EDGAR 10-K Filing

Company CIK: 1163609
Filing Year: 2023
Filename: 1163609_10-K_2023_0001163609-23-000017.json

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ITEM 1. BUSINESS
Item 1. Business.
Overview
South Dakota Soybean Processors, LLC (“we,” “us,” “our” or the “Company”) owns and operates a soybean processing plant and a soybean oil refinery in Volga, South Dakota, which has been operating since 1996 and 2002, respectively. We also own and operate an oilseed processing plant near Miller, South Dakota, which has been operating since 2015. On February 9, 2022, we announced plans to construct a new oilseed processing plant near Mitchell, South Dakota, which we expect to be operational in 2025.
We are owned by approximately 2,200 members, most of whom reside in South Dakota and neighboring states and many of whom deliver and sell soybeans to our plants for processing.
Our core business consists of processing locally grown soybeans into soybean meal and soybean oil. We sell the soybean meal primarily to resellers, feed mills, and livestock producers as livestock feed. We market and sell multiple grades of soybean oil in either crude or refined format. Crude and refined soybean oil are marketed and sold to the food, biodiesel and chemical industries. Under certain market conditions, we may register and deliver warehouse receipts for crude oil under specific terms and conditions of a Chicago Board of Trade (CBOT) soybean oil futures contract.
We strive to maintain a competitive position in the marketplace by producing high quality products, operating a highly efficient operation, and adding value to our core products to capture larger margins. We continue to research ways to improve overall efficiencies by analyzing new methods of vertical integration, adding value to our products through further investment in processing, and studying new applications for our products in the food and energy fields. Although a primary objective is to maximize the issuance of cash distributions to our members from profits generated from operations, we recognize the need to maintain our financial strength by reinvesting and making capital improvements in our operations' facilities.
General Development of Business
We were originally organized and operated as a South Dakota cooperative in 1993. In 2002, we reorganized and converted from a cooperative into a South Dakota limited liability company. As a limited liability company, we are taxed as a partnership for U.S. tax purposes, which allows us to pass through our income and losses to our members for inclusion in their tax returns.
We began processing soybeans into soybean meal, crude soybean oil, and soybean hulls in 1996. Since this time we have made significant capital improvements and expanded our business to include the development of vertically integrated product lines and services. In 2002, we completed the construction of a refining facility and began refining crude soybean oil. In 2011, we completed the construction and start-up of a deodorizer at our facility, which allows us to deodorize refined soybean oil and sell the oil directly to customers in the food industry. In 2014, we purchased an oilseed processing plant located near Miller, South Dakota, approximately 100 miles west of our main facility in Volga. The Miller plant has allowed us to expand into new markets by processing identity-preserved soybeans, including non-genetically modified organisms (GMO) and organic soybeans. On February 9, 2022, we announced plans to construct a third oilseed processing plant near Mitchell, South Dakota, which is expected to be operational in 2025.
Industry Information
Global soybean production is concentrated in the U.S., Brazil, Argentina and China. The United States Department of Agriculture (“USDA”) reported that, for the 2022 crop year, the U.S. produced approximately 4.35 billion bushels of soybeans, or approximately 30% of estimated world production, with Brazil producing 5.6 billion bushels and Argentina producing 1.5 billion bushels. Global production may fluctuate year-to-year due to any number of factors, including but not limited to, weather, government policy, economic conditions, and commodity prices. Similarly, global soybean consumption may fluctuate year to-year due to any number of factors including, but is not limited to, economic conditions, global health concerns, population growth and international trade policy. Soybeans are a staple commodity used pervasively across the globe; thus,any contractions in consumption may only be temporary as historically has been the case.
The soybean processing industry converts soybeans into three principal products: soybean meal, soybean hulls, and soybean oil. A bushel of soybeans, weighing approximately 60 pounds, typically yields, after processing, approximately forty-four pounds of meal, four pounds of hulls, and eleven pounds of crude oil. Soybean meal and hulls are mostly used by livestock producers and the fish farming industry as feed. Soybean oil is sold in multiple grades, and is used in the food, petroleum and chemical industries. The food industry uses soybean oil in, among others, cooking and salad dressings, baking and frying fats, and butter substitutes.
Soybean processing facilities are generally located close to adequate sources of soybeans and where there is a strong demand for soybean meal. Soybean meal is predominantly fed to and consumed by poultry and swine in the U.S. On average, exports of soybean meal account for 20% to 30% of total production. The USDA estimates that approximately 51% of soybeans produced in the U.S. are processed domestically, 46% are exported as whole soybeans, and 3% are retained for seed and residual use.
Soybean oil refineries are generally located close to soybean processing plants. Soybean oil is shipped throughout the U.S. and for export. The USDA estimates that approximately 54% of domestic soybean oil production is used in food, feed and industrial applications, 4% in biofuels production, and 3% for export for various uses.
The soybean industry continues to introduce soy-based products as substitutes for various petroleum-based products including lubricants, plastics, ink, crayons and candles. Soybean oil is converted to biofuels such as biodiesel or renewable diesel. Biodiesel and renewable diesel, substitutes for standard, petroleum-based diesel fuel, has experienced rapid growth recently following the expansion of the Renewable Fuel Standard (RFS) program and resumption of the biodiesel blenders’ tax credit.
Soybean crushing and refining margins are generally cyclical in nature. The price of soybeans may fluctuate substantially from year to year, whereas the price of meal and oil generally tracks that of soybeans, although not necessarily on a one-for-one basis; therefore, margins can be variable.
Raw Materials and Suppliers
We purchase soybeans for processing from local soybean producers and elevators. The State of South Dakota and the upper Midwest, historically has produced and provided an adequate supply of soybean for our procurement and the soybean processing industry in general. In 2022, agricultural producers in South Dakota grew and harvested 197 million bushels of soybeans, ranking South Dakota ninth among the top producing states in the U.S., as illustrated in the following table:
State Production (bushels)
Illinois 685 million
Iowa 591 million
Minnesota 369 million
Indiana 344 million
Missouri 290 million
Nebraska 285 million
Ohio 279 million
North Dakota 203 million
South Dakota 197 million
Arkansas 167 million
Producers in South Dakota, by comparison, grew and harvested approximately 223 million bushels in 2021, 224 million bushels in 2020, 146 million bushels in 2019, and 275 million bushels in 2018. Of this amount, we processed 34.5 million bushels in 2022, compared to 34.9 million bushels in 2021, 34.3 million bushels in 2020, 33.0 million bushels in 2019, and 33.2 million bushels in 2018. We control the flow of soybeans into our facilities with a combination of pricing and contracting options. Threats to our soybean supply include weather, changes in government programs, and competition from other processors and export markets.
Products and Services
We process soybeans at our two crushing plants which extract the soybean oil from the protein and fiber portions of the soybean. Approximately 80% of a soybean bushel is processed and sold as soybean meal or hulls, with the remaining 20% extracted as crude soybean oil.
