crude soybean oil into refined oil and a soy-based polyol.





Polyurethane





We
produce a bio-based polyol called Soyol® which is
used in industrial applications for the polyurethane industry. Soyol® is made
from specially refined crude soybean oil, and is a key chemical compound that,
upon reaction with other ingredients, forms polyurethane plastics. Soyol® is a
renewable replacement for petrochemical based polyols. Polyurethanes are used in
a variety of products such as insulation in buildings and appliances; seating;
carpet backing and padding; shoe soles; roof coatings; mattresses and pillows;
rigid panels; and bumpers and interiors in cars, tractors and trucks. We sell
Soyol® to USSC
which, in turn, markets and sells to its customers Soyol® and
polyurethane resin systems incorporating Soyol®. Our
resin systems include a spray-on insulation product called SoyThermTM and a
spray-based coating product for various applications (such as bedliners) called
BioTuffTM. While our primary marketing focus has been with spray applications, we
also market our systems to original equipment manufacturers (“OEM”) and
companies like Ford Motor Company. In 2007, for example, Ford Motor Company, in
partnership with Lear Corporation, began incorporating Soyol® into the
seat cushions of its Ford Mustang.





Soyol® and
Soyol®- based
resin systems are relatively new in the market, having undergone significant
research and development in recent years.  We continue to make
progress in the marketing and sales areas of Soyol® and
Soyol®- based
resin systems as our revenues from polyurethane sales have increased four-fold
since 2006.





We have
exclusive rights to supply Soyol® to USSC
until 2014 and have agreed not to sell it to any other company in the plastics
industry.





Raw
Materials and Suppliers





We
procure soybeans from local soybean producers and elevators. In 2009, soybean
production in South Dakota was approximately 175 million bushels, compared to
138 million bushels in 2008 and 133.5 million bushels in 2007. Of this amount,
we processed 24.8 million bushels of soybeans in 2009, compared to 26.5 million
bushels in 2008 and 26.6 million bushels in 2007. We control the flow of
soybeans into our facilities with a combination of pricing and contracting
options. Threats to our soybean supply include weather, changes in government
programs, and competition from other processors and export markets. Our refining
plant receives the substantial majority of crude soybean oil supply from our
crushing plant.


4





Utilities





We use
natural gas and electricity to operate the crushing and refining plants. Natural
gas is used in the boilers for processing heat and for drying soybeans.
NorthWestern Corporation of Sioux Falls, South Dakota, provides for the delivery
of natural gas to us on an interruptible basis. We are at risk to adverse price
fluctuations in the natural gas market, but we have the capability to use fuel
oil and biofuel as a back up for natural gas if delivery is interrupted or
market conditions dictate. We also employ forward contracting to offset some of
this risk. Our electricity is supplied by the City of Volga, South
Dakota.




Employees





We
currently employ approximately 99 individuals, all but 15 of whom are full-time.
We have no unions or other collective bargaining agreements.





Sales,
Marketing and Customers





Our
soybean meal is primarily sold to resellers, feed mills, and livestock producers
as livestock feed. Our meal market is local (typically within 200 miles of our
Volga facility), Western U.S., and Canada. We have two significant meal
customers, Commodity Specialists Company, with facilities in Shawnee Mission,
Kansas, and Minneapolis, Minnesota, and Archer Daniels Midland Company (ADM),
with a facility in Mankato, Minnesota, to which our product is delivered. Our
crude soybean oil is primarily and increasingly sold to various companies in the
refining industry which typically process the oil for human consumption. The
table presented below represents the percentage of sales by quantity of product
sold within various markets for 2009.




Market
                    
                    Soybean Meal
                    
                    
                    Crude
                      Soybean
                      Oil
                    
                    
                    Refined OilLocal
                    
                    
                    36
                    %
                    
                    
                    33
                    %
                    
                    
                    34
                    %Other
      U.S. States
                    
                    
                    49
                    %
                    
                    
                    67
                    %
                    
                    
                    66
                    %Export
                    
                    
                    15
                    %
                    
                    
                    —
                    
                    
                    
                    —





Over half
of our products are shipped by rail, the service of which is provided by the
Canadian Pacific (CP) rail line, with connections to the Burlington-Northern
Santa Fe (BNSF) and the Union Pacific (UP) rail lines. All of our assets and
operations are domiciled in the U.S., and all of the products sold are produced
in the U.S.





Dependence
upon a Single Customer





None.





Competition





We are in
direct competition with several other soybean processing companies in the U.S.,
many of which have significantly greater resources than we do. The U.S. soybean
processing industry is comprised primarily of 16 different companies operating
64 plants in the U.S. It is a mature, consolidated and vertically-integrated
industry with four companies controlling nearly 84% of the processing industry.
Those four companies are Archer Daniels Midland (ADM), Bunge, Cargill and Ag
Processing (AGP). The U.S. vegetable oil (including soybean oil) refining
industry is divided between oilseed processors and independent vegetable oil
refiners. The oilseed processors operate approximately 83% of the vegetable oil
refining capacity in the U.S., and ADM, Bunge, Cargill and AGP operate
approximately 68% of the oil refining capacity. The three largest independent
vegetable oil refiners are ACH Foods, Smuckers (Proctor & Gamble), and
ConAgra (Hunt-Wesson).





We are
one of two soybean processing plants in South Dakota. The other processing plant
in South Dakota is a start-up facility located in Miller, South Dakota,
approximately 100 miles from our facility. This plant commenced crushing
operations in October 2008 with plans to process 4.1 million bushels of soybeans
annually. We believe that our processing facility represents approximately 7% of
the total soybean processing capacity in the upper Midwest and about 1.5% in the
U.S. We plan to maintain our competitive position in the market by
producing high quality products and operating a highly efficient operation at
the lowest possible cost, and adding value to our products. We plan to increase
our cost efficiency by adding value to our products by investing in further
processing of our products, and developing and reviewing new applications for
our products in the plastics and energy fields.




5





Our
primary competitors in soy-based polyols are Biobased Technology, Dow Chemical
Co., and Cargill Inc. We also face strong competition from suppliers in the
polyurethane market, specifically from BASF, Bayer, Dow Chemical and Huntsman,
each of which has significantly greater resources than we or USSC.





Government
Regulation and Environmental Matters





Our
business is subject to laws and related regulations and rules designed to
protect the environment which are administered by the U.S. Environmental
Protection Agency, the South Dakota Department of Environment and Natural
Resources and similar government agencies. These laws, regulations and rules
govern the discharge of materials to the environment, air and water; reporting
storage of hazardous wastes; the transportation, handling and disposition of
wastes; and the labeling of pesticides and similar substances. Our business is
also subject to laws and related regulations and rules administered by other
federal, state, local and foreign governmental agencies that govern the
processing, storage, distribution, advertising, labeling, quality and safety of
feed and grain products. Failure to comply with these laws, regulations and
rules could subject us to administrative penalties, injunctive relief, civil
remedies and possible recalls of products. We believe that we are in compliance
with these laws, regulations and rules in all material respects and do not
expect continued compliance to have a material effect on our financial condition
or results of operations.




Available
Information





Our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and amendments to reports filed pursuant to the Securities Exchange
Act of 1934, as amended, are filed with the SEC. Such reports and other
information filed by us with the SEC are available on the SEC website
(www.sec.gov). The public may read and copy any materials filed by us with the
SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580,
Washington, DC 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy, and information statements and other
information regarding issuers that file electronically with the SEC at
www.sec.gov. The contents of these websites are not incorporated into this
filing. Our website is at www.sdsbp.com.





Item
1A.   Risk Factors.





Risks
Relating to Operations





Our revenues and
operating results could be adversely affected by changes in commodity
prices.   Our revenues, earnings and cash flows are affected by
market prices for commodities such as crude oil, natural gas, and crude and
refined vegetable oils. Commodity prices generally are affected by a wide range
of factors beyond our control, including weather, disease, insect damage,
drought, the availability and adequacy of supply, government regulation and
policies, and general political and economic conditions. In addition, we are
exposed to the risk of nonperformance by counterparties to contracts. Risk of
nonperformance by counterparties includes the inability to perform because of a
counterparty’s financial condition and also the risk that the counterparty will
refuse to perform a contract during a period of price fluctuations where
contract prices are significantly different than the current market
prices.





A national
economic slowdown and turmoil in the financial markets could adversely affect
our business and operating results.  The level of demand for our
products is affected by national economic conditions, particularly as it relates
to the agriculture market.  Any continuation of the slowdown in national
growth from 2009 may lead to reduced demand for agricultural commodities, which
could adversely affect our business and results of operations. Additionally, any
further deterioration in national economic conditions and tightening in the
credit markets may adversely affect the financial viability of our customers,
suppliers and other counterparties, which may negatively impact our business and
results of operations.




Higher than
anticipated operating costs, including but not limited to increased prices for
soybeans, could reduce our profitability. In addition to general market
fluctuations and economic conditions, we could experience significant cost
increases associated with the ongoing operation of our soybean processing and
refining plant or our interest in USSC caused by a variety of factors, many of
which are beyond our control. These cost increases could arise from an
inadequate local supply of soybeans and resulting increased price that is 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 the skills necessary to operate our facility. Adequacy
and cost of electric and natural gas utilities could also affect our operating
costs. Changes in price, operation and availability of truck and rail
transportation may affect our profitability with respect to the transportation
of soybean meal, oil and other products to our customers.


6





It may become
more difficult to sell our soybean oil for human consumption.The U.S.
Food and Drug Administration currently requires food manufacturers to disclose
the levels of trans-fatty acids contained in their products. In addition,
various local governments in the U.S. are considering, and some have enacted,
restrictions on the use of trans-fats in restaurants. Several food processors
have either switched or indicated an intention to switch to edible oil products
with lower levels of trans-fatty acids. Because processing soybean oil,
particularly hydrogenation, creates trans-fat, it may be more difficult to sell
our oil to customers engaged in the food industry which could adversely affect
our revenues and profits.




Hedging
transactions involve risks that could harm our profitability. To reduce
our price change risks associated with holding fixed price commodity positions,
we generally take opposite and offsetting positions by entering into commodity
futures contracts (either a straight futures contract or an options futures
contract) for soybeans, soybean meal and crude soybean oil on the Chicago Board
of Trade. While hedging activities reduce our risk of loss from changing market
values, such activities also limit the gain potential which otherwise could
result from those market fluctuations. Our policy is to maintain hedged
positions within limits, but we can be long or short at any time. In addition,
at any one time, our inventory and purchase contracts for delivery to the plant
may be substantial, which could limit our ability to adjust our hedged
positions. If our risk management policies and procedures that guide our net
position limits are inadequate, we could suffer adverse financial
consequences.




We have made
significant investments in USSC, which has a history of operating losses.
We are the sole owner of USSC, a company engaged primarily in research and
development of Soyol® and
Soyol® based
resin systems. To date, USSC has generated limited revenues and significant
losses. If USSC continues to be unprofitable, our operations overall will be
adversely affected, consequently diminishing our earnings and the value of our
investment in USSC. The ability to commercialize Soyol® depends
upon, among other things, the performance of the product as compared to
alternative polyols, successful completion of ongoing development activities,
the ability to market the product, and the relative cost to the customer of
Soyol® as
compared to alternative polyols. If Soyol® is not
successfully commercialized and fails to achieve market acceptance, USSC will
likely not achieve or sustain profitable operations and we may be required to
abandon or reduce our investment in USSC.




The success of
our ownership in USSC is dependent upon market acceptance of Soyol®. USSC’s
future success, if any, is significantly dependent on the acceptance of
Soyol® in the
markets to which Soyol® is
targeted. Since the introduction of Soyol®, USSC
has had limited success in marketing to manufacturers the use of Soyol® as a
replacement for petroleum-based polyols. Common acceptance of USSC’s technology
is dependent upon among other things, the ease of use, reliability, price and
increased consumer demand for bio-based products. Even if the advantages of
Soyol® are
established, we are unable to predict how quickly, if ever, Soyol® will be
generally accepted by manufacturers as a substitute for petroleum-based
polyols.




We are dependent
on our management and other key personnel, and loss of their services may
adversely affect our business. Our success and business strategy is
dependent in large part on our ability to attract and retain key management and
operating personnel. This can present particular challenges for us because we
operate in a specialized industry and because our business is located in a rural
area. Such individuals are in high demand and are often subject to competing
employment offers in the agricultural value-added industries. In particular, our
success is dependent on our ability to retain the services of Mr. Christianson,
our CEO, and Mr. Kersting, our Commercial Manager. The loss of the services of
Messrs. Christianson or Kersting or the failure of such individuals to perform
their job functions in a satisfactory manner would have a material adverse
effect on our business operations and prospects.




Risks
Relating to Industry




We operate in an
intensely competitive industry and we may not be able to continue to compete
effectively. We may not be able to continue to successfully penetrate the
markets for our products. The soybean processing business is highly competitive,
and other companies presently in the market, or that could enter the market,
could adversely affect prices for the products we sell. We compete with other
soybean processors such as Archer-Daniels Midland (ADM), Cargill,
Bunge, and Ag Processing (AGP), among others, all of which are capable of
producing significantly greater quantities of soybean products than we do, and
may achieve higher operating efficiencies and lower costs due to their scale. In
addition, we compete with companies who use petroleum based polyols in the
polyurethane product manufacturing process, including BASF, Bayer, Dow Chemical,
and Huntsman. We also face competition with companies who are using soy-based
polyol technologies in the polyurethane industry including Biobased Technology,
Dow Chemical, and Cargill. The major companies have longer operating histories,
greater name recognition, larger customer bases and greater financial, marketing
and public relations resources, which may make it difficult for us to enter the
market and become profitable in our sale of Soyol® and
Soyol®-based
resin systems.


7





Our profitability
is influenced by the protein and moisture content of the soybeans in the local
growing area. The northern portion of the western soybean belt, where our
plant is located, typically produces a lower protein soybean resulting in a
lower protein soybean meal. Because lower protein soybean meal is sold at a
lower price, we may not be able to operate as profitably as soybean processing
plants in other parts of the country. If adverse weather conditions further
reduce the protein content of the soybeans grown in our area, our business may
be materially harmed because we will be required to sell our soybean meal at
discounted prices to our customers.





In
addition, the moisture content of the soybeans that are delivered to our plant
also influences our profitability and the efficiency of our plant operations.
Soybeans with high moisture content require more energy to dry them before they
can be processed. While we may recover some of these extra energy costs by
paying producers less for high moisture soybeans, these savings may not be
sufficient to offset our additional operating expenses.





