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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
[X]    Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended
AUGUST 31, 2004
Or
[   ]    Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

_________________

Commission File
No. 33-94644
_________________

MINN-DAK FARMERS COOPERATIVE
(Exact name of registrant as specified in its charter)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

        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.
YES _X_ NO___

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. [X]

        Minn-Dak Farmers Cooperative has previously registered securities for offer and sale pursuant to the Securities Act of 1933, as amended (the “Securities Act”). As a result of that previous registration under the Securities Act, under Sections 15(d) and 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Cooperative is obligated to file quarterly reports on form 10-Q, annual reports on Form 10-K and supplemental reports on Form 8-K. However, the Cooperative has not registered any of its securities under Section 12(g) of the Exchange Act. The Cooperative is exempt from any obligation to register its securities under the Exchange Act due to the provisions of Section 12(g)(2)(E), which exempts from Exchange Act registration any security of an issuer, such as the Cooperative, which is a “cooperative association” as defined in the Agricultural Marketing Act of 1929.

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As a result, those provisions of the Exchange Act, which are applicable only to securities registered under Section 12 of that act, do not apply to shares issued by the Cooperative. The provisions, which do not apply to the Cooperative’s shares, include the regulation of proxies under Section 14 of the Exchange Act and the reporting and other obligations of directors, officers and principal stockholders under Section 16 of the Exchange Act.

        As of November 13, 2004, 488 shares of the Company’s Common Stock and 72,200 “units” of the Registrant’s Preferred Stock, each consisting of 1 share of Class A Preferred Stock, 1 share of Class B Preferred Stock and 1 share of Class C Preferred Stock, were outstanding. There is only a limited, private market for shares of the Company’s Common or Preferred Stock, as such shares may be held only by farmer-producers who are eligible for membership in the Company. The Company’s shares are not listed for trading on any exchange or quotation system. A number of stock transfers, representing approximately 2% of available stock, were not arms length (estate settlements, estate planning from one generation to the next, etc.) and an accurate value for that stock was not available. Management believes that less than 1% of the Company’s available stock was traded at arm’s length during the fiscal year ended August 31, 2004. Of the stock transferred at arms length, the transfers were made during the first, second and third quarters of the Company’s fiscal year and ranged in price from $2,500 to $2,900 per unit. The fourth quarter did not have any arms length transactions.

        Any statements regarding future market prices, anticipated costs, agricultural results, operating results and other statements that are not historical facts contained in this annual report are forward-looking statements. The words “expect”, “project”, “estimate”, “believe”, “anticipate”, “plan”, “intend”, “could”, “may”, “predict”, and similar expressions are also intended to identify forward-looking statements. Such statements involve risks, uncertainties and assumptions, including, without limitation, market factors, the effect of weather and economic conditions, farm and trade policy, the available supply of sugar, available quantity and quality of sugarbeets and other factors detailed elsewhere in this and other Company filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated.

DOCUMENTS INCORPORATED BY REFERENCE

        None

PART I

ITEM 1.    BUSINESS

        Minn-Dak Farmers Cooperative (“Minn-Dak” or the “Company”) is a North Dakota agricultural cooperative that was formed in 1972 and has 488 members. Membership in the Company is limited to sugarbeet growers located in those areas of North Dakota and Minnesota within an approximate fifty (50) mile radius of the Company’s offices and sugarbeet processing facilities in Wahpeton, North Dakota. The Company’s facilities allow the members to process their sugarbeets into sugar and other products. The products are pooled and then marketed through the services of a marketing agent under contract with the Company. The sugar-marketing agent, United Sugars Corporation, is a cooperative association owned by its members, the Company, American Crystal Sugar Company, and United States Sugar Corporation. The Company’s beet molasses and beet pulp are also marketed through a marketing agent, Midwest Agri-Commodities Company. Midwest Agri-Commodities Company is a cooperative association owned by its members, the Company, American Crystal Sugar Company, Southern Minnesota Beet Sugar Cooperative and Michigan Sugar Company.

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        Minn-Dak’s corporate headquarters are located at 7525 Red River Road, Wahpeton, North Dakota 58075, (telephone number (701) 642-8411). Its fiscal year ends August 31.

PRODUCTS AND PRODUCTION

        The Company is engaged primarily in the production and marketing of sugar from sugarbeets. The Company also markets certain co-products of the sugar it produces, such as beet molasses and beet pulp pellets. The Company also owns an 80% interest in Minn-Dak Yeast Company, Inc., which has facilities located near the Company’s sugar production location. Minn-Dak Yeast Company, Inc. produces fresh baker’s yeast and provided revenues totaling approximately 4% of the Company’s gross revenues for the fiscal year ended August 31, 2004.

        The Company processes sugarbeets grown by its members at its sugarbeet processing facility located in Wahpeton, North Dakota. The period during which the Company’s plant is in operation to process sugarbeets into sugar and co-products is referred to as the “campaign.” The campaign is expected to begin in September of each year and continues until the available supply of beets has been depleted, which generally occurs in March or April of the following year, depending on the size of the crop. Based on current processing capacity, an average campaign lasts approximately 210-225 days, assuming normal crop yields.

        Once the sugarbeets are harvested, rapid processing is important to maximize sugar extraction and minimize spoilage. Members transport their crop by truck to receiving stations designated by the Company. Beets are then stored in the Company’s factory yard and at outlying piling stations until processed. Under the Company’s “growers agreement” with its members, the Company furnishes all loading equipment at sugarbeet receiving stations and, after delivery of the beets to the Company, pays all freight and mileage charges for hauling the sugarbeets from the piling stations to the factory for processing.

        The Company’s total sugar production is influenced by the amount and quality of sugarbeets grown by its members, by the processing capacity of the Company’s plant and by the ability to store harvested beets. Most of the beet harvest is stored in piles. Although piled sugarbeets that have been frozen by the winter temperatures may be stored for extended periods, beets stored in unprotected piles at temperatures above freezing must be processed within approximately 160 days.

        Sugarbeets deteriorate in storage due to the organic nature of their existence. Beets harvested prior to obtaining a root temperature of fifty degrees or less must be processed as soon as possible or sugar loss will occur and they will deteriorate. The plant start up in the fall is timed to the anticipated end of processing in the spring. The plan of the Company is to finish processing unprotected beets prior to early March, ventilated beets prior to early April, and storage shed beets as soon thereafter as is possible.

        Unprotected sugarbeet piles are “split” by processing the center of the piles first. This method allows the processing of the center beets, which do not freeze and therefore deteriorate more rapidly, at the earliest possible date.

        Ventilated beets have culverts with air holes running every eleven feet into the pile. Prior to freezing of the beets, air is blown into the piles to bring the pile temperature to an average temperature of approximately thirty-five degrees Fahrenheit. When a week or more of sub zero temperatures are forecast, the fans are turned on when the temperature reaches zero degrees and continues to ventilate until the pile temperature reaches zero to five degrees.

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        Storage shed beets are handled in the same manner as the ventilated beets. The difference between the processes is the building itself, which insulates the beets from sun, wind, and warmer spring temperatures. With the buildings, storage of the beets can run as late as mid May of each year. If a campaign is not expected to extend beyond early April, all or some of the buildings storing beets may be cooled down to a low thirty-degree temperature and maintained at that temperature until the beets are processed. The decision to freeze or cool the beets in a storage building is based upon the anticipated economic benefit that year of each of the options.

