UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31 , 2023
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 000-50253
| (Exact name of registrant as specified in its charter) | ||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices | (Zip Code) | |||||||
( | ||
| (Registrant's telephone number, including area code) | ||
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨ 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.
¨ 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 ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes ¨ 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 Yes ¨ No
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.
¨ Large Accelerated Filer | ¨ Accelerated Filer | x | ||||||||||||
| (do not check if a smaller reporting company) | ||||||||||||||
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of these error correction are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
¨ Yes ☒ No
The aggregate market value of the registrant’s Class A units held by non-affiliates at June 30, 2023 was approximately $298,248,763 computed by reference to the most recent public offering price on Form S-1. The registrant's Class A units are not listed on an exchange or otherwise publicly traded. Additionally, the Class A units are subject to significant restrictions on transfer under the registrant's operating agreement.
As of the day of this filing, there were 30,411,500 Class A capital units of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of Form 10-K - Portions of the Definitive Proxy Statement to be filed with the Securities Exchange Commission within 120 days after the close of the registrant's fiscal year (December 31, 2023).
1
Table of Contents
| Page | ||||||||
2
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information to investors. This Annual Report on Form 10-K includes forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include all statements that are not historical in nature. We have tried to identify these forward-looking statements by using words including "may," "will," "should," "could," "expect," "anticipate," "believe," "plan," "intend," "estimate," "continue" and similar expressions. These forward looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward looking statements. These factors include the risks, uncertainties, trends and other factors discussed under the headings "Item 1A. Risk Factors," as well as "Item 1. Business," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Annual Report on Form 10-K, including:
•The effect of weather conditions and the impact of crop and animal disease;
•General economic conditions impacting the availability and price of soybeans and natural gas;
•The impact of global and regional economic, agricultural, financial and commodities market, political, social and health conditions;
•Fluctuations in U.S. oil consumption and petroleum prices;
•Changes in perception of food quality and safety;
•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;
•Changes in business strategy, capital improvements or development plans;
•Changes in the availability of credit and interest rates;
•Future levels of indebtedness and capital spending, particularly on new projects;
•The availability of additional capital to support capital improvements, development and projects; and
•Other factors discussed under the item below entitled “Risk Factors.”
In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements contained in this Annual Report on Form 10-K. Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this Annual Report on Form 10-K not to occur. Except as otherwise required by federal securities law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Annual Report on Form 10-K.
PART I
Item 1. Business.
Overview
South Dakota Soybean Processors, LLC (“we,” “us,” “our” or the “Company”) is the owner and operator of two soybean processing plants and a soybean oil refinery in the state of South Dakota. Our principal place of business is in Volga, South Dakota, where we operate a soybean processing plant and refinery, and our administrative offices are located. We also own and operate a small oilseed processing plant near Miller, South Dakota, which is approximately 100 miles from Volga. We recently acquired and own a controlling interest in a subsidiary which indirectly owns and, following completion of construction, will operate a large oilseed processing plant and refinery
3
just south of Mitchell, South Dakota. Construction of the Mitchell facility commenced in September 2023 and is expected to be completed and operational by the fourth quarter of 2025.
We are owned by approximately 2,200 members, many of whom reside are agricultural producers in South Dakota and neighboring states who deliver and sell soybeans to our plants for processing and production of our products. All our assets and operations are domiciled in South Dakota, and all of our products are produced in South Dakota.
Our core business consists of processing locally grown soybeans into soybean meal and oil. We market and sell 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 formats, to 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 also market and sell contracting services for the construction and management of oilseed processing plants.
We strive to maintain a competitive position in the marketplace by producing high quality products, operating highly efficient operations, and adding value to our core products to capture larger margins. We continue to research methods to improve overall efficiency by analyzing new methods of vertical integration, adding value to our products through additional processing investment, and studying applications of our products in the food and energy industries. Although a primary objective is to maximize cash distributions to our members from profits generated by operations, we recognize the need to maintain our financial strength through reinvestment and capital improvements into our business and facilities.
General Development of Business
In 1993, we were organized and operated as a South Dakota cooperative. In 2002, we reorganized and converted organizationally from a cooperative to a South Dakota limited liability company. As a limited liability company, we are taxed as a partnership for U.S. tax purposes, meaning we are not subject to U.S. income taxes but file information returns reporting our income annually, and all of our income is passed through to and included in the taxable income of our members.
After completion of construction of our first facility in Volga in 1996, we commenced operations and processing of soybeans into soybean meal, crude soybean oil, and soybean hulls. Since 1996, we have invested heavily internally by making significant capital improvements and expanding our business to include vertically integrated product lines and services. In 2002, we completed the construction of a refining facility and began refining crude soybean oil which they sell to customers in the oil and other industries. In 2011, we completed the construction and start-up of a deodorizer and began selling deodorized oil directly to customers in the food industry. In 2014, we purchased the Miller oilseed processing plant which has permitted expansion into new markets through the processing of identity-preserved soybeans, including non-genetically modified organisms (GMO) and organic soybeans.
In 2019, we invested into Prairie AquaTech, LLC and its affiliates which are engaged in the research, development and production of high-quality protein feed derived from soybeans. Following our investment, Prairie AquaTech constructed and now operates a 45,000 square foot production facility immediately adjacent to our Volga plant. The facility has the capacity to produce up to 30,000 tons of feed annually, which is currently being marketed and sold to the fish and pet industries.
In 2023, we took major steps toward developing and operating a new oilseed processing facility near Mitchell, South Dakota. We formed a subsidiary, High Plains Partners, LLC, a South Dakota limited liability company, to help finance and develop the Mitchell facility and made a large investment of approximately $100.4 million into it. High Plains Partners subsequently formed a subsidiary, HPP SD Holdings, LLC, a Delaware limited liability company, of which it owns and controls a majority interest, to hold a one-hundred percent ownership interest in High Plains Processing, LLC, a Delaware limited liability company, which is the owner-operating company of the Mitchell facility. The Mitchell facility will be a switch-processing facility, making it capable of processing soybeans and other oilseed varieties. The facility will have the capacity to process 35 million bushels of soybeans annually. Storage volume for the facility is expected to be 4 million bushels of soybean/oilseed, 8,000 metric tons of meal/hulls, 12.3 million gallons of crude oil and 3.52 million gallons of refined oil. Construction of the facility commenced in September 2023 and is scheduled to be completed by the fourth quarter of 2025.
4
Industry Information
Globally, soybean production is concentrated in three principal countries: the U.S., Brazil, and Argentina. The United States Department of Agriculture (“USDA”) reports that, for the 2023 crop year, the U.S. produced approximately 4.35 billion bushels of soybeans, or approximately 28% of estimated world production, Brazil producing 5.8 billion bushels, or 39% of estimated world production, and Argentina producing 1.8 billion bushels, or 13% of estimated world production.
Soybean production fluctuates annually due to various factors, including weather, government policy, economic conditions, and prices of other commodities. Soybean consumption fluctuates less because soybeans have become a staple commodity and are used globally, yet can be subject to fluctuation from time-to-time due to various factors, including general economic conditions, health concerns, population growth and trade policy.
Soybean processing involves the conversion of soybeans into three principal products: soybean meal, soybean hulls, and soybean oil. A bushel of soybeans, weighing approximately 60 pounds, yields, approximately forty-four pounds of meal, four pounds of hulls, and eleven pounds of crude oil. Approximately 80% of a soybean bushel is processed and sold as soybean meal or hulls, with the remaining 20% extracted as crude soybean oil. Soybean meal and hulls are sold and used as feed by livestock producers and fish farms. Soybean oil, which is produced in multiple grades, is sold to and used in the food, petroleum and chemical industries. The food industry typically integrates soybean oil in cooking and salad dressings, baking and frying fats, and butter substitutes.
Soybean processing facilities are generally located near adequate sources of soybeans and there is a strong demand for soybean meal. In the U.S., soybean meal is predominantly fed to and consumed by the poultry and swine industries. On average, exports of soybean meal out of the U.S. account for 20% to 30% of total production. The USDA estimates that approximately 55% of soybeans produced in the U.S. are processed domestically, 42% are exported as whole soybeans, and 3% are retained for seed and residual use. Historically, the U.S. exports more soybeans to China than any other country, followed usually by the European Union, Mexico, and Japan.
Soybean oil refineries are generally located adjacent to soybean processing plants. Refined and crude soybean oil is shipped throughout the U.S. and for export. The USDA estimates that approximately 52% of domestic soybean oil production is used in food, feed and industrial applications, 47% in biofuels production, and 1% 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 increasingly being converted to biofuels, including 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
The principal raw material used in our production process is soybeans. We primarily purchase soybeans for our Volga and Miller plants from soybean producers and elevators located within approximately 50 miles of these plants. The State of South Dakota and the upper Midwest, historically, has produced an adequate supply of soybean for our procurement and the soybean processing industry. In 2023, agricultural producers in South Dakota grew and harvested 222 million bushels of soybeans, ranking it eighth among the top producing states in the U.S., as illustrated in the following table:
| State | Production (bushels) | |||||||
| Illinois | 628 million | |||||||
| Iowa | 572 million | |||||||
| Minnesota | 349 million | |||||||
| Indiana | 334 million | |||||||
5
| State | Production (bushels) | |||||||
| Ohio | 274 million | |||||||
| Nebraska | 265 million | |||||||
| Missouri | 250 million | |||||||
| South Dakota | 222 million | |||||||
| North Dakota | 209 million | |||||||
| Arkansas | 156 million | |||||||
Producers in South Dakota, in comparison to previous years, grew and harvested approximately 197 million bushels in 2022, 223 million bushels in 2021, 224 million bushels in 2020, and 146 million bushels in 2019. Of this amount, we purchased and processed 33.3 million bushels in 2023, compared to 34.5 million bushels in 2022, 34.9 million bushels in 2021, 34.3 million bushels in 2020, and 33.0 million bushels in 2019.