Interruptions in
energy supplies could have a material adverse impact on our business.
Soybean processing requires a constant and consistent supply of energy. If there
is any interruption in our supply of energy for whatever reason, such as
delivery or mechanical problems, we may be required to halt production. If
production is halted for any extended period of time, it will have a material
adverse effect on our business. If we were to suffer interruptions in our energy
supply, our production would likely fall and the profitability of our business
would be harmed.





Because soybean
processing and refining is energy intensive, our business will be materially
harmed if natural gas and electricity prices increase substantially.
Historically, natural
gas prices have fluctuated significantly. Any significant increase in the price
of natural gas or electricity will increase our energy costs and therefore harm
our business.





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





Increases in the
production of soybean meal or oil could result in lower prices for soybean
meal or oil and have other adverse effects. Existing soybean processing
and refining plants could construct additions to increase their production and
new soybean processing and refining plants could be constructed as well. If
there is not a corresponding increase in the demand for soybean meal and oil or
if the increased demand is not significant, the increased production of soybean
meal and oil may lead to lower prices for soybean meal and oil. The
increased production of soybean meal and oil could have other adverse effects as
well. For example, the increased production of soybean meal and oil could result
in increased demand for soybeans which could in turn lead to higher prices for
soybeans, resulting in higher costs of production and lower profits if we are
not able to lock in satisfactory margins on future soybean purchases and soybean
meal and oil sales.





Risks
Relating to Legal and Regulatory Risks





Legislative,
legal or regulatory developments could adversely affect our
profitability. We are subject to extensive air, water and other
environmental laws and regulations at the federal and state level. In addition,
some of these laws require our plant to operate under a number of environmental
permits. These laws, regulations and permits can often require pollution control
equipment or operational changes to limit actual or potential impacts to the
environment. A violation of these laws and regulations or permit conditions can
result in substantial fines, damages, criminal sanctions, permit revocations
and/or plant shutdowns. Additionally, any changes in environmental laws and
regulations, both at the federal and state level, could require us to spend
considerable resources in order to comply with future environmental regulations.
The expense of compliance could be significant enough to reduce our
profitability and negatively affect our financial condition.





In
addition, although our production of soybean meal and oil is not directly
regulated by the U.S. Food & Drug Administration, we must comply with
the FDA’s content and labeling requirements, which are monitored at our
customers’ facilities. Failure to comply with these requirements could result in
fines, liability to our customers or other consequences that could increase our
operating costs and reduce profits. In addition, changes to the FDA’s
rules or regulations could be adopted that would increase our operating
costs and expenses, or require capital investment.


8


We could face
increased operating costs if we were required to segregate genetically modified
soybeans and the products generated from these soybeans. In the last
several years, some soybean producers in our area have been planting genetically
modified soybeans, commonly known as Round-up Ready beans. Neither the U.S.
Department of Agriculture nor the FDA currently requires that genetically
modified soybeans be segregated from other soybeans. If these agencies or our
customers were to require that we process these genetically modified soybeans
separately, we would face increased storage and processing costs and our
profitability could be harmed.





Item
      2.
              Properties.





We
conduct our operations principally at our facility in Volga, South Dakota. We
own the land, consisting of 106 acres, on which all of the infrastructure and
physical properties rest. Our facilities consist of a soybean processing plant,
a soybean oil refinery, a bio-based polyurethane production facility, a quality
control laboratory, and administrative and operations buildings.





All of
our tangible property, real and personal, serves as collateral for our debt
instruments with our primary lender, CoBank, ACB, of Greenwood Village,
Colorado, which is described below under “Item 7—  Management’s Discussion
and Analysis of Financial Condition and Results of
Operation—Indebtedness.”





Item
      3.
              Legal
      Proceedings.





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




On
January 31, 2007, we, along with other individual defendants, including our
chief executive officer, Rodney Christianson, commercial manager, Tom Kersting,
Board member, Dan Feige, and former board member, Rodney Skalbeck, were named as
defendants in a lawsuit filed in the U.S. District Court for the District of
Minnesota. The plaintiffs, Transocean Group Holdings PTY Ltd. and Transocean
Global Biofuels PTY Ltd., of Sydney, Australia (“Transocean”), allege that we
breached a heads of agreement with Transocean dated April 28, 2006. The heads of
agreement concerned the potential development and operation of a biodiesel
refinery through a company called High Plains Biofuels, Inc., to be owned by us
and Transocean as shareholders. On March 19, 2010, we and Transocean reached a
settlement of the lawsuit. In exchange for the payment of $530,000 to
Transocean, of which we were responsible for $330,000, and a right to receive a
small ownership interest in our company, or such facility, if we were to acquire
an interest in a biodiesel or related facility, we and other defendants were
released by Transocean from all prior claims.




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





There
were no matters submitted to a vote of security holders in the fourth quarter
ending December 31, 2009.





Part II





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





As of
March 1, 2010, the total number of capital units outstanding is 30,419,000,
all of which is owned and held by 2,196 members.





Trading
Activity





Our
capital units are not traded on an exchange or The NASDAQ Stock Market. Rather,
our capital units are traded on a “qualified matching service” as defined by the
publicly-traded partnership rules of the federal tax code. Under the qualified
matching service, bids for capital units submitted by interested buyers and
sellers are matched on the basis of rules and conditions set forth by the
federal tax code and us, all trades being subject to approval by our board of
managers. Our qualified matching service is operated through Variable Investment
Advisors, Inc., of Sioux Falls, South Dakota, a registered broker-dealer
operating a registered alternative trading system with the SEC. The following
table contains historical information by quarter for the past two years
regarding the trading of capital units through the qualified matching
service:


9




Quarter
                    
                    Low Price
                      (1)
                    
                    
                    High Price
                      (1)
                    
                    
                    Average
                      Price
                    
                    
                    # of
                      Capital
                      Units TradedFirst
      Quarter 2008
                    
                    $
                    1.30
                    
                    
                    $
                    1.40
                    
                    
                    $
                    1.38
                    
                    
                    
                    151,000Second
      Quarter 2008
                    
                    $
                    1.28
                    
                    
                    $
                    1.35
                    
                    
                    $
                    1.32
                    
                    
                    
                    47,250Third
      Quarter 2008
                    
                    $
                    1.20
                    
                    
                    $
                    1.26
                    
                    
                    $
                    1.22
                    
                    
                    
                    52,000Fourth
      Quarter 2008
                    
                    $
                    0.95
                    
                    
                    $
                    1.10
                    
                    
                    $
                    0.97
                    
                    
                    
                    8,750First
      Quarter 2009
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Second
      Quarter 2009
                    
                    $
                    0.90
                    
                    
                    
                    0.96
                    
                    
                    
                    0.94
                    
                    
                    
                    15,500Third
      Quarter 2009
                    
                    $
                    0.87
                    
                    
                    
                    0.89
                    
                    
                    
                    0.88
                    
                    
                    
                    4,500Fourth
      Quarter 2009
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -









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





There
were no issuer purchases of equity securities during the fourth quarter ending
December 31, 2009.





Trading
and Transfer Restrictions





As a
limited liability company, we must strictly restrict transfers of our capital
units in order to preserve our preferential single-level tax status at the
member level. To preserve this, our operating agreement prohibits transfers
other than through the procedures specified under our capital units transfer
system, which may be amended from time to time by our board of managers. Under
this system, our capital units cannot be traded on any national securities
exchange or in any over-the-counter market. Also, we do not permit the number of
capital units traded through the qualified matching service on an annual basis
to exceed 10% of our total issued and outstanding capital units. All
transactions also must be approved by the board, which are generally approved if
they fall within “safe harbors” contained in the rules of the federal tax
code. Permitted transfers include transfers by gift or death, sales to qualified
family members, and trades through the qualified matching service subject to the
10% restriction. Pursuant to our operating agreement, a minimum of 2,500 capital
units is required to be owned by an individual for membership, and no member
may own more than 1.5% of our total outstanding capital units.




Distributions





In 2009,
we made no cash distributions to our members. In 2008, we paid cash
distributions of approximately $3.8 million.  In accordance with our
operating agreement and distribution policy, the distributions in 2008 were
issued to our members as well as to eligible persons of our predecessor
cooperative who were once subject to patronage retainage through written notices
of allocation.





Our
distributions are declared at the discretion of our board of managers and are
issued in accordance with the terms of our operating agreement. In addition,
distributions are subject to restrictions imposed under our loan agreement with
our lender. There is no assurance as to if, when, or how much we will make in
distributions in the future. Actual distributions depend upon our profitability,
expenses and other factors discussed in this report.





Item
      6.
              Selected
      Financial Data.





The
following table sets forth selected financial data of South Dakota Soybean
Processors, LLC for the periods indicated. The financial statements for the
years ended December 31, 2009 and 2008 included in Item 8 of this report were
audited by Eide Bailly LLP.  The financial statements for the year
ended December 31, 2007 included in Item 8 of this report were audited by
Gordon, Hughes & Banks, LLP.


10





2009
                
                
                2008
                
                
                2007
                
                
                2006
                
                
                2005Bushels
      Processed
                
                
                24,482,087
                
                
                
                26,470,827
                
                
                
                26,649,061
                
                
                
                27,775,724
                
                
                
                28,003,640Statement
      of Operations Data:Revenues
                
                $
                268,272,561
                
                
                $
                360,114,676
                
                
                $
                247,741,767
                
                
                $
                212,721,926
                
                
                $
                210,370,966Costs &
      Expenses:Cost
      of goods sold
                
                
                (266,961,340)
                
                
                
                (350,920,031
                )
                
                
                (240,701,417
                )
                
                
                (203,525,766
                )
                
                
                (209,992,802
                )Operating
      Expenses
                
                
                (9,605,961)
                
                
                
                (6,041,727
                )
                
                
                (3,938,405
                )
                
                
                (3,487,773
                )
                
                
                (3,826,823
                )Operating
      Profit (Loss)
                
                
                (8,294,740)
                
                
                
                3,152,918
                
                
                
                3,101,945
                
                
                
                5,708,387
                
                
                
                (3,448,659
                )Non-Operating
      Income
                
                
                2,696,447
                
                
                
                2,664,524
                
                
                
                3,157,147
                
                
                
                2,574,350
                
                
                
                840,489Interest
      Expense
                
                
                (1,144,923)
                
                
                
                (2,331,105
                )
                
                
                (2,105,676
                )
                
                
                (629,070
                )
                
                
                (1,400,403
                )Income
      Tax Expense
                
                
                (300)
                
                
                
                (300
                )
                
                
                7,160
                
                
                
                (2,308
                )
                
                
                —Minority
      Interest in Loss of Subsidiary
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                368,403Net
      Income (Loss)
                
                $
                (6,743,516)
                
                
                $
                3,486,037
                
                
                $
                4,160,576
                
                
                $
                7,651,359
                
                
                $
                (3,640,170
                )Weighted
      Average Capital Units Outstanding
                
                
                30,419,000
                
                
                
                30,419,000
                
                
                
                30,419,000
                
                
                
                30,419,000
                
                
                
                29,758,885Net
      Income (Loss) per Capital Unit
                
                $
                (0.222)
                
                
                $
                0.115
                
                
                $
                0.137
                
                
                $
                0.252
                
                
                $
                (0.122
                )Balance
      Sheet Data:Working
      Capital
                
                $
                7,928,348
                
                
                $
                10,364,338
                
                
                $
                11,624,347
                
                
                $
                11,951,704
                
                
                $
                5,599,709Net
      Property, Plant & Equipment
                
                
                22,721,413
                
                
                
                23,305,443
                
                
                
                24,267,041
                
                
                
                25,526,402
                
                
                
                27,756,941Total
      Assets
                
                
                87,559,930
                
                
                
                79,265,714
                
                
                
                102,362,137
                
                
                
                82,070,372
                
                
                
                73,630,296Long-Term
      Obligations
                
                
                8,069,573
                
                
                
                9,407,405
                
                
                
                12,022,549
                
                
                
                12,007,955
                
                
                
                14,712,635Members’
      Equity
                
                
                31,364,292
                
                
                
                38,107,808
                
                
                
                38,383,991
                
                
                
                40,409,808
                
                
                
                32,768,497Other
      Data:Capital
      Expenditures
                
                $
                1,609,119
                
                
                $
                1,121,806
                
                
                $
                1,002,652
                
                
                
                660,397
                
                
                $
                600,739Impairment
      Charges
                
                $
                4,507,289
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —





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





You
should read the following discussion along with our financial statements and the
notes to our financial statements included elsewhere in this report. The
following discussion contains forward-looking statements that are subject to
risks, uncertainties and assumptions. Our actual results, performance and
achievements may differ materially from those expressed in, or implied by, such
forward-looking statements. See “Cautionary Statement Regarding Forward-Looking
Information” at the beginning of this report.




Overview
and Executive Summary





Our core
business and primary source of income generation is our soybean processing plant
located in Volga, South Dakota. We process approximately 27 million bushels of
soybeans annually to produce approximately 680 tons of high protein soybean meal
and 310 million pounds of crude soybean oil. Our production represents
approximately 1.3% of the total soybean processing capacity in the United
States. In addition to our processing plant, we operate a soybean oil refinery
in Volga where we produce partially refined soybean oil. The partially refined
soybean oil is sold to customers in the food, chemical and industrial sectors.
Under certain market conditions we may issue warehouse receipts for crude oil
according to the terms and conditions of the CBOT soybean oil contract. Other
activities that generate income are our management and consulting
agreements.





Soybean
processing is basically a commodity driven business and is cyclical in nature.
Our industry is dependent on the annual soybean crop production (supply side)
and world economic growth (demand side for food). Soybean processing is also a
highly consolidated industry with four companies in the U.S. controlling 84% of
the soybean processing industry and 75% of the soybean oil refining capacity for
food applications. We compete in this industry by producing high quality
products and operating a highly efficient operation at the lowest possible
cost.





In
efforts to increase the value of the products produced, we continue to invest in
our subsidiary, USSC, for the research, marketing and development of soy-based
polyol and soy-based polyurethane systems. USSC’s technical staff and research
lab facilities are located in Volga. USSC’s marketing focus in 2009 included the
spray applications for insulation, auto industry, original equipment
manufacturers (OEMs) market, carpet rebound and padding, and polyurethane system
houses. In 2009, we made significant improvements on the attributes of odor and
reactivity of our molecules, maintained sales volume, increased margin, and
reduced losses by 25%.


11





Overall,
we generated a net loss of $6.7 million in 2009, compared to a profit of $3.5
million for the same period in 2008, a decrease of $10.2 million, or $0.42 per
bushel processed.  The decrease is primarily due to a $4.5 million non-cash
patent impairment charge, soybean basis’ negative impact on crush margins, a
poor quality of soybeans from the crop harvested locally in 2008 due to higher
moisture and lower oil content, and a 7.5% reduction in the volume of soybeans
crushed during 2009, compared to 2008.