        In addition, unprotected and ventilated beets will, in long campaigns, have extra steps taken to extend their life. Beets can be sprayed with lime to create a reflectant and reduce the harmful impact from the sun’s rays in the spring. Straw can also be applied to the sides of some later processed piles to further insulate the beets from sun, wind, and temperature.

        Once the sugarbeets arrive in the factory, the basic steps in producing sugar from them include: washing; slicing into thin strips called “cossettes”; extracting the sugar from the cossettes in a diffuser; purifying the resulting “raw juice” and boiling it, first in an evaporator to thicken it and then in vacuum pans to crystallize the sugar; separating the sugar crystals in a centrifuge; drying the sugar; and storing sugar in bulk form for bulk and bag shipping.

        The Company’s sugarbeet co-products include beet molasses, beet pulp pellets and pressed pulp. After the extraction of raw juice from the cossettes, the remaining pulp is dried, processed into pellets and sold as animal feed or not dried and sold as wet animal feed to the local market. The beet molasses is the sugar juice left after all economical means have been taken to extract the sugar from the sugar juice. The beet molasses is sold primarily to yeast and pharmaceutical manufacturers and for use in animal feeds. The beet molasses and beet pulp pellets are marketed through Midwest Agri-Commodities Company.

RECENT CROPS

        The Company’s members expect to harvest 2.4 million tons of sugarbeets from the 2004 crop, the largest crop ever delivered to the Company. Sugar content of the 2004 crop at harvest was 6% below the average of the five most recent years because of crop growing conditions. The Company’s production of sugar from the 2004 crop sugarbeets is expected to be 5% higher than the average of the five most recent years of sugar production, but 5% less than the previous year. This forward-looking material is based on the Company’s expectations regarding the processing of the 2004 sugar beet crop; the actual production results obtained by processing those sugarbeets could differ materially from the Company’s current estimate as a result of factors such as changes in production efficiencies and storage conditions for the Company’s sugarbeets. The Company’s initial beet payment estimate totals $35.02 per ton or $.123388 per harvested/bonus pound of sugar, with the final beet payment determined in October of 2005. This projected payment is less than the final 2003 crop payment per ton/pound, as well as less than the original projected 2003 crop payment per ton/pound. The lower projected 2004 crop payment results from lower sugar production and sugar price versus the prior year, and increased operating and fixed costs per ton/pound.

        For a discussion of the 2003, 2002 and 2001 crops and results of operations for fiscal years 2004, 2003 and 2002, see “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”

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MARKETING, CUSTOMERS AND PRICING

        Since January 1, 1994 United Sugars Corporation (“United Sugars”), a common marketing agency operating on a cooperative basis, has marketed the Company’s sugar. The Company owns United Sugars along with two other sugar-producing companies (American Crystal Sugar Company and United States Sugar Corporation) and exists to market sugar produced by the three member owners.

        As of this writing the Company has an ownership interest in United Sugars (year to date contributed capital) totaling $1.2 million, which represents approximately 12% of the total.

        The Company, as well as the other members of United Sugars, has entered into a “Uniform Member Marketing Agreement” with United Sugars. Under that agreement, the sugar produced by the Company is pooled with sugar produced by the other sugar-producing member owners and is then sold through the efforts of United Sugars. The Company receives payment for its sugar by receiving its pro rata share of the net proceeds from the sale of the pooled sugar. The net proceeds of such sales represent the gross proceeds of the sale of the sugar, adjusted for the various costs and expenses of marketing the pooled sugar, including the Company’s pro rata share of the marketing and sales expenses incurred by United Sugars. Any net proceeds from the operation of United Sugars are distributed to the various members on a patronage basis.

        Southern Minnesota Beet Sugar Cooperative officially terminated its membership in United Sugars Corporation as of August 31, 2004. The marketing or financial impact, if any, to United Sugars or to the Company of the departure of this member is not believed to be substantial.

        United Sugars sells industrial bulk sugar, industrial bagged sugar, and retail bagged sugar and specialty sugars. It distributes both cane sugar and beet sugar, and distributes sugar to customers over a large geographical area. United Sugars markets the Company’s sugar primarily to industrial users such as confectioners, breakfast cereal manufacturers and bakeries. The customer base of United Sugars includes most of the large domestic industrial sugar users. The customer base also includes retail grocery and wholesalers. The Company has no single customer, which accounts for more than ten percent (10%) of its consolidated revenues. For the fiscal year ended August 31, 2004, 95% of the Company’s sugar was shipped in bulk form, mostly to industrial users, and 5% in bagged powdered sugar.

        The prices at which United Sugars sells the Company’s sugar fluctuate periodically based on changes in domestic sugar supply and demand. Bulk sugar, the largest portion of the Company’s sales, is contracted one or more quarters in advance, with the effect of stabilizing fluctuations in revenue from quarter to quarter. Retail (grocery) products are sold mostly on a spot or quarterly basis. Current net selling prices for sugar are forecast to be lower than the prior two years because of: (1) record production of domestic sugar from domestic sugarbeets and sugar cane in 2003; and (2) the Federal Government’s establishment of the overall marketing allotment quantity, which is provided for in the 2002 Farm Bill, has been set too high in the last two years, resulting in excessive carryover inventories and excessive amounts of sugar available to the domestic sugar market place.

        The Company markets its co-products, dried beet pulp and beet molasses, through Midwest Agri-Commodities Company (“Midwest Agri”), a cooperative whose members are the Company, American Crystal Sugar Company, Southern Minnesota Beet Sugar Cooperative and Michigan Sugar Company. Midwest Agri markets beet pulp, beet molasses and other liquid livestock feed for its member owners as well as non-members. Beet pulp is marketed to livestock feed mixers and livestock feeders in the United States and foreign markets.

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        A “Uniform Member Marketing Agreement” evidences the sales and marketing arrangement with Midwest Agri. Under that agreement, the beet pulp and beet molasses produced by the Company is pooled with beet pulp and beet molasses produced by the other producing member owners and is then sold through the efforts of Midwest Agri. The Company receives payment for its beet pulp and beet molasses by receiving its pro rata share of the net proceeds from the sale of the pooled beet pulp and beet molasses. The net proceeds of such sales represent the gross proceeds of the sale of the beet pulp and beet molasses, adjusted for the various costs and expenses of marketing the pooled beet pulp and beet molasses, including the Company’s pro rata share of the marketing and sales expenses incurred by Midwest Agri. Any net proceeds from the operation of Midwest Agri are distributed to the various members on a patronage basis.

        For the year ended August 31, 2004, approximately 60% of Midwest Agri’s beet pulp production was exported to Japan, Korea, and Europe, and the remaining 40% was sold domestically. The market for beet pulp is affected by the availability and quality of competitive feedstuffs and by the strength of the U.S. dollar relative to local currencies in export markets. Dried beet pulp prices increased in FY 2004 due a combination of several factors including: reduced competition in Japan and Korea due to the reduction in production of sugar beets in China; the increasing strength of the European Euro against the U.S. dollar making U.S. exports more attractive; and drought conditions in Europe resulting in a reduction of local feedstuffs. Beet molasses is marketed primarily to yeast manufacturers, pharmaceutical companies, livestock feed mixers and livestock feeders. Beet molasses prices decreased in FY 2004 primarily due to increasing supplies of domestically produced molasses and the increasing supply of competitive commodities from the growing ethanol industry.

