SOUTH DAKOTA SOYBEAN PROCESSORS LLC

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 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.

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:

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:

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.

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.

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 atwww.sdsbp.com.