On an
annual basis, we are required to evaluate the recoverability of our intangible
assets including our patents. Our primary focus for USSC has been in the housing
and auto industries, but both industries have been hard hit hard by the economic
crisis starting in 2008. Housing starts dropped from a historical level of 1.7
to 2.1 million units in 2005 to under 600,000 units in 2009. Annual automotive
sales in the U.S. also dropped from over 17 million units in 2006 to just over
10 million units in 2009. While USSC maintained its sales volume in 2009, the
lack of growth, combined with the uncertainty of the recovery of the housing and
auto industries in the near future, forced us recognize an impairment of the
value of our patents for USSC.





We
anticipate a return to historical near-average profitability for
2010.  Factors that are expected to contribute to this are an
increased soybean supply, steady-to-soft domestic demand and a growing world
demand for oilseed products.  The increase in soybean supply is due to
an abundant soybean crop in 2009, both in the U.S. and South
America.  However, the global financial markets, which adversely
affected the industry in 2009, could continue to affect adversely the industry
in 2010, thus holding down the anticipated profitability return.   An
effective use of risk management and operating prudently will be our best tools
for handling these challenges.





Results
of Operations




Comparison
of Years Ended December 31, 2009 and 2008





Year Ended December 31, 2009
                          
                          
                          Year Ended December 31, 2008$
                          
                          
                          % of
                            Revenue
                          
                          
                          $
                          
                          
                          % of
                            RevenueRevenue
                          
                          $
                          268,272,561
                          
                          
                          
                          100.0
                          
                          
                          $
                          360,114,676
                          
                          
                          
                          100.0Cost
      of revenues
                          
                          
                          (266,961,340
                          )
                          
                          
                          (99.5
                          )
                          
                          
                          (350,920,031
                          )
                          
                          
                          (97.4
                          )Operating
      expenses
                          
                          
                          (9,605,961
                          )
                          
                          
                          (3.6
                          )
                          
                          
                          (6,041,727
                          )
                          
                          
                          (1.7
                          )Other
      income (expense)
                          
                          
                          1,551,524
                          
                          
                          
                          0.6
                          
                          
                          
                          333,419
                          
                          
                          
                          0.1Income
      tax expense
                          
                          
                          (300
                          )
                          
                          
                          0.0
                          
                          
                          
                          (300
                          )
                          
                          
                          0.0Net
      income (loss)
                          
                          $
                          (6,743,516
                          )
                          
                          
                          (2.5
                          )
                          
                          $
                          3,486,037
                          
                          
                          
                          1.0





Revenue – Revenue decreased
$91.8 million, or 25.5%, for the year ended December 31, 2009, compared to 2008.
The decrease in revenues is primarily due to decreases in the average sales
price and volume of all major soybean products (meal, hulls and oil). The
average sales prices of soybean products decreased approximately 18.7% in 2009,
compared to 2008. The principal cause for this decrease is a reduction in the
price of crude petroleum oil and its refined products. In addition to the
decrease in sales price, we experienced an 8.4% decrease in the sales volume of
soybean products in 2009 compared to 2008. The decrease in sales volume of
soybean products is attributed to a decrease in amount of soybeans crushed,
higher moisture content in the local 2008 and 2009 soybean crops, lower oil
content in the local 2008 soybean crop, and changes in customer demand for our
soybean oil. As a result of a tight local soybean crop, we decreased the amount
of soybeans crushed at our facility by approximately 7.5% during 2009, compared
to 2008, thus reducing the amount of our products available to be sold. In
addition, soybeans harvested locally in the fall of 2008 had higher moisture
(now present in the 2009 crop) and lower oil content than an average crop, which
decreased the amount of soybean meal and oil produced from a bushel of soybeans
in 2009. Finally, a reduced sales volume of refined and bleached soybean oil to
ACH Foods, our primary customer for soybean oil historically, has required us to
seek an expanded customer base for our soybean oil. But the demand for our oil
from our new customer base, particularly the biodiesel industry, has fluctuated
dramatically due to price volatility. We expect this fluctuation to continue for
the near future.




Gross Profit/Loss – For the
year ended December 31, 2009, we generated a gross profit of $1.3 million
compared to $9.2 million for the year ended December 31, 2008. The $7.9 million
decrease in gross profit is primarily attributed to soybean basis’ negative
impact on crush margins, higher moisture and lower oil content from the crop of
soybeans harvested locally in 2008, and a 7.5% reduction in the volume of
soybeans crushed. As a result of the USDA projecting a tight soybean carryout
for 2008-2009, our soybean suppliers were reluctant sellers in 2009, which
increased the cost of purchasing soybeans in relation to the posted price on the
CBOT. As a result, our crush margins were lowered which eventually led to a
decrease in the volume of soybeans crushed. Offsetting in part this decrease in
gross profit is a decrease in production costs of $2.9 million for the year
ending December 31, 2009, compared to 2008. Production costs decreased primarily
due to a decrease in energy costs.


12




Operating Expense – Operating
expenses, including all selling, general and administrative expenses, and
impairment charges, increased $3.6 million, or 59.0%, for the year ended
December 31, 2009, compared to 2008. This increase is primarily caused by a $4.5
million impairment on our patents in 2009, a payment of $330,000 relating to a
settlement on the Transocean lawsuit, and a $182,000 increase in bad debt
expense in 2009. With respect to the impairment, we determined that the
undiscounted cash flows attributable to the patents for USSC were less than its
carrying value as of December 31, 2009. Our primary focus for USSC has been the
housing and auto industries, but both industries were hit hard during the
economic crisis starting in 2008. While USSC maintained its sales volume in
2009, the lack of growth, combined with the uncertainty of the recovery of the
housing and auto industries in the near future, made us recognize an impairment
of the value of the patents for USSC.





The
increases in operating expenses are partially offset by a decrease of $1.3
million decrease in administrative expense in the year ended December 31, 2009,
compared to 2008.  Approximately 60% of this decrease in
administrative expenses is due to a decrease in professional fees, 12% due to a
decrease in personnel costs, and 19% due to a decrease in our operating expenses
associated with USSC.




Interest Expense – Interest
expense decreased by $1.2 million, or 50.9%, during 2009 compared to the same
period in 2008.  This decrease is due to lowered debt levels resulting
from lower soybean prices, inventory quantities, and accounts receivable, as
well as lower interest rates on our senior debt.  The average debt
level during 2009 is approximately $21.4 million, compared to an average debt
level of approximately $35.2 million during 2008.  Similarly, the
annual interest rate on our seasonal loan is 3.24% and 3.50% as of December 31,
2009 and 2008, respectively.




Other Non-Operating Income –
Other non-operating income remained relatively constant for the year ended
December 31, 2009, compared to the year ended December 31, 2008.




Net Income/Loss – The $10.2
million change in net income (loss) for the year ended December 31, 2009,
compared to the same period in 2008, is primarily attributable to a decrease in
crush margins and a $4.5 million impairment on our patents, partially offset by
decreases in production, and administrative and interest expenses.





Comparison
of Years Ended December 31, 2008 and 2007





Year Ended December 31, 2008
                          
                          
                          Year Ended December 31, 2007$
                          
                          
                          % of
                            Revenue
                          
                          
                          $
                          
                          
                          % of
                            RevenueRevenue
                          
                          $
                          360,114,676
                          
                          
                          
                          100.0
                          
                          
                          $
                          247,741,767
                          
                          
                          
                          100.0Cost
      of revenues
                          
                          
                          (350,920,031
                          )
                          
                          
                          (97.4
                          )
                          
                          
                          (240,701,417
                          )
                          
                          
                          (97.1
                          )Operating
      expenses
                          
                          
                          (6,041,727
                          )
                          
                          
                          (1.7
                          )
                          
                          
                          (3,938,405
                          )
                          
                          
                          (1.6
                          )Other
      income (expense)
                          
                          
                          333,419
                          
                          
                          
                          0.1
                          
                          
                          
                          1,051,471
                          
                          
                          
                          0.4Income
      tax expense
                          
                          
                          (300
                          )
                          
                          
                          0.0
                          
                          
                          
                          7,160
                          
                          
                          
                          0.0Net
      income (loss)
                          
                          $
                          3,486,037
                          
                          
                          
                          1.0
                          
                          
                          $
                          4,160,576
                          
                          
                          
                          1.7





Revenue – Revenue increased
$112.4 million, or 45.4%, for the year ended December 31, 2008 compared to the
same period in 2007. The increase in revenues is primarily due to increases in
the average sales price of soybean meal and oil. The average sales prices of
soybean meal and oil increased 47.3% and 51.9% in 2008 compared to 2007,
respectively. The principal cause for this increase is an increase in the price
of crude petroleum oil and its refined products. The increase in revenue is
partially offset by a 0.7% decrease in the volume of soybeans crushed, which
resulted in a decrease in sales volume of soybean meal.


13


Gross Profit/Loss – For the
year ended December 31, 2008, we generated a gross profit of $9.2 million
compared to $7.0 million for the year ended December 31, 2007. The $2.2 million
increase in gross profit is primarily attributed to higher crush margins. This
increase in gross profit is partially offset by a $2.0 million increase in
production costs. Of the production costs, approximately 48% is due to increased
energy costs, 25% to increased personnel costs and 23% to increased maintenance
costs.




Administrative Expense –
Administrative expense, including all selling, general and administrative
expenses, increased $2.1 million, or 53.4%, for the year ended December 31, 2008
compared to 2007. Approximately 40% of this increase is due to increased legal
fees, 32% to the termination of our management agreement with MnSP, and 17% to
an increase in our marketing efforts associated with USSC.




Interest Expense – Interest
expense increased by $225,000, or 10.7%, in 2008 compared to the same period in
2007. This increase is due to higher debt levels resulting from elevated soybean
prices and higher accounts receivable due to the elevated prices of our
soy-based products. The average debt level during the year ended December 31,
2008 is approximately $35.2 million, compared to an average debt level of
approximately $25.5 million during the same period in 2007. The increase in
interest expense due to higher debt levels is partially offset by lower interest
rates on our senior debt, where the annual interest rate is 3.50% and 6.75% as
of December 31, 2008 and 2007, respectively.




Other Non-Operating Income –
Other non-operating income decreased by $692,000, or 22.3%, for the year ended
December 31, 2008, compared to the same period in 2007.  The decrease
is primarily due to a decrease in earnings from our investment in
MnSP.  Upon the termination of our services and management agreement
with MnSP in 2008, we ceased using the equity method to account for our
investment in MnSP.  Consequently, we only recognized $46,000 (Class B
Preferred dividends) in earnings from our investment in MnSP for 2008, compared
to recognizing approximately $623,000 in earnings in the same period of
2007.




Net Income/Loss – The
$675,000 decrease in net income during the year ended December 31, 2008,
compared to 2007, is primarily attributable to an increase in administrative and
interest expenses, offset in part by higher crush margins.





Liquidity
and Capital Resources




Our
primary sources of liquidity are cash provided by operations and borrowings
under our two lines of credit which are discussed below under “Indebtedness.” On
December 31, 2009, we had working capital, defined as current assets less
current liabilities, of approximately $7.9 million, compared to working capital
of $10.4 million on December 31, 2008. Working capital decreased between periods
primarily due to a $6.7 million net loss. Despite this decrease in working
capital, we anticipate for the foreseeable future having sufficient cash flows
from operations and our revolving debt to fund working capital, cover operating
expenses and capital expenditures, and meet debt service
obligations.





Comparison
of the years ended December 31, 2009 and 2008





2009
                  
                  
                  2008Net
      cash from (used for) operating activities
                  
                  $
                  (15,710,577
                  )
                  
                  $
                  30,670,314Net
      cash from (used for) investing activities
                  
                  
                  (1,393,234
                  )
                  
                  
                  (413,746
                  )Net
      cash from (used for) financing activities
                  
                  
                  17,164,270
                  
                  
                  
                  (30,256,483
                  )




Cash Flows from Operating
Activities




Cash
flows from operations are generally affected by commodity prices and the
seasonality of our business. These commodity prices are affected by a wide range
of factors beyond our control, including weather, crop conditions, drought, the
availability and the adequacy of supply and transportation, government
regulations and policies, world events, and general political and economic
conditions.  The $46.4 million change in cash flows from (used for)
operating activities is primarily attributed to a decrease in net income and a
large fluctuation in inventory in 2009, compared to 2008.  During
2009, we increased inventories by $13.2 million, compared to an $11.5 million
decrease in 2008.




Cash Flows from Investing
Activity




The $1.0
million increase in cash used for investing activities between 2009 and 2008 is
primarily attributed to a decrease in the amount received in 2009 from our
investment in MnSP, as well as an increase in the amount of purchases of
property and equipment.  In 2008, following a mandatory unit retain
investment of $420,000 in MnSP in 2006, MnSP repaid us the unit retains,
compared to making no payment in 2009.  Property and equipment
purchases for general capital improvements were $1.6 million in 2009, compared
to $1.1 million in 2008.


14




Cash Flows from Financing
Activity




The $47.4
million change in cash flows from (used for) financing activities is principally
due to a $42.4 million change in borrowings and a $3.8 million decrease in
distributions to members during 2009, compared to 2008. During the year ended
December 31, 2009, our borrowings increased by $15.0 million, compared to a
$27.4 million decrease during the same period in 2008. This change is largely
due to fluctuations in inventories and accounts receivable due to the large
fluctuations in commodity prices over the last two years.





Comparison
of the years ended December 31, 2008 and 2007





2008
                  
                  
                  2007Net
      cash from (used for) operating activities
                  
                  $
                  30,670,314
                  
                  
                  $
                  (23,204,972
                  )Net
      cash from (used for) investing activities
                  
                  
                  (413,746
                  )
                  
                  
                  (1,067,681
                  )Net
      cash from (used for) financing activities
                  
                  
                  (30,256,483
                  )
                  
                  
                  15,965,134




Cash Flows from Operating
Activities





The
increase in cash flows used for operating activities is primarily attributed to
a net decrease in operating assets and liabilities during the year ended
December 31, 2008, compared to the same period in 2007. The decrease in net
operating assets and liabilities is caused by a decrease in commodity prices
which generated a decrease in inventories, accounts receivable and margin
deposits, as well as an increase in accrued commodity purchases on December 31,
2008, compared to December 31, 2007.




Cash Flows from Investing
Activity




The
decrease in cash used for investing activities between 2008 and 2007 is
primarily attributed to our receipt of $420,000 in unit retains from our
investment in MnSP and approximately $377,000 from the retirement of patronage
dividends by CHS, Inc. In May 2006, we were required to make a unit retain
investment in MnSP of approximately $420,000 after MnSP’s members voted to
require members to invest $0.30 per share of Class A preferred stock. In January
2008, MnSP repaid to us and other members the unit retains.