        Co-product sales accounted for approximately 10% of the Company’s total consolidated net sales revenues during FY 2004. This relationship is primarily a function of the average market prices for sugar, beet pulp, beet molasses and fresh yeast and is not necessarily indicative of future relationships between co-product, fresh yeast and sugar revenues, because prices of these products fluctuate independently of each other.

        The Company is an eighty percent (80%) equity owner of Minn-Dak Yeast Company, Inc. (“Minn-Dak Yeast”). Minn-Dak Yeast manufactures bagged and cream fresh baker’s yeast in a plant located adjacent to the Company’s sugar plant in Wahpeton, North Dakota. The Company started the yeast business in 1989 in order to add value to its co-product beet molasses. Beet molasses is the main ingredient (growth medium) in the fermentation process used to grow fresh baker’s yeast to commercial volumes. A portion of the Company’s beet molasses production is used in Minn-Dak Yeast’s process and is sold through a supply agreement between the two companies. Sensient Technologies Corporation, Milwaukee, Wisconsin, (“Sensient”) holds the remaining twenty percent (20%) equity stake. Minn-Dak Yeast Company, Inc. also has a long-term marketing agreement whereby Sensient will buy all production of yeast produced by Minn-Dak Yeast Company, Inc. in return for certain guaranteed sales volumes. That contract will expire in June 2007.

GROWERS’ AGREEMENTS

        The Company purchases virtually all of its sugarbeets from members under contract with the Company. All members have three-year contracts with the Company covering the growing seasons of 2004 through 2006 (the “Growers’ Agreements”). At the end of each year, the Growers Agreement automatically extends for an additional year, so that such agreements always have a remaining term of three years, unless the Company, prior to the automatic renewal, has given notice of termination. In that

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situation, the agreement will not renew, but will continue in effect for the two-year period then remaining under the agreement. Each Unit of Preferred Stock currently entitles a member to grow 1.35 acres of sugarbeets for sale to the Company. The Company’s Board of Directors has the discretion to adjust the acreage, which may be planted for each Unit of Preferred Stock held by the members. For the 2004 crop year the Company’s Board of Directors authorized members to plant 1.45 acres per unit. For the 2005 crop year, the Company’s Board of Directors has not yet authorized the number of acres per unit to be planted. The number of acres per unit that will be authorized for the 2005 crop will most likely be influenced by the result of the current farm bill sugar allocations. (For a discussion of the current farm bill sugar allocations, see Management’s Discussion on Government Programs and Regulations.)

        Under the terms of the Growers Agreement, each member receives payment for his or her sugarbeets based on a price per pound of extractable and bonus sugar. The price per pound of extractable and bonus sugar is determined by dividing the total grower distribution of net proceeds (less the amount credited to members investment from member patronage and credited to retained earnings from non-member patronage) by the total of members’ pounds of extractable and bonus sugar. Extractable pounds of sugar are obtained by the processing of beet samples taken from members’ sugarbeets during harvest. Bonus sugar is a premium for early delivery of sugarbeets during pre-harvest. Each member’s grower payment is obtained by multiplying that member’s total pounds of extractable and bonus sugar times the price per pound of extractable and bonus sugar as determined above.

        Under the Growers Agreement, each member receives an initial installment of the payment for his or her sugarbeets on or about November 15, soon after delivery of his or her crop to the Company. That initial installment is subject to adjustment by the Cooperative’s Board of Directors and management, but will not exceed 65% of the estimated price per pound of extractable sugar. A second installment is paid in early February; that installment, in combination with the first installment, will not exceed 70% of the estimated price per pound of extractable sugar. A third installment is paid in early April, with the aggregate of all installments paid to that date not to exceed 80% of the estimated price per pound of extractable sugar. A fourth installment payment is paid in early July, with the total of installment payments to that date not to exceed 95% of the estimated price per pound of extractable sugar. The final payment is determined after the end of the Company’s fiscal year, ending on August 31, and is in an amount necessary to bring the total of all payments to the price to be paid per pound of extractable sugar to all growers during the applicable fiscal year. In addition, the Company’s annual patronage net income, which is equal to the Company’s sales less all expenditures and member beet payments, is distributed to the members on the basis of the pounds of extractable sugar obtained from each of the members’ sugarbeets; such amounts are distributed in either cash payments or allocated in the form of patronage credits to the member’s patronage account on the books of the Company. Due to the late delivery of 2004 crop beets, initial payment for beets delivered after November 8, 2004 will be made in December 2004.

COMPANY DISTRICTS

        The Company’s by-laws provide that the Company’s members are to be divided into districts for the purposes of voting and the election of members of the Board of Directors. Those districts do not have specific geographic boundaries but, instead, contain a loosely defined area representing the area served by a particular piling station to which members deliver their sugarbeets for storage until the sugarbeets are to be processed. When a member joins the Company, he or she is assigned to a particular district based upon criteria including: (i) the physical location of the shareholder’s sugarbeet growing acres relative to a piling site, (ii) if the previous criteria do not clearly indicate the district to which the

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shareholder should be assigned, then the physical location of the shareholder’s base of farming operations relative to a piling site (some members deliver sugarbeets to more than one piling site due to the locations of their various fields, even though they are assigned to membership in only one district) and (iii) if the first two criteria do not provide a clear indication of the district to which the shareholder should be assigned, then the shareholder is given the option of being assigned to the district which would best serve the needs of that shareholder.

        Given that shareholders are assigned to districts based upon ease of delivery of harvested sugarbeets and because shareholders own different numbers of Units of Preferred Stock, each district includes a different number of acres of sugarbeet production and, therefore, a different quantity of sugarbeets delivered to the Company. However, none of the districts provides the Company with a materially disproportionate quantity of the sugarbeets produced by the Company’s members. While the allocation of members to the various districts has a significant impact on the election of directors, the Company does not believe that the districts represent a significant factor in the day-to-day business operations of the Company.

RESEARCH AND DEVELOPMENT

        The Company is involved in very little of its own research and development activities, but does participate in some sugar industry research and development activities. Any research findings are then shared by the entire sugar industry. Participatory research and development is accomplished through such organizations as Beet Sugar Development Foundation, Sugar Association, and North Dakota/Minnesota Research and Education Board. The Company participates in the organizations listed above through the efforts of its representatives to the boards of directors of those entities. The Company’s representatives, either a member of the Company’s Board of Directors or a management employee of the Company, allow the Company to participate in and help direct agricultural and factory operations research and development activities carried out by the listed organizations. Those organizations also have established various committees on which the Company has placed certain of its employees. That practice is designed to provide the company with direct access to any research and development information available from the applicable committees. (Through its employees, the Beet Sugar Development Foundation also provides some legislative and lobbying efforts on a national level. Those efforts are directed at maintaining funding for the various federal sugarbeet research facilities.) None of the Company’s employees or directors devotes a significant portion of their time and energies to the activities described in this section; instead, such efforts are a minor portion of their continuing duties on behalf of the Company.

