The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no duty to update these forward-looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.  You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect.  We qualify all of our forward-looking statements by these cautionary statements.

Lake Area Corn Processors, LLC is a South Dakota limited liability company that owns and manages its wholly-owned subsidiary, Dakota Ethanol, LLC. Dakota Ethanol, LLC owns and operates an ethanol plant located near Wentworth, South Dakota that has a nameplate production capacity of 4090 million gallons of ethanol per year. Lake Area Corn Processors, LLC is referred to in this report as "LACP," the "company," "we," or "us." Dakota Ethanol, LLC is referred to in this report as "Dakota Ethanol" "we" "us" or the "ethanol plant."

Our revenue is derived from the sale and distribution of our ethanol, distillers grains and corn oil.  The ethanol plant currently operates in excess ofrecently increased its nameplate capacity producing approximatelyfrom 50 million gallons of ethanolper year to 90 million gallon per year.  Corn is supplied to us primarily from our members who are local agricultural producers and from purchases of corn on the open market. We have engaged Renewable Products Marketing Group, Inc. ("RPMG, Inc.") to market all of the ethanol and corn oil that we produce at the ethanol plant. Further, RPMG, Inc. markets all of the distillers grains that we produce that we do not market internally to local customers.

 

 

    

Our total distillers grains revenue was approximately 21%55% greater during our firstthird quarter of 2019 compared to the same period of 2018, due primarily to increased market distillers grains pricesoverall production at the plant due to increased export and domestic demand along with increased distillers grains sales.our expansion project. We sold approximately 5%51% more total tons of distillers grains during our firstthird quarter of 2019 compared to the same period of 2018 due to increased production at the plant.

The average price we received for our dried distillers grains was approximately 13% greater3% less during our firstthird quarter of 2019 compared to the same period of 2018, an increasea decrease of approximately $17$4 per ton. Management attributes the increasedecrease in dried distillers grains prices during the firstthird quarter of 2019 with a strongersofter distillers grain market due to increased demand along with increased exports.grains export demand. The average price we received for our modified/wet distillers grains, on a dry-equivalent basis, was

    

The average price per pound we received for our corn oil was approximately 10% greaterslightly less for our firstthird quarter of 2019 compared to the same period of 2018. The increasedecrease in price is related to increased crudedecreased biodiesel demand which negatively impacts corn oil prices. Corndemand as corn oil is frequently used as a raw material infeedstock for biodiesel production. Management expects corn oil prices to decrease for the rest of our 2019 fiscal year due to uncertainty in the biodiesel industry which is a significant source of corn oil demand.

The primary raw materials we use to produce ethanol and distillers grains are corn and natural gas.

OurWe had higher interest and other income was greater forexpense during our firstthird quarter of 2019 compared to the same period of 2018 due to increased our plant expansion project. We were capitalizing interest in previous periods when our expansion project was under construction. Our

We had noless earnings on our investments during the nine months ended September 30, 2019 compared to the same period of 2018 due to decreased profitability in the ethanol industry. We had more interest expense during

Our cash on hand at March 31,September 30, 2019 was greater compared to December 31, 2018 due to timing of the quarter end and fundslarger checks we borrowed onhad outstanding in excess of our credit facilities.bank accounts. We had more accounts receivable at March 31,September 30, 2019 compared to December 31, 2018 due to the timing of our quarter end and the payments related to the shipments of our products.products in addition to the increased sales from our expansion. The value of our inventory was lowergreater at March 31,September 30, 2019 compared to December 31, 2018 due to decreasedincreased corn and finished goods inventory.inventory for our expansion. The asset value of our derivative instruments was less at September 30, 2019 compared to December 31, 2018 due to recent corn price changes which impacted our derivative instruments. We had less prepaid expenses at September 30, 2019 compared to December 31, 2018 due to amortization of our insurance premiums.

Our long-term liabilities were greater at March 31,September 30, 2019 compared to December 31, 2018 due to borrowing related to our plant expansion project.

Our main sources of liquidity are cash from our continuing operations, distributions we receive from our investments and amounts we have available to draw on our revolving credit facilities. Management does not anticipate that we will need to raise additional debt or equity financing in the next twelve months and management believes that our current sources of liquidity will be sufficient to continue our operations during that time period. We anticipate that any capital expenditures we undertake related to our expansion project will be paid out of cash from operations and existing loans, and will not require any additional debt or equity financing.