Sales, Marketing and Customers
Our soybean meal is primarily sold to resellers, feed mills, and livestock producers as livestock feed. The meal is primarily sold to customers in the local area (typically within 200 miles of our Volga facility), Western U.S., and Canada. Our crude soybean oil is sold to refining companies for further processing or refined at our facilities and sold directly to the food industry for human consumption, or to the biofuel industry as transportation fuel.
In 2022, our percentage of sales by quantity of product sold within various markets is illustrated by the following table:
Market Soybean
Meal Crude
Soybean
Oil Refined
Oil
Local 51% 100% 23%
Other U.S. States 17% -% 68%
Export 32% -% 9%
Over half of our products are shipped by rail, the service of which is provided by the Rapid City, Pierre & Eastern (RCP&E) rail line, owned and operated by Genesee & Wyoming, Inc., which connects to the Burlington-Northern Santa Fe, Canadian Pacific (CP), and the Union Pacific rail lines.
All of our assets and operations are domiciled in South Dakota, and all of the products sold are produced in South Dakota.
Dependence upon a Single Customer
None.
Competition
We are in direct competition with several other soybean processing companies in the U.S., many of which have significantly greater resources than we do. The U.S. soybean processing industry is comprised primarily of 16 different companies which operate 62 plants in the U.S. The industry is generally characterized as mature, consolidated and vertically-integrated, with four companies - Archer Daniels Midland (ADM), Bunge, Cargill and Ag Processing (AGP) - controlling nearly 84% of the processing industry. The U.S. vegetable oil (including soybean oil) refining industry is divided between oilseed processors and independent vegetable oil refiners. The oilseed processors operate approximately 83% of the vegetable oil refining capacity in the U.S., and ADM, Bunge, Cargill and AGP operate approximately 68% of the oil refining capacity. The three largest independent vegetable oil refiners are ACH Foods (in joint venture with ADM), Smuckers (Proctor & Gamble), and ConAgra (Hunt-Wesson).
We are one of two operating soybean processing companies in South Dakota. AGP operates a processing facility in Aberdeen, South Dakota, approximately 160 miles from our Volga facility. Our processing facilities represent approximately 7% of the total soybean processing capacity in the upper Midwest and about 1.3% in the U.S. We continue to maintain a competitive position in the market by producing high quality products and operating highly efficient operations at the lowest possible cost. Adding value to our products is a consistent objective. We are a principal investor in Prairie AquaTech, a company engaged in the research, development and production of high quality protein ingredients derived from soybeans. Our investment led to the construction and operation of a production facility immediately adjacent to our Volga plant in 2019.
Utilities
Volga, South Dakota
We use natural gas and electricity to operate the crushing and refining plants in Volga, South Dakota. Natural gas is used for processing heat and for drying soybeans. Our natural gas provider is NorthWestern Corporation, Sioux Falls, South Dakota. We are at risk to adverse price fluctuations in the natural gas market, but we have the capability to use fuel oil and biofuel as a backup to natural gas in the event of delivery interruption or market conditions dictate. We also employ forward contracting to offset some of this risk. Our electricity provider is the City of Volga, South Dakota.
Miller, South Dakota
We use electricity and propane to operate the mechanical press plant in Miller, South Dakota, as natural gas distribution lines are not located in the area. Our electricity provider is NorthWestern Corporation, Sioux Falls, South Dakota, and CHS Farmers Alliance, Mitchell, South Dakota, is our propane provider.
Employees
We currently employ approximately 120 individuals, all but six of whom are full-time. We have no unions or other collective bargaining agreements.
Government Regulation and Environmental Matters
Our business is subject to laws and related regulations and rules designed to protect the environment which are administered by the U.S. Environmental Protection Agency, the South Dakota Department of Environment and Natural Resources and similar government agencies. These laws, regulations and rules govern the discharge of materials to the environment, air and water; reporting storage of hazardous wastes; the transportation, handling and disposition of wastes; and the labeling of pesticides and similar substances. Our business is also subject to laws and related regulations and rules administered by other federal, state, local and foreign governmental agencies that govern the processing, storage, distribution, advertising, labeling, quality and safety of feed and grain products. Failure to comply with these laws, regulations and rules could subject us to administrative penalties, injunctive relief, civil remedies and possible recalls of products.
The sale of soybean oil for human consumption is impacted by the regulation of trans-fat, which results from the hydrogenation process of products such as soybean oil and plant oils. The U.S. Food and Drug Administration requires that food processors disclose the level of trans-fatty acids contained in their products. In addition, various local governments in the U.S. have enacted, or are considering enacting, restrictions on the use of trans-fats in restaurants. As a result, many food manufacturers have reduced the amount of hydrogenated soybean oil included in their products or switched to other oils containing lower amounts of trans-fat.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to the Securities Exchange Act of 1934, as amended, are filed with the SEC. These reports and other information filed by us with the SEC are available on the SEC website (www.sec.gov). The SEC maintains an Internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Our website is at www.sdsbp.com.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
We are affected by changes in commodity prices. Our revenues, earnings and cash flows are affected by market prices for commodities such as crude petroleum oil, natural gas, soybeans, and crude and refined vegetable oils. Commodity prices generally are affected by a wide range of factors beyond our control, including weather, disease, insect damage, drought, the availability and adequacy of soybean 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 the counterparty will refuse to perform a contract during a period of price fluctuations where contract prices are significantly different than the current market prices.
Our business operations and demand for our products are highly dependent on certain global and regional factors that are outside our control. The level of demand for our products is increasingly affected by regional and global demographic and macroeconomic conditions, including population growth rates and changes in standards of living. A significant downturn in global economic growth, or recessionary conditions in major geographic regions, may lead to reduced demand for agricultural commodities which could adversely affect our business and results of operations. Additionally, weak global economic conditions and turmoil in global financial markets, including constraints on the availability of credit, have in the past adversely affected, and may in the future continue to adversely affect, the financial condition and creditworthiness of some of our customers, suppliers and other counterparties which in turn may negatively impact our business.
Our business and operations may be affected by weather conditions that are outside of our control. For example:
•Weather conditions during the spring planting season and early summer crop nutrient and crop protection application season affect product volumes and profitability.
•Adverse weather conditions, such as heavy snow or rainfall and any flooding that results, may cause delays in or prevent soybeans from being planted which could affect our ability to procure soybeans for production and increase costs.
•Changes in weather patterns and conditions, including changes in rainfall and storm patterns and intensities, water shortages, and temperature levels, could adversely impact our costs and business operations; the location, cost and competitiveness of commodity agricultural production, related storage and processing facilities; and demand for agricultural commodities. These effects could significantly reduce demand for the products we sell to or buy from agricultural producers and local elevators, and therefore could adversely impact our business.