Cash Flows from Financing
Activity




The
decrease in cash flows from financing activities between the years ended
December 31, 2008 and 2007 is principally due to a $52.8 million decrease in
seasonal and long-term borrowings from 2007 to 2008, partially offset by a $2.6
million decrease in distributions paid to members. During 2008, we distributed
approximately $3.8 million to our members, compared to a distribution of $6.4
million in 2007 which was our largest in history.




Indebtedness




We have
two lines of credit with CoBank, our primary lender, to meet the short and
long-term needs of our operations. The first credit line is a revolving
long-term loan. Under the terms of this loan, we may borrow funds as needed up
to the credit line maximum, or $10.6 million, and then pay down the principal
whenever excess cash is available. Repaid amounts may be borrowed up to the
available credit line. The available credit line is scheduled to be reduced by
$1.3 million every six months until maturity on September 20, 2013. The final
payment at maturity will be equal to the remaining unpaid principal balance of
the loan. We pay a 0.50% annual commitment fee on any funds not borrowed. The
principal balance outstanding on the revolving term loan is $10.6 million and
$9.9 million as of December 31, 2009 and 2008, respectively. There are no
remaining commitments available to borrow on the revolving term loan as of
December 31, 2009.




The
second credit line is a revolving working capital loan that matures on August 1,
2010. The primary purpose of this loan is to finance inventory and receivables.
The maximum available to be borrowed under this loan is $30 million. Borrowing
base reports and financial statements are required monthly to justify the
balance borrowed on this loan. We pay a 0.25% annual commitment fee on any funds
not borrowed; however, we have the option to reduce the credit line during any
given commitment period listed in the agreement to avoid the commitment fee. The
principal balance on the working capital loan is approximately $14.3 million and
$0 as of December 31, 2009 and 2008, respectively.


15




Both
CoBank loans are set up with a variable rate option. The variable rate is set by
CoBank and changes weekly on the first business day of each week. We also have a
fixed rate option on both loans allowing us to fix rates for any period between
one day and the entire commitment period. The annual interest rate on the
revolving term loan is 3.49% and 3.50% as of December 31, 2009 and 2008,
respectively.  As of December 31, 2009 and 2008, the interest rate on
the working capital loan is 3.24% and 3.50%, respectively.  Both
CoBank loans are secured by substantially all of our assets and are subject to
compliance with standard financial covenants and the maintenance of certain
financial ratios.  We were in compliance with all covenants and
conditions with CoBank as of December 31, 2009 and as of the date of this
filing.




We also
have other long-term contracts and notes payable totaling $250,000, with an
annual interest rate of 15.0% as of December 31, 2009. We made principal
payments of $0 and $895,000 on these additional long-term obligations during
2009 and 2008, respectively.




Capital
Expenditures




We
invested approximately $1.6 million in capital expenditures for property and
equipment during the year ended December 31, 2009, compared to approximately
$1.1 million in capital expenditures during the year ended December 31,
2008.  Depending on our profitability in 2010, we anticipate spending
between $1.0 million and $2.0 million on capital expenditures in 2010 to enhance
the quality and efficiency of our soybean crushing facility.  Our
principal sources of funds are anticipated to be cash flows from operating
activities and borrowings under our working capital loan with
CoBank.




Off
Balance Sheet Financing Arrangements





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





Lease
Commitments





We have
commitments under various operating leases for rail cars, various types of
vehicles, and lab and office equipment.  Our most significant lease
commitments are the rail car leases we use to distribute our products.  We
have a number of long-term leases with GE Capital, Trinity Capital, and AIG Rail
Services for hopper rail cars and oil tank cars. Total lease expenses under
these arrangements are approximately $2.1 million and $2.0 million for the years
ended December 31, 2009 and 2008, respectively. The hopper rail cars earn
mileage credit from the railroad through a sublease program, which totaled $1.6
million and $1.5 million for the years ended December 31, 2009 and 2008,
respectively.





In June
2008, we entered into a Grain Storage and Transportation Agreement with H&I
Grain of Hetland, Inc. (H&I). This agreement is for the handling, storage,
and transportation of soybeans to and from the H&I facilities in DeSmet,
Hetland, and Arlington, South Dakota, at established rates per bushel. The
agreement provides for an annual minimum payment of $250,000 and is in effect
from September 1, 2008 through August 31, 2011. Expenses under this agreement
were $0.5 million for each of the years ended December 31, 2009 and
2008.





In
addition to rail car leases and grain storage and transportation agreement, we
have several operating leases for various equipment and storage facilities.
Total lease expense under these arrangements is $781,000 and $233,000 for the
years ended December 31, 2009 and 2008, respectively. Some of our leases include
purchase options, none of which are for a value less than fair market value at
the end of the lease.


16





Contractual
Obligations





The
following table shows our contractual obligations for the periods
presented:





Payment due by periodCONTRACTUAL
                    OBLIGATIONS
                  
                  Total
                  
                  
                  Less than
                    1 year
                  
                  
                  1-3 years
                  
                  
                  3-5 years
                  
                  
                  More than 5
                    yearsLong-Term
      Debt Obligations (1)
                  
                  $
                  10,850,000
                  
                  
                  $
                  2,850,000
                  
                  
                  $
                  5,200,000
                  
                  
                  $
                  2,800,000
                  
                  
                  $
                  —Operating
      Lease Obligations
                  
                  
                  16,155,000
                  
                  
                  
                  2,406,000
                  
                  
                  
                  4,491,000
                  
                  
                  
                  3,840,000
                  
                  
                  
                  5,418,000Other
      Long-Term Liabilities (2)
                  
                  
                  70,000
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  70,000Total
                  
                  $
                  27,075,000
                  
                  
                  $
                  5,256,000
                  
                  
                  $
                  9,691,000
                  
                  
                  $
                  6,640,000
                  
                  
                  $
                  5,488,000









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


(2) Represents
obligations under our deferred compensation program, which are included on our
Consolidated Balance Sheet.





Recent
Accounting Pronouncements





See page
F-12, Note 1 of our audited financial statements for a discussion on the impact,
if any, of the recently pronounced accounting standards.





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





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





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




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





Commitments
and Contingencies





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





Inventory
Valuation





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





Long-Lived
Assets





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


17





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





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





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





Accounting
for Derivative Instruments and Hedging Activities





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




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





Commodities
Risk & Risk Management. To reduce the price change risks
associated with holding fixed price commodity positions, we generally take
opposite and offsetting positions by entering into commodity futures contracts
(either a straight or options futures contract) on a regulated commodity futures
exchange, the Chicago Board of Trade. While hedging activities reduce the risk
of loss from changing market prices, such activities also limit the gain
potential which otherwise could result from these significant fluctuations in
market prices. Our policy is generally to maintain a hedged position within
limits, but we can be long or short at any time. Our profitability is primarily
derived from margins on soybeans processed, not from hedging transactions.
Management does not anticipate that its hedging activity will have a significant
impact on future operating results or liquidity. Hedging arrangements do not
protect against nonperformance of a cash contract.





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





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





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





Item
8.        Financial Statements and
Supplementary Data.





Reference
is made to the “Index to Financial Statements” of South Dakota Soybean
Processors, LLC located on the page immediately preceding page F-1 of this
report, and financial statements and schedules for the years ended
December 31, 2009, 2008 and 2007.


18





Item
9.       Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.





None.





Item
9A(T).     Controls and Procedures.





Evaluation of
Disclosure Controls and Procedures .   Our management,
with the participation of our Chief Executive Officer and Principal Accounting
Officer, has evaluated the effectiveness of our “disclosure controls and
procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the
end of the period covered by this report. Based on this evaluation, our
management has concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and
forms.  Additionally, based on management’s evaluation, our disclosure
controls and procedures were effective in ensuring that information required to
be disclosed in our Exchange Act reports is accumulated and communicated to our
management, including our Chief Executive Officer and Principal Accounting
Officer, to allow timely decisions regarding required disclosures.





Management’s
report on internal control over financial reporting.  Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a-15(f) of the Securities
Exchange Act of 1934.  Our internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.  Our internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and
that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisitions, use, or disposition of our assets that could have a material
effect on the financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.




As of
December 31, 2009, management assessed our internal control over financial
reporting in relation to criteria described in Internal Control- Integrated
Framework , issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment using those criteria, we concluded
that, as of December 31, 2009, our internal control over financial
reporting is effective. Our management reviewed the results of their assessment
with the Audit Committee.





This
Annual Report does not include a report of our registered public accounting firm
regarding internal control over financial reporting.  Our internal
control over financial reporting was not subject to an audit report by our
registered public accounting firm pursuant to temporary rules of the
Commission that permit us to provide only management’s report in this
report.





Changes in
Internal Control over Financial Reporting .   There was no
change in our internal control over financial reporting that occurred during the
quarter ended December 31, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.





/s/ Rodney ChristiansonRodney
      Christianson, Chief Executive Officer(Principal
      Executive Officer)





Item
9B.     Other Information.





None.


19


PART III





Pursuant
to General Instructions G(3), we omit Part III, Items 10, 11, 12, 13, and
14, and incorporate such items by reference to an amendment to this Annual
Report on Form 10-K or to an Information Statement to be filed with the
Commission within 120 days after the close of the fiscal year covered by this
Report (December 31, 2009).





Part IV





Item
15.      Exhibits, Financial Statement
Schedules.





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





(a)(1)      
Financial
Statements — Reference is made to the “Index to Financial Statements” of
South Dakota Soybean Processors, LLC located on the page immediately preceding
page F-1 of this report for a list of the financial statements for the year
ended December 31, 2009.  The financial statements appear on
page F-3 of this Report.





(2)          
All supplemental schedules are omitted because of the absence of conditions
under which they are required or because the information is shown in the
Consolidated Financial Statements or notes thereto.





(3)          
Exhibits - See
Exhibit Index following the Signature Page to this report. The
following exhibits constitute management agreements, compensatory plans, or
arrangements: Exhibits 10.7, 10.8, 10.9, and 10.10.





Pursuant
to the requirement of Section 13 or 15(d) of the Securities Exchange
Act, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





SIGNATURES





SOUTH
      DAKOTA SOYBEANPROCESSORS,
      LLCDate:
      March 26,
      2010
                      /s/ Rodney G.
  ChristiansonRodney
      G. ChristiansonChief
      Executive OfficerDate:
      March 26,
      2010
                      /s/ Mark HydeMark
      HydeController,
      Principal Accounting
Officer




20




Pursuant
to the requirements of the Securities Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.





SOUTH
      DAKOTA SOYBEANPROCESSORS,
      LLCDate:
      March 26,
      2010
                                            /s/ Rodney G.
  ChristiansonRodney
      G. ChristiansonChief
      Executive Officer(Principal
      Executive Officer)SOUTH
      DAKOTA SOYBEANPROCESSORS,
      LLCDate:
      March 26,
      2010
                                            /s/ Mark HydeMark
      HydeController,
      Principal Accounting OfficerDate:
      March
      26, 2010
                                            /s/ Paul BarthelPaul
      Barthel, ManagerDate:
      March 26,
      2010
                                            /s/ Alan ChristensenAlan
      Christensen, ManagerDate:
      March 26,
      2010
                                            /s/ Dean ChristophersonDean
      Christopherson, ManagerDate:
      March 26,
      2010
                                            /s/ David DriessenDavid
      Driessen, ManagerDate:
      March 26,
      2010
                                            /s/ Paul DummerPaul
      Dummer, ManagerDate:
      March 26,
      2010
                                            /s/ Wayne EngerWayne
      Enger, ManagerDate:
      March 26,
      2010
                                            /s/ Dan FeigeDan
      Feige, ManagerDate:
      March 26,
      2010
                                            /s/ Ronald J. GorderRonald
      J. Gorder, ManagerDate:
      March 26,
      2010
                                            /s/ Marvin HopeMarvin
      Hope, ManagerDate:
      March 26,
      2010
                                            /s/ James JepsenJames
      Jepsen, ManagerDate:
      March 26,
      2010
                                            /s/ Jerome JerzakJerome
      Jerzak, ManagerDate:
      March 26,
      2010
                                            /s/ Peter KontzPeter
      Kontz, ManagerDate:
      March 26,
      2010
                                            /s/ Bryce LoomisBryce
      Loomis,
Manager




21




Date:
      March 26,
      2010
                              /s/ Robert NelsenRobert
      Nelsen, ManagerDate:
      March 26,
      2010
                              /s/ Robert NelsonRobert
      Nelson, ManagerDate:
      March 26,
      2010
                              /s/ Maurice OdenbrettMaurice
      Odenbrett, ManagerDate:
      March 26,
      2010
                              /s/ Randy TauerRandy
      Tauer, ManagerDate:
      March 26,
      2010
                              /s/ Delbert TschakertDelbert
      Tschakert, ManagerDate:
      March 26,
      2010
                              /s/ Lyle TrautmanLyle
      Trautman, ManagerDate:
      March 26,
      2010
                              /s/ Ardon WekArdon
      Wek, ManagerDate:
      March 26,
      2010
                              /s/ Gary WertishGary
      Wertish,
Manager


22





EXHIBIT INDEX**





Exhibit
                          Number
                        
                        Description
                        
                        Filed
                          Herewith
                        
                        Incorporated Herein by Reference to3.1(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 99.1 to
      the Registrant’s Form 8-K filed on June 28,
  2007.3.1(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
                        
                        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)10.3
                        
                        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)10.4
                        
                        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)10.5
                        
                        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)10.6
                        
                        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, 2003.10.7
                        
                        Rodney
      Christianson Employment Agreement dated February 1,
    2008.
                        
                        
                        
                        Exhibit 10.1
      to the Registrant’s Form 10-Q filed with the Commission May 14,
      2008.10.8
                        
                        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, 2004.10.9
                        
                        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, 2003.10.10
                        
                        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, 2003.10.11
                        
                        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.




23




10.12
              
              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, 2004.10.13
              
              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, 2006.10.14
              
              Heads
      of Agreement with Transocean dated April 28, 2006
              
              
              
              Exhibit 10.1
      to the Registrant’s Form 10-Q filed with the Commission on
      May 15, 2006.10.15
              
              Amendment
      to Master Loan Agreement dated September 16, 2009
              
              
              
              Exhibit
      10.1 to the Registrant’s Form 10-Q filed with the Commission on November
      12, 2009.10.16
              
              Statused
      Term Loan Supplement dated September 16, 2009.
              
              
              
              Exhibit
      10.2 to the Registrant’s Form 10-Q filed with the Commission on November
      12, 2009.10.17
              
              Statused
      Revolving Credit Supplement dated September 16, 2009
              
              
              
              Exhibit
      10.3 to the Registrant’s Form 10-Q filed with the Commission on November
      12, 2009.21.1
              
              Subsidiaries
      of the Company.
              
