Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 871K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 24K
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4: EX-32.1 Certification -- §906 - SOA'02 HTML 22K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 21K
11: R1 Cover Page HTML 69K
12: R2 Condensed Consolidated Balance Sheets HTML 132K
13: R3 Condensed Consolidated Balance Sheets HTML 23K
[Parenthetical]
14: R4 Condensed Consolidated Statements of Operations HTML 88K
(Unaudited)
15: R5 Condensed Statement of Changes in Members' Equity HTML 39K
Statement
16: R6 Condensed Consolidated Statements of Cash Flows HTML 88K
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Policies
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19: R9 Inventories HTML 28K
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23: R13 Long-Term Debt HTML 34K
24: R14 Operating Leases (Notes) HTML 94K
25: R15 Member Distribution HTML 21K
26: R16 Derivative Instruments and Hedging Activities HTML 52K
27: R17 Fair Value HTML 53K
28: R18 Related Party Transactions (Notes) HTML 23K
29: R19 Commitments and Contingencies HTML 23K
30: R20 Subsequent Event HTML 22K
31: R21 Principal Activity and Significant Accounting HTML 31K
Policies (Policies)
32: R22 Principal Activity and Significant Accounting HTML 29K
Policies (Tables)
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34: R24 Inventories (Tables) HTML 29K
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39: R29 Derivative Instruments and Hedging Activities HTML 53K
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40: R30 Fair Value of Financial Instruments (Tables) HTML 47K
41: R31 Principal Activity and Significant Accounting HTML 37K
Policies - Additional Information (Details)
42: R32 Principal Activity and Significant Accounting HTML 29K
Policies - Disaggregation of Revenue (Details)
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Receivables (Details)
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Accounts Receivable (Details)
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46: R36 Inventories (Details) HTML 28K
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58: R48 Operating Leases - Supplemental Cash Flow HTML 24K
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(Registrant's telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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.
iYesx 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). iYesx No
¨
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
¨
Large
Accelerated Filer
¨
Accelerated Filer
x
iNon-Accelerated Filer
i¨
Smaller
Reporting Company
i¨
Emerging Growth Company
(do not check if a smaller reporting company)
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for company with a new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
¨ Yes ix No
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: On May 11, 2023, the registrant had i30,411,500
capital units outstanding.
Charges
and credits to net income not affecting cash:
Depreciation and amortization
i1,415,296
i1,386,716
Net
(gain) loss recognized on derivative activities
(i14,483,613)
i7,263,904
Loss
(gain) on sale of property and equipment
(i31,853)
i4,381
Non-cash
patronage dividends
(i32,313)
(i145,749)
Change
in current assets and liabilities
(i25,239,631)
(i62,664,425)
Net
cash provided by (used for) operating activities
(i15,629,602)
(i35,857,338)
Investing
activities
Purchase of investments
(i5,904,137)
i—
Proceeds
from sales of property and equipment
i100,000
i—
Purchase
of property and equipment
(i1,559,279)
(i733,524)
Net
cash provided by (used for) investing activities
(i7,363,416)
(i733,524)
Financing
activities
Change in excess of outstanding checks over bank balances
(i4,100,716)
(i3,214,188)
Net
proceeds (payments) from seasonal borrowings
i60,262,726
i57,816,612
Distributions
to members
(i36,493,800)
(i17,338,830)
Proceeds
from long-term debt
i6,581,850
i4,224,724
Principal
payments on long-term debt
(i3,431,194)
(i5,127,197)
Net
cash provided by (used for) financing activities
i22,818,866
i36,361,121
Net
change in cash and cash equivalents
(i174,152)
(i229,741)
Cash
and cash equivalents, beginning of period
i866,699
i833,738
Cash
and cash equivalents, end of period
$
i692,547
$
i603,997
Supplemental
disclosures of cash flow information
Cash paid during the period for:
Interest
$
i603,157
$
i283,066
Income
taxes
$
i—
$
i—
Noncash
investing activities:
Soybean meal contributed as investment in related party
$
i1,436,420
i—
The
accompanying notes are an integral part of these condensed financial statements.
8
South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
Note 1 - iPrincipal
Activity and Significant Accounting Policies
The unaudited condensed financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although South Dakota Soybean Processors, LLC (the “Company”, “LLC”, “we”, “our”, or “us”) believes that the disclosures made are adequate to make the information not misleading.
