SOUTH DAKOTA SOYBEAN PROCESSORS LLC

Previous wording

The information in this quarterly report on Form 10-Q for the six-month period ended June 30, 2024, (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contains “forward-looking statements” that deal with future results, expectations, plans and performance, and should be read in conjunction with the financial statements and Annual Report on Form 10-K for the year ended December 31, 2023. Forward-looking statements may include statements which use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions. Forward-looking statements involve numerous assumptions, risks and uncertainties. Actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements are identified in our Form 10-K for the year ended December 31, 2023.

Current wording

The information in this quarterly report on Form 10-Q for the nine-month period ended September 30, 2024, (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contains “forward-looking statements” that deal with future results, expectations, plans and performance, and should be read in conjunction with the financial statements and Annual Report on Form 10-K for the year ended December 31, 2023. Forward-looking statements may include statements which use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions. Forward-looking statements involve numerous assumptions, risks and uncertainties. Actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements are identified in our Form 10-K for the year ended December 31, 2023.

Previous wording

Revenue – Revenue decreased by $35.2 million, or 19.0%, for the three months ended June 30, 2024, compared to the same period in 2023 due to a decrease in the average sales price of soybean products. The average price of soybean oil decreased 18.7% during the three months ended June 30, 2024, compared to the same period in 2023, due to a decrease in demand. Soybean oil demand from the energy sector dropped dramatically in 2024 as refining margins for biodiesel and renewable diesel producers came under pressure from overproduction, thus leading to production slowdowns at some locations. In addition, imports of used cooking oil and other feedstocks flooded the market with lower-priced alternatives to soybean oil. Average soybean meal prices declined by 15.3% from 2023 following the return of Argentine processors to the global export market. In 2023, the soybean meal export market shifted to the U.S. from Argentina because of a severe drought in Argentina and from which we benefited.

Current wording

Revenue – Revenue decreased by $46.3 million, or 26.2%, for the three months ended September 30, 2024, compared to the same period in 2023 due to decreases in the average sales price of soybean products and quantity of soybeans processed. The average price of soybean oil decreased 28.9% during the three months ended September 30, 2024, compared to the same period in 2023, due to a decrease in demand. Soybean oil demand from the energy sector dropped dramatically in 2024 as refining margins for biodiesel and renewable diesel producers came under pressure from overproduction, which led to production slowdowns at some locations. In addition, imports of used cooking oil and other feedstocks flooded the market with lower-priced alternatives to soybean oil. Average soybean meal prices declined by 11.9% from 2023 following the return of Argentine processors to the global export market and an increase in U.S. soybean production in 2024. In 2023, we benefited from a strong soybean meal export market largely due to a severe drought in Argentina which has since shifted in 2024. In addition, we processed 12.8% fewer soybeans in the three months ended September 30, 2024, compared to the same period in 2023, which decreased the volume of soybean products available for sale to our customers. The reduction in production was due to an extended shutdown of our Volga location to install our new DTDC.

Previous wording

Gross Profit/Loss – Gross profit decreased by $3.6 million, or 29.6%, for the three months ended June 30, 2024, compared to the same period in 2023. The decrease was mainly due to declining board crush margins, which were caused by a decrease in demand for soybean oil and an increase in global soybean meal supply which negatively affected U.S. export sales including ours.

Current wording

Gross Profit/Loss – Gross profit decreased by $17.8 million, or 88.7%, for the three months ended September 30, 2024, compared to the same period in 2023. The decrease was mainly due to declining board crush margins caused by a decrease in demand for soybean oil and an increase in global soybean meal supply which negatively affected U.S. export sales including ours.

Previous wording

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $93,000, or 6.6%, during the three months ended June 30, 2024, compared to the same period in 2023. The increase was primarily due to increased professional and related costs associated with the start-up of High Plains Processing's plant.

Current wording

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, decreased approximately $267,000, or 17.5%, during the three months ended September 30, 2024, compared to the same period in 2023, due to a decrease in labor costs. The decrease was partially offset by an increase in professional and related costs associated with the start-up of the High Plains Processing plant.