        During the fiscal year ended on August 31, 2004, the Company contributed approximately $93,000 to the North Dakota/Minnesota Research and Education Board to fund that entity’s research and development activities. $18,000 was given to the Beet Sugar Development Foundation in connection with their research activities, and $86,000 to the Sugar Association for their research activities and membership dues

        The Company also has established a sugarbeet seed committee, which reviews the performance of new and existing sugarbeet seed varieties. The committee then advises the Board of Directors with regard to those sugarbeet seed varieties that should be approved for use by the Company’s shareholders.

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ENVIRONMENTAL MATTERS

        The Company is subject to a broad range of evolving environmental laws and regulations. These laws and regulations include the Food Quality Protection Act of 1996, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Comprehensive Environmental Response, Compensation and Liability Act. Currently, the Company is not aware of any areas of non-compliance.

        The Company has $2.1 million of environmental capital improvements budgeted for FY 2005.

        Compliance with these laws and related regulations is an ongoing process that, at the current levels of spending, is not expected to have a material effect on the Company’s capital expenditures, earnings or competitive position. Environmental concerns are, however, inherent in most major agricultural operations, including those conducted by the Company, and there can be no assurance that the cost of compliance with environmental laws and regulations will not be material. Moreover, it is possible that future developments, such as increasingly strict environmental laws and enforcement policies thereunder, and further restrictions on the use of agricultural chemicals, could result in increased compliance costs.

MARKET AND COMPETITION

        Current U.S. Government statistics estimate total U.S. sugar deliveries for domestic food and beverage consumption at 181.6 million cwt. refined for the fiscal year beginning October 1, 2003 and ending September 30, 2004. For the same period ending in 2003, total deliveries were 175.1 million cwt. refined. Comparing the two years shows demand increased 3.7% for U.S. sugar sellers. After experiencing strong and steady growth during the 1990‘s, U.S. demand for sugar has been relatively flat since fiscal year 2000. While there is no clear explanation for the lack of demand in sugar consumption, it may have coincided with a decline in U.S. economic activity, suggesting that aggregate disposal income and sweetener consumption may be related. Other factors that could have contributed to the lack of demand include: (1) changes in dietary habits (such as the low carbohydrate high protein diets that have been popular with consumers); (2) the effect of sugars contained in imported products, which have increased significantly since 1995; and (3) increasing consumption of artificial sweeteners, most notably sucralose (trade name Splenda). Sugar in imported products has continued its growth and has displaced domestic deliveries in the process. According to USDA statistics, sugar in imported products grew 120,000 STRV, or 2.24 million cwt. refined, from FY 2002 to FY 2003 (ending September 30, 2003) for a growth rate of 14.3%. For the first nine months of FY 2004, USDA reports indicated that sugar in imported products is estimated to be 84,000 STRV, or 1.57 million cwt. refined, higher than the same period in FY 2003, indicating growth of 12.2%. The largest component of sugar in imported products is non-chocolate confectionary products. When compared on a calendar year basis, imports of non-chocolate confectionary consumption have grown from 10.7% in 1995 to 31.2% in 2003. Imports as a percentage of chocolate confectionary consumption have grown as well: from 5.9% in 1995 to 10.4% in 2003. Before 1998, imports as a percentage of all confectionary consumption were less than 10%; in 2003 USDA estimates this percentage at 20.2%.

        Given the size of the domestic market, the Company’s sugar production and sales represent approximately 3% of the total domestic market for refined sugar in 2004. United Sugars, which sells the Company’s production through a sugar marketing pool, represents approximately 32% share of the U.S. sugar market.

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        The U.S. refined sugar market has grown over the past twenty years, despite the enormous amount of demand lost to the substitution of high fructose corn syrups for sugar in beverages and certain food products. Non-nutritive sweeteners such as aspartame and sucralose have also been developed to substitute for sugar. The substitution of corn sweeteners for sugar not only reduced demand for sugar in the United States, but also resulted in a high degree of sugar industry consolidation. For example, in 1978 there were 28 sugar producers and sellers in the U.S. market. Today there are seven sugar sellers, with 85% of U.S. sugar market share concentrated in the top four sellers, most of which are fully integrated beet and cane suppliers. The Company’s main competitors in the domestic market are Imperial Sugar Company, Domino, Amalgamated Sugar Company and California and Hawaii Sugar Company. Competition in the U.S. sugar industry, because sugar is a fungible commodity, is primarily based upon price, customer service and reliability as a supplier.

GOVERNMENT PROGRAMS AND REGULATION

        Domestic sugar prices are supported under a program administered by the United States Department of Agriculture (“USDA”). Under the current program, which was initiated in 1981 and extended under the Food Security Act of 1985, the Food, Agriculture, Conservation and Trade Act of 1990, the Federal Agriculture Improvement and Reform Act of 1996 and now The Farm Security and Rural Investment Act of 2002 (the “Farm Bill”), the price of sugar is required to be maintained above the price at which producers could forfeit sugar to repay non-recourse loans obtained through the Commodity Credit Corporation (“CCC”). The USDA maintains sugar prices without cost to the U.S. Treasury by regulating the quantity of sugar imports. The U.S. currently imports approximately 16% of its domestic needs. The Farm Bill maintains the basic 18-cent per pound loan rate for raw sugar and puts in place a 22.90 cent per pound loan rate for refined beet sugar. Both loan rates are effective for crop years 2002 through 2007. Price support loans are made on a non-recourse basis, which means the sugar processor is able to forfeit sugar to CCC if sugar prices the Company receives in the marketplace are below the loan rate.

        However, the Farm Bill also provides that, to the maximum extent possible, the Secretary of Agriculture of the USDA (the “Secretary”) shall operate the sugar program at no cost to the Federal Government by avoiding the forfeiture of sugar to CCC. The Farm Bill further provides for the imposition of marketing allotments each crop year for the marketing by processors of sugar processed from sugarbeets and domestically produced sugarcane at a level that the Secretary estimates will be needed to avoid forfeitures of sugar to the CCC. The Secretary only suspends allotments whenever the Secretary estimates or re-estimates, or has reason to believe, that imports of sugar for human consumption will exceed 1,532,000 short tons raw value.

        Each domestic processor of sugar, which includes the Company, is provided an allocation whenever allotments are in effect, based upon a formula. The Company believes that the amount of allocation it can expect to receive from the Secretary in each year of the Farm Bill may not be sufficient to allow it to sell all of its production of sugar in the domestic market for human consumption. Any amount of sugar produced by the Company within an allotment year that does not have a corresponding allocation will have to be marketed into alternative markets or held until such time that allotments are lifted or additional allocations become available. The Company anticipates that it may well have to adjust its production of sugar each year to more closely match its anticipated allocation. Such is the case with the production of sugar from the 2004 crop when planted acres of sugarbeets by grower-members were reduced 7.5%. To the extent that the Company has to market any over-allocation sugar into alternative markets, or reduce production to more closely match its anticipated allocation, it is not expected that those decisions would have a material adverse effect on the operations of the Company.

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        Under the General Agreement on Tariffs and Trade Act of 1990 (“GATT”), tariff rate quotas were implemented for certain sugar producing countries, that provided for a fixed quantity of sugar imports duty-free or subject to minimal duties. Unlimited additional quantities may be imported upon payment of a tariff of 16.21 cents per pound of refined sugar prior to shipment (to date, very little sugar has been imported under this higher tariff level). Further, imports of sugar under the tariff rate quota are based upon the difference between domestic sugar consumption and domestic sugar production, with one exception. Under the terms of the GATT the minimum imports of sugar are established at 1,257,000 short tons, raw value. Therefore, even if the difference between domestic sugar consumption and production are less than 1,257,000 short tons, raw value, GATT will require that 1,257,000 short tons be imported into the United States from the quota holding foreign countries.