In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included in the accompanying condensed financial statements. The results of operations and cash flows for interim periods
are not necessarily indicative of results for a full year due in part to the seasonal nature of some of the Company’s businesses. The balance sheet data as of December 31, 2022 has been derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
These statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2022, included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 30, 2023.
i
Use
of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
i
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 condensed balance sheets. These customer prepayments totaled $i1,210,244 and $i1,074,059 as of March 31, 2023 and December 31,
2022, respectively. Of the $i1,074,059 balance as of December 31, 2022, the Company recognized $i723,453
as revenues for the three months ended March 31, 2023. Of the $i1,347,409 customer prepayments as of December 31, 2021, the Company recognized $i1,340,132
of contract liabilities as revenues during the three months ended March 31, 2022.
/
9
South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
i
The
following table presents a disaggregation of revenue from contracts with customers for the three month periods ended March 31, 2023 and 2022, by product type:
2023
2022
Soybean
meal and hulls
$
i97,123,852
$
i87,424,050
Soybean
oil and oil byproducts
i74,789,456
i84,300,076
Totals
$
i171,913,308
$
i171,724,126
/i
Recent
accounting pronouncements
Any recent accounting pronouncements are not expected to have a material impact on our condensed financial statements.
Note 2 - iAccounts 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 credit losses is based on historical experience, its evaluation of the current status of receivables, and unusual circumstances, if any.
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 i1.5% per month on past due receivables.
Finished
goods and raw materials are valued at estimated market value, which approximates net realizable value. Supplies and other inventories are stated at the lower of cost or net realizable value.
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 $i1,436,420 and $i0
of soybean meal in Prairie AquaTech Manufacturing, LLC for the three months ended March 31, 2023 and 2022, respectively.
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 will transfer all rights, title and interest to all of the tangible and intangible development rights, including engineering, permitting, studies, records, etc., totaling $i5.0
million held by the Company in exchange for i2,615 Class B units in High Plains Partners, LLC. The Company also committed to invest at least another $i70.0
million for i17,169 Class B capital units in the entity. As of March 31, 2023, the Company had contributed $i8,280,316
towards the project. Operation of the facility is expected to begin in late 2025.
Depreciation
of property and equipment was $i1,414,076 and $i1,385,495 for the three months ended March 31, 2023 and 2022, respectively.
Note
6 - iNote Payable – Seasonal Loan
The Company has entered into a revolving credit agreement with CoBank which expires iDecember 1,
2023. The purpose of the credit agreement is to finance the operating needs of the Company. Under this agreement, the Company could borrow up to $i85 million, and advances on the revolving credit agreement are secured. Interest accrues at a variable rate (i7.05%
at March 31, 2023). The Company pays a i0.20% annual commitment fee on any funds not borrowed. There were advances outstanding of $i60,400,891
and $i138,165 at March 31, 2023 and December 31, 2022, respectively. The remaining available funds to borrow under the terms of the revolving credit agreement were $i24.6
million as of March 31, 2023.
Revolving term
loan from CoBank, interest at variable rates (i7.35% and i6.85% at March 31, 2023 and December 31,
2022, respectively), secured by substantially all property and equipment. Loan matures March 20, 2026.
$
i12,000,000
$
i8,849,344
Less
current maturities
(i4,000,000)
i—
Less
debt issuance costs, net of amortization of $i21,560 and $i20,339
as of March 31, 2023 and December 31, 2022, respectively
(i2,440)
(i3,661)
Total
long-term debt
$
i7,997,560
$
i8,845,683
/
The
Company entered into an agreement as of April 27, 2022 with CoBank to amend and restate its Credit Agreement, which includes both the revolving term and seasonal loans. Under the terms and conditions of the Credit Agreement, CoBank agreed to make advances to the Company for up to $i16,000,000 on the revolving term loan with a variable effective interest rate of i7.35%. The
amount available for borrowing on the revolving term loan will decrease by $i2,000,000 every isix months until the loan's maturity date of iMarch 20,
2026. The Company pays a i0.40% annual commitment fee on any funds not borrowed. The debt issuance costs of $i24,000
paid by the Company will be amortized over the term of loan. The principal balance outstanding on the revolving term loan was
12
South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
$i12,000,000
and $i8,849,344 as of March 31, 2023 and December 31, 2022, respectively. There were ino
remaining commitments available to borrow on the revolving term loan as of March 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 March 31, 2023.
i
The
following are minimum principal payments on long-term debt obligations for the twelve-month periods ended March 31:
2024
$
i4,000,000
2025
i4,000,000
2026
i4,000,000
Total
$
i12,000,000
/
Note
8 - iOperating Leases
The Company has several operating leases for railcars. These leases have terms ranging from i3-i12
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 $i880,151
and $i664,488 for the three months ended March 31, 2023 and 2022, respectively.
