SecProbe.io

CORRESP
1
filename1.htm

LEONARD, STREET AND DEINARD, PROFESSIONAL
ASSOCIATION

150 South Fifth Street, Suite 2300

Minneapolis, Minnesota 55402

July 29,
2005

Ms. Jill S. Davis

Accounting Branch Chief

United States Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, DC  20459-0306

  Re:

  South Dakota Soybean
  Processors, LLC

  Form 10-K for the
  fiscal year ended December 31, 2004

  Filed April 15, 2005

  Response Letter Dated
  June 21, 2005

  File No. 0-50253

  Post Effective Amendment
  to Registration Statement on Form S-1

  Filed June 9, 2005

  File No. 333-114508

Dear
Ms. Davis:

We
represent South Dakota Soybean Processors, LLC, a South Dakota limited
liability company (“SDSP” or the “Company”), and have been authorized by the
Company to provide the attached memorandum (the “Memorandum”) responding to the
Staff’s letter, dated July 15, 2005, and the three itemized comments
contained therein (the “Staff Comment Letter”).
The Memorandum sets forth each of the comments from the Staff’s Comment
Letter, followed by the Company’s response.
This cover letter and the Memorandum were filed electronically
via EDGAR, with three (3) additional courtesy paper copies being sent to
each of Mr. Duersch, Ms. Darling, and you via Federal Express.

If you have
any questions with respect to the matters covered in the Memorandum, please do
not hesitate to contact my partner, Mark Weitz at (612) 335-1517, or
myself at (612) 335-1784.  We
thank you for your cooperation.

Very truly
yours,

LEONARD,
STREET AND DEINARD

  /s/ Marci K.
  Winga

  Marci K.
  Winga

  cc:

  James Seurer

  Rodney
  Christianson

MEMORANDUM

  TO:

  Jill S. Davis, Jonathan Duersch and Carrie
  Darling  Securities and Exchange
  Commission

  FROM:

  James Seurer, Chief Financial Officer
  South Dakota Soybean Processors, LLC

  RE:

  Response to SEC comments on Form 10-K
  for Fiscal Year Ended December 31, 2004, Filed April 15, 2005 and
  Response Letter Dated June 21, 2005, Commission File No.: 0-50253

  Post Effective Amendment to Registration Statement
  on Form S-1, Filed June 9, 2005, Commission File No. 333-114508

  DATE:

  July 29, 2005

The following memorandum
has been prepared with the assistance of our legal counsel in response to the
SEC comment letter dated July 15, 2005, regarding South Dakota Soybean
Processors, LLC’s Form 10-K for the Fiscal Year Ended December 31,
2004.

We specifically acknowledge 1) that we are responsible for the adequacy
and accuracy of the disclosure contained in our filings; 2) that Staff comments
or changes to our disclosures in response to Staff comments do not foreclose
the Commission from taking any action with respect to such filings; and 3) that
we may not assert Staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the United
States.

If you wish to discuss any
of these responses, or if you have any questions, please feel free to call our
counsel, Mark Weitz at (612) 335-1517 or Marci Winga at (612) 335-1784.

We have reproduced the Staff’s comment in boldface print below, with
our response to such comment inserted directly below.

Results of
Operations, page 12

1.                                      We
note your response to our prior comment three conveying your belief that your
soybean meal and soybean oil refining do not constitute reportable segments.  However we were unable to locate the balance
of your response in which we had requested you to provide us with the financial
reports your CODM reviews.  Please
provide us with the balance of your response.

Please find enclosed copies of the following
reports reviewed by our CODM:

•                  our
daily position report, which summarizes our inventory, future contracts, cash
contracts and hedges for soybeans, soybean meal, and soybean oil;

1

•                  a
hedging trade confirmation from Country Hedging that covers hedges in soybeans,
soybean meal and soybean oil;

•                  daily
production reports;

•                  monthly
financial statements;

•                  monthly
margin analysis;

•                  monthly
yield analysis;

•                  goals
and standards for operating units; and

•                  a
monthly capital investment report.

We would be happy to discuss any questions
that you have regarding the information contained in these reports or how they
are used by our CODM.

