<PAGE>


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

                                    FORM 10-Q

   (Mark One)

      (X)       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the quarterly period ended MAY 31, 2004

                                       OR

      ( )    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

  For the transition period from ___________________ to ______________________

                           Commission File No. 0-11488

                               PENFORD CORPORATION
             (Exact name of registrant as specified in its charter)

                Washington                                       91-1221360
----------------------------------------                     -------------------
         (State of Incorporation)                             (I.R.S. Employer
                                                             Identification No.)

        7094 South Revere Parkway,
            Englewood, Colorado                                  80112-3932
----------------------------------------                     -------------------
(Address of principal executive offices)                         (Zip Code)


Registrant's telephone number, including area code: (303) 649-1900

Indicate by a 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 checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act Yes  X      No
                                     -----      -----

The net number of shares of the Registrant's common stock (the Registrant's only
outstanding class of stock) outstanding as of July 13, 2004 was 8,781,873.


<PAGE>


                      PENFORD CORPORATION AND SUBSIDIARIES

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                              Page
                                                                                                              ----
<S>                                                                                                           <C>
PART I--FINANCIAL INFORMATION

   Item 1. Financial Statements

       Condensed Consolidated Balance Sheets - May 31, 2004 and August 31, 2003                                  3

       Condensed Consolidated Statements of Income - Three and Nine Months ended
         May 31, 2004 and 2003                                                                                   4

       Condensed Consolidated Statements of Cash Flow - Nine Months ended
         May 31, 2004 and 2003                                                                                   5

       Notes to Condensed Consolidated Financial Statements                                                      6

   Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations               13

     Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                        17

   Item 4.  Controls and Procedures                                                                             17

PART II--OTHER INFORMATION

   Item 6.  Exhibits and Reports on Form 8-K                                                                    18

   Signatures                                                                                                   19
</TABLE>


                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1:    FINANCIAL STATEMENTS

                      PENFORD CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     May 31,       August 31,
(In thousands, except  per share data)                                                2004           2003
--------------------------------------------------------------------------------    ---------      ----------
                                                                                   (Unaudited)
<S>                                                                                <C>             <C>
                                                          ASSETS
Current assets:
     Cash                                                                           $   7,294      $   5,697
     Trade accounts receivable, net                                                    41,566         35,809
     Inventories                                                                       32,493         26,839
       Prepaid expenses                                                                 3,614          4,168
     Other                                                                              3,314          3,772
                                                                                    ---------      ---------
       Total current assets                                                            88,281         76,285

Property, plant and equipment, net                                                    127,889        128,776
Deferred income taxes                                                                   9,984          9,853
Restricted cash value of life insurance                                                12,347         12,136
Goodwill, net                                                                          20,580         18,394
Other intangible assets, net                                                            2,608          2,658
Other assets                                                                            3,499          2,791
                                                                                    ---------      ---------
         Total assets                                                               $ 265,188      $ 250,893
                                                                                    =========      =========

                                           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                               $  27,980      $  21,853
     Accrued pension liability                                                          2,717          2,524
     Accrued liabilities                                                                8,707          9,895
     Current portion of long-term debt                                                  4,438          3,000
                                                                                    ---------      ---------
         Total current liabilities                                                     43,842         37,272

Long-term debt                                                                         74,174         76,696
Other post-retirement benefits                                                         12,356         11,648
Deferred income taxes                                                                  19,409         19,914
Other liabilities                                                                      17,629         17,478
                                                                                    ---------      ---------
         Total liabilities                                                            167,410        163,008

Shareholders' equity:
     Preferred stock, par value $1.00 per share, authorized 1,000 shares,
         none issued                                                                     --             --
     Common stock, par value $1.00 per share, authorized 29,000 shares,
         issued 10,762 and 10,585 shares, respectively                                 10,762         10,585
     Additional paid-in capital                                                        36,613         34,628
     Retained earnings                                                                 76,610         73,985
     Treasury stock, at cost, 1,981 shares                                            (32,757)       (32,757)
     Accumulated other comprehensive income                                             6,550          1,444
                                                                                    ---------      ---------
         Total shareholders' equity                                                    97,778         87,885
                                                                                    ---------      ---------
         Total liabilities and shareholders' equity                                 $ 265,188      $ 250,893
                                                                                    =========      =========
</TABLE>


The accompanying notes are an integral part of these statements.


                                       3
<PAGE>


                      PENFORD CORPORATION AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                  Three months ended          Nine months ended
                                                                        May 31,                     May 31,
                                                                -----------------------     -----------------------
(In thousands, except per share data)                              2004         2003          2004          2003
-------------------------------------------------------         ---------     ---------     ---------     ---------
<S>                                                             <C>           <C>           <C>           <C>
Sales                                                           $  72,484     $  66,035     $ 207,136     $ 193,769

Cost of sales                                                      60,461        55,839       175,393       161,141
                                                                ---------     ---------     ---------     ---------
   Gross margin                                                    12,023        10,196        31,743        32,628

Operating expenses                                                  6,156         5,786        17,330        17,969
Research and development expenses                                   1,595         1,290         4,551         4,036
Restructure costs, net                                                384          --           1,125          (117)
                                                                ---------     ---------     ---------     ---------

   Income from operations                                           3,888         3,120         8,737        10,740

Non-operating income, net                                             505           627         1,010         2,809
Interest expense                                                    1,060         1,265         3,352         4,249
                                                                ---------     ---------     ---------     ---------

   Income before income taxes                                       3,333         2,482         6,395         9,300

Income taxes                                                        1,014           727         2,196         2,661
                                                                ---------     ---------     ---------     ---------

Net income                                                      $   2,319     $   1,755     $   4,199     $   6,639
                                                                =========     =========     =========     =========

Weighted average common shares and equivalents outstanding:
   Basic                                                            8,771         8,404         8,713         7,974
   Diluted                                                          8,933         8,489         8,835         8,099

Earnings per share:
   Basic                                                        $    0.26     $    0.21     $    0.48     $    0.83
   Diluted                                                      $    0.26     $    0.21     $    0.48     $    0.82

Dividends declared per common share                             $    0.06     $    0.06     $    0.18     $    0.18
</TABLE>





The accompanying notes are an integral part of these statements.