The Company also has a number of other operating leases for machinery and equipment. These leases have terms ranging from i3-i7
years; however, most of these leases have automatic renewal terms. These leases require monthly payments of $i3,929. Rental expense under these other operating leases was $i11,219
and $i46,416 for the three-month periods ended March 31, 2023 and 2022, 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 $i3,300,000 after the entity's construction of additional storage and handling facilities. The agreement began May 1, 2021 and will mature on April 30, 2027 but includes an additional iseven-year
renewal period at the sole discretion of the Company. Rental expense under this agreement was $i58,929 and $i58,929
for the three months ended March 31, 2023 and 2022, respectively.
Operating leases are included in right-to-use lease assets, current operating lease liabilities, and long-term lease liabilities on the Company's condensed 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 condensed balance sheet.
Lease expense
for these operating leases is recognized on a straight-line basis over the lease terms. iThe components of lease costs recognized within our condensed statements of operations for the three-month periods ended March 31, 2023 and 2022 were as follows:
2023
2022
Cost
of revenues - Freight and rail
$
i880,151
$
i664,488
Cost
of revenues - Production
i65,642
i99,013
Administration
expenses
i4,506
i6,332
Total
operating lease costs
$
i950,299
$
i769,833
The
following summarizes the supplemental cash flow information for the three-month periods ended March 31, 2023 and 2022:
2023
2022
Cash
paid for amounts included in measurement of lease liabilities
$
i875,288
$
i749,933
Supplemental
non-cash information:
Right-of-use assets obtained in exchange for lease liabilities
$
i8,914,885
$
i3,386,523
The
following summarizes the weighted-average remaining lease term and weighted-average discount rate as of March 31, 2023:
Weighted-average remaining lease-term - operating leases (in years)
i9.8
Weighted-average
discount rate - operating leases
i4.2
%
14
South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
i
The
following is a maturity analysis of the undiscounted cash flows of the operating lease liabilities as of March 31, 2023:
Railcars
Other
Total
Twelve-month
periods ended March 31:
2024
$
i4,240,974
$
i40,539
$
i4,281,513
2025
i3,912,589
i30,038
i3,942,627
2026
i3,885,689
i14,790
i3,900,479
2027
i3,681,164
i10,256
i3,691,420
2028
i2,922,439
i5,742
i2,928,181
Thereafter
i15,458,688
i—
i15,458,688
Total
lease payments
i34,101,543
i101,365
i34,202,908
Less
amount of lease payments representing interest
(i6,184,265)
(i5,773)
(i6,190,038)
Total
present value of lease payments
$
i27,917,278
$
i95,592
$
i28,012,870
/
Note
9 - iMember Distribution
On iJanuary 31, 2023, the
Company’s Board of Managers approved a cash distribution of approximately $i36.5 million, or $i1.20
per capital unit. The distribution was paid in accordance with the Company’s operating agreement and distribution policy on iFebruary 2, 2023.
Note 10 - iDerivative
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 condensed balance sheets at fair value as discussed in Note 11, Fair Value.
During
the three-month periods ended March 31, 2023 and 2022, net realized and unrealized gains (losses) on derivative transactions were recognized in the condensed statements of operations as follows:
Net Gain (Loss) Recognized on
Derivative Activities for the
The
Company recorded gains (losses) in cost of goods sold related to its commodity derivative instruments of $i14,483,613 and $(i7,263,904)
for the three-month periods ended March 31, 2023 and 2022, respectively.
Note 11 - iFair Value
ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a comprehensive framework for measuring fair value and expands
disclosures which are required about fair value measurements. Specifically, this guidance establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. The three levels of hierarchy and examples are as follows:
•Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange and commodity derivative contracts listed on the Chicago Board of Trade (“CBOT”).
•Level
2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs, such as commodity prices using forward future prices.
•Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.
iThe
following tables set forth financial assets and liabilities measured at fair value in the condensed balance sheets and the respective levels to which fair value measurements are classified within the fair value hierarchy as of March 31, 2023 and December 31, 2022:
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 our area.
The Company considers the carrying amount of
significant classes of financial instruments on the 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 balance sheet at original cost plus the amount of patronage earnings allocated to the Company, less any cash distributions received.
Note 12 - iRelated Party Transactions
The
Company has equity investments in Prairie AquaTech, LLC, Prairie AquaTech Manufacturing, LLC and Prairie AquaTech Investments, LLC. The Company sold soybean products to Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC totaling $i2,947,866 and $i3,755,756
during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023 and December 31, 2022, Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC owed the Company $i0 and $i1,433,551,
respectively.
Note 13 - Commitments and iContingencies
As of March 31, 2023, the Company had unpaid commitments of approximately $i1,866,000
for construction and acquisition of property and equipment, all of which is expected to be incurred by March 31, 2024.
The Company has entered into an agreement with High Plains Partners, LLC (“HPP”) to commit $i75.0 million into HPP to facilitate the construction of a multi-seed processing facility near Mitchell, South Dakota. The funding of the commitment is subject
to several conditions.
From time to time in the ordinary course of our business, the Company may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual dispute. The Company carries insurance that provides protection against general commercial liability claims, claims against our directors, officer and employees, business interruption, automobile liability, and workers' compensation. The Company is not currently involved in any material legal proceedings and are not aware of any potential claims.
17
South
Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
Note 14 - iSubsequent Event
The Company evaluated all of its activities and concluded that no subsequent events have occurred that would require
recognition in its financial statements or disclosed in the notes to its financial statements.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The information in this quarterly report on Form 10-Q for the three-month period ended March 31, 2023, (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, 2022. 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,
2022.
We are not under any duty to update the forward-looking statements contained in this report, nor do we guarantee future results or performance or what future business conditions will be like. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.
Executive Overview and Summary
For the first quarter of 2023, we had a net profit of $22.7 million, a $4.4 million increase over the same period in 2022, as strong soybean oil values and soybean meal demand continued from 2022. Oil values benefited from continuing demand in the food and fuel sectors. Meal demand was boosted by concerns over a reduced soybean crop in Argentina which reduced meal product there and led to increased meal purchasing in the U.S. An above-average soybean crop in terms of quality further contributed
to our bottom line. Soybeans harvested last fall were above historical averages in oil and protein content, and lower in moisture.
Looking ahead, we expect earnings to decrease in the second quarter. Soybean oil demand continues to be influenced by a rapid build out in renewable diesel capacity. Many new diesel plants which were previously forecast to come online during the first quarter of 2023 have, however, experienced construction-related delays or have struggled starting up. Consequently, some of these plants have had to delay purchases of oil or have had to sell oil back oil into the market, causing a sharp drop in nearby soybean oil values. We anticipate, however, these plants will get back on track and demand will improve later this year. As for soybean meal, we expect an over-supply situation both domestically and globally over the next few months. Brazil is currently experiencing a record soybean crop and processing
at maximum capacity. Argentina, while dealing with a short domestic crop, has been able to procure supply from Brazil and maintain exports of meal. Once the Brazilian harvest is complete, Argentine processors are expectedto slow down due to a lack of supply. As U.S. processors enter the seasonal maintenance period, soybean meal values should also improve. Available soybean supplies are currently difficult to forecast. Crop reports released at the end of March indicated that South Dakota should have adequate inventories to provide a new crop. Growing conditions in South Dakota this summer will be a key determining factor for our fourth quarter performance. Finally, we continue to take additional steps toward the planning and building of a crushing plant near Mitchell, South Dakota. We are actively working on its development including financing, engineering and permitting.
Revenue – Revenue increased $0.2 million, or 0.1%, for the three-month period ended March 31, 2023, compared to the same period in 2022. The increase in revenues was primarily due to increases in the average sales price of soybean meal and refined soybean oil. The average sales price of soybean meal increased 16% during the three months ended March
31, 2023, compared to the same period in 2022, due to drought conditions in Argentina as well as North America. A severe drought in Argentina, which is responsible for almost 30% of the world's soybean meal exports, shifted demand for meal to the U.S., and allowed producers like us to benefit from increased export opportunities.The average sales price of soybean oil increased approximately 7% in the three months ended March 31, 2023 from the same period in 2022, due to surging demand from the renewable diesel and food sectors. Partially offsetting the increases in average sales price was an 18% decrease in sales volume of refined soybean oil due primarily to a refinery shutdown. Early in the first quarter of 2023, our refinery was shut down for two weeks because of a mechanical breakdown which has since been resolved.