Previous wording

Interest Expense – Interest expense increased by $862,000, or 81.5%, during the three months ended June 30, 2024, compared to the same period in 2023. The increase in interest expense was due to a $34.1 million increase in borrowings from our lines of credit with our senior lender, CoBank. The average debt level was $90.3 million during the three months ended June 30, 2024, compared to $56.2 million during the same period in 2023. Debt levels increased mainly to fund our committed investment into the High Plains Processing's plant through our subsidiary, High Plains Partners.

Current wording

Interest Expense – Interest expense increased by $891,000, or 122.4%, during the three months ended September 30, 2024, compared to the same period in 2023. The increase in interest expense was due to a $36.5 million increase in borrowings from our lines of credit with our senior lender, CoBank. The average debt level was $73.0 million during the three months ended September 30, 2024, compared to $36.5 million during the same period in 2023. Debt levels increased primarily to fund our investment commitment into the High Plains Processing plant through our subsidiaries.

Previous wording

Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, increased $1.5 million during the three months ended June 30, 2024, compared to the same period in 2023. The increase in other non-operating income was due to a $1 million increase in interest income which we received from the deposit of investment proceeds received by our subsidiaries, High Plains Partners and HPP SD Holdings, in connection with their equity financing.

Current wording

Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, increased $0.1 million during the three months ended September 30, 2024, compared to the same period in 2023. The increase in other non-operating income was due to a $243,000 increase in interest income which we received from the deposit of investment proceeds received by our subsidiaries in connection with their equity financing of the High Plains Processing plant.

Previous wording

Net Income/Loss – During the three-month period ended June 30, 2024, we generated a net income of $6.0 million compared to $9.7 million for the same period in 2023. The $3.7 million decrease was primarily attributable to decreased gross margins.

Current wording

Net Income/Loss – During the three-month period ended September 30, 2024, we generated a net income of $23,400 compared to $18.4 million for the same period in 2023. The $18.4 million decrease was primarily attributable to decreased gross margins.

Previous wording

Revenue – Revenue decreased by $58.9 million, or 16.5%, for the six-month period ended June 30, 2024, compared to the same period in 2023 due to a decrease in the average sales price of soybean products. The average price of soybean oil decreased 20.2% during the six months ended June 30, 2024, compared to the same period in 2023, due to a decrease in demand. Soybean oil demand from the energy sector dropped dramatically during in 2024 as refining margins for biodiesel and renewable diesel producers came under pressure from overproduction, thus leading to production slowdowns at some locations. In addition, imports of used cooking oil and other feedstocks flooded the market with lower-priced alternatives to soybean oil. Average soybean meal prices declined by 14.7% from 2023 following the return of Argentine processors to the global export market after a severe drought in Argentina in 2023.

Current wording

Revenue – Revenue decreased by $105.1 million, or 19.7%, for the nine-month period ended September 30, 2024, compared to the same period in 2023 due to a decrease in the average sales price of soybean products. The average price of soybean oil decreased 23.3% during the nine months ended September 30, 2024, compared to the same period in 2023, due to a decrease in demand. Soybean oil demand from the energy sector dropped dramatically in 2024 as refining margins for biodiesel and renewable diesel producers came under intense pressure from overproduction which led to production slowdowns at some locations. In addition, imports of used cooking oil and other feedstocks flooded the market with lower-priced alternatives to soybean oil. Average soybean meal prices declined by 13.8% from 2023 following the return of Argentine processors to the global export market after a severe drought in Argentina in 2023.

Previous wording

Gross Profit/Loss – Gross profit decreased by $20.9 million, or 56.8%, for the six months ended June 30, 2024, compared to the same period in 2023. The decrease was mainly due to declining board crush margins, which were caused by a decrease in demand for soybean oil and an increase in global soybean meal supply that negatively affected U.S. export sales including ours.

Current wording

Gross Profit/Loss – Gross profit decreased by $38.7 million, or 68.0%, for the nine months ended September 30, 2024, compared to the same period in 2023. The decrease was mainly due to declining board crush margins caused by a decrease in demand for soybean oil and an increase in global soybean meal supply which negatively affected U.S. export sales including ours.

Previous wording

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $149,000, or 5.0%, during the six-month period ended June 30, 2024, compared to the same period in 2023. The increase was primarily due to increased professional and related costs associated with the start-up of the High Plains Processing's plant.