Our business and operations could be adversely affected by contagious diseases and outbreaks. Outbreaks of contagious diseases and other adverse public health developments could have an adverse effect on our business. COVID-19, for example, created a widespread health crisis in 2020 that affected the economies and financial markets of the U.S. and other countries, and had an effect on the demand for our products and services. The extent to which COVID-19 may affect our business in the future will depend on various factors, including the extent of any reoccurrence of the virus and the type and duration of actions that may be taken by various governmental authorities in response to any new outbreak and its impact on the U.S. and the global economy.
We could be affected by higher than anticipated operating costs, including but not limited to increased prices for soybeans. In addition to general market fluctuations and economic conditions, we could experience significant cost increases associated with the ongoing operation of our soybean processing and refining plants caused by a variety of factors, many of which are beyond our control. These cost increases could arise from an inadequate local supply of soybeans and a resulting price increase which is not accompanied by an increase in the price for soybean meal and oil. Labor costs can also increase over time, particularly if there is a shortage of labor, or shortage of persons with the skills necessary to operate our facility. Adequacy and cost of electric and natural gas utilities could also affect our operating costs. Changes in price, operation and availability of truck and rail transportation may affect our profitability with respect to the transportation of soybean meal, oil and other products to our customers.
We could be affected by inflation which could have a material and adverse effect on our business. We have experienced and anticipate continued effects of inflation on costs such as soybeans, materials, labor, natural gas, and electricity. In response to inflationary pressures, the U.S. Federal Reserve has raised interest rates, which has resulted in uncertainty and volatility in financial markets and increased borrowing costs under our revolving credit facilities. Inflation and its impacts, many of which are beyond our control, could escalate in the future. We may be unable to pass on all of our increased costs as a result of inflation to customers. Accordingly, inflationary pressures could have a material and adverse effect on our business.
It may become more difficult to sell our soybean oil for human consumption. The U.S. Food and Drug Administration requires food manufacturers to disclose the levels of trans-fatty acids contained in their products. In addition, various local governments in the U.S. are considering, and some have enacted, restrictions on the use of trans-fats in restaurants. Several food processors have either switched or indicated an intention to switch to edible oil products with lower levels of trans-fatty acids. Because processing soybean oil, particularly hydrogenation, creates trans-fat, it may become difficult to sell our oil to customers engaged in the food industry which could adversely affect our revenues and profits.
Hedging transactions involve risks that could harm our profitability. To reduce our price change risks associated with holding fixed price commodity positions, we generally take opposite and offsetting positions by entering into commodity futures contracts (either a straight futures contract or an options futures contract) for soybeans, soybean meal and crude soybean oil on the Chicago Board of Trade. While hedging activities reduce our risk of loss from changing market values, such activities also limit the gain potential which otherwise could result from those market fluctuations. Our policy is to maintain hedged positions within limits, but we can be long or short at any time. In addition, at any one time, our inventory and purchase contracts for delivery to our facility may be substantial, which could limit our ability to adjust our hedged positions. If our risk management policies and procedures that guide our net position limits are inadequate, we could suffer adverse financial consequences.
Our business is not diversified. Our success depends on our ability to profitably operate our soybean processing and soybean oil refining plants. We do not have any other lines of business or other sources of revenue if we are
unable to operate our soybean processing and soybean oil refining plants. This lack of diversification may limit our ability to adapt to changing business conditions and could cause harm to our business.
We are dependent on our management and other key personnel, and the 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 our business is located in a rural area. Key employees are in high demand and are often subject to competing employment offers in the agricultural value-added industries within the local and regional area. Any loss of the key employees or the failure of these individuals to perform their job functions in a satisfactory manner would have a material adverse effect on our business operations and prospects.
We operate in an intensely competitive industry and we may not be able to continue to compete effectively. We may not be able to continue to successfully penetrate the markets for our products. The soybean processing business is highly competitive, and other companies presently in the market, or that could enter the market, could adversely affect prices for the products we sell. We compete with other soybean processors such as Archer-Daniels Midland (ADM), Cargill, Bunge, and Ag Processing (AGP), among others, all of which are capable of producing significantly greater quantities of soybean products than we do, and may achieve higher operating efficiencies and lower costs due to their scale. AGP's processing facility in Aberdeen, South Dakota, could increase the competition for soybeans and adversely affect our business.
Our profitability is influenced by the protein and moisture content of the soybeans in the local growing area. The northern portion of the western soybean belt, where our two soybean crushing plants are located, typically produces a lower protein content soybean, resulting in a lower protein soybean meal. Because lower protein soybean meal is sold at a lower price, we may not be able to operate as profitably as soybean processing plants in other parts of the country. If adverse weather conditions further reduce the protein content of the soybeans grown in our area, our business may be materially harmed because we will be required to sell our soybean meal at discounted prices to our customers.
In addition, the moisture content of the soybeans that are delivered to our plants also influences our profitability and the efficiency of our plant operations. Soybeans with high moisture content require more energy to dry them before they can be processed. While we may recover some of these extra energy costs by paying producers less for high moisture soybeans, these savings may not be sufficient to offset our additional operating expenses.
Because soybean processing and refining is energy intensive, our business will be materially harmed if energy prices increase substantially. The price of electricity, natural gas and propane, the primary sources of energy for our plants, have steadily increased the last few years. If the trend in electricity, natural gas and propane prices continues, our energy costs will remain high and could adversely affect our profitability and operating results.
Transportation costs are a factor in the price of soybean meal and oil, and increased transportation costs could adversely affect our profitability. Soybean meal and oil may be shipped by trucks, rail cars, and barges. Added transportation costs are a significant factor in the price of our products, and we may be more vulnerable to increases in transportation costs than other producers because our locations in Volga and Miller are more remote than that of most of our competitors. Today, most of our products are sold FOB Volga or Miller, South Dakota, and those that are not, have the full transportation cost added to the contract. Transportation costs do not currently affect our margin directly; however, the added costs could eventually affect demand for our products.
Increases in the production of soybean meal or oil could result in lower prices for soybean meal or oil and have other adverse effects. New and existing soybean processing and refining plants are expected to be constructed or expanded in the near future. The increased expansion is expected to add approximately 750 million bushels in crush capacity per year within the next two to three years. Without a corresponding increase in the demand for soybean meal and oil, increased soybean meal and oil production may lead to lower prices for soybean meal and oil which could adversely affect our business.
Legislative, legal or regulatory developments could adversely affect our profitability. We are subject to extensive air, water and other environmental laws and regulations at the federal and state level. In addition, some of these laws require our plant to operate under a number of environmental permits. These laws, regulations and permits can often require pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, damages, criminal sanctions, permit revocations and/or plant shutdowns.