Gross Profit/Loss – Gross profit
increased $5.8 million, or 31.0%, for the three months ended March 31, 2023, compared to the same period in 2022. The increase in gross profit was primarily due to increased demand for soybean meal and oil. Demand for soybean meal improved due to drought conditions in Argentina and other parts of the U.S. Soybean oil demand also increased from the renewable diesel sector as more diesel plants were opened in the U.S.
Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $179,000, or 12.8%, during the three-month period ended March 31, 2023, compared to the same period in 2022. The increase was primarily due to a decrease in the recovery of accounts receivable previously determined to be uncollectible. During the three months ended
March 31, 2022, we received payments of $114,000 towards previously written-off accounts receivable, compared to $0 during the same period in 2023.
Interest Expense – Interest expense increased $533,000, or 137.4%, during the three months ended March 31, 2023, compared to the same period in 2022. The increase in interest expense was due to increases in interest rates on our senior debt with CoBank and borrowings from our lines of credit. As of March 31, 2023, the interest rate on our revolving long-term loan was 7.35%, compared to 2.90% as of March 31, 2022. The average debt level, in addition, increased from $54.7 million during the three-month period ended March
31, 2022 to $60.3 million for the same period in 2023 mainly due to higher commodity prices and payments for capital improvements and investments in related parties.
Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, decreased $677,000 during the three-month period ended March 31, 2023, compared to the same period in 2022. The decrease in other non-operating income was due to a $727,000 change in gains (losses) on our interest rate hedge instruments. During the three-month period ended March 31, 2023, losses on interest rate hedges totaled $157,000, compared to a $570,000 gain during the same period in 2022.
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Net
Income/Loss – During the three-month period ended March 31, 2023, we generated a net income of $22.7 million, compared to $18.3 million for the same period in 2022. The $4.4 million increase was primarily attributable to an increase in gross profit.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash provided by operations and borrowings under our two revolving lines of credit which are discussed below under “Indebtedness.” On March 31, 2023, we had working capital, defined as current assets less current liabilities, of approximately $53.6 million, compared to $36.8 million on March 31,
2022. Working capital increased between periods primarily due to increases in net income during that period. Based on current plans, we will continue funding our capital and operating needs from cash from operations and revolving lines of credit.
Net
cash provided by (used for) operating activities
$
(15,629,602)
$
(35,857,338)
Net cash provided by (used for) investing activities
(7,363,416)
(733,524)
Net cash provided by (used for) financing activities
22,818,866
36,361,121
Cash
Flows Used For Operations
The $20.2 million decrease in cash flows used for operating activities was largely due to a $34.4 million change in inventory, $9.8 million in margin deposits, $8.2 million change in accounts receivable, and a $4.4 million increase in net income. During the three-month period ended March 31, 2023, our inventories decreased by $6.6 million, compared to a $27.8 million increase during the same period in 2022. Margin deposits decreased $2.4 million during the three months ended March 31, 2023, compared to a $7.4 million increase in 2022. Accounts receivable also decreased $1.9 million during the three months ended March 31, 2023, compared to a $6.2 million increase during the same period in 2022. Partially offsetting changes in inventory, margin deposits,
accounts receivable, and net income, was a $21.8 million increase in net gains on derivative activities and a $19.9 million decrease in accrued commodity purchases. During the three months ended March 31, 2023, we recognized $14.5 million in gains on derivative activities, compared to $7.3 million in losses during the same period in 2022. Accrued commodity purchases decreased $37.9 million during the three-month period ended March 31, 2023, compared to $18.0 million during the same period in 2022.
Cash Flows Used For Investing Activities
The $6.6 million increase in cash flows used for investing activities during the three-month period ended March 31, 2023, compared to the same period in 2022, was largely due to a $5.9 million increase
in expenditures towards investments in related parties. During the three months ended March 31, 2023, we spent $5.9 million on investments in High Plains Partners, LLC, a related party, compared to $0 during the same period in 2022.