We entered into a comprehensive credit facility with Farm Credit Services of America, PCA and Farm Credit Services of America, FLCA (collectively "FCSA"). We have a $10 million revolving operating line of credit (the "Operating Line") and a $40 million reducing revolving loan (the "Reducing Revolving Loan"). All of our assets, including the ethanol plant and equipment, its accounts receivable and inventory, serve as collateral for our loans with FCSA.

On August 1, 2017, we executed an amendment to our credit agreement to create a new $8 million term loan which we used to finance a portion of our investment in Ring-neck Energy & Feed, LLC.

On February 6, 2018, we executed an Amended and Restated Credit Agreement (the "Amended and Restated Credit Agreement") with FCSA. Pursuant to the Amended and Restated Credit Agreement, we increased our total credit availability to $40 million to support our expansion project. Further, the maturity date of this increased credit availability under our Amended and Restated Credit Agreement was extended to January 1, 2026. Until February 1, 2023, interest will accrue pursuant to the Amended and Restated Credit Agreement on our increased credit availability at the one month London Interbank Offered Rate ("LIBOR") plus 3.25% per year. We agreed to pay a fee of 0.50% on the unused portion of the increased credit availability.  

On February 6, 2018, Dakota Ethanol executed a revolving promissory note from Farm Credit Services of America (FCSA) in thean amount up to $10,000,000 or the amount available in accordance with the borrowing base calculation, whichever is less. Interest on the outstanding principal balance will accrue at 300 basis points above the 1 month LIBOR rate and is not subject to a floor. The rate was 5.50%5.10% at March 31,September 30, 2019. There is a non-use fee of 0.25% on the unused portion of the $10,000,000 availability. The note is collateralized by substantially all assets of the Company. The note expires on November 1, 2019.2021. On March 31,September 30, 2019, Dakota Ethanol had $0 outstanding and $6,651,000$5,281,000 available to be drawn on the revolving promissory note under the borrowing base.

On February 6, 2018, Dakota Ethanol executed a reducing revolving promissory note from FCSA in the amount up to $40,000,000 or the amount available in accordance with the borrowing availability under the credit agreement. The amount Dakota Ethanol can borrow on the note decreases by $1,750,000 semi-annually starting on January 1, 20202021 until the maximum balance reaches $26,000,000 on July 1, 2023.2024. The note matures on January 1, 2026. Interest on the outstanding principal balance will accrue at 325 basis points above the 1 month LIBOR rate and is not subject to a floor. The rate was 5.75%5.35% at March 31,September 30, 2019. The note contains a non-use fee of 0.50% on the unused portion of the note. On March 31,September 30, 2019, Dakota Ethanol had $24,100,000$33,000,000 outstanding and $15,900,000$7,000,000 available to be drawn on the note.

On August 1, 2017, Dakota Ethanol executed a term note with FCSA in the amount of $8 million. Dakota Ethanol agreed to make monthly interest payments starting September 1, 2017 and annual principal payments of $1,000,000 starting on August

Our credit facilities with FCSA are subject to various loan covenants. If we fail to comply with these loan covenants, FCSA can declare us to be in default of our loans. The material loan covenants applicable to our credit facilities are our working capital covenant, local net worth covenant and our debt service coverage ratio. We are required to maintain working capital (current assets minus current liabilities plus availability on our revolving loan) of at least $13.5 million. We are required to maintain local net worth (total assets minus total liabilities minus the value of certain investments) of at least $28 million. We are required to maintain a debt service coverage ratio of at least 1.25:1.00.

As of March 31,September 30, 2019, we were in compliance with all of our loan covenants. Management's current financial projections indicate that we will be in compliance with our financial covenants for the next 12 months and we expect to remain in compliance thereafter. Management does not believe that it is reasonably likely that we will fall out of compliance with our material loan covenants in the next 12 months. If we fail to comply with the terms of our credit agreements with FCSA, and FCSA refuses to waive the non-compliance, FCSA may require us to immediately repay all amounts outstanding on our loans.

Management uses estimates and assumptions in preparing our consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Of the significant accounting policies described in the notes to our consolidated financial statements, we believe that the following are the most critical:

We enter into short-term forward grain, option and futures contracts as a means of securing corn for the ethanol plant and managing exposure to changes in commodity prices. We enter into short-term forward, option and futures contracts for sales of ethanol to manage exposure to changes in commodity prices. All of our derivatives are designated as non-hedge derivatives, and accordingly are recorded at fair value with changes in fair value recognized in net income. Although the contracts are considered economic hedges of specified risks, they are not designated as nor accounted for as hedging instruments.