New environmental laws and regulations, including new regulations relating to alternative energy sources and the risk of climate change, new interpretations of existing laws and regulations, increased governmental enforcement or other developments could require us to make additional unforeseen expenditures. It is expected that some form of regulation will be forthcoming at the federal level in the U.S. with respect to emissions of GHGs, (including carbon dioxide, methane and nitrous oxides). Also, new federal or state legislation or regulatory programs that restrict emissions of GHGs in areas where we conduct business could adversely affect our operations and demand for our products. New legislation or regulator programs could require substantial expenditures for the installation and operation of equipment that we do not currently possess or substantial modifications to existing equipment.
In addition, although our production of soybean meal and oil is not directly regulated by the U.S. Food & Drug Administration, we must comply with the FDA’s content and labeling requirements, which are monitored at our customers’ facilities. Failure to comply with these requirements could result in fines, liability to our customers or other consequences that could increase our operating costs and reduce profits. In addition, changes to the FDA’s rules or regulations could be adopted that would increase our operating costs and expenses, or require capital investment.
We are subject to industry-specific risks that could adversely affect our operating results. These risks include, but are not limited to, product quality or contamination; shifting consumer preferences; federal, state, and local food processing regulations; socially unacceptable farming practices; environmental, health and safety regulations; and customer product liability claims. Any liability resulting from these risks may not always be covered by, or could exceed liability insurance related to product liability and food safety matters maintained by us. The occurrence of any of the matters described above could adversely affect our revenues and operating results. Our products are used as ingredients in livestock and poultry feed. Thus, we are subject to risks associated with the outbreak of disease in livestock and poultry. The outbreak of disease could adversely affect demand for our products used as ingredients in livestock and poultry feed. A decrease in demand for these products could adversely affect our revenues and operating results.
We could face increased operating costs if we were required to segregate genetically modified soybeans and the products generated from these soybeans. Over the last several years, some soybean producers in our area have been planting genetically modified, or GMO, soybeans, commonly known as Round-up Ready beans. Neither the U.S. Department of Agriculture nor the FDA currently requires that genetically modified soybeans be segregated from other soybeans. If these agencies or our customers were to require that we process these genetically modified soybeans separately, we would face increased storage and processing costs and our profitability could be harmed.
There is no public market for our units. There is no public trading market for our units. While we have established a private online matching service in order to facilitate the transfer of units among our members, the transfer of units on this service is severely limited. The service has been designed to comply with federal tax laws and IRS regulations governing a “qualified matching service,” as well as state and federal securities laws. Under these rules, there are detailed timelines and restrictions that must be followed with respect to offers and sales of units. As a result, units held by our members may not be easily resold and members may be required to hold their units indefinitely. Even if a member is able to resell units, the price may be less than the member's original investment for the units or may otherwise be unattractive to the member.
There are significant restrictions on the transfer of our units. To protect our status as a partnership for federal income tax purposes and to assure no public trading market for our units develops or exists, our units are subject to significant restrictions on transfer. All transfers of units must comply with the transfer provisions of our operating agreement and the capital units transfer system and are subject to approval by our board of managers. Our board of managers reserves the right not to approve any transfer of units that could cause us to lose our partnership tax status or violate federal or state securities laws. As a result, members may not be able to transfer their units and may be required to assume the risks of the investment for an indefinite period of time.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

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ITEM 2. PROPERTIES
Item 2. Properties.
We conduct our operations principally at our two facilities in Volga, South Dakota and Miller, South Dakota.
At our Volga facility, we own the land, consisting of 98 acres, on which most of our infrastructure and physical properties rest. Our facilities consist of a soybean processing plant, a soybean oil refinery and deodorizer, a quality control laboratory, and administrative and operations buildings.
At our Miller facility, we own the land, consisting of approximately 24 acres, on which our soybean processing plant and operations building rest.
All of our tangible property, real and personal, serves as collateral for our debt instruments with our primary lender, CoBank, ACB, of Greenwood Village, Colorado, which is described below under “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation-Indebtedness.”

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
From time to time in the ordinary course of our business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We carry insurance that provides protection against general commercial liability claims, claims against our directors, officers and employees, business interruption, automobile liability, and workers’ compensation claims. We are not currently involved in any material legal proceedings and are not aware of any potential claims.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
None.
Part II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
As of December 31, 2022 and March 1, 2023, there were 2,213 members of record and a total of 30,411,500 Class A capital units issued and outstanding. We did not make any repurchases of Class A units during the fiscal year 2022.
Trading Activity
Our capital units are not traded on an exchange or otherwise publicly traded and are subject to significant restrictions on transfer. Most transfers of capital units are conducted through a “qualified matching service” as defined by the publicly-traded partnership rules of the federal tax code. Under the qualified matching service, bids for capital units submitted by interested buyers and sellers are matched on the basis of a strict set of rules and conditions set forth under the federal tax code and by us; plus, all matching and transfers are subject to approval by our board of managers. Our qualified matching service is operated through www.AgStockTrade.com, an SEC-registered and regulated Alternative Trading Service which is owned and operated by Variable Investment Advisors, Inc., Tea, South Dakota, a registered broker-dealer with the SEC, FINRA, and various states. The following table contains historical information by quarter for the past two years regarding the matching of capital units through the qualified matching service:
Quarter Low Price
(1) High Price
(1) Average
Price # of
Capital
Units Matched
First Quarter 2021 $ 3.23 $ 3.40 $ 3.37 141,750
Second Quarter 2021 $ 3.39 $ 4.26 $ 3.80 108,750
Third Quarter 2021 $ 4.31 $ 4.83 $ 4.58 82,250
Fourth Quarter 2021 $ 4.29 $ 4.55 $ 4.31 64,000
First Quarter 2022 $ 4.46 $ 6.53 $ 5.14 107,500
Second Quarter 2022 $ 5.98 $ 6.56 $ 6.29 165,000
Third Quarter 2022 $ 6.65 $ 7.51 $ 6.89 34,500
Fourth Quarter 2022 $ 7.59 $ 8.38 $ 7.66 86,000
(1)The qualified matching service rules prohibit firm bids; therefore, the prices reflect actual sale prices of the capital units.
Transfer Restrictions
As a limited liability company, we must severely restrict trading and transfers of our capital units in order to preserve our preferential single-level "partnership" tax status at the member level. To preserve this, our operating agreement prohibits transfers of capital units other than through the procedures specified under our capital units transfer system, or CUTS, which may be amended from time to time by our board of managers. Under the CUTS, our capital units cannot be traded on any national securities exchange or in any over-the-counter market. Also, we cannot permit the total number of capital units traded annually through the qualified matching service to exceed 10% of our total issued and outstanding capital units. All transactions, including any trades on the qualified matching service, must be approved by the board of managers, which are generally approved if they fall within “safe harbors” contained in the rules of the federal tax code. Permitted transfers include transfers by gift or death, sales to qualified family members, and trades through the qualified matching service subject to the 10% restriction. Pursuant to our operating agreement, a minimum of 2,500 capital units is required to be owned by an individual or entity for membership, and no member may own more than 10% of our total outstanding capital units.