We control the flow of soybeans into our facilities with a combination of pricing and contracting options. Threats to our soybean supply include weather (especially drought), changes in government programs, and competition from other processors and export markets.
Products and Services
The three principal products produced at our Volga and Miller plants are soybean meal, soybean hulls, and soybean oil. We also offer construction and operational management services for processing oilseed and related companies. We typically enter multi-year agreements to manage the construction or operation of oilseed companies, receiving a fee for services performed based on the type of services being performed. This portion of our business is small, generating only a nominal amount of revenues, historically. We currently serve as owner’s representative during the construction phase of the Mitchell facility under an owner’s representative agreement, where we are responsible for overseeing and managing the facility’s construction phase. Upon completion of construction of the Mitchell facility, we will manage this facility under a management agreement, where we will be responsible for managing the facility’s entire operations.
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 plant), Western U.S., and Canada. Our crude 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 2023, 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 | 52% | 61% | 23% | |||||||||||||||||
| Other U.S. States | 16% | 39% | 68% | |||||||||||||||||
| Export | 32% | —% | 9% | |||||||||||||||||
Over half of our products are shipped by rail. Our rail service is provided by the Rapid City, Pierre & Eastern (RCP&E) rail line, which is owned and operated by Genesee & Wyoming, Inc., which connects to the Burlington-Northern Santa Fe, Canadian Pacific (CP), and the Union Pacific rail lines.
Dependence upon a Single Customer
None.
6
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. The U.S. soybean processing industry is comprised primarily of 16 different companies that 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 soybean processing companies operating 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. Despite our size, we strive to maintain a competitive position in the market by producing high quality products, operating highly efficient operations at the lowest possible cost, and investing into value-add projects and companies.
Utilities
Volga Plant
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 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 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 Plant
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 130 individuals, all but three of whom are full-time. We have no unions or other collective bargaining agreements.
Government Regulation and Environmental Matters
Our business is subject to various laws and regulations that are designed to protect the environment, which are administered by the U.S. Environmental Protection Agency, the South Dakota Department of Agriculture and Natural Resources, and local government agencies. These laws and regulations govern the discharge of materials to the environment, air and water; reporting storage of hazardous wastes; transporting, handling and disposition of wastes; and the labeling of pesticides and similar substances. Our business is also subject to laws and regulations administered by other federal, state, local and foreign governmental agencies which 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.
7
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.
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.
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. Although inflation has subsided the past few months, inflation and its effects, 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.
We are exposed to risk of nonperformance and nonpayment by counterparties. We are exposed to risk of nonperformance and nonpayment by counterparties, whether pursuant to contracts or otherwise. Risk of nonperformance and nonpayment by counterparties includes the inability or refusal of a counterparty to pay us; the inability or refusal to perform because of a counterparty's financial condition and liquidity, operational failures, labor issues, cybersecurity events, outbreaks of disease or for any other reason; and risk that the counterparty will refuse to perform a contract during a period of price fluctuations where contract prices are significantly different than current market prices. In the event we experience significant nonperformance or nonpayment by counterparties, our business could be materially and adversely affected.
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
8
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.
We face risks related to health epidemics, pandemics, and similar outbreaks. While we have effectively managed through the risks arising from the pandemic caused by COVID-19, we could be materially affected in the future if a more severe variant or other disease would arise causing disruptions far more severe than COVID-19. We may be unable to perform fully on our contractual obligations, our supply chain and logistical networks may be affected, and costs and working capital needs may increase. These cost increases may not be fully recoverable or adequately covered by insurance. In addition, demand for certain products that we produce, particularly biofuels and ingredients that go into food that support the food services channels, could be materially impacted from a prolonged regional or global outbreak, leading to government-imposed lockdowns, quarantines, or other restrictions.
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.
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 primarily on our ability to profitably operate our soybean processing and soybean oil refining plants. We do not have any other material lines of business or other material 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 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
9
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, which results in 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 one to two 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
10
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.
Members may realize taxable income without cash distributions, and may have to use funds from other sources to fund tax liabilities. Because we are taxed as a partnership for U.S. federal income tax purposes, members may realize taxable income in excess of cash distributions by us. There can be no assurance that we will pay distributions at a specific rate or at all. As a result, members may have to use funds from other sources to pay their tax liability.
We rely on information technology and any failure, inadequacy, interruption, or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate its business effectively. Hackers, government-backed threat actors, and organized crime may be able to penetrate our network or systems, misappropriate or compromise our confidential information or that of third parties, create system disruptions, corrupt data, or cause shutdowns. Using different tools and methodologies the threat actors may be able to deploy malware that attacks our systems or our supplier’s systems, or otherwise exploits any security vulnerabilities of our facilities and equipment. Such vulnerabilities in our systems can also occur due to a lack of robustness, quality, and integrity, in our systems as a whole. While we employ a number of technical, organizational, and physical protective measures, these measures may fail to prevent or detect all attacks on or weaknesses in its systems.
We manage and store various proprietary, sensitive, and confidential information and data relating to our business as well as from our suppliers and customers. Breaches of this information and data due to insufficient security measures, accidental loss, inadvertent disclosure, or unapproved dissemination, including incidents as a result of
11
fraud, trickery, or other forms of deception, could expose us or our customers or suppliers to a risk of loss or misuse of this information.
Any claim that our facilities, equipment, products, or systems are subject to cybersecurity risk or data breaches, whether legitimate or not, could have a material adverse effect on our business.
To the extent we experience any cybersecurity incidents in the future, our relationships with our customers and suppliers may be materially impacted, our brand and reputation may be harmed and we could incur substantial costs in responding to and remediating the incidents and in resolving any investigations or disputes that may result, any of which could have a material adverse effect on our business. In addition, the cost and operational consequences of implementing and adding further data protection measures could be significant.
We face risk associated with the oilseed processing plant near Mitchell, South Dakota, including cost overruns, construction delays and operational issues. Our Board of Managers approved the investment, development and construction of the approximately $500 million oilseed processing plant to be located near Mitchell, South Dakota, which will provide area agricultural producers with new markets for their soybeans and other oilseed crops. We have agreed to invest approximately $100 million into the project, which will be our largest single investment in our history. We are also acting as a guarantor on our subsidiary’s, High Plains Partners’, investment into the project. The plant is intended to be fully operational in the fourth quarter of 2025. There can be no assurance that actual construction costs for the plant will not exceed current estimates, that we will not have to make additional investment into the plant beyond commitments, that the plant will be operational based on our anticipated timing, or that plant will be profitable.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Risk Management and Strategy
The Company recognizes the importance of developing, implementing, and maintaining cybersecurity measures to safeguard our information and operational technologies and protect the confidentiality, integrity, and availability of our data. Our business is dependent upon our computer systems, devices, software and networks (operational and information technology) to collect, process and store the data necessary to conduct almost all aspects of our business, including the evaluation of acquisition and development opportunities, the monitoring and evaluation of our existing properties and the performance of and data from our operators and the recording and reporting of financial information.
Assessing, Identifying and Managing Material Cybersecurity Risks & Integrated Overall Risk Management. We have processes in place to assess, identify, manage, and address material cybersecurity threats and incidents. These include, among other things: annual and ongoing security awareness training for employees; mechanisms to detect and monitor unusual network activity; and containment and incident response tools. We regularly assess risks from cybersecurity and technology threats and monitor our information systems for potential vulnerabilities. We monitor issues that are internally discovered or externally reported that may affect our systems, and have processes to assess those issues for potential cybersecurity impact or risk.
The Company has integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. This integration is designed to include cybersecurity considerations as part of our decision-making processes at every level. Our IT department and third party service providers seek to continuously evaluate and address cybersecurity risks in alignment with our business objectives and operational needs and coordinate with our overall risk management framework.
In the event of a cybersecurity incident, we maintain an incident response plan. This plan sets forth immediate actions to mitigate the impact of cybersecurity incidents, including referring certain matters to the Company’s Chief Executive Officer (“CEO”) for additional evaluation and oversight, as well as long-term strategies for remediation and prevention of future cybersecurity incidents.
12
Engaging Third Parties on Cybersecurity Risk Management. Recognizing the complexity and evolving nature of cybersecurity threats, the Company engages with third-party service providers, including cybersecurity assessors, and consultants, in evaluating and testing our cybersecurity risk management systems. This enables us to leverage knowledge and insights with the goal of aligning our cybersecurity strategies and processes with best practices for our industry and size. Accordingly, we engage third-party service providers for regular cybersecurity-related audits, threat assessments, and consultation on security enhancements.
Overseeing Third-Party Risk. Because we are aware of the risks associated with engaging third-party service providers, the Company has implemented processes designed to oversee and manage these risks. It is our policy to conduct security assessments of all third-party service providers before engagement and we aim to maintain ongoing monitoring for compliance with our cybersecurity standards. This monitoring includes regular assessments by our Chief Operations Officer.
Cybersecurity Threats. As of the date of this Annual Report on Form 10-K, though the Company and our service providers have experienced certain cybersecurity incidents, we are not aware of any previous cybersecurity incidents that have materially affected or are reasonably likely to materially affect the Company, including our operations or financial condition. We acknowledge that cybersecurity threats are continually evolving, and the possibility of future cybersecurity incidents remains. Despite the implementation of our cybersecurity processes, our security measures cannot guarantee that a significant cybersecurity attack will not occur. While we devote resources to our security measures designed to protect our systems and information, no security measure is infallible. See Item 1A. Risk Factors “Risk Factors Relating to Our Business-We depend on computer and telecommunications systems, and failures in our systems or cyber security threats, attacks or other disruptions could significantly disrupt our business operations.” for additional information about the risks to our business associated with a breach or other compromise to our information and operational technology systems.