              X31.1
              
              Rule 13a-14(a)/15d-14(a) Certification.
              
              X32.1
              
              Section 1350
      Certification.
              
              X





**
Documents can be found at www.sec.gov




24





SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC





CONSOLIDATED
FINANCIAL STATEMENTS





DECEMBER
31, 2009, 2008, AND 2007





SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC





Index to
Financial Statements







PageREPORTS
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
              F-1FINANCIAL
      STATEMENTSConsolidated
      Balance Sheets
              F-3Consolidated
      Statements of Operations
              F-5Consolidated
      Statements of Changes in Members’ Equity
              F-6Consolidated
      Statements of Cash Flows
              F-7Notes
      to Consolidated Financial Statements
              F-9












REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Managers and Members
 South
Dakota Soybean Processors, LLC
 Volga,
South Dakota
  We have
audited the accompanying consolidated balance sheets of South Dakota Soybean
Processors, LLC ( “the Company” ) as of
December 31, 2009 and 2008, and the related consolidated statements of
operations, changes in members’ equity, and cash
flows for each of the years in the two-year period ended December 31, 2009.
These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express
an opinion on these consolidated financial statements based on our
audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances,
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 also
includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position
of South Dakota Soybean Processors, LLC as of December 31, 2009 and 2008, and
the results of its operations
and its cash flows for each of the years in the two-year period ended December
31, 2009 in conformity with
accounting principles generally accepted in the United States of
America.
   /s/ Eide
Bailly LLP
  Greenwood
Village, Colorado
 March 25,
2010





F-1








REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board
of Managers
 South
Dakota Soybean Processors, LLC
 Volga,
South Dakota
 
 We have
audited the accompanying consolidated statements of operations, changes in
members' equity and cash flows of South Dakota Soybean Processors, LLC (the
“Company”) for the year ended December 31, 2007. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, 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 also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of South Dakota Soybean Processors, LLC for the year ended December 31, 2007 in
conformity with accounting principles generally accepted in the United States of
America.
 
 /s/ Gordon, Hughes
      & Banks
 Greenwood
Village, Colorado
 March 21,
2008





F-2





SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


CONSOLIDATED
BALANCE SHEETS


DECEMBER
31, 2009 AND 2008








2009
                
                
                2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                
                $
                69,791
                
                
                $
                9,332Trade
      accounts receivable, less allowance for uncollectible accounts (2009 -
      $92,000; 2008 - $78,000)
                
                
                19,222,873
                
                
                
                18,939,727Inventories
                
                
                35,822,294
                
                
                
                22,621,675Margin
      deposits
                
                
                362,609
                
                
                
                -Prepaid
      expenses
                
                
                576,846
                
                
                
                544,105Total
      current assets
                
                
                56,054,413
                
                
                
                42,114,839PROPERTY
      AND EQUIPMENT
                
                
                55,218,551
                
                
                
                54,344,281Less
      accumulated depreciation
                
                
                (32,497,138
                )
                
                
                (31,038,838
                )Total
      property and equipment, net
                
                
                22,721,413
                
                
                
                23,305,443OTHER
      ASSETSInvestments
      in cooperatives
                
                
                7,848,625
                
                
                
                8,055,962Notes
      receivable - members
                
                
                148,898
                
                
                
                148,898Patents
      and other intangible assets, net
                
                
                786,581
                
                
                
                5,640,572Total
      other assets
                
                
                8,784,104
                
                
                
                13,845,432Total
      assets
                
                $
                87,559,930
                
                
                $
                79,265,714





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


F-3


SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


CONSOLIDATED
BALANCE SHEETS (continued)


DECEMBER
31, 2009 AND 2008








2009
                
                
                2008LIABILITIES
      AND MEMBERS' EQUITYCURRENT
      LIABILITIESExcess
      of outstanding checks over bank balance
                
                $
                4,589,459
                
                
                $
                2,408,396Current
      maturities of long-term debt
                
                
                2,850,000
                
                
                
                819,017Note
      payable - seasonal loan
                
                
                14,252,224
                
                
                
                -Accounts
      payable
                
                
                650,573
                
                
                
                1,117,600Accrued
      commodity purchases
                
                
                22,943,887
                
                
                
                25,174,258Margin
      deposit deficit
                
                
                -
                
                
                
                252,281Accrued
      expenses
                
                
                2,709,172
                
                
                
                1,890,668Accrued
      interest
                
                
                130,750
                
                
                
                88,281Total
      current liabilities
                
                
                48,126,065
                
                
                
                31,750,501LONG-TERM
      LIABILITIESLong-term
      debt, less current maturities
                
                
                8,000,000
                
                
                
                9,300,000Deferred
      compensation
                
                
                69,573
                
                
                
                107,405Total
      long-term liabilities
                
                
                8,069,573
                
                
                
                9,407,405COMMITMENTS
      AND CONTINGENCIESTEMPORARY
      EQUITY, net of subscriptions receivable of $2,259 at December 31, 2009 and
      2008, consisting of 70,750 Class A capital units
                
                
                140,491
                
                
                
                140,491MEMBERS'
      EQUITYClass
      A Units, no par value, 30,419,000 units issued and
    outstanding
                
                
                31,223,801
                
                
                
                37,967,317Total
      liabilities, temporary equity and members' equity
                
                $
                87,559,930
                
                
                $
                79,265,714





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


F-4


SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007








2009
                
                
                2008
                
                
                2007NET
      REVENUES
                
                $
                268,272,561
                
                
                $
                360,114,676
                
                
                $
                247,741,767COST
      OF REVENUESCost
      of product sold
                
                
                235,657,564
                
                
                
                314,142,855
                
                
                
                207,484,862Production
                
                
                14,941,429
                
                
                
                17,840,158
                
                
                
                15,840,012Freight
      and rail
                
                
                15,957,569
                
                
                
                18,586,803
                
                
                
                17,064,268Brokerage
      fees
                
                
                404,778
                
                
                
                350,215
                
                
                
                312,275Total
      cost of revenues
                
                
                266,961,340
                
                
                
                350,920,031
                
                
                
                240,701,417GROSS
      PROFIT
                
                
                1,311,221
                
                
                
                9,194,645
                
                
                
                7,040,350OPERATING
      EXPENSESAdministration
                
                
                5,098,672
                
                
                
                6,041,727
                
                
                
                3,938,405Impairment
      charges
                
                
                4,507,289
                
                
                
                -
                
                
                
                -Total
      operating expenses
                
                
                9,605,961
                
                
                
                6,041,727
                
                
                
                3,938,405OPERATING
      PROFIT (LOSS)
                
                
                (8,294,740
                )
                
                
                3,152,918
                
                
                
                3,101,945OTHER
      INCOME (EXPENSE)Interest
      expense
                
                
                (1,144,923
                )
                
                
                (2,331,105
                )
                
                
                (2,105,676
                )Other
      non-operating income
                
                
                2,338,080
                
                
                
                2,415,944
                
                
                
                3,107,907Patronage
      dividend income
                
                
                358,367
                
                
                
                248,580
                
                
                
                49,240Total
      other income (expense)
                
                
                1,551,524
                
                
                
                333,419
                
                
                
                1,051,471INCOME
      (LOSS) BEFORE INCOME TAXES
                
                
                (6,743,216
                )
                
                
                3,486,337
                
                
                
                4,153,416INCOME
      TAX EXPENSE (BENEFIT)
                
                
                300
                
                
                
                300
                
                
                
                (7,160
                )NET
      INCOME (LOSS)
                
                $
                (6,743,516
                )
                
                $
                3,486,037
                
                
                $
                4,160,576BASIC
      AND DILUTED EARNINGS (LOSS) PER CAPITAL UNIT
                
                $
                (0.22
                )
                
                $
                0.11
                
                
                $
                0.14WEIGHTED
      AVERAGE NUMBER OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED
      EARNINGS (LOSS) PER CAPITAL UNIT
                
                
                30,419,000
                
                
                
                30,419,000
                
                
                
                30,419,000





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


F-5


SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


CONSOLIDATED
STATEMENT OF CHANGES IN MEMBERS’ EQUITY


FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007








Class
      A UnitsUnits
                    
                    
                    AmountBALANCES,
      JANUARY 1, 2007
                    
                    
                    30,419,000
                    
                    
                    $
                    39,404,013Net
      income
                    
                    
                    -
                    
                    
                    
                    4,160,576Distributions
      to members
                    
                    
                    -
                    
                    
                    
                    (6,400,000
                    )BALANCES,
      DECEMBER 31, 2007
                    
                    
                    30,419,000
                    
                    
                    
                    37,164,589Net
      income
                    
                    
                    -
                    
                    
                    
                    3,486,037Recognition
      of capital units previously recorded as temporary equity
                    
                    
                    -
                    
                    
                    
                    1,082,750Distributions
      to members
                    
                    
                    -
                    
                    
                    
                    (3,766,059
                    )BALANCES,
      DECEMBER 31, 2008
                    
                    
                    30,419,000
                    
                    
                    
                    37,967,317Net
      loss
                    
                    
                    -
                    
                    
                    
                    (6,743,516
                    )BALANCES,
      DECEMBER 31, 2009
                    
                    
                    30,419,000
                    
                    
                    $
                    31,223,801





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


F-6


SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007










2009
                    
                    
                    2008
                    
                    
                    2007OPERATING
      ACTIVITIESNet
      income (loss)
                    
                    $
                    (6,743,516
                    )
                    
                    $
                    3,486,037
                    
                    
                    $
                    4,160,576Charges
      and credits to net income (loss) not affecting cash:Depreciation
      and amortization
                    
                    
                    2,587,230
                    
                    
                    
                    2,530,644
                    
                    
                    
                    2,689,574Loss
      on impairment of intangible assets
                    
                    
                    4,507,289
                    
                    
                    
                    -
                    
                    
                    
                    -(Gain)
      loss on sales of property and equipment
                    
                    
                    69,501
                    
                    
                    
                    (29,000
                    )
                    
                    
                    552Gain
      on equity method investment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (577,240
                    )Non-cash
      patronage dividends
                    
                    
                    (125,428
                    )
                    
                    
                    (123,540
                    )
                    
                    
                    (24,611
                    )Change
      in current assets and liabilities
                    
                    
                    (16,005,653
                    )
                    
                    
                    24,806,173
                    
                    
                    
                    (29,453,823
                    )NET
      CASH FROM (USED FOR) OPERATING ACTIVITIES
                    
                    
                    (15,710,577
                    )
                    
                    
                    30,670,314
                    
                    
                    
                    (23,204,972
                    )INVESTING
      ACTIVITIESProceeds
      from investments in cooperatives
                    
                    
                    277,713
                    
                    
                    
                    420,120
                    
                    
                    
                    -Retirement
      of patronage dividends
                    
                    
                    55,053
                    
                    
                    
                    376,517
                    
                    
                    
                    27,922Patent
      costs
                    
                    
                    (129,312
                    )
                    
                    
                    (117,577
                    )
                    
                    
                    (99,806
                    )Proceeds
      from sales of property and equipment
                    
                    
                    12,431
                    
                    
                    
                    29,000
                    
                    
                    
                    6,855Purchase
      of property and equipment
                    
                    
                    (1,609,119
                    )
                    
                    
                    (1,121,806
                    )
                    
                    
                    (1,002,652
                    )NET
      CASH (USED FOR) INVESTING ACTIVITIES
                    
                    
                    (1,393,234
                    )
                    
                    
                    (413,746
                    )
                    
                    
                    (1,067,681
                    )FINANCING
      ACTIVITIESChange
      in excess of outstanding checks over bank balances
                    
                    
                    2,181,063
                    
                    
                    
                    600,797
                    
                    
                    
                    (2,538,488
                    )Net
      (payments) proceeds from seasonal borrowings
                    
                    
                    14,252,224
                    
                    
                    
                    (23,448,082
                    )
                    
                    
                    23,448,082Distributions
      to members
                    
                    
                    -
                    
                    
                    
                    (3,766,059
                    )
                    
                    
                    (6,400,000
                    )Decrease
      in member loans
                    
                    
                    -
                    
                    
                    
                    314,983
                    
                    
                    
                    232,695Proceeds
      from long-term debt
                    
                    
                    4,967,079
                    
                    
                    
                    -
                    
                    
                    
                    1,300,000Principal
      payments on long-term debt
                    
                    
                    (4,236,096
                    )
                    
                    
                    (3,958,122
                    )
                    
                    
                    (77,155
                    )NET
      CASH FROM (USED FOR) FINANCING ACTIVITIES
                    
                    
                    17,164,270
                    
                    
                    
                    (30,256,483
                    )
                    
                    
                    15,965,134NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                    
                    
                    60,459
                    
                    
                    
                    85
                    
                    
                    
                    (8,307,519
                    )CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                    
                    
                    9,332
                    
                    
                    
                    9,247
                    
                    
                    
                    8,316,766CASH
      AND CASH EQUIVALENTS, END OF YEAR
                    
                    $
                    69,791
                    
                    
                    $
                    9,332
                    
                    
                    $
                    9,247





(continued
on next page)


F-7


SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)


FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007








2009
                              
                              
                              2008
                              
                              
                              2007SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid during the year for:Interest
                              
                              $
                              1,102,454
                              
                              
                              $
                              2,252,199
                              
                              
                              $
                              2,131,587Income
      taxes
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -




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




F-8


SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1 -  PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING
POLICIES





Organization





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





The
Company holds a 100% equity interest in Urethane Soy Systems Company (“USSC”),
which is responsible for marketing, formulation and technical support of
Soyol® (a
polyol made from soybean oil) and related systems.  The Company
consolidates the operations of USSC.





Principles
of consolidation





The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary.  All significant intercompany accounts and
transactions have been eliminated.





Cash
and cash equivalents





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





Accounts
receivable





Accounts
receivable are considered past due when payments are not received within thirty
days. Generally, these accounts receivable represent amounts due for sale of
soybean meal, oil, hulls and refined oil.  The Company charges finance
fees to customers that are over thirty days past-due.





The
carrying amount of trade receivables is reduced by a valuation allowance that
reflects management’s estimate of amounts that will not be
collected.  Management reviews all receivable balances that exceed 90
days from the invoice date and, based on an assessment of current
creditworthiness, estimates the portion, if any, of the balance that may not be
collected.





Inventories





Finished
goods (soybean meal, oil, refined oil, and hulls) and raw materials (soybeans)
are valued at estimated market value.  This accounting policy is in
accordance with the guidelines described in AICPA Accounting Standards
Codification (ASC) 905, Agriculture (formerly AICPA
Statement of Position No. 85-3, Accounting by Agricultural Producers
and Agricultural Cooperatives). Supplies and other inventories are stated
at the lower of cost, determined by the first-in, first-out method, or
market.