        The World Trade Organization (WTO) met in November, 2001 in Doha, Qatar where members launched new multilateral trade negotiations aimed at improving market access, reducing and eventually phasing out all forms of export subsidies and substantial reductions in trade-distorting domestic support. Any agreements reached during the Doha Round could present a threat to the domestic sugar industry because sugar is one of the most highly protected sectors within world agricultural trade and is thus a target for reform.

        The 147 members of the WTO reached an agreement July 31, 2004, on a framework for the final phase of the Doha Development Agenda of global trade talks. The original deadline to complete talks by January 1, 2005, has been postponed, and the next WTO Ministerial Conference will be held in Hong Kong in December 2005, at which point the talks could near their conclusion. The effect of any final WTO agreement on United States farm programs and the sugar program in particular will depend largely on the details of the agreement, which have not yet been negotiated.

        The Company believes the North American Free Trade Agreement (“NAFTA”) currently presents a serious public policy challenge to itself and the domestic sugar industry. Under the terms of the original NAFTA text, Mexico would have been allowed to ship any excess production of sugar into the United States if Mexico were to achieve net surplus producer status two years in a row. Concerned that Mexico’s productive capabilities and possible conversion to the use of high fructose corn sweeteners could quickly change Mexico from a net sugar importer to a net sugar exporter, the U.S. sugar industry insisted that NAFTA be changed to delay Mexico’s access to the U.S. market. To embody these changes, a side agreement on sugar was reached prior to passage of NAFTA to give Mexico incrementally larger but capped volumes of duty-free access, and an ability to send additional quantities if it were to pay a gradually descending second tier tariff. The side agreement establishes a common market between the United States and Mexico in sugar by 2008. The side agreement has been contested by Mexico as invalid, contending that the side agreement was not signed by Mexico. To date, the United States has contended that the side agreement is valid and has dealt with sugar imports from Mexico accordingly. The two countries continue to negotiate over this issue and the Company cannot predict the outcome of those negotiations. However, should Mexico prevail on this issue with the United States, the Company believes that imports from Mexico could increase dramatically and therefore have a material adverse affect on the domestic price of sugar.

        The Company is concerned that low world sugar prices and a trade conflict between the U.S. and Mexico over high fructose corn sweeteners could permit de facto acceleration of the side agreement under NAFTA. Under the NAFTA tariff schedule, second tier sugar tariffs are set at approximately 6.04 cents in 2004 but decline by approximately 1.5 cents per year until reaching zero in 2008. The Company believes that current low world raw sugar prices make it feasible for Mexican second tier sugar to enter the United States marketplace. In contrast to Mexico’s duty free access to the United States sugar

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market, which is at 250,000 metric tons per year, NAFTA contains no restrictions on second tier imports. To date Mexico has exported very little second-tier tariff sugar to the U.S. because their sugar marketplace is in balance between supply and demand. This balance was created when the Mexican government imposed a 20% “soda” tax on all beverages that contain high fructose corn syrup. The tax was imposed in response to the NAFTA side agreement issue between the U.S. and Mexico, and is meant to reduce the amount of high fructose corn syrup imports to Mexico. The move has been successful in reducing the amount of high fructose imports from the U.S., and as a side benefit has created a demand for excess domestic sugar in Mexico. Mexico is expected to remain a net importer in 2004/05.

        Under the current terms of NAFTA and the side agreement, the Company is concerned that imports from Mexico could oversupply the U.S. market forcing sugar prices significantly lower. Any fluctuation in the price of sugar has a direct impact on any sugarbeet payments that are made to members. The Company, along with the domestic sugar industry, is seeking improvements to NAFTA. If the sugar industry is unsuccessful in these or any other endeavors it pursues to prevent the influx of Mexican sugar into the U.S. market, there could be adverse financial consequences to the Company and its members.

        The Company also believes, that should the U.S. Congress approve certain proposed regional or bi-lateral trade agreements that have been negotiated (such as the Central America Free Trade Agreement [CAFTA]) or are currently being negotiated with several countries, that those trade agreements also will present a serious public policy challenge to itself and the domestic sugar industry. Should CAFTA and other proposed regional or bi-lateral trade agreements be approved by Congress with sugar access provisions similar to the access provisions encompassed in CAFTA, the Company believes that there could be adverse financial consequences to itself and its members.

        The Farm Bill provides price support provisions for sugar. However, if the price support program including the Tariff Rate Quota system described above, were eliminated in its entirety, or if the effectiveness that the United States’ price support program provides from foreign competitors were materially reduced, the Company could be materially and adversely affected. In such a situation if the Company were not able to adopt strategies that would allow it to compete effectively in a greatly changed domestic market for sugar, the adverse affects could impact the Company’s continued viability and the desirability of grower sugarbeets for delivery to the Company.

EMPLOYEES

        As of October 30, 2004, the Company had 284 full-time employees, of whom 248 were hourly and 36 were salaried. It also employs approximately 327 additional hourly seasonal workers during the sugar beet harvest and processing campaign. In August 2000 the Company concluded the negotiations for a collective bargaining agreement with the American Federation of Grain Millers (AFL-CIO) union for its factory employee group. The written contract is in effect from June 1, 2000 through May 31^st of the year 2005. Office, clerical, management and harvest employees are not unionized. Full time employees are provided with health, dental and vision insurance, a defined benefit pension retirement plan, a 401(k) retirement savings plan, a short and long-term disability plan, term life insurance, and vacation and holiday pay plans. Seasonal workers are also provided some of these same employee benefits. The Company considers its employee relations to be excellent.

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ITEM 2.    PROPERTIES

        The Company operates a single sugarbeet processing factory at Wahpeton, North Dakota that is located in the Red River Valley area of Minnesota-North Dakota. The Company owns the factory, receiving sites, and the land on which they are located.

        The properties are adequate to process normal and above normal crop sizes, and for the last three years have averaged a slice rate of 9,250 tons per day. The processing factory is anticipating processing the 2004 crop, which, while having record tons delivered, is expected to produce the third largest amount of sugar. Unusually high levels of rainfall from September through October caused significant tonnage increases, but the sugar content of harvested beets under these conditions is less concentrated at harvest than in sugarbeets encountering normal precipitation patterns. If the Company encounters normal weather patterns, which will in turn provide normal beet storage conditions, then it does not anticipate having difficulty in processing the 2004 crop.

        Minn-Dak Yeast Company, Inc, of which the Company is an 80% owner, operates a single yeast manufacturing factory at Wahpeton, North Dakota. Minn-Dak Yeast Company, Inc. owns the factory and the land on which it is located. During fiscal 2004, fresh yeast was produced and sold into the domestic yeast marketplace.

        All properties are held subject to a mortgage by the Company’s primary lender.

ITEM 3.    LEGAL PROCEEDINGS

        From time to time and in the ordinary course of its business, the Company is named as a defendant in legal proceedings related to various issues, including worker’s compensation claims, tort claims and contractual disputes. Other than as provided herein, the Company is not currently involved in legal proceedings that have arisen in the ordinary course of its business, and the Company is also unaware of certain other potential claims that could result in the commencement of legal proceedings. The Company carries insurance that provides protection against certain types of claims.