Governance
Board of Directors Oversight. The Board has overall responsibility for the oversight of risk management, which includes cybersecurity risks. The Board receives periodic briefings on cybersecurity matters, including key risks to the Company, recent developments, and risk mitigation activities from members of management, who are responsible for overseeing our cybersecurity program. In addition, the Board receives annual briefings from our Chief Operations Officer and our third party service provider(s),on our cybersecurity program.
Management’s Role. Our cybersecurity risk assessment and management efforts are led by our Chief Operations Officer, who is responsible for implementing and overseeing processes for the monitoring of our information systems. This includes responsibility for the deployment of cybersecurity measures and system audits to identify potential cybersecurity vulnerabilities. Our Chief Operations Officer reports directly to our CEO and Board of Managers.
Item 2. Properties.
We conduct our operations principally at two facilities, one in Volga, South Dakota, and the other in 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.”
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
13
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.
Item 4. Mine Safety Disclosures.
None.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
As of December 31, 2023 and March 1, 2024, there were 2,227 and 2,226 members of record, respectively, 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 2023 and, as of the date of this annual report, we did not have any publicly announced plans or programs with respect to purchases of our units.
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 of units 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 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 | |||||||||||||||||||
| First Quarter 2023 | $ | 8.51 | $ | 9.00 | $ | 8.70 | 50,750 | |||||||||||||||||||
| Second Quarter 2023 | $ | 8.99 | $ | 10.75 | $ | 9.84 | 28,250 | |||||||||||||||||||
| Third Quarter 2023 | $ | 9.00 | $ | 10.00 | $ | 9.72 | 40,500 | |||||||||||||||||||
| Fourth Quarter 2023 | $ | 8.90 | $ | 9.12 | $ | 9.00 | 37,250 | |||||||||||||||||||
(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 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”
14
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 declared and issued to our members a cash distribution of $36.5 million (120.0¢ per capital unit) and $17.3 million (57.0¢ per capital unit) in the years ended December 31, 2023 and 2022, respectively. On January 30, 2024, our board of managers approved a cash distribution to our members of approximately $39.5 million (130.0¢ per capital unit), which was issued to our members on or about February 1, 2024. 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.
Income Tax Considerations
Because we have elected to be taxed as a partnership, each of our members is required to report on his or her income tax return for the taxable year with which, or within which, ends our taxable year his or her distributive share of our income, gains, losses and deductions without regard to whether corresponding cash distributions are received from us. We provide each member with an annual Schedule K-1, indicating the member’s share of our income, loss and their separately stated components.
Under IRS Code Section 701, an entity, such as South Dakota Soybean Processors, subject to taxation as a partnership under Subchapter K of the Code, is not itself subject to U.S. income taxation. Instead, each of our members is required to report his or her allocable share of our income and/or losses, and each of our members is liable for U.S. income tax on such income in each member’s individual or separate capacity. IRS Code Section 702 provides that the character of any such item of income or deduction allocated to a member will be the same as its character to us. Each member will be taxed on his or her distributive share of our income even though the equivalent amount of cash may not be distributed to such member.
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.
| 2023 | 2022 | 2021 | 2020 | 2019 | |||||||||||||||||||||||||
| Bushels processed | 34,465,628 | 34,465,628 | 34,876,323 | 34,306,674 | 33,045,418 | ||||||||||||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||||||||||||
| Revenues | $ | 703,148,409 | $ | 721,532,329 | $ | 590,150,153 | $ | 415,025,765 | $ | 371,275,766 | |||||||||||||||||||
| Costs & expenses: | |||||||||||||||||||||||||||||
| Cost of goods sold | (624,732,341) | (648,116,685) | (556,675,807) | (395,772,460) | (356,475,930) | ||||||||||||||||||||||||
| Operating expenses | (6,487,573) | (5,669,426) | (4,590,227) | (3,819,645) | (3,624,306) | ||||||||||||||||||||||||
| Operating profit (loss) | 71,928,495 | 67,746,218 | 28,884,119 | 15,433,660 | 11,175,530 | ||||||||||||||||||||||||
| Non-operating income (loss) | 2,018,285 | 1,922,642 | 758,163 | 1,239,018 | 723,812 | ||||||||||||||||||||||||
| Interest expense | (2,837,555) | (2,204,759) | (1,634,367) | (1,090,951) | (919,157) | ||||||||||||||||||||||||
| Income tax benefit (expense) | — | — | — | — | (600) | ||||||||||||||||||||||||
| Net income | 71,109,225 | 67,464,101 | 28,007,915 | 15,581,727 | 10,979,585 | ||||||||||||||||||||||||
| Net income attributed to non-controlling interests in consolidated entity | 659,647 | — | — | — | — | ||||||||||||||||||||||||
| Net income (loss) | $ | 70,449,578 | $ | 67,464,101 | $ | 28,007,915 | $ | 15,581,727 | $ | 10,979,585 | |||||||||||||||||||
15
| 2023 | 2022 | 2021 | 2020 | 2019 | |||||||||||||||||||||||||
Weighted average capital units outstanding | 30,411,500 | 30,411,500 | 30,419,000 | 30,419,000 | 30,419,000 | ||||||||||||||||||||||||
Net income (loss) per capital unit | $ | 2.317 | $ | 2.218 | $ | 0.921 | $ | 0.512 | $ | 0.361 | |||||||||||||||||||
| Balance Sheet Data: | |||||||||||||||||||||||||||||
| Working capital | $ | 100,176,364 | $ | 76,001,793 | $ | 37,448,081 | $ | 31,391,916 | $ | 21,322,260 | |||||||||||||||||||
Net property, plant & equipment | 174,927,830 | 74,559,969 | 72,532,608 | 64,231,194 | 64,517,204 | ||||||||||||||||||||||||
| Total assets | 424,740,920 | 311,196,770 | 245,286,123 | 225,823,047 | 158,104,992 | ||||||||||||||||||||||||
| Long-term obligations | 22,881,979 | 26,110,157 | 20,122,452 | 23,613,702 | 15,307,727 | ||||||||||||||||||||||||
| Members’ equity | 197,494,454 | 163,538,676 | 113,414,905 | 94,836,880 | 85,947,333 | ||||||||||||||||||||||||
| Other Data: | |||||||||||||||||||||||||||||
| Capital expenditures | $ | 106,644,436 | $ | 7,754,541 | $ | 13,442,955 | $ | 4,652,368 | $ | 10,066,719 | |||||||||||||||||||
| Distributions to members | $ | 36,493,800 | $ | 17,338,830 | $ | 9,429,890 | $ | 6,692,180 | $ | 15,209,500 | |||||||||||||||||||
| Distributions to members per capital unit | $ | 1.200 | $ | 0.570 | $ | 0.310 | $ | 0.220 | $ | 0.500 | |||||||||||||||||||
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion along with our consolidated financial statements and the notes to our consolidated 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
We reached a new height in profitability in 2023 by recording a record profit of $70.5 million, as we continued to build off the record profit of $67.5 million in 2022. The record profit led us to declare and issue a record cash distribution to members of $39.5 million in February 2024.
In the first half of 2023, we encountered a shortage of soybeans due to lower-than-average production in the state during the preceding growing season. This temporary shortage of soybeans raised concerns about the availability of soybean meal and caused meal basis to trade at high levels during the first three quarters of the year. Although the area in which we traditionally purchase soybeans had below-average production levels, the soybeans we purchased were above average in terms of quality, especially oil and protein levels, which helped offset the higher costs associated with drawing soybeans from outside the area. In addition, our Volga and Miller plants operated efficiently throughout the year, with refining production setting a record of over 400 million pounds of crude oil.
Looking ahead, we believe 2024 will be a strong year. During the first half of the year, we expect Argentina will have an increase in soybean production which may increase processing by Argentine-based crushers and weaken processing margins in the U.S. During the second half of the year, we expect renewable diesel production in the U.S. to increase, which should improve soybean oil demand and bolster margins. Similarly, meal demand may improve, with feeding margins showing signs of improvement. Operationally, we are installing new processing equipment at our Volga facility, which should improve overall plant efficiency and operations. Additionally, construction of the new Mitchell facility is on schedule due to a very mild winter.
16
Results of Operations
Comparison of Years Ended December 31, 2023 and 2022
Year Ended December 31, 2023 | Year Ended December 31, 2022 | ||||||||||||||||||||||
| $ | % of Revenue | $ | % of Revenue | ||||||||||||||||||||
| Revenue | $ | 703,148,409 | 100.0 | $ | 721,532,329 | 100.0 | |||||||||||||||||
| Cost of revenues | (624,732,341) | (88.8) | (648,116,685) | (89.8) | |||||||||||||||||||
| Gross profit | 78,416,068 | (12.6) | 73,415,644 | (11.3) | |||||||||||||||||||
| Operating expenses | (6,487,573) | (0.9) | (5,669,426) | (0.8) | |||||||||||||||||||
| Interest expense | (2,837,555) | (0.4) | (2,204,759) | (0.3) | |||||||||||||||||||
| Other non-operating income (expense) | 2,018,285 | 0.3 | 1,922,642 | 0.3 | |||||||||||||||||||
| Net income | 71,109,225 | 10.1 | 67,464,101 | 9.4 | |||||||||||||||||||
| Net income attributable to non-controlling interests in consolidate entities | 659,647 | 0.1 | — | — | |||||||||||||||||||
| Net income attributed to Company | $ | 70,449,578 | 70449578 | 10.0 | $ | 67,464,101 | 67464101 | 9.4 | |||||||||||||||
Revenue – Revenue decreased $18.4 million, or 2.5%, for the year ended December 31, 2023, compared to the same period in 2022. The decrease in revenues was primarily due to a 10.7% decrease in the average sales price of refined soybean oil. Oil prices were adversely affected by reduced demand from the renewable diesel industry following a delay in start-up of and various production issues encountered by renewable diesel plants in 2023.