Current wording

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, decreased approximately $118,000, or 2.6%, during the nine-month period ended September 30, 2024, compared to the same period in 2023, due to a decrease in labor costs. The decrease was partially offset by increased professional and related costs associated with the start-up of the High Plains Processing plant.

Previous wording

Interest Expense – Interest expense increased by $1.4 million, or 70.6%, during the six months ended June 30, 2024, compared to the same period in 2023. The increase in interest expense was due to a $23.9 million increase in borrowings from our lines of credit with our senior lender, CoBank. The average debt level was $82.1 million during the six months ended June 30, 2024, compared to $58.2 million during the same period in 2023. Debt levels increased mainly to fund our committed investment into the High Plains Processing's plant through our subsidiary, High Plains Partners.

Current wording

Interest Expense – Interest expense increased by $2.3 million, or 84.5%, during the nine months ended September 30, 2024, compared to the same period in 2023. The increase in interest expense was due to a $28.0 million increase in borrowings from our lines of credit with our senior lender, CoBank. The average debt level was $79.0 million during the nine months ended September 30, 2024, compared to $51.0 million during the same period in 2023. Debt levels increased mainly to fund our investment commitment into the High Plains Processing plant through our subsidiaries.

Previous wording

Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, increased $2.7 million during the six-month period ended June 30, 2024, compared to the same period in 2023. The increase in other non-operating income was due to a $2.8 million increase in interest income which we received from the deposit of investment proceeds received by our subsidiaries, High Plains Partners and HPP SD Holdings, in connection with their equity financing.

Current wording

Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, increased $2.8 million during the nine-month period ended September 30, 2024, compared to the same period in 2023. The increase in other non-operating income was due to a $2.7 million increase in interest income which we received from the deposit of investment proceeds received by our subsidiaries in connection with their equity financing of the High Plains Processing plant.

Previous wording

Net Income/Loss – During the six-month period ended June 30, 2024, we generated a net income of $11.5 million, compared to $32.4 million for the same period in 2023. The $20.9 million decrease was primarily attributable to decreased gross margins.

Current wording

Net Income/Loss – During the nine-month period ended September 30, 2024, we generated a net income of $11.5 million, compared to $50.9 million for the same period in 2023. The $39.4 million decrease was primarily attributable to decreased gross margins.

Previous wording

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 June 30, 2024, we had working capital, defined as current assets less current liabilities, of approximately $107.8 million, compared to $53.6 million on June 30, 2023. Working capital increased between periods primarily due to investment proceeds raised by our consolidated subsidiaries, High Plains Partners, LLC and HPP SD Holdings, LLC, in connection with their equity financing, which were subsequently contributed to High Plains Processing, LLC for the construction and development of the new oilseed crush facility near Mitchell, South Dakota. We acquired a majority ownership in High Plains Partners in exchange for contributing cash, property, and various construction and development rights for the project. High Plains Partners, in turn, contributed the cash, property, and rights to High Plains Partners' subsidiary, HPP SD Holdings, which owns the Mitchell plant through its wholly-owned subsidiary, High Plains Processing.

Current wording

Our primary sources of liquidity are cash generated from operations and borrowings from our two revolving lines of credit, which are discussed in the section titled “Indebtedness.” As of September 30, 2024, we had working capital, defined as current assets less current liabilities, of approximately $59.1 million, compared to $129.9 million on September 30, 2023. Working capital decreased between periods primarily due to expenditures related to the construction and development of the High Plains Processing plant near Mitchell, South Dakota, which we have a controlling ownership stake through our subsidiaries. We acquired a majority ownership stake in High Plains Partners by contributing cash, property, and various construction and development rights for the project. High Plains Partners, in turn, contributed the cash, property, and rights to its subsidiary, HPP SD Holdings, which owns the plant through its wholly-owned subsidiary, High Plains Processing.

Previous wording

The $21.8 million decrease in cash flows from (used for) operating activities was largely due to a $19.7 million decrease in net income.

Current wording

The $48.0 million decrease in cash flows provided by operating activities was largely due to a $38.1 million decrease in net income.