        The Company is subject to extensive federal and state environmental laws and regulations with respect to water and air quality, solid waste disposal and odor and noise control. The Company conducts an ongoing and expanding control program designed to meet these environmental laws and regulations. As disclosed under “ENVIRONMENTAL MATTERS” above, there currently are no pending regulatory enforcement actions and the Company believes that it is in substantial compliance with applicable environmental laws and regulations.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There were no matters subjected to a vote of security holders in the fourth quarter of the Company’s fiscal year.

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PART II

ITEM 5.    MARKET FOR COMPANY’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        There is only a limited, private market for shares of the Company’s Common or Preferred Stock, as such shares may be held only by farmer-producers who are eligible for membership in the Company. The Company’s shares are not listed for trading on any exchange or quotation system. A number of stock transfers, representing approximately 2% of available stock, were not arms length (estate settlements, estate planning from one generation to the next, etc.) and an accurate value for that stock was not available. Management believes that less than 1% of the Company’s available stock was traded at arm’s length during the fiscal year ended August 31, 2004. Of the stock transferred at arms length, the transfers were made during the first, second and third quarters of the Company’s fiscal year and ranged in price from $2,500 to $2,900 per unit. The fourth quarter did not have any arms length transactions.

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ITEM 6.    SELECTED FINANCIAL DATA

The following table summarizes selected financial data for each of the last five fiscal years. The selected financial data of the Company should be read in conjunction with the financial statements and related notes included elsewhere in this report.

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(1)    Net Proceeds are the Company’s gross revenues, less the costs and expenses of producing, purchasing and marketing sugar, sugar co-products, and yeast, but before payments to members for sugarbeets. (For a more complete description of the calculation of Net Proceeds, see “Description of Business-Growers’ Agreements”.)

(2)    Members’ investment includes preferred and common stock, unit retention capital, allocated patronage and retained earnings (deficit).

(3)    Calculated by dividing the Company’s long-term debt, exclusive of the current maturities of such debt, by equity.

(4)    Computed by dividing (i) the sum of Net Proceeds plus fixed charges, plus amortization of capitalized interest by (ii) the sum of interest expense and interest capitalized. The Company does lease certain items, such as some office equipment. Due to the proportionately small amounts involved, an interest factor on lease payments has not been included in the total of the Company’s fixed charges or the calculation of this ratio. See Exhibit 12.

(5)    Information for a fiscal year relates to the crop planted and harvested in the preceding calendar year (e.g., information for the fiscal year ended August 31, 2004, relates to the 2003 crop).

(6)    Reflects the total amount paid in cash and allocated to individual grower equity accounts for each ton of beets delivered.

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

        The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Company’s financial statements and notes included elsewhere in this Report. This discussion contains forward-looking statements that involve risks and uncertainties. The Company’s actual future results may differ materially from those anticipated in the forward-looking statements contained in this section; such differences could arise as a result of a variety of factors including, but not limited to, the market and regulatory factors described elsewhere in this Report.

External Risk Factors That May Affect the Company.

LIQUIDITY AND CAPITAL RESOURCES

        Because the Company operates as a cooperative, payment for member-delivered sugarbeets, the principal raw material used in producing the sugar and agri-products it sells, are subordinated to all member business expenses. In addition, actual cash payments to members are spread over a period of approximately one year following delivery of sugarbeet crops to the Company and are net of unit retains and patronage allocated to them, both of which remain available to meet the Company’s capital requirements. This member financing arrangement may result in an additional source of liquidity and reduced outside financing requirements in comparison to a similar business operated on a non-cooperative basis. However, because sugar is sold throughout the year (while sugarbeets are processed primarily between September and April) and because substantial amounts of equipment are required for its operations, the Company has utilized substantial outside financing on both a seasonal and long-term basis to fund such operations. The short and long-term financing has been primarily provided by Co-Bank (the “Bank”). The Company has a short-term line of credit with the Bank totaling $45.0 million, and successfully completed its annual renewal of this financing arrangement in June 2004 covering a

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one-year period ending May 31, 2005. The Company anticipates using the USDA Sugar Loan Provisions contained in the 2002 Farm Bill to provide an additional source of seasonal financing for the 2004 and future crops. The Company has available $1 million of its $45 million seasonal line of credit for a Letter of Credit if necessary. In October, 2004, the Company, along with other beet sugar processors, won a lawsuit against the United States Department of Agriculture (USDA) which will result in USDA lending costs to be reduced by 100 basis points for all future borrowings under the 2002 Farm Bill. However the USDA has not fully utilized all of its legal challenges in this lawsuit, so the Company does not know if it will ultimately be successful in the lawsuit.

        The loan agreements between the Bank and the Company obligate the company to maintain the following financial covenants, and in accordance with GAAP:

        As of August 31, 2004 the Company was in compliance with its loan agreement covenants with the Bank.

        Working capital decreased $3.2 million for fiscal year 2004. The Company acquired $1.3 million of long term sugar contracts to assist it’s allocation needs, improved its piler facilities by $1.2 million and delayed the need for debt restructuring which had an $.8 million impact on working capital. As of August 31, 2004, the Company achieved its targeted working capital position.

        The company has protected itself from interest rate fluctuations through a strategy of using tax-exempt bond financing and a term debt portfolio that fixes rates and maturities into the future on set amounts of debt. The current term debt portfolio is expected to provide the company stable term debt interest rates over the next four years at approximately 150 basis points over current market rates for similar maturities. An increase or decrease in the interest rate market of 100 basis points is expected to have little or no additional impact on the profitability of the Company as a result of its interest rate strategy. Capital expenditures for fiscal year 2002 were $4.8 million, fiscal year 2003 were $9.4 million and Fiscal year 2004 were $6.0 million. Capital expenditures for fiscal year 2005 are currently estimated at $5.2 million.

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        As of August 31, 2004, $2.5 million of the restricted bond investments remained for future solid waste capital expenditure projects.

        The Bond Proceeds of $14.0 million were required to be sold in a single transaction. The proceeds from these bonds are held in trust until the funds are spent on approved projects. The bond transaction and restricted bond investments associated with the transaction are subject to arbitrage compliance rules for solid waste tax-exempt bond projects.

        The Bonds are secured by a letter of Credit from Wells Fargo Bank. The letter of credit is ultimately secured by the plant and property of the Company’s facility at Wahpeton, ND.

        The Company is not aware of any known trends, demands, commitments, events or uncertainties that will likely result in the Company’s liquidity increasing or decreasing in any material way.

        Other than those items described above, the Company is not aware of any known material trends, either favorable or unfavorable, that would cause the mix of equity to debt or the cost of debt to materially change.

COMPARISON OF THE YEARS ENDED AUGUST 31, 2004 AND 2003

        Revenue for the year ended August 31, 2004 increased 3% or $5.1 million from 2003. Revenue from total sugar sales increased $10.6 million or 6% reflecting an 8% increase in cwt. sold, and a 2% decrease in the average selling price per cwt. Revenue from co-products, excluding the newly developed local wet/pressed pulp feed initiative, increased 20%, reflecting an increase of 21% in volume, offset by a 1% decrease in the average selling price per ton. The increase in volume of sugar and co-products sold is directly attributable to the high quality 2003 crop of beets delivered by shareholder-growers and the steam pulp dryer addition to the plant operations.