Gross Profit/Loss – Gross profit increased $5.0 million, or 6.8%, for the year ended December 31, 2023, compared to 2022. The increase in gross profit was mainly due to improved board crush margins and growing conditions.Board crush margins improved primarily because of drought conditions in Argentina and North America. Argentina, which accounts for nearly 30% of the world's soybean meal exports, experienced a severe drought which shifted demand for soybean meal to the U.S. as a source. This shift allowed producers, like us, to benefit from increased export opportunities. Partially offsetting the increase in gross profit was a $4.7 million increase, or 12.9%, in production costs in 2023, compared to 2022. The increase in production costs was due to increases in maintenance, personnel, and utility costs because from inflation and supply shortages.
Operating Expenses – Administrative expenses, including selling, general and administrative expenses, increased approximately $0.8 million, or 14.4%, during the year ended December 31, 2023, compared to the same period in 2022. The increase was primarily due to an increase in legal and personnel costs.
Interest Expense – Interest expense increased $0.6 million, or 28.7%, during the year ended December 31, 2023, compared to the same period in 2022. The increase in interest expense was due to an increase in interest rates on our senior debt with CoBank. As of December 31, 2023, the interest rate on our revolving long-term loan was 7.85%, compared to 6.85% as of December 31, 2022. The increase in interest expense was partially offset by an $18.7 million decrease in borrowings from our lines of credit, as we borrowed less due to improved profitability. The average debt level during 2023 was approximately $40.0 million, compared to $58.3 million in 2022.
Other Non-Operating Income (Expense) – Other non-operating income, including patronage dividend income, increased $0.1 million, or 5.0%, for the year ended December 31, 2023, compared to the same period in 2022. The increase in other non-operating income was due to a $1.6 million increase in interest income. During the year ended December 31, 2023, interest income totaled $1.6 million, compared to $0 in 2022. Partially offsetting the increase in interest income was a $1.3 million decrease in gains on our interest rate hedge instruments. During the year ended December 31, 2023, we had losses on interest rate hedges of $0.2 million, compared to gains of $1.1 million during the same period in 2022.
Net Income/Loss – We generated a net income of $70.5 million during the year ended December 31, 2023, a $3.0 million increase from 2022. The increase is primarily attributable to an increase in gross profit and other non-operating income.
17
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) | |||||||||||||||||||
| Gross profit | 73,415,644 | 10.2 | 33,474,346 | 5.7 | |||||||||||||||||||
| Operating expenses | (5,669,426) | (0.8) | (4,590,227) | (0.8) | |||||||||||||||||||
| Interest expense | (2,204,759) | (0.3) | (1,634,367) | (0.3) | |||||||||||||||||||
| Other non-operating income (expense) | 1,922,642 | 0.3 | 758,163 | 0.1 | |||||||||||||||||||
| 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, because of 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 and became operational in the U.S. in 2022. Partially offsetting the increase in gross profit was a $4.6 million increase, or 14.5%, in production costs in 2022, compared to 2021. Production costs increased due to an increase personnel, maintenance, utilities and chemical costs because of 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 fewer 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.
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, 2023, we had working capital, defined as current assets less current liabilities, of approximately $100.2 million, compared to working capital of $76.0 million on December 31, 2022. Working capital increased between periods primarily due to investment proceeds raised by one of our consolidated subsidiaries, High Plains Partners, LLC, in connection with its financing, the proceeds of which were contributed to the new crush facility project near Mitchell, South Dakota. We acquired a majority
18
ownership in High Plains Partners in exchange for contributing to High Plain Partners cash, property and various construction and development rights for the project. High Plains Partners, in turn, agreed to contribute the cash, property, and rights to High Plains Partners' subsidiary, HPP SD Holdings, LLC, to which owns the Mitchell plant through its wholly-owned subsidiary, High Plains Processing, LLC.
Comparison of the Years Ended December 31, 2023 and 2022
| 2023 | 2022 | ||||||||||
| Net cash from (used for) operating activities | $ | 126,438,041 | $ | 27,431,814 | |||||||
| Net cash (used for) investing activities | (104,214,603) | (9,951,071) | |||||||||
| Net cash from (used for) financing activities | 49,820,199 | (17,447,782) | |||||||||
Cash Flows From (Used For) Operating Activities
The $97.9 million increase in cash flows from operating activities was largely due to a $101.4 million decrease in inventories. During the year ended December 31, 2023, our inventories decreased by $60.8 million, compared to a $40.6 million increase during the same period in 2022.
Cash Flows From (Used For) Investing Activity
The $95.5 million increase in cash flows used for investing activities was due to a $94.3 million increase in expenditures for purchases of various property and equipment that were largely made for the construction and development of the Mitchell facility, which we contributed to High Plains Partners as part of our investment into this entity.
Cash Flows From (Used For) Financing Activity
The $67.3 million increase in cash flows from (used for) financing activities was principally due to the receipt of $98.1 million in investments received by High Plains Partners, the proceeds of which will be contributed to HPP SD Holdings to pay for the construction and development of the Mitchell facility. Partially offsetting the increase is a $19.2 million increase in cash distributions to our members in 2023, compared to 2022.
Comparison of the Years Ended December 31, 2022 and 2021
| 2022 | 2021 | ||||||||||
| Net cash from operating activities | $ | 27,431,814 | $ | 18,016,268 | |||||||
| Net cash used for investing activities | (9,951,071) | (13,237,991) | |||||||||
| Net cash 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.
19
Indebtedness
We hold three 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 $12.0 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 $0.6 million every six months until the credit line’s maturity on March 20, 2028 at which time a balloon payment for the remaining balance is due. We pay a 0.40% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan was $0 and $8.8 million as of December 31, 2023 and 2022, respectively. Under this loan, $12.0 million was available to be borrowed as of December 31, 2023.
The second credit line is a revolving working capital (seasonal) loan. The primary purpose of this loan is to finance our operating needs. We may borrow up to $85.0 million until the loan's maturity on October 1, 2024. 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, 2023 and 2022, the principal balance outstanding on this credit line was $0 and $0.1 million, respectively, allowing us to borrow an additional $85.0 million as of as of December 31, 2023.
The third line of credit is a multiple advance note payable. The primary purpose of this note is to finance our investment in our subsidiary, High Plains Partners, and other larger capital projects. We have an agreement with High Plains Partners to commit to it up to $100.4 million in cash, property and development rights, the proceeds and property of which will be contributed to HPP SD Holdings over time to pay for the construction and development of the new Mitchell facility. The maximum we may borrow under this note is $90.0 million. Under this loan, principal payments of $4.5 million are made every six months which begin on October 20, 2024 and end on the date of maturity, March 20, 2028, at which time a balloon payment is due for the remaining balance. The principal balance outstanding on this note was $0 as of December 31, 2023 and 2022. Under this note, there were $90.0 million of funds available to borrow as of December 31, 2023.
The revolving, seasonal and multiple advance loans with CoBank are set up with a variable rate option. The variable rate is set daily by CoBank. We also have a fixed rate option on all three 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 and multiple advance loans was 7.85% and 6.85% as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the interest rate on the seasonal loan is 7.55% and 2.31%, respectively. We were in compliance with all covenants and conditions under the loans as of December 31, 2023.
Capital Expenditures
We made a total of $104.3 million in capital expenditures on various property and equipment in 2023 compared to approximately $7.8 million in 2022. Significant purchases of property and equipment were made for the construction and development of the new Mitchell facility, which were contributed to High Plains Partners as part of our investment into it. Additional purchases were made to enhance the quality and efficiency of our Volga and Miller facilities. We anticipate spending approximately $200.0 million in capital purchases and improvements in 2024, which will be financed from our multiple advance loan and cash flows from operating activities.
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:
20
| 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) | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
| Operating Lease Obligations | 33,653,000 | 4,228,000 | 8,198,000 | 6,461,000 | 14,766,000 | |||||||||||||||||||||||||||
| Total | $ | 33,653,000 | $ | 4,228,000 | $ | 8,198,000 | $ | 6,461,000 | $ | 14,766,000 | ||||||||||||||||||||||
(1)Represents principal and interest payments on our notes payable, which are included on our Balance Sheet.
Recent Accounting Pronouncements
See page F-10, Note 1 of our audited consolidated financial statements for a discussion on the impact, if any, of the recently pronounced accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of our consolidated 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 consolidated 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.
21
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.
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.
22
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, 2023, we had $0 in fixed rate debt and $186.4 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 $1,864,000 per year.
Item 8. Financial Statements and Supplementary Data.
Reference is made to the “Index to Consolidated Financial Statements” of South Dakota Soybean Processors, LLC located on the page immediately preceding page F-1 of this report, and consolidated financial statements and schedules for the years ended December 31, 2023, 2022 and 2021.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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 consolidated 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 consolidated 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
23
assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on the consolidated 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, 2023, 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, 2023, 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, 2023 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) | |||||
Item 9B. Other Information.
During the quarter ended December 31, 2023, none of our directors (managers) or executive officers adopted or terminated a Rule 10b5-1 trading plan or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspection.
Not applicable.
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, 2023).