Investments





Investments
in cooperatives are carried at cost plus the amount of patronage earnings
allocated to the Company, less any cash distributions received.





Prior to
September 1, 2007, the Company accounted for its 6.95% investment in Minnesota
Soybean Processors (MnSP) using the equity method due to the related nature of
operations and the Company’s ability to influence management decisions of
MnSP.  Under the equity method, the initial investment is recorded at
cost and adjusted annually to recognize the Company’s share of earnings and
losses of the entity.  On September 1, 2007, the services and
management agreement between the two companies was
terminated.  Commencing on that date, the Company ceased the
accounting for its investment in MnSP under the equity method, and began
accounting for the investment at cost plus the amount of patronage earnings
allocated to the Company, less any cash distributions received.





(continued
on next page)


F-9


SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS








Property
and equipment





Property
and equipment is stated at cost. Expenditures for renewals and improvements that
significantly add to the productive capacity or extend the useful life of an
asset are capitalized.  Expenditures for maintenance and repairs are
charged to expense when incurred. When depreciable properties are sold or
retired, the cost and accumulated depreciation are eliminated from the accounts
and the resultant gain or loss is reflected in income.





Depreciation
is provided for over the estimated useful lives of the individual assets using
the straight-line method.  The range of the estimated useful lives
used in the computation of depreciation is as follows:





Buildings and improvements
            
            10-39 yearsEquipment and furnishings
            
            3-15 years





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





Patents





The
Company’s patents are amortized over their estimated useful lives, using the
straight-line method over a period of 16 to 20 years, which is the shorter of
the remaining estimated economic life of the patents acquired or 20 years from
the original file date.





The
Company evaluates the recoverability of identifiable intangible assets whenever
events or changes in circumstances indicate that an intangible asset’s carrying
value may not be recoverable.  Such circumstances could include, but
are not limited to (1) a significant decrease in the market value of an asset,
(2) a significant adverse change in the extent or manner in which the asset is
used, or (3) an accumulation of costs significantly in excess of the amount
originally expected for the acquisition of an asset.  The Company
measures the carrying amount of the asset against the estimated undiscounted
future cash flows associated with it.  Should the sum of the expected
future net cash flows be less than the carrying value of the asset being
evaluated, an impairment loss would be recognized.  The impairment
loss would be calculated as the amount by which the carrying value of the asset
exceeds its fair value.  The fair value is measured based on quoted
market prices, if available.  If quoted market prices are not
available, the estimate of fair value is based on various valuation techniques,
including the discounted value of estimated future cash flows.  The
evaluation of asset impairment requires the Company to make assumptions about
future cash flows over the life of the assets being evaluated.  These
assumptions require significant judgment and actual results may differ from
assumed and estimated amounts.  During the year ended December 31,
2009, the Company recorded an impairment loss of $4,507,289 related to an
intangible asset.





Use of estimates





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





(continued
on next page)


F-10


SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS








Revenue
Recognition





Revenue
is recognized when the related products are shipped, which is when title is
transferred to the customer.  Revenues are presented net of discounts
and sales allowances.





Freight





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





The
Company’s “Shipping and Handling Costs” policy is in accordance with ASC 605,
Revenue Recognition
(formerly EITF Issue 00-10, Accounting for Shipping and Handling
Fees and Costs).





Advertising
costs





Advertising
and promotion costs are expensed as incurred. The Company incurred $143,181,
$111,641, and $121,643 of advertising costs in the years ended December 31,
2009, 2008, and 2007, respectively.





Environmental
remediation





It is
management’s opinion that the amount of any potential environmental remediation
costs will not be material to the Company’s financial condition, results of
operations, or cash flows; therefore, no accrual has been recorded.





Accounting
for derivative instruments and hedging activities





All of
the Company’s derivatives are designated as non-hedge
derivatives.  The futures and options contracts used by the Company
are discussed below.  Although the contracts may be effective economic
hedges of specified risks, they are not designated as, nor accounted for, as
hedging instruments.





The Company, as part of its trading
activity, uses futures and option contracts offered through regulated commodity
exchanges to reduce risk.  The Company is exposed to risk of loss in
the market value of inventories.  To reduce that risk, the Company
generally takes opposite and offsetting positions using futures contracts or
options.





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





Earnings
per capital unit





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





Income
taxes





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





(continued
on next page)


F-11


SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS










The
Company has adopted the provisions of FASB Accounting Standards Codification
Topic ASC 740-10 (previously Financial Interpretation No. 48, Accounting for Uncertainty in Income
Taxes),on
January 1, 2007. The implementation of this standard had no impact on the
financial statements. As of both the date of adoption, and as of December 31,
2009, the unrecognized tax benefit accrual was zero.





The
Company will recognize future accrued interest and penalties related to
unrecognized tax benefits in income tax expense if incurred.





As of
December 31, 2009, the tax basis of the Company’s net assets exceeds the book
value of those assets by approximately $5.9 million.





Recent
accounting pronouncements





In June
2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Codification (ASC) 105, Generally Accepted Accounting
Principles (formerly SFAS No. 168, The FASB Accounting Standards
Codification”TM and the Hierarchy of Generally Accepted Accounting Principles – a
replacement of FASB Statement No. 162). ASC 105 establishes the FASB
Accounting Standards CodificationTM
(Codification) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP.  Rules and interpretive
releases of the Securities and Exchange Commission (SEC) under authority of
federal securities laws are also sources of authoritative GAAP for SEC
registrants.  The FASB will no longer issue new standards in the form
of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts;
instead the FASB will issue Accounting Standards Updates.  Accounting
Standards Updates will not be authoritative in their own right as they will only
serve to update the Codification.  The Company adopted ASC 105 on
September 30, 2009.  Because the Codification is not intended to
change GAAP, the adoption of this standard did not have an impact on the
Company’s financial results; however, the Company’s disclosures and references
to accounting standards changed to reflect the new Codification
structure.





In May
2009, the FASB issued ASC 855, Subsequent Events (formerly
SFAS No. 165, Subsequent
Events).  ASC 855 establishes general accounting
standards  to account for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued, otherwise known as “subsequent events”. More
specifically, these changes require the disclosure of the date through which
subsequent events have been evaluated, as well as whether the date is the date
the financial statements were issued or the date the financial statements were
available to be issued.  For public entities, financial statements are
considered “issued” when they are widely distributed to shareholders and other
financial users for general use and reliance in a form and format that complies
with GAAP.  The Company adopted the provisions of this standard on
June 30, 2009.  The Company has evaluated subsequent events through
March 25, 2010, which is the date they issued their financial statements, and
concluded that no subsequent events have occurred that would require recognition
in the Financial Statements or disclosure in the Notes to the Financial
Statements.





In June
2009, the FASB issued ASC 860, Transfers and Servicing
(formerly SFAS No. 166, Accounting for Transfers of
Financial Assets). ASC 860 requires additional disclosure of transfers of
financial assets and where companies have continuing exposure to the risk
related to transferred financial assets. These changes eliminate the concept of
a “qualifying special purpose entity”, amend the requirements for derecognizing
financial assets, and require additional disclosures. These changes are
effective for fiscal years and interim periods beginning after November 15,
2009.  Earlier adoption is prohibited. Management does not expect the
adoption of this standard to have a material impact on the Company’s financial
position or results of operations.





(continued
on next page)


F-12


SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS








In June
2009, the FASB issued ASC 810, Consolidation (formerly SFAS
No. 167, Amendments to FASB
Interpretation No. 46(R)) regarding the consolidation of variable
interest entities.  ASC 810 requires an enterprise to perform an
analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest entity; to
require ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity; to eliminate the quantitative
approach previously required for determining the primary beneficiary of a
variable interest entity; to add an additional reconsideration event for
determining whether an entity is a variable interest entity when any changes in
facts and circumstances occur such that holders of the equity investment at
risk, as a group, lose the power from voting rights or similar rights of those
investments to direct the activities of the entity that most significantly
impact the entity’s economic performance; and to require enhanced disclosures
that will provide users of financial statements with more transparent
information about an enterprise’s involvement in a variable interest entity.
These changes become effective for fiscal years and interim periods beginning
after November 15, 2009.  Earlier adoption is
prohibited.  Management is evaluating the impact adoption may have on
the Company’s financial position, results of operations and cash
flows.





NOTE
2 -  INVENTORIES





2009
                  
                  
                  2008Finished
      goods
                  
                  $
                  9,434,625
                  
                  
                  $
                  5,960,820Raw
      materials
                  
                  
                  26,302,069
                  
                  
                  
                  16,598,148Supplies
      & miscellaneous
                  
                  
                  85,600
                  
                  
                  
                  62,707Totals
                  
                  $
                  35,822,294
                  
                  
                  $
                  22,621,675





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





NOTE
3 -  MARGIN DEPOSITS





The
Company has margin deposits with a commodity brokerage firm used to acquire
futures and option contracts to manage the price volatility risk of soybeans,
crude soybean oil and soybean meal.  Consistent with its inventory
accounting policy, these contracts are recorded at market value.  At
December 31, 2009, the Company’s futures contracts all mature within twelve
months.





(continued
on next page)


F-13




SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - 
INVESTMENTS IN COOPERATIVES





2009
                        
                        
                        2008Investments
      in associated cooperative companies:Minnesota
      Soybean Processors
                        
                        $
                        3,820,437
                        
                        
                        $
                        3,820,437Cenex
      Harvest States
                        
                        
                        3,003,452
                        
                        
                        
                        3,336,217CoBank
                        
                        
                        1,024,736
                        
                        
                        
                        899,308$
                        7,848,625
                        
                        
                        $
                        8,055,962




In August
2004, the Company exchanged a storage facility with a net book value of
$2,322,561 for 1,400,400 Class A shares in Minnesota Soybean Processors (MnSP),
a Minnesota cooperative association.  The shares 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.  Prior to September 1, 2007, the Company accounted for its
6.95% investment in MnSP using the equity method due to the related nature of
operations and the Company’s ability to influence management decisions of
MnSP.  The Company recognized gains (losses) of $0, $0, and $577,240
in 2009, 2008, and 2007, respectively, which is included in other non-operating
income (expense).  On September 1, 2007, the services and management
agreement between the two companies was terminated.  Commencing on
that date, the Company ceased the accounting for its investment in MnSP under
the equity method, and began accounting for the investment at cost plus the
amount of patronage earnings allocated to the Company, less any cash
distributions received.





NOTE
5 -  PROPERTY AND EQUIPMENT




2009Accumulated
                            
                            
                            
                            
                            
                            2008Cost
                            
                            
                            Depreciation
                            
                            
                            Net
                            
                            
                            NetLand
                            
                            $
                            443,816
                            
                            
                            $
                            -
                            
                            
                            $
                            443,816
                            
                            
                            $
                            237,643Land
      improvements
                            
                            
                            201,820
                            
                            
                            
                            (29,416
                            )
                            
                            
                            172,404
                            
                            
                            
                            184,016Buildings
      and improvements
                            
                            
                            14,537,143
                            
                            
                            
                            (4,998,482
                            )
                            
                            
                            9,538,661
                            
                            
                            
                            9,912,140Machinery
      and equipment
                            
                            
                            38,319,400
                            
                            
                            
                            (26,681,332
                            )
                            
                            
                            11,638,068
                            
                            
                            
                            11,828,809Company
      vehicles
                            
                            
                            200,432
                            
                            
                            
                            (142,867
                            )
                            
                            
                            57,565
                            
                            
                            
                            86,202Furniture
      and fixtures
                            
                            
                            1,052,572
                            
                            
                            
                            (645,041
                            )
                            
                            
                            407,531
                            
                            
                            
                            490,105Construction
      in progress
                            
                            
                            463,368
                            
                            
                            
                            -
                            
                            
                            
                            463,368
                            
                            
                            
                            566,528Totals
                            
                            $
                            55,218,551
                            
                            
                            $
                            (32,497,138
                            )
                            
                            $
                            22,721,413
                            
                            
                            $
                            23,305,443




NOTE
6 -  PATENTS AND OTHER INTANGIBLE ASSETS





On
January 1, 2003, the Company acquired an additional 54% interest in the
outstanding common stock of USSC to bring its total ownership interest to
approximately 58%.  The results of USSC’s operations have been
consolidated in the Company’s financial statements since that
date.  The acquisition of a controlling interest in USSC allows the
Company to develop and market soy-based polyurethane
products.  Subsequently, through the participation in additional
equity offering, conversion of notes payable, and stock swaps, SDSP has
increased its majority ownership in USSC to 100% as of December 31,
2009.


F-14




SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


The
allocation of the purchase price of USSC resulted in an assignment of $7,401,245
to patents.  None of these patent costs recognized for financial
reporting purposes is expected to be deductible for tax purposes.  The
patents are being amortized using the straight-line method over a period of 16
to 20 years, which is the shorter of the remaining estimated economic life of
the patents acquired or 20 years from the original file
date.  Amortization expense was $476,013, $446,518, and $434,245 for
the years ended December 31, 2009, 2008, and 2007, respectively.





In 2009,
the Company performed an impairment test of the carrying value of the patents to
determine if any impairment existed.  The Company determined that the
sum of the undiscounted cash flows attributable to the patents was less than its
carrying value and that an impairment write-down was
required.  Accordingly, the Company calculated the estimated fair
value of the intangible asset by summing the present value of the expected cash
flows over its remaining useful life.  The impairment was calculated
by deducting the present value of the expected cash flows from the carrying
value.  This assessment resulted in an impairment write-down of
$4,507,289, which was included in “Impairment Charges” in the accompanying
Statement of Operations for the year ended December 31, 2009.





The
following table provides information regarding the Company’s other intangible
assets as of December 31, 2009 and 2008:





AccumulatedIntangible
      Assets
                                    
                                    Life
                                    
                                    Cost
                                    
                                    
                                    Amortization
                                    
                                    
                                    NetAs
      of December 31, 2009:Patents
                                    
                                    16-20
      Yrs.
                                    
                                    $
                                    917,670
                                    
                                    
                                    $
                                    (158,062
                                    )
                                    
                                    $
                                    759,608Loan
      Origination Costs
                                    
                                    10
      Yrs.
                                    
                                    
                                    46,625
                                    
                                    
                                    
                                    (45,722
                                    )
                                    
                                    
                                    903Trademarks
                                    
                                    
                                    
                                    
                                    26,070
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    26,070$
                                    990,365
                                    
                                    
                                    $
                                    (203,784
                                    )
                                    
                                    $
                                    786,581As
      of December 31, 2008:Patents
                                    
                                    16-20
      Yrs.
                                    