        Revenues from yeast sales remained relatively unchanged reflecting an increase in volume of 3.7%, and a decrease in price of 4.1%.

        The value of finished product inventories in fiscal year 2004 decreased $4.7 million, from fiscal year 2003, a result of lower sugar and molasses inventories at fiscal year end.

        Cost of products sold, exclusive of grower payments for sugarbeets, increased $2.9 million or 5.7%. Of the $2.9 million increase, $2.7 million of the increase resulted from the Minn-Dak Farmers Cooperative (“MDFC”) operation and $0.2 million from the Minn-Dak Yeast operation. Of the $2.7 million increase in the MDFC operation, $1.5 million was due to fixed costs such as employee benefits (health insurance & pension) and depreciation; The balance of cost increases, or $1.2 million, resulted from higher factory maintenance costs and beet trucking and beet handling costs, offset somewhat by lower operating costs, mostly resulting from fewer tons of beets sliced. The cost per cwt. of sugar produced only increased 1%, primarily due to the high sugar content and quality of the beet delivered by shareholders. The cost per ton of beets sliced increased 10% due to the higher costs discussed above.

        Sales and Distribution costs increased $1.1 million or 4%. Increases are mainly the result of an 8% and 21% increase in the volume of sugar and co-products sold, respectively, for the year. General and Administrative expenses increased $0.3 million or 6%. Employee salaries and wages, association dues and profession fees were the primary reasons for the increase. Interest expense decreased $0.4 million or 12% due to reduced rates of interest and lower levels of debt.

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        Other business income decreased $3.0 million in fiscal year 2004. The decrease resulted primarily from the fiscal year 2003 gain (net of tax) on the sale of the Cooperative’s 5% ownership interest in ProGold, LLC, located in Wahpeton, North Dakota vs. no comparable activity in fiscal year 2004.

        Net payments to members for sugarbeets delivered by the shareholder-growers, increased by $1.2 million, or 1% in fiscal year 2004 and totaled $102.1 million. As of August 31, 2004, the Board of Directors authorized the payment of prior years’ member patronage and per unit retains (including equity payments to estates of deceased shareholders) totaling $4.5 million to shareholders of record, compared to $4.0 million in the prior year. The payment of $4.5 million will leave approximately 7.9 years of prior years’ patronage and per unit retains still outstanding. In addition, the Board of Directors authorized the payment of $800,000 of crop year 2003 qualified patronage dividends to shareholders of record.

COMPARISON OF THE YEARS ENDED AUGUST 31, 2003 AND 2002

        Revenue for the year ended August 31, 2003 increased 23% or $35.8 million from 2002. Revenue from total sugar sales increased $27.3 million or 20% reflecting a 17% increase in cwt. sold, and a 3% increase in the average selling price per cwt. Revenue from co-products increased 17%, reflecting an increase of 19% in volume, offset by a 3% decrease in the average selling price per ton. The increase in volume of sugar and co-products sold is directly attributable to the larger 2002 crop of beets delivered by shareholder-growers.

        Revenues from yeast sales increased $1.6 million or 28% reflecting an increase in volume of 27%, and an increase in price of 1%. The increase in volume is directly related to volume generated from cream yeast product sales. The installation of a cream yeast system, which was done to supply a marketplace demanding high quality cream yeast product, was accomplished at the end of fiscal year 2002 and was in full operation for fiscal year 2003.

        The value of finished product inventories in fiscal year 2003 increased $4.9 million, from fiscal year 2002, a result of higher than expected sugar and molasses inventories at fiscal year end.

        Cost of product produced, exclusive of grower payments for sugarbeets, increased $8.1 million. The increase is primarily due to a 43% increase in beet crop size versus the prior year and increased volume of yeast pounds sold. Sales and Distribution costs increased $5.0 million or 21%. Increases are mainly the result of a 17% and 19% increase in the volume of sugar and co-products sold, respectively, for the year. General and Administrative expenses increased $0.4 million or 7%. Employee, office, professional fees and strategic planning costs were the primary reasons for the increase. Interest expense decreased $0.4 million or 11% due to reduced rates of interest and lower levels of debt. Overall, the cost per cwt. of sugar produced decreased 8%, primarily due to the increased size of the crop and the effect it had on the allocation of fixed costs on a per unit basis, offset some by a 4% decrease in the sugar content of the delivered beets.

        Other business income increased $2.7 million in fiscal year 2003. The increase resulted primarily from the gain (net of tax) on the sale of the Cooperative’s 5% ownership interest in ProGold, LLC, a high fructose corn syrup plant located in Wahpeton, North Dakota.

        Net payments to members for sugarbeets delivered by the shareholder-growers, increased by $20.7 million, or 26% in fiscal year 2003. This increase was primarily due to 43% more tons of harvested sugarbeets, offset some by a 4% decrease in sugar content of delivered beets.

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ESTIMATED FISCAL YEAR 2005 INFORMATION

        The agreements between the Company and its members regarding the delivery of sugarbeets to the Company require payment for members’ sugarbeets in several installments throughout the year. As only the final payment is made after the close of the fiscal year in question, the first payments to members for their sugarbeets are based upon the Company’s then-current estimates of the financial results to be obtained from processing the crop in question and the subsequent sale of the products obtained from processing those sugarbeets. This discussion contains a summary of the Company’s current estimates of the financial results to be obtained from the Company’s processing of the 2004 sugarbeet crop. Given the nature of the estimates required in connection with the payments to members for their sugarbeets, this discussion includes forward-looking statements regarding the quantity of sugar to be produced from the 2004 sugarbeet crop, the net selling price for the sugar and co-products produced by the Company and the Company’s operating costs. These forward-looking statements are based largely upon the Company’s expectations and estimates of future events; as a result, they are subject to a variety of risks and uncertainties. Some of those estimates, such as the selling price for the Company’s products and the quantity of sugar produced from the sugarbeet crop are beyond the Company’s control. The actual results experienced by the Company could differ materially from the forward-looking statements contained herein.

        The Company’s members expect to harvest 2.4 million tons of sugarbeets from the 2004 crop, the largest tonnage crop ever delivered to the Company. Sugar content of the 2004 crop at harvest was 6% below the average of the five most recent years and lower than any individual year. The Company is projecting the sugar production from the 2004 crop to be the third largest in company history. Unusually high levels of rainfall from September through October caused significant tonnage increases, but the sugar content of harvested beets under these conditions is less concentrated at harvest than in sugarbeets encountering normal precipitation patterns. This forward-looking material is based on the Company’s expectations regarding the processing of the 2004 sugar beet crop; the actual production results obtained by processing those sugarbeets could differ materially from the Company’s current estimate as a result of factors such as changes in production efficiencies and storage conditions for the Company’s sugarbeets. The Company’s initial beet payment estimate totals $35.02 per ton or $.123388 per harvested/bonus pound of sugar, with the final beet payment determined in October of 2005. This projected payment per pound is 11% less than the final 2003 crop payment per ton/pound, but 2% less than the original projected 2003 crop payment per ton/pound. The lower projected 2004 crop payment results from what management believes is a consistent approach to forecasting sugar production and sugar production costs from a commodity, while harvested, is still at risk for adverse storage conditions.

