South Dakota Soybean Processors, LLC owns and operates a soybean processing
plant and a soybean oil refinery in Volga, South Dakota. We also own and operate
an oilseed processing plant located approximately five miles east of Miller,
South Dakota, which we purchased on December 19, 2014 and have been operating
since April 30, 2015. We are owned by approximately 2,200 members, most of whom
reside in South Dakota and neighboring states and many of whom deliver and sell
soybeans to our plant for processing.
Our core business consists of processing locally grown soybeans into soybean
meal and soybean oil. Approximately 80% of a bushel of soybeans (60 pounds)
is processed into soybean meal or hulls, and the remaining 20% is extracted
as oil. We sell the soybean meal primarily to resellers, feed mills, and livestock
producers as livestock feed. We market and sell multiple grades of soybean oil
in either crude or refined format. Crude and refined soybean oil are marketed
and sold to the food, biodiesel and chemical industries. Under certain market
conditions, we may register and deliver warehouse receipts for crude oil according
to the terms and conditions of a Chicago Board of Trade (CBOT) soybean oil futures
contract.
We strive to maintain a competitive position in the marketplace by producing
high quality products, operating a highly efficient operation at the lowest
possible cost, and adding value to our core products to capture larger margins.
We continue to search for ways to improve our efficiencies by analyzing new
methods of vertical integration, adding value to our products by investing in
further processing of our products, and reviewing new applications for our products
in the plastics and energy fields. While it is our objective to maximize the
issuance of cash distributions to our members from profits generated through
operations, we recognize the need to maintain our financial strength by reinvesting
for our future.
The soybean processing industry converts soybeans into soybean meal, soybean
hulls and soybean oil. A bushel of soybeans typically yields approximately 44
pounds of meal, 4 pounds of hulls, and 11 pounds of crude oil when processed.
While the meal and hulls are mostly consumed by animals, food ingredients are
the primary end use for the oil. Crude soybean oil is generally refined for
use as salad and cooking oil, baking and frying fat, and to a more limited extent,
for industrial uses. Increasingly, the sale of soybean oil for human consumption
is impacted by the regulation of trans-fat. Trans-fat is created by the hydrogenation
process of products such as soybean oil and plant oils. Since 2006, the U.S.
Food and Drug Administration has required 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 they include in their products
or switched to other oils containing lower amounts of trans-fat.
Soybean processing facilities are generally located close to adequate sources
of soybeans and a strong demand for meal to decrease transportation costs. Soybean
meal is predominantly consumed by poultry and swine in the U.S. On average,
exports of soybean meal account for 20% to 30% of total production.
Soybean oil refineries are also generally located close to soybean processing
plants. Oil is shipped throughout the U.S. and for export. The USDA estimates
that approximately 64% of domestic oil production is used in food, feed and
industrial applications, 25% in biodiesel production, and 11% is exported.
Soybean crushing and refining margins are cyclical, characteristic of a mature,
competitive industry. While the price of soybeans may fluctuate substantially
from year to year, the prices of meal and oil generally track that of soybeans,
although not necessarily on a one-for-one basis; therefore, margins can be variable.
The soybean industry continues diligently to introduce soy-based products as
bio-based substitutes for various petroleum-based products. These products include
biodiesel, soy ink, lubricants, candles and plastics. Biodiesel, a substitute
for standard, petroleum-based diesel fuel, has experienced slow but erratic
growth in the U.S. From the late-1990s to 2008, biodiesel experienced steady
growth, only to stagnate between 2008 and 2010 due to overcapacity in the industry,
price volatility in the petroleum oil market, and volatile input costs. Since
2011, the biodiesel market returned to a growth phase following the expansion
of the Renewable Fuel Standard (RFS) program and resumption of the biodiesel
blenders’ tax credit.
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