Part IV
Item 15. Exhibits, Financial Statement Schedules.
The following exhibits and consolidated 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 Consolidated Financial Statements” of South Dakota Soybean Processors, LLC located on the page immediately preceding page F-1 of this report
24
for a list of the consolidated financial statements for the year ended December 31, 2023. The consolidated financial statements appear on page F-2 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 | |||||||
____________________________________________________________________________
(*) Filed herewith.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:
| SOUTH DAKOTA SOYBEAN PROCESSORS, LLC | |||||||||||
| Dated: | March 21, 2024 | By | /s/ Thomas Kersting | ||||||||
| Thomas Kersting, Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
| Dated: | March 21, 2024 | /s/ Mark Hyde | |||||||||
| Mark Hyde, Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
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.
| Dated: | March 21, 2024 | By | /s/ Thomas Kersting | ||||||||
| Thomas Kersting, Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
| Dated: | March 21, 2024 | By | /s/ Mark Hyde | ||||||||
| Mark Hyde | |||||||||||
| Chief Financial Officer (Principal Financial Officer) | |||||||||||
| Dated: | March 21, 2024 | By | /s/ Lewis Bainbridge | ||||||||
| Lewis Bainbridge, Manager | |||||||||||
| Dated: | March 21, 2024 | By | /s/ Mark Brown | ||||||||
| Mark Brown, Manager | |||||||||||
| Dated: | March 21, 2024 | By | /s/ Spencer Enninga | ||||||||
| Spencer Enninga, Manager | |||||||||||
| Dated: | March 21, 2024 | By | /s/ Gary Goplen | ||||||||
| Gary Goplen, Manager | |||||||||||
| Dated: | March 21, 2024 | By | /s/ Brandon Hope | ||||||||
| Brandon Hope, Manager | |||||||||||
| Dated: | March 21, 2024 | By | /s/ Robert Nelsen | ||||||||
| Robert Nelsen, Manager | |||||||||||
| Dated: | March 21, 2024 | By | /s/ Doyle Renaas | ||||||||
| Doyle Renaas, Manager | |||||||||||
26
| Dated: | March 21, 2024 | By | /s/ Ned Skinner | ||||||||
| Ned Skinner, Manager | |||||||||||
| Dated: | March 21, 2024 | By | /s/ Craig Weber | ||||||||
| Craig Weber, Manager | |||||||||||
27
South Dakota Soybean Processors, LLC
Consolidated Financial Statements
December 31, 2023, 2022, and 2021
1
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
Index to Consolidated Financial Statements
| Page | |||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID | F-3 | ||||
| CONSOLIDATED FINANCIAL STATEMENTS | |||||
| Consolidated Balance Sheets | F-5 | ||||
| Consolidated Statements of Operations | F-6 | ||||
| Consolidated Statements of Changes in Members’ Equity | F-7 | ||||
| Consolidated Statements of Cash Flows | F-8 | ||||
| Notes to Consolidated Financial Statements | F-9 | ||||
2
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||
The Board of Managers and Members
South Dakota Soybean Processors, LLC
Volga, South Dakota
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of South Dakota Soybean Processors, LLC (the "Company") as of December 31, 2023 and 2022, and the related consolidated statements of operations, changes in members’ equity, and cash flows, for the years ended December 31, 2023, 2022, and 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of South Dakota Soybean Processors, LLC as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended December 31, 2023, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Inventory Basis Adjustment
As discussed in Notes 1, 3 and 14 in the accompanying financial statements, fair value measurement for inventories carried at market value, which approximates net realizable value, are based on exchange-quoted prices adjusted for differences in local markets and/or quality, referred to as basis. Fair values for sales contracts are adjusted for location and quality differences (basis) because the exchange-quoted prices represent contracts that have
3
standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The reported fair value as of December 31, 2023 for inventories, was $72 million.
We identified the Inventory Basis Adjustment as a critical audit matter. Auditing these complex judgments and assumptions involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
•Gaining an understanding of management's process, controls, and methodology to develop the estimated fair values, including controls related to the identification and reasonableness of key assumptions and accuracy and completeness of the underlying data used in the determination of fair value.
•Testing and evaluation of management's process and methodology for determining and developing the estimated fair values of inventories carried at market value through evaluating (i) the reasonableness of the significant assumptions used by management including comparison of quoted commodity pricing to local and regional market conditions (ii) the historical adjustments to inventory balances as compared to the current year’s adjustment, and (iii) the completeness and accuracy of the underlying data supporting the basis adjustments.
•Evaluating whether the assumptions used were reasonable by considering comparable basis adjustments used by management to local grain elevators and recent trade prices, including recently executed transactions, and whether such assumptions were consistent with evidence obtained in other areas of the audit.
•Evaluating the adequacy of the financial statement disclosure related to the estimated fair value of inventories carried at market value.
/s/ Eide Bailly LLP
We have served as the Company’s auditor since 2001 (such date incorporates the acquisition of certain assets of Gordon, Hughes & Banks, LLP by Eide Bailly LLP in 2008).
March 21, 2024
4
South Dakota Soybean Processors, LLC
Consolidated Balance Sheets
December 31, 2023 and 2022
___________________________________________________________________________________________________________________
| 2023 | 2022 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade accounts receivable | |||||||||||
| Inventories | |||||||||||
| Commodity derivative instruments | |||||||||||
| Margin deposits | |||||||||||
| Prepaid expenses | |||||||||||
| Total current assets | |||||||||||
| Property and equipment | |||||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| Total property and equipment, net | |||||||||||
| Other assets | |||||||||||
| Investments in related parties | |||||||||||
| Investments in cooperatives | |||||||||||
| Right-of-use lease asset, net | |||||||||||
| Other assets | |||||||||||
| Total other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Members' Equity | |||||||||||
| Current liabilities | |||||||||||
| Excess of outstanding checks over bank balance | $ | $ | |||||||||
| Note payable - seasonal loan | |||||||||||
| Current operating lease liabilities | |||||||||||
| Accounts payable | |||||||||||
| Accrued commodity purchases | |||||||||||
| Commodity derivative instruments | |||||||||||
| Accrued expenses | |||||||||||
| Accrued interest | |||||||||||
| Deferred liabilities - current | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities | |||||||||||
| Long-term debt, net of current maturities and unamortized debt issuance costs | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Deferred liabilities | |||||||||||
| Total long-term liabilities | |||||||||||
| Commitments and contingencies (Notes 8, 9, 10, 16 & 18) | |||||||||||
Members' equity Class A Units, no par value, | |||||||||||
| Non-controlling interests in consolidated entities | |||||||||||
| Total equity | |||||||||||
| Total liabilities and members' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
South Dakota Soybean Processors, LLC
Consolidated Statements of Operations
For the Years Ended December 31, 2023, 2022, and 2021
___________________________________________________________________________________________________________________
| 2023 | 2022 | 2021 | |||||||||||||||
| Net revenues | $ | $ | $ | ||||||||||||||
| Cost of revenues: | |||||||||||||||||
| Cost of product sold | |||||||||||||||||
| Production | |||||||||||||||||
| Freight and rail | |||||||||||||||||
| Brokerage fees | |||||||||||||||||
| Total cost of revenues | |||||||||||||||||
| Gross profit | |||||||||||||||||
| Operating expenses: | |||||||||||||||||
| Administration | |||||||||||||||||
| Operating income | |||||||||||||||||
| Other income (expense): | |||||||||||||||||
| Interest expense | ( | ( | ( | ||||||||||||||
| Other non-operating income (expense) | |||||||||||||||||
| Patronage dividend income | |||||||||||||||||
| Total other income (expense) | ( | ( | ( | ||||||||||||||
| Net income | |||||||||||||||||
| Net income attributable to non-controlling interests in consolidating entity | |||||||||||||||||
| Net income attributable to Company | $ | $ | $ | ||||||||||||||
| Basic and diluted earnings (loss) per capital unit: | $ | $ | $ | ||||||||||||||
Weighted average number of capital units outstanding for calculation of basic and diluted earnings (loss) per capital unit | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
South Dakota Soybean Processors, LLC
Consolidated Statements of Changes in Members’ Equity
For the Years Ended December 31, 2023, 2022, and 2021
___________________________________________________________________________________________________________________
| Class A Units | Noncontrolling | Total | |||||||||||||||||||||
| Units | Amount | Interests | Equity | ||||||||||||||||||||
| Balances, January 1, 2021 | $ | $ | $ | ||||||||||||||||||||
| Net income | — | 28,007,915 | |||||||||||||||||||||
| Distribution to members | — | ( | — | ( | |||||||||||||||||||
Balances, December 31, 2021 | |||||||||||||||||||||||
| Net income | — | 67,464,101 | |||||||||||||||||||||
| Distribution to members | — | ( | — | ( | |||||||||||||||||||
| Liquidation of members' equity | ( | ( | — | ( | |||||||||||||||||||
Balances, December 31, 2022 | |||||||||||||||||||||||
| Net income | — | 70,449,578 | |||||||||||||||||||||
| Issuance of new capital units in consolidated entities | — | ||||||||||||||||||||||
| Distributions to members | — | ( | — | ( | |||||||||||||||||||
Balances, December 31, 2023 | $ | $ | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
South Dakota Soybean Processors, LLC
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2023, 2022, and 2021
___________________________________________________________________________________________________________________
| 2023 | 2022 | 2021 | |||||||||||||||
| Operating activities | |||||||||||||||||
| Net income | $ | $ | $ | ||||||||||||||
| Charges and credits to net income not affecting cash: | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Net (gain) loss recognized on derivative instruments | ( | ||||||||||||||||
| (Gain) loss on sales of property and equipment | ( | ( | |||||||||||||||
| Non-cash patronage dividends and interest income | ( | ( | ( | ||||||||||||||
| Forgiveness of Paycheck Protection Program loan | ( | ||||||||||||||||
| Change in current operating assets and liabilities | ( | ( | |||||||||||||||
| Net cash (used for) from operating activities | |||||||||||||||||
| Investing activities | |||||||||||||||||
| Purchase of investments | ( | ||||||||||||||||
| Retirement of patronage dividends | |||||||||||||||||
| Increase in other assets | ( | ( | |||||||||||||||
| Proceeds from sales of property and equipment | |||||||||||||||||
| Purchase of property and equipment | ( | ( | ( | ||||||||||||||
| Net cash (used for) investing activities | ( | ( | ( | ||||||||||||||
| Financing activities | |||||||||||||||||
| Change in excess of outstanding checks over bank balances | ( | ||||||||||||||||
| Net (payments) proceeds from seasonal borrowings | ( | ||||||||||||||||
| Proceeds from issuance of capital units | |||||||||||||||||
| Distributions to members | ( | ( | ( | ||||||||||||||
| Proceeds from long-term debt | |||||||||||||||||
| Principal payments on long-term debt | ( | ( | ( | ||||||||||||||
| Net cash from (used for) financing activities | ( | ( | |||||||||||||||
| Net change in cash and cash equivalents | ( | ||||||||||||||||
| Cash and cash equivalents, beginning of year | |||||||||||||||||
| Cash and cash equivalents, end of year | $ | $ | $ | ||||||||||||||
| Supplemental disclosures of cash flow information | |||||||||||||||||
| Cash paid (received) during the year for: | |||||||||||||||||
| Interest | $ | $ | $ | ||||||||||||||
| Income taxes | $ | $ | $ | ||||||||||||||
| Noncash investing activities: | |||||||||||||||||
| Soybean meal contributed as investment in related party | $ | $ | $ | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
South Dakota Soybean Processors, LLC
Notes to the 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 meal, oil, and hulls. The Company’s principal operations are located where we have plants in Volga and Miller, South Dakota.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its controlled subsidiaries, High Plains Partners, LLC, HPP SD Holdings, LLC, and High Plains Processing, LLC, after elimination of all material intercompany accounts, transactions, and profits.