Report of Independent Registered Public
Accounting Firm, page F-2

2.                                      We
note your response to our prior comment two indicating that Eide Bailly had
provided services relating to the preparation of your 2003 consolidated
financial statement.  We note that you
believe an exemption applied under Section 602.02.c, however, that section was
revised early in 2003 and the timing of your fact pattern appears to be outside
the transition period provided in the rule.
Accordingly, it appears that your auditor, Eide Bailly, was not
independent and their audit report issued on your financial statements for the
year ended December 31, 2003 does not comply with the requirements of Article 2
of Regulation S-X.  Please amend your
filing to provide audited financial statements for the year ended December 31,
2003 that are audited by an independent accountant as required by Article 2
of Regulation S-X.  Please contact us to
further discuss the audit of the financial statements for the period ended December 31,
2002 included in this filing.  Please
refer to Final Rule 33-8183 Strengthening the Commission’s Requirements
Regarding Auditor Independence at http://www.sec.gov/rules/final/33-8183.htm.

As set forth below, we do not believe that
the work that Eide Bailly did in relation to the 2003 financial statements
constitutes prohibited bookkeeping services under Regulation S-X Rule 2-01(c)(4) and
Section 602.02.c of the Codification of Financial Reporting (the “Codification”)
such that Eide Bailly’s independence would have been compromised.  In addition to our belief that the work that
was done by Eide Bailly was in compliance with Regulation S-X Rule 2-01(c)(4) and
Section 602.02.c of the Codification, we also believe that the services
that Eide Bailly provided qualify under the one year “safe harbor” transition
period provided under the rule.  We respectfully request the Staff’s
concurrence with our conclusion that Eide Bailly’s independence was not
compromised as a result of the services it provided, as described below, during
the year ended December 31, 2003, and that Eide Bailly’s audit report issued
on our financial statements for the year ended December 31, 2003 therefore
complied with the requirements of Article 2 of Regulation S-X.

2

Factual Background

The following is a description of services
that Eide Bailly provided to us during the periods in question and the factual
circumstances surrounding those services.

We have had a long-standing and ongoing
relationship with Eide Bailly, and engaged Eide Bailly as our auditors on a
continuing and uninterrupted basis since our inception in 1995/1996 until early
2005.  During that period, in addition to
providing audit and review services, Eide Bailly regularly provided other
incidental services to us on an on-going and as-needed basis to the extent permitted
under the applicable independence rules in effect at the time.  The additional services Eide Bailly regularly
performed for us were of a mechanical nature, not involving any decision-making
or exercise of judgment by Eide Bailly, as contemplated by previous Example 4
of Section 602.02.c of the Codification.
Our staff always generated, controlled, reviewed and approved all source
data, journal entries, estimates, classifications of accounts and trial
balances, and reviewed, edited and approved the final form of our financial
statements.

On October 15, 2003, our Chief Financial
Officer resigned without having begun the work of preparing our September 2003
month end information or third quarter financial statements.  Our entire remaining accounting staff
consisted only of our controller and one staff member.  Since our former Chief Financial Officer had
historically performed most of the manual work required to prepare our
financial statements herself, her resignation left us very short-staffed to compile
the information required to prepare our third quarter 2003 10-Q and the 2003
year-end financial statements.  Eide
Bailly stepped in to provide some additional limited assistance in accordance
with our on-going agreement as further described below.

Prior to Eide Bailly’s work on the third
quarter 2003 review and 2003 audit, our staff prepared our financial statements
and the financial statements for our subsidiary, Urethane Soy Systems Company, Inc.
(“USSC”), including, without limitation, making
all decisions regarding the classification of entries, providing all
estimates, and making all journal entries.
Then, in preparation for the third quarter 2003 review and 2003 audit, a
field auditor from Eide Bailly sat down with our controller in our conference
room in order to assist our controller in preparing our spreadsheet reflecting
the eliminations required to consolidate our financial statements with USSC’s
financial statements.  Our controller
compiled and pulled all of the information and numbers, and calculated the
eliminations to prepare the consolidated financial statements.  The field auditor merely did the ministerial
task of inputting the elimination amounts at the specific direction of our
controller, e.g. our controller said “$XXX was the accounts receivable amount
between us and USSC,” and the field auditor inserted that amount into the
consolidation/elimination spreadsheet under the direct physical supervision and
oversight of our controller.  Our
controller watched these eliminations being made, individually approved each of
the eliminations as they were being done, and reviewed, edited and approved the
resulting consolidated financial statements.

3

In connection with the audited financial statements
for 2003, Eide Bailly also provided suggested language to be used as an initial
draft for the text of three new financial statement notes regarding USSC, since
this was the first audit that had included USSC as a consolidated entity.  Our controller inserted all financial
information into the text and revised, edited and approved the text for all the
notes prior to their inclusion in our financial statements.