Cash Flows Provided By (Used For) Financing Activities
The $13.5 million decrease in cash flows provided by financing activities was principally due to a $19.2 million increase in cash distributions to our members during the three-month period ended March 31, 2023, compared to the same period in 2022. Partially offsetting the decrease was a $6.5 million increase in net proceeds on borrowings. During the three months ended March 31, 2023, net proceeds on borrowings increased $63.4 million, compared to $56.9
million during the same period in 2022.
Indebtedness
We have two lines of credit with CoBank, our primary lender, to meet the short and long-term needs of our operations. The first credit line is a revolving long-term loan. Under this loan, we may borrow funds as needed up to the credit line maximum, or $14.0 million, and then pay down the principal whenever excess cash is available. Repaid amounts may be borrowed up to the available credit line. The available credit line decreases by $2.0 million every six months until the credit line’s maturity on March 20, 2026. We pay a 0.40% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan was $12.0 million and $8.8 million
The second credit line is a revolving working capital (seasonal) loan. The primary purpose of this loan is to finance our operating needs. The maximum we may borrow under this line is $85.0 million until the loan's maturity on December 1, 2023. We pay a 0.20% annual commitment fee on any funds not borrowed; however, we have the option to reduce the credit line during any given commitment period listed in the credit agreement to avoid the commitment fee. As of March 31, 2023 and December 31, 2022,
the principal balance outstanding on this credit line was $60.4 million and $0.1 million, respectively, allowing us to borrow an additional $24.6 million as of March 31, 2023.
Both the revolving and seasonal 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 both loans, allowing us to fix rates for any period between one day and the entire commitment period. The annual interest rate on the revolving term loan was 7.35% and 6.85% as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023 and December 31, 2022, the interest rate on the seasonal loan was 7.05% and 6.55%, respectively.
We were in compliance with all covenants and conditions under the loans as of March 31, 2023.
OFF BALANCE SHEET FINANCING ARRANGEMENTS
We do not utilize variable interest entities or other off-balance sheet financial arrangements.
Contractual Obligations
The following table shows our contractual obligations for the periods presented:
Payment
due by period
CONTRACTUAL OBLIGATIONS
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Long-Term Debt Obligations (1)
$
13,325,000
$
4,750,000
$
8,575,000
$
—
$
—
Operating
Lease Obligations
37,051,000
4,517,000
8,315,000
7,091,000
17,128,000
Totals
$
50,376,000
$
9,267,000
$
16,890,000
$
7,091,000
$
17,128,000
(1) Represents
principal and interest payments on our notes payable, which are included on our Balance Sheet.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of our Financial Statements under Part I, Item 1, for a discussion on the impact, if any, of the recently pronounced accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and estimates from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item
3. Quantitative and Qualitative Disclosures 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
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anticipate that hedging activities will have a significant impact on future operating results or liquidity. Hedging arrangements do not protect against nonperformance of a cash contract.
At any one time, our inventory and purchase contracts for delivery to our facility may be substantial. We have risk management policies and procedures that include net position limits. They are defined by commodity and include both trader and
management limits. This policy and procedure triggers a review by management when any trader is outside of position limits. The position limits are reviewed at least annually with the board of managers. We monitor current market conditions and may expand or reduce the limits in response to changes in those conditions.
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 March 31,
2023, we had $0 in fixed rate debt outstanding and $97.0 million of variable rate lines of credit. Interest rate changes impact the amount of our interest payments and, therefore, our future earnings and cash flows. Assuming other variables remain constant, a 1.0% increase in interest rates on our variable rate debt could have an estimated impact on profitability of approximately $970,000 per year.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934) 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.
Changes in Internal Control Over Financial Reporting. There were no changes to our internal controls over financial reporting that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting during the quarter ended March 31, 2023.
PART II – OTHER INFORMATION
Item
1. 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 dispute. We carry insurance that provides protection against general commercial liability claims, claims against our directors, officer and employees, business interruption, automobile liability, and workers' compensation. We are not currently involved in any material legal proceedings and are not aware of any potential claims.
Item 1A. Risk Factors.
During the quarter ended March 31, 2023, there were no material
changes to the Risk Factors disclosed in Item 1A (Part I) of our 2022 Annual Report on Form 10-K.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(1) Incorporated by reference from Appendix B to the information statement/prospectus filed as a part of the issuer’s Registration Statement on Form S-4 (File No. 333-75804).
In accordance with the requirements of the Exchange
Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