Previous wording

The $49.5 million increase in cash flows used for investing activities during the six-month period ended June 30, 2024, compared to the same period in 2023, was due to a $65.1 million increase in expenditures for purchases of various property and equipment made for the construction and development of the Mitchell facility. During the six months ended June 30, 2024, we spent $70.0 million on purchases of property and equipment, compared to $4.9 million during the same period in 2023.

Current wording

The $50.0 million increase in cash flows used for investing activities during the nine-month period ended September 30, 2024, compared to the same period in 2023, was due to a $49.8 million increase in expenditures for purchases of various property and equipment used for the construction and development of the High Plains Processing plant. During the nine months ended September 30, 2024, we spent $102.6 million on purchases of property and equipment, compared to $52.8 million during the same period in 2023.

Previous wording

The $97.5 million increase in cash flows provided by financing activities was principally due to a $57.5 million increase in investment proceeds received and a $48.8 million increase in net proceeds on borrowings. During the six months ended June 30, 2024, our subsidiaries, High Plains Partners and HPP SD Holdings, received $57.5 million in investment proceeds in connection with their equity financing, which were subsequently contributed to High Plains Processing for the construction and development of the new crush facility. Net proceeds on borrowings increased by $88.2 million during the six months ended June 30, 2024, compared to $39.4 million during the same period in 2023. Partially offsetting the increase was a $3.0 million increase in cash distributions to our members during the six-month period ended June 30, 2024, compared to the same period in 2023.

Current wording

The $22.8 million increase in cash flows provided by financing activities was principally due to a $51.9 million increase in net proceeds on borrowings. Net proceeds on borrowings increased by $55.0 million during the nine months ended September 30, 2024, compared to $3.1 million during the same period in 2023. Partially offsetting the increase was a $27.6 million decrease in investment proceeds received and a $3.0 million increase in cash distributions to our members during the nine-month period ended September 30, 2024, compared to the same period in 2023. During the nine months ended September 30, 2024, our subsidiaries received $57.5 million in investment proceeds in connection with their equity financing, which were subsequently contributed for the construction and development of the High Plains Processing plant, compared to $85.1 million during the same period in 2023.

Previous wording

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 $10.8 million and $0.0 million as of June 30, 2024 and December 31, 2023, respectively. Under this loan, there were no additional funds available to borrow as of June 30, 2024.

Current wording

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 as of September 30, 2024 and December 31, 2023. Under this loan, there were $10.2 million of additional funds available to borrow as of September 30, 2024.

Previous wording

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 June 30, 2024 and December 31, 2023, the principal balance outstanding on this credit line was $32.4 million and $0, respectively, allowing us to borrow an additional $52.6 million as of June 30, 2024.

Current wording

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 December 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 September 30, 2024 and December 31, 2023, there was no principal balance outstanding on this credit line, thus allowing us to borrow an additional $85.0 million as of September 30, 2024.

Previous wording

The third line of credit is a multiple advance note payable. The primary purpose of this note is to finance our investment and ownership in our subsidiary, High Plains Partners, LLC and other larger capital projects. High Plains Partners serves as our investment and ownership vehicle in HPP SD Holdings, LLC, which owns the Mitchell plant through its wholly-owned subsidiary, High Plains Processing, LLC. 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 $45.0 million and $0 as of June 30, 2024 and December 31, 2023. Under this note, there were $45.0 million of funds available to borrow as of June 30, 2024.

Current wording

The third line of credit is a multiple advance note payable. The primary purpose of this note is to finance our investment and ownership in the High Plains Processing plant through our subsidiaries and for other larger capital projects. 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 $55.0 million and $0 as of September 30, 2024 and December 31, 2023. Under this note, there were $35.0 million of funds available to borrow as of September 30, 2024.

Previous wording

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 7.86% and 7.85% as of June 30, 2024 and December 31, 2023, respectively. As of June 30, 2024 and December 31, 2023, the interest rate on the seasonal loan was 7.56% and 7.55%, respectively. We were in compliance with all covenants and conditions under the loans as of June 30, 2024.

Current wording

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 7.38% and 7.85% as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, the interest rate on the seasonal loan was 7.08% and 7.55%, respectively. We were in compliance with all covenants and conditions under the loans as of September 30, 2024.