Cash and cash equivalents
The Company considers all highly liquid investment instruments with original maturities of three months or less at the time of acquisition to be cash equivalents.
Inventories
Finished goods (soybean meal, oil, refined oil, and hulls) and raw materials (soybeans) are valued at estimated market value, which approximates net realizable value. This accounting policy is in accordance with the guidelines described in Financial Accounting Standards Board (FASB) 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 lower of cost or net realizable value.
Investments
The Company measures its equity investments in Prairie AquaTech, LLC, Prairie AquaTech Manufacturing, LLC, and Prairie AquaTech Investments, LLC at cost less any impairment plus or minus observable price changes in orderly transactions since these investments do not have readily determinable fair values.
Investments in cooperatives are recorded in a manner similar to equity investments without readily determinable fair values, cost plus the amount of patronage earnings allocated to the Company, less any cash distributions received.
Effective September 30, 2023, the Company began consolidating the accounts of High Plains Processing, LLC, HPP SD Holdings, LLC, and High Plains Partners, LLC, formerly unconsolidated entities, into its financial statements . The Company and other regional investors committed to investing a total of $192.0 million into High Plains Partners. In September 2023, High Plains Partners created a joint venture with another partner to create High Plains Processing, LLC, to build a new multi-seed crush facility near Mitchell, South Dakota. Construction of the facility is estimated to be completed in late 2025. The consolidation is due to the Company's entering into a management agreement with the new processing facility along with its ability to appoint a majority of the board members of each entity. The financial data for previous periods has not been restated to reflect the consolidation of the three entities as there is not a material impact on the financial position or results of operations for the periods presented and has no effect on previously reported net income. If the entities were consolidated in the December 31, 2022 financial statements, the impact would be a reduction in the investments in related parties and an increase construction in progress (property and equipment) of $2.4 million.
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.
9
South Dakota Soybean Processors, LLC
Notes to the Consolidated Financial Statements
___________________________________________________________________________________________________________________
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:
| Building and improvements | |||||
| Equipment and furnishings | |||||
| Railcars | |||||
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. The Company did not recognize any impairment on property and equipment during the years ended December 31, 2023, 2022, and 2021.
Use of estimates
The preparation of the accompanying consolidated 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 consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue
The Company accounts for all of its revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers.
The Company principally generates 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). The Company follows a policy of recognizing revenue at a single point in time when it satisfies its 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.
Payments received in advance to the transfer of goods, or "contract liabilities", are included in "Deferred liabilities - current" on the Company's balance sheets. These customer prepayments totaled $737,503 and $1,074,059 as of December 31, 2023 and 2022, respectively. The Company recognized $1,032,253 of the $1,074,059 balance as of December 31, 2022 as revenue during the year ended December 31, 2023. All of the $1,347,409 balance as of December 31, 2021 was recognized as revenue during the year ended December 31, 2022.
The following table presents a disaggregation of revenue from contracts with customers for the years ended December initiated 31, 2023, 2022, and 2021, by product type:
| 2023 | 2022 | 2021 | |||||||||||||||
| Soybean meal and hulls | $ | $ | $ | ||||||||||||||
| Soybean oil and oil byproducts | |||||||||||||||||
| Totals | $ | $ | $ | ||||||||||||||
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.
10
South Dakota Soybean Processors, LLC
Notes to the Consolidated Financial Statements
___________________________________________________________________________________________________________________
Advertising costs
Advertising and promotion costs are expensed as incurred. The Company incurred $115,000 , $96,000 , and $66,000 , of advertising costs in the years ended December 31, 2023, 2022, and 2021, 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, as well as the interest rate swaps, caps and floors, 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, as well as foreign exchange rates, are recognized as a component of net proceeds for financial reporting.
The Company uses interest rate swaps, caps and floors offered through regulated commodity exchanges. The Company is exposed to risk of loss resulting from potential increases in interest rates on their variable rate debt. To reduce that risk, the Company has purchased interest rate swaps, caps and floors. Unrealized gains and losses on interest rate swaps, caps and floors are reflected in current earnings immediately.
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
As a limited liability company, the Company’s taxable income or loss is allocated to members in accordance with their respective percentage ownership. Therefore, no provision or liability for income taxes has been included in the consolidated financial statements.
The Company has evaluated the provisions of FASB ASC 740-10 for uncertain tax positions. As of December 31, 2023 and 2022, 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, 2023, the book value of the Company’s net assets exceeds the tax basis of those assets by approximately $49.3 million.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are no longer subject to income tax examinations by U.S. federal and state tax authorities for years prior to 2019. We currently have no tax years under examination.
Recent accounting pronouncements
Any recent accounting pronouncements are not expected to have a material impact on our consolidated financial statements.
11
South Dakota Soybean Processors, LLC
Notes to the Consolidated Financial Statements
___________________________________________________________________________________________________________________
Note 2 - Accounts Receivable
Accounts receivable are considered past due when payments are not received on a timely basis in accordance with the Company’s credit terms, which is generally 30 days from invoice date. Accounts considered uncollectible are written off. The Company’s estimate of the allowance for for credit losses is based on historical experience, its evaluation of the current status of receivables, and unusual circumstances, if any.
The following table presents the aging analysis of trade receivables as of December 31, 2023 and 2022:
| 2023 | 2022 | ||||||||||
| Past due: | |||||||||||
| Less than 30 days past due | $ | $ | |||||||||
| 30-59 days past due | |||||||||||
| 60-89 days past due | |||||||||||
| Greater than 90 days past due | |||||||||||
| Total past due | |||||||||||
| Current | |||||||||||
| Totals | $ | $ | |||||||||
The following table provides information regarding the Company’s allowance for credit losses as of December 31:
| 2023 | 2022 | 2021 | |||||||||||||||
| Balances, beginning of year | $ | $ | $ | ||||||||||||||
| Amounts charged (credited) to costs and expenses | ( | ||||||||||||||||
| Additions (deductions) | ( | ||||||||||||||||
| Balances, end of year | $ | $ | $ | ||||||||||||||
In general cash received is applied to the oldest outstanding invoice first, unless payment is for a specified invoice. The Company, on a case by case basis, may charge a late fee of 1.5
The Company's accounts receivable as of January 1, 2022 was $36,571,001 .
Note 3 - Inventories
The Company’s inventories consist of the following as of December 31:
| 2023 | 2022 | ||||||||||
| Finished goods | $ | $ | |||||||||
| Raw materials | |||||||||||
| Supplies & miscellaneous | |||||||||||
| Totals | $ | $ | |||||||||
Finished goods and raw materials are valued at estimated market value, which approximates net realizable value. Supplies and other inventories are stated at lower of cost or net realizable value.
Note 4 - 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, 2023, the Company’s futures contracts all mature within 12 months.
12
South Dakota Soybean Processors, LLC
Notes to the Consolidated Financial Statements
___________________________________________________________________________________________________________________
Note 5 - Investments in Related Parties
The Company's investment in related parties consists of the following at December 31:
| 2023 | 2022 | ||||||||||
| Prairie AquaTech, LLC | $ | $ | |||||||||
| Prairie AquaTech Investments, LLC | |||||||||||
| Prairie AquaTech Manufacturing, LLC | |||||||||||
| High Plains Partners, LLC | |||||||||||
| Totals | $ | $ | |||||||||
The Company measures its investments in Prairie AquaTech, LLC, Prairie AquaTech Investments, LLC, Prairie AquaTech Manufacturing, LLC and High Plains Partners, LLC at their cost less any impairment plus or minus any observable price changes in orderly transactions since these equity investments do not have readily determinable fair values.