Distributions to Members
We issued to our members a cash distribution of $17.3 million (57.0¢ per capital unit) and $9.4 million (31.0¢ per capital unit) in the years ended December 31, 2022 and 2021, respectively. On January 31, 2023, our board of managers approved a cash distribution to our members of approximately $36.5 million (120.0¢ per capital unit), which was issued to our members on or about February 2, 2023. Our distributions are declared at the discretion of our board of managers and are issued in accordance with the terms of our operating agreement and distribution policy. Distributions are also subject to restrictions imposed under our loan agreement with our lender. There is no assurance as to if, when, or how much we will make in distributions in the future. Actual distributions depend upon our profitability, expenses and other factors discussed in this report.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
The following table sets forth selected financial data of South Dakota Soybean Processors, LLC for the periods indicated. The financial statements included in Item 8 of this report were audited by Eide Bailly LLP.
2022 2021 2020 2019 2018
Bushels processed 34,465,628 34,876,323 34,306,674 33,045,418 33,232,663
Statement of Operations Data:
Revenues $ 721,532,329 $ 590,150,153 $ 415,025,765 $ 371,275,766 $ 391,764,683
Costs & expenses:
Cost of goods sold (648,116,685) (556,675,807) (395,772,460) (356,475,930) (362,601,571)
Operating expenses (5,669,426) (4,590,227) (3,819,645) (3,624,306) (3,834,845)
Operating profit (loss) 67,746,218 28,884,119 15,433,660 11,175,530 25,328,267
Non-operating income (loss) 1,922,642 758,163 1,239,018 723,812 1,448,980
Interest expense (2,204,759) (1,634,367) (1,090,951) (919,157) (897,942)
Income tax benefit (expense) - - - (600) (1,960)
Income (loss) from continuing operations
67,464,101 28,007,915 15,581,727 10,979,585 25,877,345
Gain (loss) on discontinued operations
- - - - -
Net income (loss) $ 67,464,101 $ 28,007,915 $ 15,581,727 $ 10,979,585 $ 25,877,345
Weighted average capital units outstanding
30,419,000 30,419,000 30,419,000 30,419,000 30,419,000
Net income (loss) per capital unit
$ 2.218 $ 0.921 $ 0.512 $ 0.361 $ 0.851
2022 2021 2020 2019 2018
Balance Sheet Data:
Working capital $ 76,001,793 $ 37,448,081 $ 31,391,916 $ 21,322,260 $ 19,425,996
Net property, plant & equipment
74,559,969 72,532,608 64,231,194 64,517,204 59,068,014
Total assets 311,196,770 245,286,123 225,823,047 158,104,992 144,854,183
Long-term obligations 26,110,157 20,122,452 23,613,702 15,307,727 5,796,382
Members’ equity 163,538,676 113,414,905 94,836,880 85,947,333 90,177,248
Other Data:
Capital expenditures $ 7,754,541 $ 13,442,955 $ 4,652,368 $ 10,066,719 8,026,131
Distributions to members $ 17,338,830 $ 9,429,890 $ 6,692,180 $ 15,209,500 $ 5,075,303
Distributions to members per capital unit $ 0.570 $ 0.310 $ 0.220 $ 0.500 $ 0.167

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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
In 2022, we had a record net income of $67.5 million, an increase of $39.5 million from our previous record in 2021. The oil markets continued to be the main driving factor for our strong margins, as high demand for oil from the food, fuel and export sectors increased margins to record levels. The meal markets pushed margins even higher, as markets were exceptionally strong due to high domestic and export demand. Demand for soybean hulls, moreover, was robust, because elevated hay prices in southern and western U.S., following a drought, caused producers to seek alternative feed products.
The increased demand for soybean oil has continued to drive margins and expansion of the soybean processing industry in the U.S. In direct response to this growth, we announced in February of 2022 our plans to construct a new oilseed processing plant near Mitchell, South Dakota. Once operational, the Mitchell plant will be capable of processing not only soybeans but other crops, like sunflowers, containing a much higher percentage of oil. We also believe the plant's location will be ideally suited to access higher oil seeds increasingly being grown west of the proposed plant site and is near growing hog production which will provide an additional outlet for the sale of meal. Subject to obtaining sufficient financing, we plan to start construction of this plant this fall and begin operations in late 2025.
Looking ahead in 2023, oil demand is expected to rebound from a slight decrease in the fourth quarter of 2022, as operations improve at renewable diesel refineries and additional capacity comes online. Domestic meal demand may decrease some, but exports should remain strong due to reduced competition from Argentine processors. Soybean production in Argentina is projected to be impacted by drought conditions which in turn will lower supplies of local soybeans available to the Argentine crushing industry. The reduced crop in Argentina will be partially offset by strong soybean production in Brazil. In addition, CBOT crushing margins in 2023 should remain elevated due to relatively high soybean oil prices as compared to soybean prices.
Results of Operations
Comparison of Years Ended December 31, 2022 and 2021
Year Ended December 31, 2022
Year Ended December 31, 2021
$ % of
Revenue $ % of
Revenue
Revenue $ 721,532,329 100.0 $ 590,150,153 100.0
Cost of revenues (648,116,685) (89.8) (556,675,807) (94.3)
Operating expenses (5,669,426) (0.8) (4,590,227) (0.8)
Other income (expense) (282,117) - (876,204) (0.1)
Income tax (expense), net - - - -
Net income (loss) $ 67,464,101 9.4 $ 28,007,915 4.7
Revenue - Revenue increased $131.4 million, or 22.3%, for the year ended December 31, 2022, compared to the same period in 2021. The increase in revenues was primarily due to an increase in the average sales price of refined soybean oil. The average sales price of soybean oil increased approximately 32% from 2021 to 2022, due to surging demand from the renewable diesel and food sectors.
Gross Profit/Loss - Gross profit increased $39.9 million, or 119.3%, for the year ended December 31, 2022, compared to 2021. The increase in gross profit was primarily due to increased demand for oil from the renewable diesel sector as more diesel plants were opened in the U.S. Partially offsetting the increase in gross profit was a $4.6 million, or 14.5%, increase in production costs in 2022, compared to 2021. The increase in production costs was due to increases in costs of personnel, maintenance, utilities and chemicals mostly from inflation and supply shortages.
Operating Expenses - Administrative expenses, including selling, general and administrative expenses, increased approximately $1.1 million, or 23.5%, during the year ended December 31, 2022, compared to the same period in 2021. The increase was primarily due to an increase in personnel costs.