As part of our trading activity, we use futures and option contracts offered through regulated commodity exchanges to reduce our risk and we are exposed to risk of loss in the market value of inventories. To reduce that risk, we generally take positions using cash and futures contracts and options.

Unrealized gains and losses related to derivative contracts for corn purchases are included as a component of cost of revenues and derivative contracts related to ethanol sales are included as a component of revenues in the accompanying financial statements. The fair values of derivative contracts are presented on the accompanying balance sheets as derivative financial instruments.

Annually, as well as when an event triggering impairment may have occurred, the Company performs an impairment test on goodwill. The Company performs a quantitative analysis that tests for impairment. The second step, if necessary, measures the impairment. The Company performs the annual analysis onas of December 31 of each fiscal year.

Inventories are generally valued using methods which approximate the lower of cost (first-in, first-out) or net realizable value. In the valuation of inventories and purchase commitments, net realizable value is based on estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation.

The Company generally recognizes revenue at a point in time when performance obligations are satisfied. Revenue from the production of ethanol and related products is recorded when control transfers to customers. Generally, ethanol and related

Shipping costs incurred by the Company in the sale of ethanol, dried distillers grains and corn oil are not specifically identifiable and as a result, revenue from the sale of those products is recorded based on the net selling price reported to the Company from the marketer.

We are exposed to the impact of market fluctuations associated with commodity prices and interest rates as discussed below.  We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn and natural gas. We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes.

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding loans which bear variable interest rates. As of March 31,September 30, 2019, we had $31,100,000$39,000,000 outstanding on our variable interest rate loans with interest accruing at a rate of 5.75%5.35%. Our variable interest rates are calculated by adding a set basis to LIBOR. If we were to experience a 10% increase in LIBOR, the annual effect such change would have on our income statement, based on the amount we had outstanding on our variable interest rate loans as of March 31,September 30, 2019, would be approximately $78,000.$82,000.

We are exposed to market risk from changes in commodity prices.  Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process.  We seek to minimize the risks from fluctuations in the prices of corn and natural gas through the use of hedging instruments.  In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate.  Although we believe our hedge positions accomplish an economic hedge against our future purchases, they are not designated as such for hedge accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged.  We are marking to market our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of revenues.

The immediate recognition of hedging gains and losses can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.  We recorded a combined decreaseincrease to our cost of revenues of approximately $42,000$1,213,000 related to derivative instruments for the quarter ended March 31,September 30, 2019. We recorded a combined increase to our cost of revenues of approximately $66,000$82,000 related to derivative instruments for the quarter ended March 31,September 30, 2018. There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of corn or natural gas.  However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.

As of March 31,September 30, 2019, we were committed to purchasing approximately 1.81.7 million bushels of corn with an average price of $3.46$3.74 per bushel. These corn purchases represent approximately 10%6% of our project plant corn usage for the next 12 months.

As of March 31,September 30, 2019, we were committed to purchasing approximately 451,000652,000 MMBtus of natural gas with an average price of $2.49$2.64 per MMBtu. Under these arrangements, the Company assumes the risk of a price decrease in the market price of natural gas between the time the price is fixed and the time the natural gas is delivered. The Company accounts for these transactions as normal purchases, and accordingly, does not mark these transactions to market. The natural gas purchases represent approximately 39%32% of the projected annual plant requirements.

As of March 31,September 30, 2019, we were committed to selling approximately 20,00032,000 dry equivalent tons of distillers grains with an average price of $128$127 per ton. The distillers grains sales represent approximately 14%15% of the projected annual plant production.

As of March 31,September 30, 2019, we were committed to selling approximately 2.32.0 million pounds of distillers corn oil with an average price of $0.25$0.23 per pound.  The distillers corn oil sales represent approximately 20%9% of the projected annual plant production.

We do not have any firm-priced sales commitments for ethanol as of March 31,September 30, 2019.

A sensitivity analysis has been prepared to estimate our exposure to corn, natural gas and ethanol price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas prices and average ethanol price as of March 31,September 30, 2019, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from March 31,September 30, 2019. The results of this analysis, which may differ from actual results, are as follows:

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.

From time to time in the ordinary course of business, Dakota Ethanol or Lake Area Corn Processors may be named as a defendant in legal proceedings related to various issues, including, worker's compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings, directly or indirectly, and we are not aware of any claims pending or threatened against us or any of the managers that could result in the commencement of material legal proceedings.

There has not been any material change to the risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2018.

None.

None.

The following exhibits are filed as part of this report.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.