The Company invested in Prairie AquaTech Manufacturing, LLC $0 , $0 and $404,329 in cash and an additional $1,436,420 , $1,436,420 and $1,049,834 of soybean meal in 2023, 2022, and 2021 respectively, to be used in the entity's operations.
In February 2022, the Company announced its plans to construct a multi-seed processing plant near Mitchell, South Dakota. In September 2022, the Company entered into a capital contribution and commitment agreement with High Plains Partners, LLC. Per the agreement, the Company transferred to High Plains Partners, LLC all rights, title and interest to all of the tangible and intangible development rights, including engineering, permitting, studies, records, etc., totaling $5.0 million in value in exchange for 2,615 Class B units in High Plains Partners, LLC. The Company also committed to investing up to another $81.4 million for 19,454 Class B capital units in the entity. As of December 31, 2023, the Company had contributed $19.0 million towards the project.
Effective September 30, 2023, the Company began consolidating the accounts of High Plains Processing, LLC, HPP SD Holdings, LLC, and High Plains Partners, LLC, formerly unconsolidated entities, into its financial statements . The Company and other regional investors committed to investing a total of $192.0 million into High Plains Partners. In September 2023, High Plains Partners created a joint venture with another partner to create High Plains Processing, LLC, to build a new multi-seed crush facility near Mitchell, South Dakota. Construction of the facility is estimated to be completed in late 2025. The consolidation is due to the Company's entering into a management agreement with the new processing facility along with its ability to appoint a majority of the board members of each entity. The financial data for previous periods has not been restated to reflect the consolidation of the three entities as there is not a material impact on the financial position or results of operations for the periods presented and has no effect on previously reported net income. If the entities were consolidated in the December 31, 2022 financial statements, the impact would be a reduction in the investments in related parties and an increase construction in progress (property and equipment) of $2.4 million. As of December 31, 2023, High Plains Partners, HPP SD Holdings, and High Plains Processing, LLC received a total of $98.1 million in proceeds from the issuance from capital units.
Note 6 - Investments in Cooperatives
The Company’s investments in cooperatives consist of the following at December 31:
| 2023 | 2022 | ||||||||||
| CoBank | $ | $ | |||||||||
13
South Dakota Soybean Processors, LLC
Notes to the Consolidated Financial Statements
___________________________________________________________________________________________________________________
Note 7 - Property and Equipment
The following is a summary of property and equipment at December 31:
| 2023 | 2022 | ||||||||||||||||||||||
| Cost | Accumulated Depreciation | Net | Net | ||||||||||||||||||||
| Land | $ | $ | $ | $ | |||||||||||||||||||
| Land improvements | ( | ||||||||||||||||||||||
| Buildings and improvements | ( | ||||||||||||||||||||||
| Machinery and equipment | ( | ||||||||||||||||||||||
| Railroad cars | ( | ||||||||||||||||||||||
| Company vehicles | ( | ||||||||||||||||||||||
| Furniture and fixtures | ( | ||||||||||||||||||||||
| Construction in progress | |||||||||||||||||||||||
| Totals | $ | $ | ( | $ | $ | ||||||||||||||||||
Note 8 - Notes Payable - Seasonal Loan
The Company has entered into a revolving credit agreement with CoBank which expires on October 1, 2024 . The purpose of the credit agreement is to finance the operating needs of the Company. Under this agreement, the Company could borrow up to $85 million, and advances on the revolving credit agreement are secured. Interest accrues at a variable rate (7.55 % at December 31, 2023). The Company pays a 0.20 % annual commitment fee on any funds not borrowed. There were advances outstanding of $0 and $0.1 million at December 31, 2023 and 2022. The remaining available funds to borrow under the terms of the revolving credit agreement were $85.0 million as of December 31, 2023.
Note 9 - Long-Term Debt
The following is a summary of the Company's long-term debt at December 31:
| 2023 | 2022 | ||||||||||
Revolving term loan from CoBank, interest at variable rates ( | $ | $ | |||||||||
Note payable to CoBank, interest at variable rates ( | |||||||||||
| Total debt before current maturities and debt issuance costs | |||||||||||
| Less current maturities | |||||||||||
Less debt issuance costs, net of amortization of $ | ( | ||||||||||
| Totals | $ | $ | |||||||||
The Company entered into an agreement as of September 20, 2023 with CoBank to amend and restate its Credit Agreement, which includes the revolving term loan, note payable, and seasonal loan. Under the terms and conditions of the Credit Agreement, CoBank agreed to make advances to the Company for up to $12.0 million on the revolving term loan with a variable effective interest rate of 7.85 %. The amount available for borrowing on the revolving term loan will decrease by $600,000 every six months until the loan's maturity date of March 20, 2028 . The Company pays a 0.40 % annual commitment fee on any funds not borrowed. The debt issuance costs of $24,000 paid by the Company were amortized over the term of the loan. The principal balance outstanding on the
14
South Dakota Soybean Processors, LLC
Notes to the Consolidated Financial Statements
___________________________________________________________________________________________________________________
revolving term loan was $0.0 million and $8.8 million as of December 31, 2023 and 2022, respectively. There were approximately $11.4 million in remaining commitments available to borrow on the revolving term loan as of December 31, 2023.
On September 20, 2023, the Company entered into a note payable to CoBank to borrow up to $90.0 million until August 1, 2024, the proceeds of which are to be used to finance the Company's investment in High Plains Partners, LLC. The Company will make semi-annual payments of $4.5 million beginning October 20, 2024 until the note's maturity on March 20, 2028. The principal balance outstanding on the note payable was $0 as of December 31, 2023 and 2022. There was $90.0 million available to borrow on the note payable as of December 31, 2023.
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, 2023.
The following are minimum principal payments on long-term debt obligations for the years ended December 31:
| 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Total | $ | ||||
Note 10 - Operating Leases
The Company has several operating leases for railcars. These leases have terms ranging from 3 -12 years and most do not have renewal terms provided. The leases require the Company to maintain the condition of the railcars, restrict the use of the railcars to specified products, such as soybean meal, hulls or oil, limit usage to the continental United States, Canada or Mexico, require approval to sublease to other entities, and require the Company's submission of its financial statements. Lease expense for all railcars was $4,264,107 , $2,938,930 , and $3,026,270 for the years ended December 31, 2023, 2022, and 2021, respectively.
The following is a schedule of the Company's operating leases for railcars as of December 31, 2023:
| Lessor | Quantity of Railcars | Commencement Date | Maturity Date | Monthly Payment | ||||||||||||||||||||||
| American Railcar Leasing | 6/1/2021 | 5/31/2024 | $ | |||||||||||||||||||||||
| Andersons Railcar Leasing Co. | 7/1/2019 | 6/30/2026 | ||||||||||||||||||||||||
| Andersons Railcar Leasing Co. | 11/1/2021 | 10/31/2026 | ||||||||||||||||||||||||
| Farm Credit Leasing | 9/1/2020 | 8/31/2032 | ||||||||||||||||||||||||
| Farm Credit Leasing | 6/1/2021 | 5/31/2033 | ||||||||||||||||||||||||
| Farm Credit Leasing | 10/1/2021 | 9/30/2033 | ||||||||||||||||||||||||
| Farm Credit Leasing | 7/1/2022 | 6/30/2034 | ||||||||||||||||||||||||
| Farm Credit Leasing | 8/1/2022 | 7/31/2034 | ||||||||||||||||||||||||
| Farm Credit Leasing | 10/1/2022 | 9/30/2034 | ||||||||||||||||||||||||
| Farm Credit Leasing | 4/1/2023 | 3/31/2035 | ||||||||||||||||||||||||
| GATX Corporation | 7/1/2020 | 6/30/2024 | ||||||||||||||||||||||||
| Trinity Capital | 6/1/2021 | 5/31/2026 | ||||||||||||||||||||||||
| Wells Fargo Rail | 3/1/2022 | 2/28/2027 | ||||||||||||||||||||||||
| Wells Fargo Rail | 5/1/2022 | 4/30/2027 | ||||||||||||||||||||||||
| Wells Fargo Rail | 5/1/2022 | 4/30/2027 | ||||||||||||||||||||||||
15
South Dakota Soybean Processors, LLC
Notes to the Consolidated Financial Statements
___________________________________________________________________________________________________________________
| Lessor | Quantity of Railcars | Commencement Date | Maturity Date | Monthly Payment | ||||||||||||||||||||||
| Wells Fargo Rail | 1/1/2023 | 12/31/2029 | ||||||||||||||||||||||||
| Totals | $ | |||||||||||||||||||||||||
The Company also has a number of other operating leases for machinery and equipment. These leases have terms ranging from 3 -7 years; however, most of these leases have automatic renewal terms. These leases require monthly payments of $3,824 . Rental expense under these other operating leases was $54,633 , $81,973 , and $38,606 , for the years ended December 31, 2023, 2022, and 2021, respectively.
On March 19, 2020, the Company entered into an agreement with an entity in the western United States to provide storage and handling services for the Company's soybean meal. The Company paid the entity $3,300,000 after the entity's construction of additional storage and handling facilities. The agreement began on May 1, 2021 and will mature on April 30, 2027 but includes an additional seven-year renewal period at the sole discretion of the Company. Rental expense under this agreement was $235,714 , $235,714 , and $157,143 , for the years ended December 31, 2023, 2022, and 2021, respectively.
Operating leases are included in right-to-use lease assets, current operating lease liabilities, and long-term lease liabilities on the Company's consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company's secured incremental borrowing rates or implicit rates, when readily determinable. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the consolidate balance sheet.