        From the revenues generated from the sale of products produced from each ton of sugarbeets must be deducted the Company’s operating and fixed costs. Revenues for the crop year 2004 are expected to be 6% below the 2003 crop year due to reduced sugar production and prices. The deduction of operating costs results in an estimated 2004 crop gross payment to growers for sugarbeets of $84.0 million which is less than that of the 2003 crop year of $102.1 million. The 2004 crop beet payment decrease results from more harvested tons, lower sugar per ton, higher operating costs and a lower sugar price.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company’s long-term debt interest costs are stabilized through the use of multi-year interest rate locks on various amounts and terms through its primary lender Co-Bank. This strategy allows the Company to project future interest costs and cash flows with a reasonable degree of accuracy.

        The Company’s short-term debt will vary from year to year based on the short-term interest rate market. Average short-term debt borrowing levels have been $25.0 million for 2004, $27.1 million for 2003 and $23.6 million for 2002. Because each year’s short-term debt is closely associated with a crop year, the interest fluctuations will have a direct impact on the final grower beet payment.

        In October, 2004, the Company, along with other beet sugar processors, won a lawsuit against the United States Department of Agriculture (USDA) which will result in USDA lending costs to be reduced by 100 basis points for all future borrowings under the 2002 Farm Bill. However the USDA has not fully utilized all of its legal challenges in this lawsuit, so the Company does not know if it will ultimately be successful in the lawsuit.

        The Company will from time to time have a purchase obligation in foreign currency as a result of capital improvement projects.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITOR’S REPORT

The Audit Committee
Minn Dak Farmers Cooperative

We have audited the accompanying consolidated balance sheets of Minn-Dak Farmers Cooperative (a North Dakota cooperative association) as of August 31, 2004, 2003, and 2002, and the related consolidated statements of operations, change in members’ investments and cash flows for the years then ended. These financial statements are the responsibility of the cooperative’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Minn-Dak Farmers Cooperative as of August 31, 2004, 2003, and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Eide Bailly, LLP

Fargo, North Dakota
September 29, 2004

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MINN DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2004, 2003, AND 2002

See Notes to Consolidated Financial Statements.

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MINN DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2004, 2003, AND 2002

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MINN DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 2004, 2003, AND 2002

See Notes to Consolidated Financial Statements.

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MINN DAK FARMERS COOPERATIVE

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ INVESTMENTS
YEARS ENDED AUGUST 31, 2004, 2003, AND 2002

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MINN DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 2004, 2003, AND 2002

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

Principal Business Activity

Minn-Dak Farmers Cooperative (Minn-Dak) is a North Dakota cooperative association owned by its member-growers for the purpose of processing sugar beets and marketing sugar and co-products. Minn-Dak Yeast Company, Inc. (Minn-Dak Yeast) is a North Dakota corporation engaged primarily in the production and marketing of bakers yeast.

The majority of the net proceeds from Minn-Dak are from member business, whereas Minn-Dak Yeast is considered non-member business.

Principles of Consolidation

The financial statements include the accounts of Minn-Dak and its subsidiary, Minn-Dak Yeast, which is 80% owned by the cooperative.

Receivable and Credit Policy

Trade receivables are uncollateralized customer obligations due under normal trade terms requiring payment within 15 to 90 days from the invoice date. Trade receivables are stated at the amount billed to the customer. Customer account balances with invoices dated over 90 days old are considered delinquent. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices. The carrying amount of trade receivables is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Management reviews all trade receivable balances that exceed 90 days from the invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. Additionally, management estimates an allowance to apply to the aggregate trade receivables to create a general allowance covering those amounts. The allowance is based on an evaluation of the receivables account with particular attention paid to the largest customer balances and the risk profile of the entire portfolio.

Credit Risk

The cooperative and subsidiary grant credit to food processors located throughout the United States. In addition, the cooperative grants credit to members for sugar beet seed, located in North Dakota and Minnesota.

Inventories

Inventories of refined sugar, pulp and molasses to be sold on a pooled basis are valued at net realizable value, while third-party purchased refined sugar to be sold on a pooled basis is valued at the lower of cost or market. Inventory of yeast is valued at the lower of average cost or market. Materials and supplies are valued at most recent purchase that approximates cost.

In valuing inventories at net realizable value, the cooperative, in effect sells the remaining inventory to the subsequent years sugar and co-product pool.

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Deferred Charges

Agricultural development and labor procurement costs incurred in connection with the beet crop to be harvested in September and October are deferred and subsequently charged to expense during the ensuing processing period.

Property, Plant, Equipment and Depreciation

Property, plant and equipment are stated at cost. Additions, renewals and betterments are capitalized, whereas expenditures for maintenance and repairs are charged to expense. The cost and related accumulated depreciation of assets retired or sold are removed from the appropriate asset and depreciation accounts and the resulting gain or loss is reflected in income.

It is the policy of the cooperative to provide depreciation based on methods designed to amortize the cost of the properties over their estimated useful lives. Property, plant and equipment are depreciated for financial reporting purposes, principally using declining balance methods, with estimated useful lives ranging from 8 to 40 years. Statutory lives and methods are used for income tax reporting purposes.

Indirect costs capitalized were $67,824, $336,990, and $106,781 for the years ended August 31, 2004, 2003, and 2002. There was no construction-period interest capitalized for the year ended August 31, 2004 and $61,200, and $9,200 for the years ended August 31, 2003, and 2002 respectively.

Equity Value Investments

The investments in United Sugars Corporation and Midwest Agri-Commodities Company are accounted for using the equity method, wherein the investment is recorded at the amount of the underlying equity in the net assets of the investments and adjusted to recognize the cooperative’s share of the undistributed earnings or losses.

Investments in Other Cooperatives

The investments in stocks and capital credits of other cooperatives are stated at cost, plus the cooperative’s share of allocated patronage and capital credits.

Income Taxes

A consolidated federal income tax return is filed for the cooperative and its subsidiary. Deferred income taxes are provided for in the timing of certain temporary deductions/increases for financial and income tax reporting purposes. Significant temporary differences are as follows:

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Revenue Recognition

Revenue from the sale of sugar, agri-products and seed is recorded when the product is shipped to the customer.

Accounting estimate

The preparation of financial statements in conformity with generally accepted accounting principles 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.

Uninsured Cash Balance

The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. At times during the year, the company’s balances exceeded this limit.

Reclassifications

Certain amounts have been reclassified in the 2003 and 2002 financial statements to conform to the 2004 presentation. The reclassifications have no effect on the results of operations.

Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board has recently issued Statement 150 regarding Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The statement is not expected to have a material impact on the financial statements.

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NOTE 2 — INVESTMENTS

The investment in stock of other corporations, unconsolidated marketing subsidiaries and other cooperatives consists of the following:

NOTE 3 — SHORT-TERM DEBT

Information regarding short-term debt for the years ended August 31, is as follows:

The cooperative has a $45,000,000 seasonal line of credit with CoBank. The line is secured with a first lien on substantially all property and equipment and current assets of Minn-Dak. The cooperative also utilizes the USDA Sugar Loan Provisions to provide an additional source of seasonal financing.

Maximum borrowings, average borrowing levels and average interest rates for short-term debt for the years ended August 31, is as follows:

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NOTE 4 — LONG-TERM DEBT

Information regarding long-term debt at August 31 is as follows: