Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion along with our consolidated financial statements and the notes to our consolidated financial statements included elsewhere in this report. The following discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance and achievements may differ materially from those expressed in, or implied by, such forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Information” at the beginning of this report.
Overview and Executive Summary
For the year ended December 31, 2025, we earned a net income of $17.7 million, down from $20.3 million in 2024. Despite the decline, processing margins held firm due to favorable spreads between soybean procurement costs and product sales prices. These spreads benefited from a large 2025 U.S. soybean crop—characterized by low moisture and average to above-average protein and oil content—across the area where we purchase soybeans.
In 2025, strong soybean meal demand persisted throughout the year, reaching or approaching record levels in both export and domestic markets, even as U.S. processing volumes hit records. Soybean oil demand weakened in the fourth quarter and overall, primarily due to ongoing uncertainty around EPA renewable fuel program guidance and volume requirements (renewable volume obligations).We completed construction of the new processing facility near Mitchell, South Dakota, on time and within budget. Operations began October 6, 2025, with refinery activities starting about one month later. Initial production was limited during commissioning, but product quality has been excellent, and volumes are steadily ramping up.
In 2026, we anticipate improved processing margins in 2026. An EPA announcement on renewable volume obligations is likely soon; if final volumes meet or exceed market expectations, soybean oil demand could strengthen significantly in 2026 and into 2027, driven by higher requirements for biomass-based diesel and renewable fuels. Nevertheless, challenges remain. Evolving U.S. trade policies add uncertainty, and expanding soybean production and processing capacity in South America will continue to intensify global competition. We remain focused on operational efficiency, capacity utilization (including the new Mitchell facility), and adapting to biofuel policy developments to support long-term performance.
Results of Operations
Comparison of Years Ended December 31, 2025 and 2024
Year Ended December 31, 2025
Year Ended December 31, 2024
Revenue
Revenue
Revenue
Cost of revenues
Gross profit
Operating expenses
Interest expense
Other non-operating income (expense)
Net income
Net income (loss) attributable to non-controlling interests in consolidate entities
Net income attributed to Company
Revenue – Revenue decreased $50.6 million, or 9.1%, for the year ended December 31, 2025, compared to the same period in 2024 The decrease was primarily driven by lower average sales price of soybean products, partially offset by an increase in quantity of soybeans processed.
Average soybean meal prices declined by 16.6% compared to 2024, primarily due to an increase in U.S. soybean crushing capacity during 2024 and 2025. The average price of soybean oil decreased 7.0% during the year ended December 31, 2025 compared to the same period in 2024, due to a decrease in demand. Soybean oil demand from the energy sector dropped dramatically in 2024 and throughout 2025 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, contributing to an oversupply and adversely affecting soybean oil sales.
Soybean processing volume increased 22.7% compared to the same period in 2024. During the fourth quarter of 2025, we completed construction of our Mitchell, South Dakota processing facility and commenced operations. Completion of the Mitchell facility materially increased the Company’s soybean processing capacity, approximately doubling total production capacity. While the facility generated revenues during the fourth quarter of 2025, such revenues were limited and subject to uncertainty as the facility continues to ramp up and we evaluate operational performance.
Gross Profit/Loss – Gross profit decreased by $4.7 million, or 16.0%, for the year ended December 31, 2025, compared to the same period in 2024. The decrease was mainly due to declining processing margins —the spread between the market value of soybean meal and soybean oil produced from soybeans and the cost of raw soybeans— during the period due to weaker product values for soybean meal and soybean oil, reflecting trends that began in 2024.
During the fourth quarter of 2025, we commenced operations at our Mitchell facility. While the startup of the facility increased overall soybean processing capacity and contributed to higher processing volumes, initial operations were subject to ramp-up inefficiencies and lower utilization rates that are typical of a startup phase, which negatively impacted processing margins during the period.
Operating Expenses – Administrative expenses, including selling, general and administrative expenses, increased approximately $1.2 million, or 19.7%, during the year ended December 31, 2025, compared to the same period in 2024, due to an increase in payroll, professional and related costs associated with the start-up of the Mitchell facility.
Interest Expense – Interest expense decreased by $0.3 million, or 5.1%, during the year ended December 31, 2025, compared to the same period in 2024. The decrease in interest expense was principally due to a decrease in average borrowings from our credit facilities, excluding loans by our subsidiary, High Plains Processing, LLC. Average debt outstanding totaled $52.7 million during the year ended December 31, 2025, compared to $68.2
million during the same period in 2024. Additionally, we incurred and capitalized interest related primarily to the construction of the Mitchell facility of approximately $9.3 million and $0.1 million, for the years ending December 31, 2025 and 2024, respectively.
Other Non-Operating Income (Expense) – Other non-operating income, including patronage dividend income, decreased by $3.3 million, or 67.4%, for the year ended December 31, 2025, compared to the same period in 2024. The decrease in other non-operating income was primarily attributable to a $3.5 million decrease in interest income earned on the deposit of investment proceeds received by our subsidiaries in connection with the equity financing of the Mitchell facility during 2023 and 2024. These investment proceeds were utilized in 2024 to finance construction of the facility, resulting in lower average invested balances and, consequently, lower interest income during the current period.
Net Income/Loss – We generated a net income of $17.7 million during the year ended December 31, 2025, a $2.4 million decrease from 2024. The decrease was primarily attributable to lower gross margins resulting from reduced processing spreads and weaker product pricing during the period.
Comparison of Years Ended December 31, 2024 and 2023
Year Ended December 31, 2024
Year Ended December 31, 2023
Revenue
Revenue
Revenue
Cost of revenues
Gross profit
Operating expenses
Interest expense
Other non-operating income (expense)
Net income
Net income attributable to non-controlling interests in consolidate entities
Net income attributed to Company
Revenue – Revenue decreased $148.7 million, or 21.2%, for the year ended December 31, 2024, compared to the same period in 2023. The decrease was primarily due to a decrease in the average sales price of soybean products. The average price of soybean oil decreased 23.9% during the year ended December 31, 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. Further contributing to the drop was an increase in imports of lower-priced alternatives to soybean oil, specifically used cooking oil. In addition, average soybean meal prices declined by 15.3% in 2024 following the return of Argentine processors to the global export market and an increase in U.S. soybean production.
Gross Profit/Loss – Gross profit decreased by $49.0 million, or 62.5%, for the year ended December 31, 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 our own.
Operating Expenses – Administrative expenses, including selling, general and administrative expenses, decreased approximately $0.5 million, or 6.7%, during the year ended December 31, 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 Mitchell facility.
Interest Expense – Interest expense increased $3.6 million, or 126.2%, during the year ended December 31, 2024, compared to the same period in 2023. The increase in interest expense was due to a $28.6 million increase in borrowings from our credit facilities with our senior lender, CoBank. The average debt level was $68.2 million during 2024, compared to $39.6 million in 2023. Debt levels increased mainly to fund our investment commitment into the Mitchell facility through our subsidiaries.
Other Non-Operating Income (Expense) – Other non-operating income, including patronage dividend income, increased $2.8 million, or 140.2%, for the year ended December 31, 2024, compared to the same period in 2023. The increase in other non-operating income was due to a $2.6 million increase in interest income. Interest income increased from the deposit of investment proceeds which were received by our subsidiaries in connection with their equity financing of the Mitchell facility.
Net Income/Loss – We generated a net income of $20.3 million during the year ended December 31, 2024, a $50.1 million decrease from 2023. The decrease is primarily attributable to the reduction in gross profit and an increase in interest expense.
Liquidity and Capital Resources
Our primary sources of liquidity are cash provided by operations and borrowings under our various revolving lines of credit which are discussed below under “Indebtedness.” On December 31, 2025, we had working capital, defined as current assets less current liabilities, of approximately $25.4 million, compared to working capital of $24.5 million on December 31, 2024. The increase in working capital was primarily driven by higher inventories, offset by decreases in cash and cash equivalents, increase in accrued commodity purchases and expenses, and increase in indebtedness associated with the commencement of operations at the Mitchell facility.
Comparison of the Years Ended December 31, 2025 and 2024
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
Cash Flows Provided by (Used in) Operating Activities
The $97.3 million decline in cash flows from operating activities was primarily driven by a $8.8 million decrease in net income, along with a $83.7 million reduction in cash generated from change in current assets and liabilities. The change in current assets and current liabilities was primarily driven by higher inventories, offset by increase in accrued commodity purchases and expenses.
Cash Flows Used in Investing Activities
The $26.4 million increase in cash flows used for investing activities was primarily driven by an increase in expenditures for purchasing various property and equipment. During 2025, we spent $202.2 million on property and equipment purchases, largely for the construction and development of the Mitchell facility, compared to $175.7 million in 2024.
Cash Flows Provided by Financing Activities
The $125.8 million increase in cash flows provided by financing activities was principally due to an increase in borrowings with our lender and a decrease in distributions paid to our members, offset by a decrease in proceeds from issuance of new capital units in our consolidated entities. Net proceeds from seasonal borrowings and long-term debt increased by $212.0 million during the year ended December 31, 2025, compared to $69.2 million during the same period in 2024. A $31.8 million reduction in cash distributions to members during the year ended December 31, 2025, compared to the same period in 2024, further contributed to the increase. This increase was partially offset by a decrease in proceeds from the issuance and sale of new securities in our consolidated entities in connection with the equity financing of the Mitchell facility. During the year ended December 31, 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 new facility.
Comparison of the Years Ended December 31, 2024 and 2023
Net cash from operating activities
Net cash used for investing activities
Net cash used for financing activities
Cash Flows from Operating Activities
The $70.5 million decline in cash flows from operating activities was primarily driven by a $49.3 million decrease in net income, along with a $37.0 million reduction in cash generated from inventories. During the year ended December 31, 2024, our inventories decreased by $23.8 million, compared to $60.8 million in 2023.
Cash Flows Used in Investing Activities
The $71.8 million increase in cash flows used for investing activities was primarily driven by the $71.4 million increase in expenditures for purchasing various property and equipment. During 2024, we spent $175.7 million on property and equipment purchases, largely for the construction and development of the Mitchell facility, compared to $104.3 million during 2023.
Cash Flows Provided by Financing Activities
The $36.9 million increase in cash flows provided by financing activities was principally due to a $78.1 million increase in net proceeds on borrowings. Net proceeds on borrowings increased by $69.2 million during the year ended December 31, 2024, compared to net payments of $8.9 million during the same period in 2023. Partially offsetting the increase was a $40.6 million decrease in investment proceeds received and a $3.0 million increase in cash distributions to our members during the year ended December 31, 2024, compared to the same period in 2023.
Indebtedness
We hold various credit facilities 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 $65.0 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 $3.25 million every six months until the credit line’s maturity on March 20, 2030 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 $19.7 million and $50.5 million as of December 31, 2025 and 2024, respectively. Approximately $38.8 million in remaining commitments was available to borrow on the revolving term loan as of December 31, 2025.
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 $20.0 million until the loan's maturity on December 1, 2026. We pay a 0.20% annual commitment fee on any funds not borrowed; however, we have the option to reduce the credit line during any given commitment period listed in the credit agreement to avoid the commitment fee. As of December 31, 2025 and 2024, there was no principal balance outstanding on this credit line.
The third line of credit is a delayed-draw term loan. Under this loan, our subsidiary may borrow funds, as needed up to $254.0 million. Principal payments of $4.5 million are made quarterly beginning six months after the completion date of the Mitchell facility. The quarterly principal payments will increase $1.0 million on the anniversary date and continue until the maturity date of December 31, 2029. Our subsidiary pays a 0.50% annual commitment fee on any funds not borrowed. The principal balance outstanding on the delayed-draw term loan was $221.5 million and $18.7 million as of December 31, 2025 and 2024, respectively. Under this loan, $32.5 million was available to be borrowed as of December 31, 2025.
The fourth line of credit is another revolving term loan. Under this loan, our subsidiary may borrow funds, as needed, up to the credit line maximum, or $40.0 million, and then pay down the principal whenever excess cash is available. Repaid amounts may be borrowed up to the available credit line until the credit line’s maturity on
December 31, 2029 at which time a balloon payment for the remaining balance is due. Our subsidiary pays a 0.50% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan was $— as of December 31, 2025 and 2024. Under this loan, $40.0 million was available to be borrowed as of December 31, 2025.
The last credit line is a revolving working capital (seasonal) loan. The primary purpose of this loan is to finance the operating needs of the Mitchell facility. Our subsidiary may borrow up to $85.0 million until the loan's maturity on September 1, 2026. A 0.20% annual commitment fee is paid 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. The principal balance outstanding on this credit line was $27.4 million and $— at December 31, 2025 and 2024, respectively. Under this loan, $57.6 million of additional funds were available for borrowing as of December 31, 2025.
The revolving, seasonal and delayed-draw 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 five loans, allowing us to fix rates for any period between one day and the entire commitment period. The annual interest rate on the loans was between 5.91% and 7.11% as of December 31, 2025. We were in compliance with all covenants and conditions under the loans as of December 31, 2025.
Effective March 2025, the State of South Dakota Department of Transportation agreed to loan the Davison Regional Railroad Authority $12.6 million for purposes of making improvements to the railway infrastructure at the Mitchell facility. In consideration of this secured loan, we agreed to provide a guarantee to the State of South Dakota Department of Transportation for the full amount of the loan, plus 2% interest. This guarantee was converted into a direct obligation of ours in May 2025, when we received the entire loan proceeds and assumed responsibility for paying the annual principal and interest payments. Beginning in October 2026, we will make annual principal and interest payments of $987,500. These payments will continue through October 1, 2032, at which time a final balloon payment will be due for the remaining unpaid principal and any accrued interest.
Capital Expenditures
We made a total of $202.2 million in capital expenditures on various property and equipment in 2025 compared to approximately $175.7 million in 2024. Significant purchases of property and equipment were made for the construction and development of the Mitchell facility, which was completed and commenced operations during the fourth quarter of 2025. Additional purchases were made to enhance the quality and efficiency of our Volga and Miller facilities. We anticipate spending approximately $28.2 million in capital purchases and improvements in 2026, which will be financed from our revolving term loan and cash flows from operating activities.
Off Balance Sheet Financing Arrangements
We do not utilize variable interest entities or other off-balance sheet financial arrangements.
Contractual Obligations
The following table shows our contractual obligations for the periods presented:
Payment due by period
CONTRACTUAL
OBLIGATIONS
Total
Less than
1 year
1-3 years
3-5 years
More than 5
years
Long-Term Debt Obligations (1)
Operating Lease Obligations
Total
(1) Represents principal and interest payments on our notes payable, which are included on our Consolidated Balance Sheets.
Recent Accounting Pronouncements
See Note 1 - Principal Activity and Significant Accounting Policies, o f our audited consolidated financial statements for a discussion on the impact, if any, of the recently pronounced accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of our consolidated financial statements requires estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. We continually evaluate these estimates based on historical experience and other assumptions that we believe to be reasonable under the circumstances.
The difficulty in applying these policies arises from the assumptions, estimates, and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions. As the difficulty increases, the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated.
Of the significant accounting policies described in the notes to the consolidated financial statements, we believe that the following may involve a higher degree of estimates, judgments, and complexity:
Commitments and Contingencies
Contingencies, by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred, as well as in estimating the amount of the potential expense. In conformity with accounting principles generally accepted in the U.S., we accrue an expense when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Inventory Valuation
We account for our inventories at estimated market value. These inventories are agricultural commodities that are freely traded, have quoted market prices, may be sold without significant further processing, and have predictable and insignificant costs of disposal. We derive our estimates from local market prices determined by grain terminals in our area. Processed product price estimates are determined by the ending sales contract price as of the close of the final day of the period. This price is determined by the average closing price on the Chicago Board of Trade, net of the local basis, for the last two business days of the period and the first business day of the subsequent period. Changes in the market values of these inventories are recognized as a component of cost of goods sold.
Accounting for Derivative Instruments and Hedging Activities
We minimize the effects of changes in the price of agricultural commodities by using exchange-traded futures and options contracts to minimize our net positions in these inventories and contracts. We account for changes in market value on exchange-traded futures and option contracts at exchange prices and account for the changes in value of forward purchase and sales contracts at local market prices determined by grain terminals in the area. Changes in the market value of all these contracts are recognized in earnings as a component of cost of goods sold.
Revenue Recognition
We account for all of our revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers.
We principally generate revenue from merchandising and transporting manufactured agricultural products used as ingredients in food, feed, energy and industrial products. Revenue is measured based on the consideration specified in the contract with a customer, and excludes any amounts collected on behalf of third parties (e.g. - taxes). We follow a policy of recognizing revenue at a single point in time when we satisfy our performance obligation by transferring control over a product to a customer. Control transfer typically occurs when goods are shipped from our facilities or at other predetermined control transfer points (for instance, destination terms). Shipping and handling costs related to contracts with customers for sale of goods are accounted for as a fulfillment
activity and are included in cost of revenues. Accordingly, amounts billed to customers for such costs are included as a component of revenues.