Interest Expense - Interest expense increased $570,000, or 34.9%, during the year ended December 31, 2022, compared to the same period in 2021. The increase in interest expense was due to an increase in interest rates on our senior debt with CoBank. As of December 31, 2022, the interest rate on our revolving long-term loan was 6.85%, compared to 2.56% as of December 31, 2021. The increase in interest expense was partially offset by a $3.3 million decrease in borrowings from our lines of credit, as we borrowed less due to improved profitability and less capital improvements. The average debt level during 2022 was approximately $58.3 million, compared to $61.6 million in 2021.
Other Non-Operating Income (Expense) - Other non-operating income, including patronage dividend income, increased $1.2 million, or 154.6%, for the year ended December 31, 2022, compared to the same period in 2021. The increase in other non-operating income was due to a $846,000 increase in gains on our interest rate hedge instruments and a $335,000 increase in patronage dividend income. During the year ended December 31, 2022, gains on interest rate hedges totaled $1,092,000, compared to $246,000 during the same period in 2021. We also received $700,000 in patronage distributions from CoBank, a cooperative lender of which we are a member, during 2022, compared to $365,000 during the same period in 2021.
Net Income/Loss - We generated a net income of $67.5 million during the year ended December 31, 2022, a $39.5 million increase from 2021. The increase is primarily attributable to an increase in gross profit and other non-operating income.
Comparison of Years Ended December 31, 2021 and 2020
Year Ended December 31, 2021
Year Ended December 31, 2020
$ % of
Revenue $ % of
Revenue
Revenue $ 590,150,153 100.0 $ 415,025,765 100.0
Cost of revenues (556,675,807) (94.3) (395,772,460) (95.4)
Operating expenses (4,590,227) (0.8) (3,819,645) (0.9)
Other income (expense) (876,204) (0.1) 148,067 -
Income tax (expense), net - - - -
Net income (loss) $ 28,007,915 4.7 $ 15,581,727 3.8
Revenue - Revenue increased $175.1 million, or 42.2%, for the year ended December 31, 2021, compared to the same period in 2020. The increase in revenues was primarily due to increases in the average sales prices of all soybean products, especially refined soybean oil. The average sales price of soybean oil increased approximately 75% from 2020 to 2021, primarily due to surging demand for soybean oil from the renewable diesel and food sectors. In addition, soybean meal prices increased approximately 21% during the year ended December 31, 2021, largely due to concerns about prospects of a heavily diminished soybean supply prior to the 2021 harvest which resulted from strong demand in the soybean export sector.
Gross Profit/Loss - Gross profit increased $14.2 million, or 73.9%, for the year ended December 31, 2021, compared to the same period in 2020. The increase in gross profit was primarily due to surging in demand for oil from the renewable diesel sector as more diesel plants were opened. In addition, the quantity and quality of soybeans grown in the U.S., especially in our local procurement area, improved in 2021 from 2020 because of more favorable weather conditions.
Operating Expenses - Administrative expenses, including selling, general and administrative expenses, increased approximately $771,000, or 20.2%, during the year ended December 31, 2021, compared to the same period in 2020. The increase was primarily due to increases in personnel costs and professional fees.
Interest Expense - Interest expense increased $543,000, or 49.8%, during the year ended December 31, 2021, compared to the same period in 2020. The increase in interest expense was primarily due to an increase in borrowings from our lines of credit, as we borrowed more due to higher commodity prices and to pay for capital improvements. The average debt level during 2021 was approximately $61.6 million, compared to $32.9 million in 2020.
Other Non-Operating Income (Expense) - Other non-operating income, including patronage dividend income, decreased $481,000, or 38.8%, for the year ended December 31, 2021, compared to the same period in 2020. The decrease was primarily due to the forgiveness of the $1.2 million Payment Protection Plan loan by the U.S. Small Business Administration in November 2020. Partially offsetting the decrease in other income was a $585,000 improvement in gains (losses) on our interest rate hedge instruments. In 2021, gains on interest rate hedges totaled $246,000, compared to losses of $339,000 in 2020.
Net Income/Loss - We generated a net income of $28.0 million during the year ended December 31, 2021, a $12.4 million increase from 2020. The increase is primarily attributable to an increase in gross profit.
Liquidity and Capital Resources
Our primary sources of liquidity are cash provided by operations and borrowings under our two revolving lines of credit which are discussed below under “Indebtedness.” On December 31, 2022, we had working capital, defined as current assets less current liabilities, of approximately $76.0 million, compared to working capital of $37.4 million on December 31, 2021. Working capital increased between periods primarily due to increases in net income in 2022. Based on current plans, we will continue funding our capital and operating needs from cash from operations and revolving lines of credit.
Comparison of the Years Ended December 31, 2022 and 2021
2022 2021
Net cash from (used for) operating activities $ 27,431,814 $ 18,016,268
Net cash (used for) investing activities (9,951,071) (13,237,991)
Net cash from (used for) financing activities (17,447,782) (7,595,489)
Cash Flows From (Used For) Operating Activities
The $9.4 million increase in cash flows from operating activities was largely due to a $39.5 million increase in net income. Partially offsetting the increase in net income was a $13.7 million increase in inventories and a $9.0 decrease in net loss on derivative activities. During the year ended December 31, 2022, our inventories increased by $40.6 million, compared to a $26.9 million increase during the same period in 2021. In 2022, we recognized $1.0 million in losses on derivative activities, compared to $10.0 million in losses during the same period in 2021.
Cash Flows From (Used For) Investing Activity
The $3.2 million decrease in cash flows used for investing activities between 2022 and 2021 was due to a decrease in capital improvements in 2022. In 2022, we spent approximately $10.1 million on capital improvements to enhance the quality and efficiency of operations, compared to $13.4 million in 2021.
Cash Flows From (Used For) Financing Activity
The $9.8 million increase in cash flows used for financing activities was due to a $7.9 million increase in cash distributions to members in 2022, compared to 2021. In 2022, we distributed $17.3 million to our members, compared to $9.4 million in 2021.
Comparison of the Years Ended December 31, 2021 and 2020
2021 2020
Net cash from operating activities $ 18,016,268 $ 14,206,832
Net cash used for investing activities (13,237,991) (4,949,271)
Net cash used for financing activities (7,595,489) (6,231,292)
Cash Flows From (Used For) Operating Activities
The $3.8 million increase in cash flows provided by operating activities was primarily attributed to a $12.4 million increase in net income. Partially offsetting the increase in net income was a $9.3 million increase in inventories and accounts receivable in 2021. We increased inventories by $26.9 million in 2021 compared to $20.6 million in 2020. Accounts receivable increased $7.6 million in 2021, compared to only $4.6 million in 2020. The increase in inventories and accounts receivable was the result of increased commodity prices.
Cash Flows From (Used For) Investing Activity
The $8.3 million increase in cash flows used for investing activities between 2021 and 2020 was due to an increase in capital improvements in 2021. In 2021, we spent approximately $13.4 million on capital improvements to enhance the quality and efficiency of operations, compared to $4.7 million in 2019.