Lease expense for these operating leases is recognized on a straight-line basis over the lease terms. The components of lease costs recognized within our consolidated statements of operations for the years ended December 31, 2023, 2022, and 2021 were as follows:
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Cost of revenues - Freight and rail | $ | $ | $ | |||||||||||||||||
| Cost of revenues - Production | ||||||||||||||||||||
| Administration expenses | ||||||||||||||||||||
| Total operating lease costs | $ | $ | $ | |||||||||||||||||
The following summarizes the supplemental cash flow information for the years ended December 31:
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Cash paid for amounts included in measurement of lease liabilities | $ | $ | $ | |||||||||||||||||
| Supplemental non-cash information: | ||||||||||||||||||||
| Right-of-use assets obtained in exchange for lease liabilities | $ | $ | $ | |||||||||||||||||
The following summarizes the weighted-average remaining lease term and weighted-average discount rate as of December 31, 2023:
| Weighted-average remaining lease term - operating leases (in years) | ||||||||
| Weighted-average discount rate - operating leases | % | |||||||
16
South Dakota Soybean Processors, LLC
Notes to the Consolidated Financial Statements
___________________________________________________________________________________________________________________
The following is a maturity analysis of the undiscounted cash flows of the operating lease liabilities as of December 31, 2023:
| Railcars | Other | Total | ||||||||||||||||||
| Year ended December 31: | ||||||||||||||||||||
| 2024 | $ | $ | $ | |||||||||||||||||
| 2025 | ||||||||||||||||||||
| 2026 | ||||||||||||||||||||
| 2027 | ||||||||||||||||||||
| 2028 | ||||||||||||||||||||
| Thereafter | ||||||||||||||||||||
| Total lease payments | ||||||||||||||||||||
| Less amount of lease payments representing interest | ( | ( | ( | |||||||||||||||||
| Total present value of lease payments | $ | $ | $ | |||||||||||||||||
Note 11 - 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 an employee's contributed earnings. The amounts charged to expense under this plan were approximately $313,000 , $305,000 , and $249,000 for the years ended December 31, 2023, 2022, and 2021, respectively.
The Company's Board of Managers approved the payment of a profit-based incentive bonus to be awarded to eligible employees following the close of each fiscal year. The Board has allocated approximately 4.7 % of profits over $2 million to fund this benefit. Individual amounts are based upon criteria determined by a formula that considers current pay, level of responsibility, and impact on profits of each position. The amounts charged to expense under this incentive were approximately $3,521,000 , $3,246,000 , and $1,289,000 for the years ended December 31, 2023, 2022, and 2021, respectively.
In 2022, the Company entered into deferred compensation agreements with four key executives. The agreement provides for a monetary incentive, contingent on each individual's performance. These incentives will vest, ratable over eight years , at 12.5 % per year. Vested amounts will then be paid in conjunction with retirement or post-separation, as specified by the executives upon the initial awards. The Company recognized expense of $42,062 , $12,031 and $0 related to this agreement during the years ended December 31, 2023, 2022 and 2021, respectively, related to this agreement.
Note 12 - Cash Flow Information
The following is a schedule of changes in assets and liabilities used to determine cash from operating activities:
| 2023 | 2022 | 2021 | |||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Trade accounts receivable | $ | ( | $ | ( | $ | ( | |||||||||||
| Inventories | ( | ( | |||||||||||||||
| Commodity derivative instruments | ( | ( | |||||||||||||||
| Margin account deposit | ( | ||||||||||||||||
| Prepaid expenses | ( | ( | |||||||||||||||
| Accounts payable | |||||||||||||||||
| Accrued commodity purchases | ( | ||||||||||||||||
| Accrued expenses and interest | |||||||||||||||||
| Deferred liabilities | ( | ( | ( | ||||||||||||||
| Totals | $ | $ | ( | $ | ( | ||||||||||||
17
South Dakota Soybean Processors, LLC
Notes to the Consolidated Financial Statements
___________________________________________________________________________________________________________________
Note 13 - Derivative Instruments and Hedging Activities
In the ordinary course of business, the Company enters into contractual arrangements as a means of managing exposure to changes in commodity prices and, occasionally, foreign exchange and interest rates. The Company’s derivative instruments primarily consist of commodity futures, options and forward contracts, and interest rate swaps, caps and floors. 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 14, Fair Value.
As of December 31, 2023 and 2022, the net value of the Company’s open futures, options and forward contracts was $4,394,994 and $(9,059,941 ), respectively.
| December 31, 2023 | |||||||||||||||||
| Balance Sheet Classification | Asset Derivatives | Liability Derivatives | |||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| Commodity contracts | Current Assets/Liabilities | $ | $ | ||||||||||||||
| Foreign exchange contracts | Current Assets/Liabilities | ||||||||||||||||
| Interest rate caps and floors | Current Assets/Liabilities | ||||||||||||||||
| Totals | $ | $ | |||||||||||||||
| December 31, 2022 | |||||||||||||||||
| Balance Sheet Classification | Asset Derivatives | Liability Derivatives | |||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| Commodity contracts | Current Assets/Liabilities | $ | $ | ||||||||||||||
| Foreign exchange contracts | Current Assets/Liabilities | ||||||||||||||||
| Interest rate caps and floors | Current Assets/Liabilities | ||||||||||||||||
| Totals | $ | $ | |||||||||||||||
During the years ended December 31, 2023, 2022, and 2021, net realized and unrealized gains (losses) on derivative transactions were recognized in the consolidated statements of operations as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| Commodity contracts | $ | $ | ( | $ | ( | ||||||||||||
| Foreign exchange contracts | ( | ||||||||||||||||
| Interest rate swaps, caps and floors | ( | ||||||||||||||||
| Totals | $ | $ | ( | $ | ( | ||||||||||||
The Company recorded gains (losses) of $24,864,543 , $(1,073,579 ), and $(10,042,360 ) in cost of goods sold related to its commodity derivative instruments for the years ended December 31, 2023, 2022, and 2021, respectively.
Note 14 - Fair Value
ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a comprehensive framework for measuring fair value and expands disclosures that 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 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”).
18
South Dakota Soybean Processors, LLC
Notes to the Consolidated Financial Statements
___________________________________________________________________________________________________________________
•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.
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:
Fair Value as of December 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Inventory | $ | $ | $ | $ | |||||||||||||||||||
| Commodity derivative instruments | $ | $ | $ | $ | |||||||||||||||||||
| Margin deposits | $ | $ | $ | $ | |||||||||||||||||||
Fair Value as of December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Inventory | $ | $ | $ | $ | |||||||||||||||||||
| Commodity derivative instruments | $ | ( | $ | $ | $ | ( | |||||||||||||||||
| Margin deposits | $ | $ | $ | $ | |||||||||||||||||||
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 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 the area.
The Company considers the carrying amount of significant classes of financial instruments on the consolidated balance sheets, including cash, accounts receivable, and accounts payable, to be reasonable estimates of fair value due to their length or maturity. 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 has patronage investments in other cooperatives and common and preferred stock holdings in privately held entities. There is no market for their patronage credits or the entity’s common and preferred holdings, and it is impracticable to estimate the fair value of the Company’s investments. These investments are carried on the consolidated balance sheet at original cost plus the amount of patronage earnings allocated to the Company, less any cash distributions received.
Note 15 - Related Party Transactions
The Company has equity investments in Prairie AquaTech, LLC, Prairie AquaTech Manufacturing, LLC and Priarie AquaTech Investments, LLC. The Company sold soybean products to Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC totaling $11,567,830 , $17,583,144 , and $7,333,479 during the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023 and 2022, Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC owed the Company $1,216,699 and $1,433,551 , respectively.
Note 16 - Business Credit Risk and Concentrations
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. At December 31,
19
South Dakota Soybean Processors, LLC
Notes to the Consolidated Financial Statements
___________________________________________________________________________________________________________________
2023 and 2022, the Company had approximately $34,116,000 and $386,000, respectively, in excess of FDIC insured limits. The Company has not experienced any losses in such accounts.
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 $43,548,706 and $43,517,754 at December 31, 2023 and 2022, respectively.
Soybean meal sales accounted for approximately 51 %, 48 %, and 55 % of total revenues for the years ended December 31, 2023, 2022, and 2021, respectively. Soybean oil sales represented approximately 45 %, 49 %, and 41 % of total revenues for the years ended December 31, 2023, 2022, and 2021, respectively.
Net revenue by geographic area for the years ended December 31, 2023, 2022, and 2021 are as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| United States | $ | $ | $ | ||||||||||||||
| Canada | |||||||||||||||||
| Totals | $ | $ | $ | ||||||||||||||
Note 17 - 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 $0.20 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 10% of the issued and outstanding capital units. Earnings, losses and cash distributions are allocated to members based on their percentage of ownership in the Company.
On February 1, 2022, the Company's Board of Managers approved a cash distribution of approximately $36.5 million, or 120.0 cents per capital unit. The distribution was paid in accordance with the Company's operating agreement and distribution policy on February 4, 2022.
Note 18 - Commitments and Contingencies
As of December 31, 2023, the Company had unpaid commitments of approximately $237.2 million for construction and acquisition of property and equipment, all of which is expected to be incurred by December 2025.
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.
Note 19 - Subsequent Events
Except for the event listed below, we evaluated all of our activity and concluded that no subsequent events have occurred that would require recognition in our consolidated financial statements or disclosed in the notes to our consolidated financial statements.
On January 30, 2024, the Company’s Board of Managers declared a cash distribution to its members of approximately $39.5 million. The distribution was issued and paid to members on February 1, 2024 in accordance with the Company's operating agreement and distribution policy.
20