A.                                   Eide Bailly Did Not
Conduct Prohibited Bookkeeping Services

Regulation S-X Rule 2-01(c)(4) provides
that an accountant is not independent if the accountant provides bookkeeping
services to the client.  Rule 2-01(c)(4) defines
bookkeeping services to include “preparing the audit client’s financial
statements that are filed with the Commission or that form the basis of
financial statements filed with the Commission.”  In Section 602.02.c of the Codification,
the Commission provides additional guidance regarding what services are deemed
to be bookkeeping services.  Section 602.02.c
provides that the basic consideration in determining whether the auditor’s
independence is impaired “is whether, to a third party, the client appears to
be (i) substantially dependent upon the accountant’s skill and judgment in
its financial operations or (ii) reliant only to the extent of the
customary type of consultation or advice.”

We were not substantially dependent on Eide
Bailly’s skill and judgment in our financial operations as a result of the
services rendered.  In fact, we were not
at all dependent on Eide Bailly’s skill and judgment, since the additional work
was merely a matter of typing information that we provided, which was done at
the specific direction and physical supervision of our controller.  The work that Eide Bailly did for us was a
routine process that involved no decision-making and a minimal amount of
additional time.  From a substantive
perspective, the eliminations were done consistently with historical practice,
and there were no changes made to our underlying financial statements or USSC’s
financial statements as a result of Eide Bailly’s services.

Section 602.02.c further states the
Commission’s position “that an accounting firm cannot be deemed independent
with regard to auditing financial statements of a client if it has participated
closely, either manually or through its computer services, in maintenance of
the basic accounting records and preparation of the financial statements.”  This does not preclude all forms of
assistance by the auditor in preparing the financial statements, only
assistance that is not in conformance with the foregoing standard.(1)  Section 602.02.c

(1) See Question 2 (issued January 16, 2001) from The Office
of the Chief Accountant: Application of the Commission’s Rules on Auditor
Independence Frequently Asked Questions, December 14, 2004 at
http://www.sec.gov/info/accountants/ocafaqaudind121304.htm#P74_19963:

Q: Does Rule 2-01(c) (4) (i) (bookkeeping
services) preclude an auditor from assisting an audit client in preparing its
financial statements?

A: “Assistance” can take many forms. As a general matter, Rule 2-01(c) (4) (i) sets
forth in rule form the Commission’s previous guidance on this subject. In
particular, the Codification of Financial Reporting Policies provides that: “It
is the Commission’s position that an accounting firm cannot be deemed
independent with regard to auditing financial statements of a client if it has
participated closely, either manually or through its computer services, in
maintenance of basic accounting records and preparation of financial
statements, or if the firm performs other accounting services through which it
participates with management in operational decisions.”

4

does not provide any additional guidance
regarding what specific types of activities constitute “close participation” in
preparing the financial statements; however, the Pubic Company Accounting
Oversight Board has adopted the AICPA’s Code of Professional Conduct Rule 101
and Interpretation 101-3 thereunder in Rule 3600T – Interim Independence
Standard.  Interpretation 101-3 includes
the following table of specific examples of different types of assistance that
an auditor may provide and whether such services would impair independence:

  Independence Would Not Be
  Impaired

  Independence Would Be Impaired

  •  Record
  transactions for which management has determined or approved the appropriate
  account classification, or post coded transactions to a client’s general
  ledger.

  •  Determine
  or change journal entries, account codings or classification for
  transactions, or other accounting records without obtaining client approval.

  •  Prepare
  financial statements based on information in the trial balance.

  •  Authorize
  or approve transactions.

  •  Post
  client-approved entries to a client’s trial balance.

  •  Prepare
  source documents.

  •  Propose
  standard, adjusting, or correcting journal entries or other changes affecting
  the financial statements to the client provided the client reviews the
  entries and the member is satisfied that management understands the nature of
  the proposed entries and the impact the entries have on the financial
  statements.

The services provided by Eide Bailly clearly
fall within the types of activities where independence would not be impaired
under the foregoing standard.  We
provided all of the source documents and data and maintained all of the basic
accounting records.  We determined and
approved all of the eliminations and the field auditor merely typed them into
the eliminations schedule/spreadsheet in accordance with the oral instructions
of our controller, with contemporaneous revisions and corrections being
completed at our controller’s direction and under his physical oversight.  In other words, we prepa