Cash Flows From (Used For) Financing Activity
The $1.4 million increase in cash flows used for financing activities was due to a $2.7 million increase in cash distributions to members in 2021, compared to 2020. In 2021, we distributed $9.4 million to our members, compared to $6.7 million in 2020
Indebtedness
We have two lines of credit with CoBank, our primary lender, to meet the short and long-term needs of our operations. The first credit line is a revolving long-term loan. Under this loan, we may borrow funds as needed up to the credit line maximum, or $14.0 million, and then pay down the principal whenever excess cash is available. Repaid amounts may be borrowed up to the available credit line. The available credit line decreases by $2.0 million every six months until the credit line’s maturity on March 20, 2026. We pay a 0.40% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan was $8.8 million and $16.9 million as of December 31, 2022 and 2021, respectively. Under this loan, $5.2 million was available to be borrowed as of December 31, 2022.
The second credit line is a revolving working capital (seasonal) loan. The primary purpose of this loan is to finance our operating needs. Prior to the amendments described below, the maximum we could borrow under this line was $85.0 million until the loan's maturity on February 1, 2023. We pay a 0.20% annual commitment fee on any funds not borrowed; however, we have the option to reduce the credit line during any given commitment period listed in the credit agreement to avoid the commitment fee. As of December 31, 2022 and 2021, the principal balance outstanding on this credit line was $0.1 million and $0, respectively, allowing us to borrow an additional $84.9 million as of as of December 31, 2022.
On January 31, 2023 and March 3, 2023, we amended our seasonal loan with CoBank. Under the January 31st amendment, the principal amount that we could borrow decreased from $85.0 million to $75.0 million and under the March 3rd amendment, the principal amount that we can borrow increased to $85.0 million until the loan's new maturity on December 1, 2023. All other material items and conditions under the credit agreement, and subsequent amendments to such agreement, remain the same following these amendments.
Both the revolving and seasonal loans with CoBank are set up with a variable rate option. The variable rate is set by CoBank and changes weekly on the first business day of each week. We also have a fixed rate option on both loans allowing us to fix rates for any period between one day and the entire commitment period. The annual interest rate on the revolving term loan is 6.85% and 2.56% as of December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the interest rate on the seasonal loan is 6.55% and 2.31%, respectively. We were in compliance with all covenants and conditions under the loans as of December 31, 2022.
On April 20, 2020, we entered into an unsecured promissory note for $1,215,700 under the U.S. Small Business Administration's Paycheck Protection Program (“PPP Loan“), a loan program created under the Coronavirus Aid, Relief and Economic Security (the "CARES Act"). The PPP Loan, which would have matured on July 20, 2022 and had a 1.0% interest rate, was made through First Bank & Trust, N.A., Brookings, South Dakota. The PPP Loan has since been forgiven in full by the SBA, with $1,205,700 being forgiven in November 2020, and $10,000 being forgiven in February 2021.
Capital Expenditures
We made a total of $7.8 million in capital expenditures on property and equipment in 2022 compared to approximately $13.4 million in 2021. Improvements were made to enhance the quality and efficiency of our soybean crushing facility and oil refinery in Volga, South Dakota, and our oilseed processing plant near Miller, South Dakota. Depending upon profitability, we anticipate spending between $8.0 million and $16.0 million for capital improvements in 2023, which will be financed from cash flows from operating activities and long-term debt financing.
In February 2022, we announced plans to construct a multi-seed processing plant near Mitchell, South Dakota. In September 2022, we entered into a capital contribution and commitment agreement with High Plains Partners, LLC, a related party company that will invest and own an equity interest in the new processing facility. Per the agreement, we will transfer all rights, title and interest to all of the tangible and intangible development rights, including engineering, permitting, studies, records, etc., held by us in exchange for equity in High Plains Partners, LLC. We also committed to invest at least another $70.0 million for additional equity in the entity, which will be primarily financed from cash flows from long-term debt financing. Operation of the facility is expected to begin in late 2025.
Off Balance Sheet Financing Arrangements
We do not utilize variable interest entities or other off-balance sheet financial arrangements.
Contractual Obligations
The following table shows our contractual obligations for the periods presented:
Payment due by period
CONTRACTUAL
OBLIGATIONS Total Less than
1 year 1-3 years 3-5 years More than 5
years
Long-Term Debt Obligations (1) $ 10,064,000 $ 310,000 $ 5,504,000 $ 4,250,000 $ -
Operating Lease Obligations 26,245,000 3,642,000 6,393,000 5,382,000 10,828,000
Total $ 36,309,000 $ 3,952,000 $ 11,897,000 $ 9,632,000 $ 10,828,000
(1)Represents principal and interest payments on our notes payable, which are included on our Balance Sheet.
Recent Accounting Pronouncements
See page, Note 1 of our audited financial statements for a discussion on the impact, if any, of the recently pronounced accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of our financial statements requires estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. We continually evaluate these estimates based on historical experience and other assumptions that we believe to be reasonable under the circumstances.
The difficulty in applying these policies arises from the assumptions, estimates, and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions. As the difficulty increases, the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated.
Of the significant accounting policies described in the notes to the financial statements, we believe that the following may involve a higher degree of estimates, judgments, and complexity:
Commitments and Contingencies
Contingencies, by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred, as well as in estimating the amount of the potential expense. In conformity with accounting principles generally accepted in the U.S., we accrue an expense when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Inventory Valuation
We account for our inventories at estimated market value. These inventories are agricultural commodities that are freely traded, have quoted market prices, may be sold without significant further processing, and have predictable and insignificant costs of disposal. We derive our estimates from local market prices determined by grain terminals in our area. Processed product price estimates are determined by the ending sales contract price as of the close of the final day of the period. This price is determined by the average closing price on the Chicago Board of Trade, net of the local basis, for the last two business days of the period and the first business day of the subsequent period. Changes in the market values of these inventories are recognized as a component of cost of goods sold.
Long-Lived Assets
Depreciation and amortization of our property, plant and equipment is provided on the straight-lined method by charges to operations at rates based upon the expected useful lives of individual or groups of assets. Economic circumstances or other factors may cause management’s estimates of expected useful lives to differ from actual.
Long-lived assets, including property, plant and equipment and investments are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its estimated fair market value based on the best information available. Considerable management judgment is necessary to estimate undiscounted future cash flows and may differ from actual.
We evaluate the recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying value may not be recoverable. Such circumstances could include, but are not limited to: (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. We measure the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss is recognized.
The impairment loss is calculated as the amount by which the carrying value of the asset exceeded its fair value. The fair value is measured based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.