                                    $
                                    8,194,952
                                    
                                    
                                    $
                                    (2,576,728
                                    )
                                    
                                    $
                                    5,618,224Loan
      Origination Costs
                                    
                                    10
      Yrs.
                                    
                                    
                                    46,625
                                    
                                    
                                    
                                    (45,000
                                    )
                                    
                                    
                                    1,625Trademarks
                                    
                                    
                                    
                                    
                                    20,723
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    20,723$
                                    8,262,300
                                    
                                    
                                    $
                                    (2,621,728
                                    )
                                    
                                    $
                                    5,640,572




F-15




SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Future
amortization expense related to patents, loan origination costs and trademarks
is expected to be approximately:





For the years ending December 31:2010
                        
                        $
                        66,6302011
                        
                        
                        66,0892012
                        
                        
                        65,9082013
                        
                        
                        65,9082014
                        
                        
                        65,908Thereafter
                        
                        
                        456,138Total
                        
                        $
                        786,581




NOTE
7 -  NOTES PAYABLE – SEASONAL LOAN





The
Company has entered into a revolving credit agreement with CoBank, which expires
August 1, 2010. The purpose of the credit agreement is to finance the inventory
and accounts receivable of the Company. On September 16, 2009, the Company
amended its Master Loan Agreement.  Under the amendment, the Company
may borrow up to $30 million. Interest accrues at a variable rate (3.24% at
December 31, 2009).  Advances on the revolving credit agreement are
secured and limited to qualifying inventory and accounts receivable, net of any
accrued commodity purchases.  There were advances outstanding of
$14,252,224 and $0 at December 31, 2009 and 2008, respectively.  The
remaining available funds to borrow under the terms of the revolving credit
agreement are approximately $15,748,000 as of December 31, 2009.





NOTE
8 -  LONG-TERM DEBT





2009
                          
                          
                          2008Revolving
      term loan from CoBank, interest at variable rates
      (3.49%   and 3.50% at December 31, 2009 and 2008,
      respectively),   secured by substantially all property and
      equipment. Loan   matures September 20,
    2013.
                          
                          $
                          10,600,000
                          
                          
                          $
                          9,869,017Note
      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
                          
                          
                          
                          250,00010,850,000
                          
                          
                          
                          10,119,017Less
      current maturities
                          
                          
                          (2,850,000
                          )
                          
                          
                          (819,017
                          )Totals
                          
                          $
                          8,000,000
                          
                          
                          $
                          9,300,000




F-16





SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





The
Company entered into an agreement as of March 26, 2007 with CoBank to amend and
restate its Master Loan Agreement (MLA), which includes both the revolving term
loan and the seasonal loan discussed in Note 8.  Under the terms and
conditions of the MLA, CoBank agreed to make advances to the Company for up to
$13,200,000 on the revolving term loan. The available commitment decreases in
scheduled periodic increments of $1,300,000 every six months.  These
payments were waived for the September 2007 and March 2008
periods.  The principal balance outstanding on the revolving term loan
was $10,600,000 and $9,869,017 as of December 31, 2009 and 2008,
respectively.  There were no remaining commitments available to borrow
on the revolving term loan as of December 31, 2009.  Under this
agreement, the Company is subject to compliance with standard financial
covenants and the maintenance of certain financial ratios.  The
Company was in compliance with all covenants and conditions with CoBank as of
December 31, 2009.





The
minimum principal payments on long-term debt obligations will be as
follows:





For the years ending December 31:2010
                        
                        $
                        2,850,0002011
                        
                        
                        2,600,0002012
                        
                        
                        2,600,0002013
                        
                        
                        2,800,000Total
                        
                        $
                        10,850,000




NOTE
9 -  EMPLOYEE BENEFIT PLANS





The
Company maintains a Section 401(k) plan for employees who meet the eligibility
requirements set forth in the plan documents.  The Company matches a
percentage of employees’ contributed earnings.  The amounts charged to
expense under this plan were approximately $90,000, $91,000, and $66,000 for the
years ended December 31, 2009, 2008, and 2007, respectively.





The
Company has a deferred compensation plan for key employees.  The
agreements provide benefits, which vest over a three-year period.  The
Company shall pay the employees in five equal annual installments upon
retirement.  The future payments have been discounted at
8%.  The amount recognized as expense (benefit) during the years ended
December 31, 2009, 2008, and 2007 was $(37,832), $(3,335), and $30,389,
respectively.  The Company made payments of approximately $0, $10,600,
and $10,600 during the years ended December 31, 2009, 2008, and 2007,
respectively. Deferred compensation payable is recorded at $69,573 and $107,405
as of December 31, 2009 and 2008, respectively.





NOTE
10 -  COMMITMENTS





Operating
Leases





The
Company has operating leases for 267 rail cars from GE Capital.  The
leases require monthly payments of $106,665.  The Company also leases
90 rail cars from Trinity Capital.  This lease requires monthly
payments of $34,470.  The Company also leases 66 rail cars from AIG
Rail Services.  This lease requires monthly payments of
$25,608.  The leases began between 1996 and 2004 and have terms
ranging from 10-18 years.  Lease expense for all rail cars was
$2,050,039, $2,001,287, and $1,998,223 for the years ended December 31, 2009,
2008, and 2007, respectively.  The Company generates revenues from the
use of 322 of these rail cars on other railroads.  Such revenues were
$1,599,166, $1,500,463, and $1,528,301 for the years ended December 31, 2009,
2008, and 2007, respectively.




F-17





SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


The
Company has entered into a sub-lease agreement with the Dakota, Minnesota &
Eastern Railroad Corporation (“DME”) for the hopper rail cars that it leases
from GE Capital.  The Company recognizes revenue from this sub-lease
as the hopper rail cars are used by the DME.  The sub-lease is for a
twelve-month period and is renewed annually.  The Company is
responsible for all maintenance of the rail cars.





In June
2008, the Company entered into a Grain Storage and Transportation Agreement with
H&I Grain of Hetland, Inc. (“H&I”).  This agreement is for the
handling, storage and transportation of soybeans to and from the H&I
facilities located in DeSmet, Hetland and Arlington, South Dakota at established
rates per bushel.  The agreement provides for an annual minimum
payment of $250,000.  The agreement is effective from September 1,
2008 through August 31, 2011.  Expenses under this agreement were
$535,995, $467,229, and $464,793 for the years ended December 31, 2009, 2008,
and 2007, respectively.





The
Company also has a number of other operating leases for machinery and equipment.
Rental expense under these other operating leases was $780,592, $233,460, and
$32,386 for the years ended December 31, 2009, 2008, and 2007,
respectively.





The
following is a schedule of future minimum payments required under these
operating commitments.





Rail
      Cars
                        
                        
                        Other
                        
                        
                        TotalYear
      ended December 31:2010
                        
                        $
                        2,000,916
                        
                        
                        $
                        404,602
                        
                        
                        $
                        2,405,5182011
                        
                        
                        2,000,916
                        
                        
                        
                        385,867
                        
                        
                        
                        2,386,7832012
                        
                        
                        2,000,916
                        
                        
                        
                        102,996
                        
                        
                        
                        2,103,9122013
                        
                        
                        2,000,916
                        
                        
                        
                        13,362
                        
                        
                        
                        2,014,2782014
                        
                        
                        1,825,588
                        
                        
                        
                        -
                        
                        
                        
                        1,825,588Thereafter
                        
                        
                        5,418,744
                        
                        
                        
                        -
                        
                        
                        
                        5,418,744Totals
                        
                        $
                        15,247,996
                        
                        
                        $
                        906,827
                        
                        
                        $
                        16,154,823




Letter
of Credit





At
December 31, 2009 the Company had an outstanding irrevocable standby letter of
credit in the amount of $395,000, expiring in October 2013.  The
letter is being maintained as security for performance on a long-term contract
with a natural gas supplier.


F-18




SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
11 -  CASH FLOW INFORMATION





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





2009
                        
                        
                        2008
                        
                        
                        2007(Increase)
      decrease in assets:Trade
      accounts receivable
                        
                        $
                        (283,146
                        )
                        
                        $
                        5,041,327
                        
                        
                        $
                        (8,026,477
                        )Inventories
                        
                        
                        (13,200,619
                        )
                        
                        
                        11,481,871
                        
                        
                        
                        (18,289,751
                        )Margin
      account deposit
                        
                        
                        (614,890
                        )
                        
                        
                        4,529,816
                        
                        
                        
                        (3,355,328
                        )Prepaid
      expenses
                        
                        
                        (32,741
                        )
                        
                        
                        20,273
                        
                        
                        
                        32,590(14,131,396
                        )
                        
                        
                        21,073,287
                        
                        
                        
                        (29,638,966
                        )





Increase (decrease) in liabilities:Accounts
      payable
                      
                      
                      (467,027
                      )
                      
                      
                      (606,694
                      )
                      
                      
                      509,090Accrued
      commodity purchases
                      
                      
                      (2,230,371
                      )
                      
                      
                      4,086,315
                      
                      
                      
                      186,279Accrued
      expenses and interest
                      
                      
                      860,973
                      
                      
                      
                      267,221
                      
                      
                      
                      (529,995
                      )Deferred
      compensation
                      
                      
                      (37,832
                      )
                      
                      
                      (13,956
                      )
                      
                      
                      19,769(1,874,257
                      )
                      
                      
                      3,732,886
                      
                      
                      
                      185,143Total
                      
                      $
                      (16,005,653
                      )
                      
                      $
                      24,806,173
                      
                      
                      $
                      (29,453,823
                      )




NOTE
12 -  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES





In
March 2008, FASB issued ASC 815, Derivatives and Hedging
(formerly SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities). ASC 815
requires enhanced disclosures about how these instruments and activities affect
the entity’s financial position, financial performance and cash flows. The
guidance requires disclosure of the fair values of derivative instruments and
their gains and losses in a tabular format. It also provides more information
about an entity’s liquidity by requiring disclosure of derivative features that
are credit risk-related. Finally, it requires cross-referencing within footnotes
to enable financial statement users to locate important information about
derivative instruments. The guidance is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008. As ASC 815 is only disclosure related, it did not have an impact on our
financial position, results of operation or cash flows.





In the
ordinary course of business, the Company enters into contractual arrangements as
a means of managing exposure to changes in commodity prices.  The
Company’s derivative instruments primarily consist of commodity futures, options
and forward contracts.  Although these contracts may be effective
economic hedges of specified risks, they are not designated as, nor accounted
for, as hedging instruments.  These contracts are recorded on the
Company’s consolidated balance sheets at fair value as discussed in Note 6, Fair
Value of Financial Instruments.


F-19




SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As of
December 31, 2009 and 2008, the value of the Company’s open futures, options and
forward contracts was approximately $(846,617) and $1,362,559,
respectively.




Amounts
      As of December 31, 2009Balance
      Sheet
                                                        
                                                        
                                                        Asset
                                                        
                                                        
                                                        LiabilityClassification
                                                        
                                                        
                                                        Derivatives
                                                        
                                                        
                                                        DerivativesDerivatives
      not designated ashedging
      instruments:Commodity
      contracts
                                                        
                                                        Current
      Assets
                                                        
                                                        $
                                                        932,777
                                                        
                                                        $
                                                        1,426,636




During
the years ended December 31, 2009, 2008 and 2007, net realized and unrealized
gains (losses) on derivative transactions were recognized in the consolidated
statement of operations as follows:




Net
      Gain (Loss) Recognized on DerivativeActivities
      for the Year Ending December 31:2009
                                                            
                                                            
                                                            2008
                                                            
                                                            
                                                            2007Derivatives
      not designated ashedging
      instruments:Commodity
      contracts
                                                            
                                                            $
                                                            9,456,634
                                                            
                                                            $
                                                            (9,690,869)
                                                            
                                                            $
                                                            (7,271,829)




The
Company recorded gains (losses) of $9,456,634, $(9,690,869), and $(7,271,829) in
cost of goods sold related to its commodity derivative instruments for the years
ended December 31, 2009, 2008, and 2007, respectively.





NOTE
13 -  FAIR VALUE OF FINANCIAL INSTRUMENTS





In
February 2006, FASB issued ASC 820, Fair Value Measurements and
Disclosures (formerly SFAS No. 157, Fair Value
Measurement).  ASC 820 defines fair value, establishes a
comprehensive framework for measuring fair value and expands disclosures which
are required about fair value measurements.  Specifically, this
guidance establishes a hierarchy prioritizing the inputs to valuation
techniques, giving the highest priority to quoted prices in active markets for
identical assets and liabilities and the lowest priority to unobservable value
inputs.  The adoption of ASC 820 had an immaterial impact on the
Company’s financial statements.  The three levels of hierarchy and
examples are as follows





·
            Level
      1 – Quoted prices are available in active markets for identical assets or
      liabilities as of the reported date. The types of assets and liabilities
      included in Level 1 are highly liquid and actively traded instruments with
      quoted prices, such as equities listed on the New York Stock Exchange and
      commodity derivative contracts listed on the Chicago Board of Trade
      (“CBOT”).


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


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


F-20





SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





The
following tables set forth financial assets and liabilities measured at fair
value in the consolidated balance sheets and the respective levels to which fair
value measurements are classified within the fair value hierarchy as of December
31, 2009 and 2008:





Fair
      Value as of December 31, 2009Level
      1
                          
                          
                          Level
      2
                          
                          
                          Level
      3
                          
                          
                          TotalFinancial
      assets:Cash
      equivalents
                          
                          $
                          69,791
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          69,791Inventory
                          
                          $
                          269,437
                          
                          
                          $
                          33,480,174
                          
                          
                          $
                          -
                          
                          
                          $
                          33,749,611Margin
      deposits (deficits)
                          
                          $
                          362,609
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          362,609





Fair
      Value as of December 31, 2008Level
      1
                          
                          
                          Level
      2
                          
                          
                          Level
      3
                          
                          
                          TotalFinancial
      assets:Cash
      equivalents
                          
                          $
                          9,332
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          9,332Inventory
                          
                          $
                          1,362,559
                          
                          
                          $
                          17,225,635
                          
                          
                          $
                          -
                          
                          
                          $
                          18,588,194Margin
      deposits (deficits)
                          
                          $
                          (252,281
                          )
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          (252,281
                          )




The fair
value of the Company’s long-term debt approximates the carrying
value.  The interest rates on the long-term debt are similar to rates
the Company would be able to obtain currently in the market.





The
Company enters into various commodity derivative instruments, including futures,
options, swaps and other agreements.  The fair value of the Company’s
commodity derivatives is determined using unadjusted quoted prices for identical
instruments on the Chicago Board of Trade (“CBOT”).  The Company
estimates the fair market value of their finished goods and raw materials
inventories using the market price quotations of similar forward future
contracts listed on the CBOT and adjusts for the local market adjustments
derived from other grain terminals in our area.