Accounting for Derivative Instruments and Hedging Activities
We minimize the effects of changes in the price of agricultural commodities by using exchange-traded futures and options contracts to minimize our net positions in these inventories and contracts. We account for changes in market value on exchange-traded futures and option contracts at exchange prices and account for the changes in value of forward purchase and sales contracts at local market prices determined by grain terminals in the area. Changes in the market value of all these contracts are recognized in earnings as a component of cost of goods sold.
Revenue Recognition
We account for all of our revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers, which became effective January 1, 2018. As part of the adoption of ASC 606, we applied the new standard on a modified retrospective basis analyzing open contracts as of January 1, 2018. However, no cumulative effect adjustment to retained earnings was necessary as no revenue recognition differences were identified when comparing the revenue recognition criteria under ASC 606 to previous requirements.
We principally generate revenue from merchandising and transporting manufactured agricultural products used as ingredients in food, feed, energy and industrial products. Revenue is measured based on the consideration specified in the contract with a customer, and excludes any amounts collected on behalf of third parties (e.g. - taxes). We follow a policy of recognizing revenue at a single point in time when we satisfy our performance obligation by transferring control over a product to a customer. Control transfer typically occurs when goods are shipped from our facilities or at other predetermined control transfer points (for instance, destination terms). Shipping and handling costs related to contracts with customers for sale of goods are accounted for as a fulfillment activity and are included in cost of revenues. Accordingly, amounts billed to customers for such costs are included as a component of revenues.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
Commodities Risk & Risk Management. To reduce the price change risks associated with holding fixed price commodity positions, we generally take opposite and offsetting positions by entering into commodity futures contracts (either a straight or options futures contract) on a regulated commodity futures exchange, the Chicago
Board of Trade. While hedging activities reduce the risk of loss from changing market prices, such activities also limit the gain potential which otherwise could result from these significant fluctuations in market prices. Our policy is generally to maintain a hedged position within limits, but we can be long or short at any time. Our profitability is primarily derived from margins on soybeans processed, not from hedging transactions. Our management does not anticipate that hedging activities will have a significant impact on our future operating results or liquidity. Hedging arrangements do not protect against nonperformance of a cash contract.
At any one time, our inventory and purchase contracts for delivery to our facility may be substantial. We have risk management policies and procedures that include net position limits. They are defined by commodity, and include both trader and management limits. This policy and procedure triggers a review by management when any trader is outside of position limits. The position limits are reviewed at least annually with the board of managers. We monitor current market conditions and may expand or reduce the limits in response to changes in those conditions.
An adverse change in market prices would not materially affect our profitability since we generally take opposite and offsetting positions by entering into commodity futures and forward contracts as economic hedges of price risk.
Foreign Currency Risk. We conduct essentially all of our business in U.S. dollars and have minimal direct risk regarding foreign currency fluctuations. Foreign currency fluctuations do, however, impact the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of and demand for U.S. agricultural products compared to the same products offered by foreign suppliers.
An adverse change in market prices would not materially affect our profitability since we generally take opposite and offsetting positions by entering into commodity futures and forward contracts as economic hedges of price risk.
Interest Rate Risk. We manage exposure to interest rate changes by using variable rate loan agreements with fixed rate options. Long-term loan agreements can utilize the fixed option through maturity; however, the revolving ability to pay down and borrow back would be eliminated once the funds were fixed.
As of December 31, 2022, we had $0 in fixed rate debt and $99 million in variable rate debt available to borrow. Interest rate changes impact the amount of our interest payments and, therefore, our future earnings and cash flows. Assuming other variables remain constant, a one percentage point (1%) increase in interest rates on our variable rate debt could have an estimated impact on profitability of approximately $990,000 per year.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 of this report, and financial statements and schedules for the years ended December 31, 2022, 2021 and 2020.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Control and Procedures.
Evaluation of Disclosure Controls and Procedures. Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, our management has concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Additionally, based on management’s evaluation, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is accumulated and communicated to our management to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2022, our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control- Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this assessment using those criteria, management concluded that, as of December 31, 2022, our internal control over financial reporting is effective. Our management reviewed the results of their assessment with the Audit Committee.
This Annual Report does not include a report of our registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to an audit report by our registered public accounting firm pursuant to the rules of the Commission that permit us to provide only management’s report in this report.
Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
/s/ Thomas Kersting
Thomas Kersting, Chief Executive Officer
(Principal Executive Officer)
/s/ Mark Hyde
Mark Hyde, Chief Financial Officer
(Principal Financial Officer)

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.
PART III
Pursuant to General Instructions G(3), we omit Part III, Items 10, 11, 12, 13, and 14, and incorporate such items by reference to an amendment to this Annual Report on Form 10-K or to a Definitive Proxy Statement to be filed with the Commission within 120 days after the close of the fiscal year covered by this Report (December 31, 2022).
Part IV

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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ITEM 11. EXECUTIVE COMPENSATION

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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 of this report for a list of the
financial statements for the year ended December 31, 2022. The financial statements appear on page of this Report.
(2) All supplemental schedules are omitted because of the absence of conditions under which they are required or because the information is shown in the Consolidated Financial Statements or notes thereto.
(3) Exhibits - Exhibits required to be filed by Item 601 of Regulation S-K are set forth in the Exhibit Index accompanying this Annual Report on Form 10-K and are incorporated herein by reference.
Exhibit
Number Description
3.1(i)
Articles of Organization
3.1(ii)
Operating Agreement, as amended and restated
3.1(iii)
Articles of Amendment to Articles of Organization
4.1
Form of Class A Unit Certificate
10.1
Railroad Car Lease Agreement with Trinity Industries dated February 12, 2002
10.2
Railroad Car Lease Agreements with Wells Fargo Rail Corporation, dated November 10, 2003 and November 25, 2003
10.3
Security Agreement with CoBank dated June 17, 2004
10.4
Credit Agreement with CoBank dated December 28, 2016
10.5
Amendment to Credit Agreement with CoBank dated March 28, 2017
10.6
Amendment to Credit Agreement with CoBank dated February 27, 2018
10.7
Amendment to Credit Agreement with CoBank dated January 28, 2020
10.8
Amendment to Credit Agreement with CoBank dated December 10, 2020
10.9
Amendment to Credit Agreement with CoBank dated December 14, 2021
10.10
Monitored Revolving Credit Supplement dated December 28, 2016
10.11
Amended and Restated Revolving Credit Promissory Note dated January 31, 2023 (*)
10.12
Amended and Restated Revolving Credit Promissory Note dated March 3, 2023 (*)
10.13
Amended and Restated Revolving Term Promissory Note dated April 27, 2022
10.14
Thomas Kersting Employment Agreement dated January 1, 2023
10.15
Mark Hyde Employment Agreement dated March 21, 2017
31.1
Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer (*)
31.2
Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer (*)
32.1
Section 1350 Certification by Chief Executive Officer (*)
32.2
Section 1350 Certification by Chief Financial Officer (*)
____________________________________________________________________________
(*) Filed herewith.