NOTE
14 -  RELATED PARTY TRANSACTIONS





During
August 2000, the Company entered into an agreement with Minnesota Soybean
Processors Cooperative (MnSP) for certain services and management of a proposed
soybean processing plant.  The Company agreed to reinvest a minimum of
80% of the fees earned from MnSP in equity units of MnSP.  During
2004, 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 was hired to provide management and marketing services to MnSP on a
cost-sharing basis for automatically renewing five-year periods beginning in
late 2003. On August 28, 2006, MnSP’s Board of Directors gave the Company a
one-year notice of termination of the services and management agreement
effective September 1, 2007.




F-21





SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





The
Company was reimbursed by MnSP for shared personnel costs, including labor and
benefits, of $0, $0, and $1,049,150 under this arrangement for the years ended
December 31, 2009, 2008, and 2007, respectively. As of December 31, 2009 and
2008, MnSP owed the Company $0.





In
addition, the Company is providing up to $1 million in interest free loans to
members of the Company who chose to invest in MnSP.  The loans are
secured by members’ equity in the Company.  As of December 31, 2009
and 2008, the Company had outstanding notes receivable pursuant to this
arrangement of $147,898.  These will be repaid as the Board of
Managers approves distributions of prior earnings.





The
Company and MnSP also purchase and sell processed products such as soybean meal,
soybean oil, biodiesel, etc. For the years ended December 31, 2009, 2008, and
2007 the Company had sales to MnSP in the amount of $0, $0, and $124,429,
respectively.  During the years ended December 31, 2009, 2008, and
2007, the Company also purchased products totaling $0, $0, and $3,924,624,
respectively, from MnSP.





Occasionally
the Company subleased rail cars to MnSP.  The Company charged MnSP $0,
$0, and $125,013 for these subleases during the years ended December 31, 2009,
2008, and 2007, respectively.





NOTE
15 -  BUSINESS CREDIT RISK AND CONCENTRATIONS





The
Company maintains its cash balances with various financial institutions. At
times during the year, the Company’s balances exceeded the $250,000 insurance
limit of the Federal Deposit Insurance Corporation. This represents a
concentration of credit risk. The Company has not experienced any losses on its
deposits of cash and cash equivalents to date.





The
Company also grants credit to customers throughout the United States and
Canada.  The Company evaluates each customer’s credit worthiness on a
case-by-case basis.  Accounts receivable are generally
unsecured.  These receivables were $19,328,586 and $19,026,441 at
December 31, 2009 and 2008, respectively.





Soybean
meal sales accounted for approximately 65%, 53%, and 54% of total revenues for
the years ended December 31, 2009, 2008, and 2007,
respectively.  Soybean oil sales represented approximately 31%, 43%,
and 42% of total revenues for the year ended December 31, 2009, 2008, and 2007,
respectively  During the year ended December 31, 2008, the two largest
customers accounted for 20% and 11% of sales revenue.  These customers
owed the Company approximately $7,083,000 at December 31, 2008.





Net
revenue by geographic area for the years ended December 31, 2009, 2008, and 2007
are as follows:





2009
                  
                  
                  2008
                  
                  
                  2007United
      States
                  
                  $
                  241,337,593
                  
                  
                  $
                  331,991,930
                  
                  
                  $
                  224,015,899Canada
                  
                  
                  26,934,968
                  
                  
                  
                  28,122,746
                  
                  
                  
                  23,725,868$
                  268,272,561
                  
                  
                  $
                  360,114,676
                  
                  
                  $
                  247,741,767




F-22





SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE
16 -  MEMBERS’ EQUITY





A minimum
of 2,500 capital units is required for an ownership interest in the
Company.  Such units are subject to certain transfer
restrictions.  The Company retains the right to redeem the units at
the greater of $.20 per unit or the original purchase price less cumulative
distributions through the date of redemption in the event a member attempts to
dispose of the units in a manner not in conformity with the Operating Agreement,
if a member becomes a holder of less than 2,500 units, or if a member becomes an
owner (directly or indirectly) of more than 1.5% of the issued and outstanding
capital units.  The Company’s Operating Agreement also includes
provisions whereby cash equal to a minimum of 30% of available net income will
be distributed to unit holders subject to certain limitations.  These
limitations include a minimum net income of $500,000, restrictions imposed by
debt and credit instruments or as restricted by law in the event of
insolvency.  Earnings, losses and cash distributions are allocated to
members based on their percentage of ownership in the Company.





The Board
of Managers approved a Form S-1 registration statement that was filed with the
Securities and Exchange Commission on February 14, 2005 for the sale of
additional units in a public offering.  The maximum offering under the
statement was $11,250,000.  During 2005, the Company sold 2,190,500
member units for a total of $4,495,750, which is accounted for as temporary
equity as described in Note 17. The offering allowed the investor to initially
pay 50% and sign a note payable to the Company for the remaining portion. At
December 31, 2009 and 2008, the Company had subscriptions receivable of $2,259,
which is accounted for as a deduction from temporary equity until
collected.





On
February 20, 2008, the Company’s Board of Managers approved a cash distribution
of approximately $3.8 million.  In accordance with our operating
agreement and distribution policy, the distribution was issued to our members as
well as to eligible persons of our predecessor cooperative who were subject to
patronage retainage through written notices of allocation.  Over $2.4
million (approximately 7.7¢ per capital unit) was distributed to our members on
February 28, 2008, and the $1.4 million distribution to eligible persons of our
predecessor cooperative was distributed on April 28, 2008.





NOTE
17 -  CONTINGENCIES





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





On
January 31, 2007, the Company, along with other individuals, including the
Company’s chief executive officer, commercial manager, a Board member, and a
former Board member, were named as defendants in a lawsuit filed in the U.S
District Court for the District of Minnesota. The plaintiffs, Transocean Group
Holdings PTY Ltd. and Transocean Global Biofuels PTY Ltd., of Sydney, Australia
(“Transocean”), allege that the Company breached a heads of agreement with
Transocean dated April 28, 2006.  The heads of agreement concerned the
potential development and operation of a biodiesel refinery through a company
called High Plains Biofuels, Inc., to be owned by the Company and Transocean as
shareholders.  On March 18, 2010, the Company and Transocean reached a
settlement on the lawsuit.  In exchange for the payment of $530,000 to
Transocean, of which the Company is responsible for $330,000, and a right to
receive a small ownership interest in the Company, or acquired facility, if the
Company were to acquire an interest in a biodiesel or related facility, the
Company and all other defendants were released by Transocean from all
claims.  The Company has recorded $330,000 as a current liability and
administrative expense on the consolidated financial statements as of December
31, 2009.




F-23


SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





On
June 7, 2005, the Company 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 auditors for 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 independence of the audit firm, Eide Bailly LLP, with respect to its
audit of financial statements for the year ended December 31, 2003 was
compromised and decided to have the financial statements for that period
re-audited.  As a result, in the latter part of 2005 the Company’s
Board of Managers engaged Gordon, Hughes, & Banks LLP to re-audit the
financial statements for the year ended December 31, 2003. The re-audit
produced an unqualified opinion and there was no effect on previously reported
net income or member’s equity. During early 2005, prior to receiving notice of
the SEC review, the Company solicited investors through an S-1 registration
statement which included the 2003 audit opinion letter from Eide Bailly LLP and
the audited financial statements for the year ended December 31,
2003.  Because the independence of Eide Bailly was compromised for
that period, the registration statement did not meet the requirements of federal
securities law. The financial statements included in the Company’s periodic
reports for such periods, as amended, are now compliant with the independent
auditor requirements of applicable securities law, but there remains a
possibility that claims could be made against the Company relating to the
inclusion in the offering materials of the original audit opinion letter. As of
December 31, 2009 and 2008, the Company has not recorded a provision for this
matter, as management believes the likelihood of claims being asserted by
investors in the offering is remote under ASC 450, Contingencies (formerly FAS
5). Management believes that any liability the Company may incur would not
have a material adverse effect on its financial condition or its results of
operations.  Due to the circumstances described above, the Company has
recorded the net proceeds received to date, reduced by an amount that no longer
qualifies as a possible claim under federal and state securities laws, as
temporary equity in the accompanying consolidated balance
sheets.  Amounts recorded as temporary equity totaled $140,491 as of
December 31, 2009 and December 31, 2008, consisting of 70,750 Class A capital
units.





NOTE
18 -  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)





The
following table presents certain unaudited quarterly financial data for each of
the quarters in the years ended December 31, 2009, 2008 and
2007.  This information has been prepared on the same basis as the
consolidated financial statements and includes, in the opinion of the Company,
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the quarterly results when read in conjunction with consolidated
financial statements and related notes thereto.  The operating results
for any quarter are not necessarily indicative of results for any future period
or the full year.





Unaudited
Consolidated Statements of Operations




First
                  
                  
                  Second
                  
                  
                  Third
                  
                  
                  FourthFor
      the Year Ended December 31, 2009:Net
      revenues
                  
                  $
                  60,957,712
                  
                  
                  $
                  60,496,800
                  
                  
                  $
                  77,880,978
                  
                  
                  $
                  68,937,071Gross
      profit
                  
                  
                  (2,151,841
                  )
                  
                  
                  (389,312
                  )
                  
                  
                  766,479
                  
                  
                  
                  3,085,895Operating
      profit (loss)
                  
                  
                  (3,552,282
                  )
                  
                  
                  (1,438,822
                  )
                  
                  
                  (411,626
                  )
                  
                  
                  (2,892,010
                  )Income
      (loss) before income taxes
                  
                  
                  (2,880,109
                  )
                  
                  
                  (1,124,111
                  )
                  
                  
                  (190,678
                  )
                  
                  
                  (2,548,318
                  )Net
      income (loss)
                  
                  
                  (2,880,409
                  )
                  
                  
                  (1,124,111
                  )
                  
                  
                  (190,678
                  )
                  
                  
                  (2,548,318
                  )Basic
      and diluted earnings (loss) per unit
                  
                  $
                  (0.09
                  )
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.08
                  )For the Year Ended December 31,
    2008:Net
      revenues
                  
                  $
                  87,268,414
                  
                  
                  $
                  101,249,185
                  
                  
                  $
                  102,168,282
                  
                  
                  $
                  69,428,795Gross
      profit
                  
                  
                  3,526,521
                  
                  
                  
                  3,643,872
                  
                  
                  
                  382,889
                  
                  
                  
                  1,641,363Operating
      profit (loss)
                  
                  
                  1,992,032
                  
                  
                  
                  2,199,466
                  
                  
                  
                  (1,286,259
                  )
                  
                  
                  247,679Income
      (loss) before income taxes
                  
                  
                  2,057,341
                  
                  
                  
                  2,170,925
                  
                  
                  
                  (1,237,809
                  )
                  
                  
                  495,880Net
      income (loss)
                  
                  
                  2,057,341
                  
                  
                  
                  2,170,625
                  
                  
                  
                  (1,237,809
                  )
                  
                  
                  495,880Basic
      and diluted earnings (loss) per unit
                  
                  $
                  0.07
                  
                  
                  $
                  0.07
                  
                  
                  $
                  (0.04
                  )
                  
                  $
                  0.02




F-24





SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





For the Year Ended December 31,
    2007:Net
      revenues
                
                $
                51,542,154
                
                
                $
                59,976,616
                
                
                $
                60,587,433
                
                
                $
                75,635,564Gross
      profit
                
                
                370,550
                
                
                
                1,482,288
                
                
                
                3,216,480
                
                
                
                1,971,032Operating
      profit (loss)
                
                
                (609,861
                )
                
                
                590,820
                
                
                
                2,360,090
                
                
                
                760,896Income
      (loss) before income taxes
                
                
                (117,698
                )
                
                
                934,846
                
                
                
                2,600,421
                
                
                
                735,847Net
      income (loss)
                
                
                (110,538
                )
                
                
                934,846
                
                
                
                2,600,421
                
                
                
                735,847Basic
      and diluted earnings (loss) per unit
                
                $
                (0.00
                )
                
                $
                0.03
                
                
                $
                0.09
                
                
                $
                0.02





Certain
reclassifications have been made to the quarterly consolidated statements of
operations to conform to the annual presentations.


F-25









REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE
 
 The Board
of Managers and Members
 South
Dakota Soybean Processors, LLC
 Volga,
South Dakota
 
 Under the
date of March 25, 2010, we reported on the consolidated balance sheets of South
Dakota Soybean Processors, LLC as of December 31, 2009 and 2008, and the related
consolidated statements of operations, members' equity, and cash flows for the
years ended December 31, 2009 and 2008. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related financial statement schedule as listed in the accompanying index. The
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits.
 
 In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
   /s/ Eide
Bailly LLP
  Greenwood
Village, Colorado
 March 25,
2010





F-26




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE




The Board
of Managers


South
Dakota Soybean Processors, LLC


Volga,
South Dakota




Under the
date of March 21, 2008, we reported on the consolidated statements of
operations, members’ equity, and cash flows of South Dakota Soybean Processors,
LLC for the year ended December 31, 2007.  In connection with our audit of
the aforementioned consolidated financial statements, we also have audited the
related financial statement schedules as listed in the accompanying index. 
The financial statement schedules are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on the financial
statement schedules based on our audit.




In our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.




Gordon,
Hughes & Banks, LLP





Greenwood
Village, Colorado


March 21,
2008


F-27




SOUTH
DAKOTA SOYBEAN PROCESSORS, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Charged(Credited) toBalance at
                              
                              
                              Costs and
                              
                              
                              
                              
                              
                              Balance atBeginning of
                              
                              
                              Expenses
                              
                              
                              
                              
                              
                              End ofDescription
                              
                              Period
                              
                              
                              Additions
                              
                              
                              Deductions
                              
                              
                              PeriodDeducted
      from asset accounts:Year
      ended December 31, 2007:Allowance
      for doubtful accounts
                              
                              $
                              43,338
                              
                              
                              $
                              152,000
                              
                              
                              $
                              (19,554
                              )
                              
                              $
                              175,784Deducted
      from asset accounts:Year
      ended December 31, 2008:Allowance
      for doubtful accounts
                              
                              $
                              175,784
                              
                              
                              $
                              60,656
                              
                              
                              $
                              (158,365
                              )
                              
                              $
                              78,075Deducted
      from asset accounts:Year
      ended December 31, 2009:Allowance
      for doubtful accounts
                              
                              $
                              78,075
                              
                              
                              $
                              242,358
                              
                              
                              $
                              (228,804
                              )
                              
                              $
                              91,629




F-28