                                       4
<PAGE>


                      PENFORD CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                          Nine Months Ended
                                                                               May 31,
                                                                        ----------------------
(In thousands)                                                            2004          2003
-------------------------------------------------------------------     --------      --------
<S>                                                                     <C>           <C>
Cash flows from operating activities:
   Net income                                                           $  4,199      $  6,639
   Adjustments to reconcile net income to net cash from operations:
         Depreciation and amortization                                    13,374        13,131
         Deferred income taxes                                              (753)       (1,159)
         Gain on sale of Hi-maize(R) assets                                 --          (1,916)
         Loss on early extinguishment of debt                                665          --
         Other                                                             1,136           629
   Change in assets and liabilities:
         Trade accounts receivable                                        (4,198)       (2,100)
         Prepaid expenses                                                    512            34
         Inventories                                                      (3,984)          727
         Accounts payable and accrued liabilities                          4,002         2,557
         Taxes payable                                                        88           445
         Other                                                               879          (549)
                                                                        --------      --------

   Net cash provided by operating activities                              15,920        18,438
                                                                        --------      --------

Cash flows from investing activities:
   Investment in property, plant and equipment, net                       (8,007)       (5,889)
   Proceeds from sale of Hi-maize(R) assets, net                            --           2,054
   Proceeds from licensing agreement, net                                   --           1,653
   Other                                                                    (210)         (458)
                                                                        --------      --------

   Net cash used in investing activities                                  (8,217)       (2,640)
                                                                        --------      --------

Cash flows from financing activities:
   Proceeds from revolving line of credit                                 35,975        22,783
   Payments on revolving line of credit                                  (65,083)      (19,001)
   Proceeds from long-term debt                                           50,039          --
   Payments of long-term debt                                            (24,934)      (22,419)
   Exercise of stock options                                               1,922         1,172
   Net proceeds from issuance of common stock                               --           6,976
   Payment of loan fees                                                   (1,733)         (185)
   Decrease in cash overdraft                                               --          (1,754)
   Payment of dividends                                                   (1,563)       (1,398)
   Other                                                                    --             (12)
                                                                        --------      --------

   Net cash used in financing activities                                  (5,377)      (13,838)
                                                                        --------      --------

Effect of exchange rate changes on cash and cash equivalents                (729)          208
                                                                        --------      --------

Net increase in cash and cash equivalents                                  1,597         2,168
Cash and cash equivalents, beginning of period                             5,697           765
                                                                        --------      --------
Cash and cash equivalents, end of period                                $  7,294      $  2,933
                                                                        ========      ========
</TABLE>


The accompanying notes are an integral part of these statements.


                                       5
<PAGE>


                      PENFORD CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


    1--BUSINESS

    Penford Corporation ("Penford" or the "Company") is in the business of
developing, manufacturing and marketing specialty natural-based ingredient
systems for various applications, including papermaking, textiles and food
products. The Company operates manufacturing facilities in the United States,
Australia, and New Zealand. Penford's products provide excellent binding and
film-forming characteristics that make customers' products better through
natural, convenient and cost effective solutions. Sales of the Company's
products are generated using a combination of direct sales and distributor
agreements.

    The Company has extensive research and development capabilities, which are
used in understanding the complex chemistry of carbohydrate-based materials and
their application. In addition, the Company has specialty processing
capabilities for a variety of modified starches.

    2--BASIS OF PRESENTATION

    The accompanying condensed consolidated financial statements include the
accounts of Penford and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated. The condensed consolidated
balance sheet at May 31, 2004 and the condensed consolidated statements of
income and cash flows for the interim periods ended May 31, 2004 and 2003 have
been prepared by the Company without audit. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, that are necessary
to present fairly the financial information have been made. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The results of operations for interim periods are not
necessarily indicative of the operating results of a full year or of future
operations. Certain prior period amounts have been reclassified to conform with
the current period presentation. The accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended August 31, 2003.

    The Company accounts for its stock-based employee compensation related to
stock options under the intrinsic value recognition and measurement principles
of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and its
various interpretations. Accordingly, no compensation expense has been
recognized for the stock-based compensation plans other than for the Directors'
Plan and restricted stock awards.

    The following table illustrates the effect on net income and earnings per
share if the Company had elected to recognize compensation expense consistent
with the provisions prescribed in Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," as amended. Under
SFAS No. 123, compensation expense is measured at the grant date based on the
value of the award and is recognized over the vesting period.



                                       6
<PAGE>


<TABLE>
<CAPTION>
                                                          Three months ended             Nine months ended
                                                                May 31,                       May 31,
                                                        ------------------------      ------------------------
(In thousands except share and per share data)            2004           2003           2004           2003
------------------------------------------------------  ---------      ---------      ---------      ---------
<S>                                                     <C>            <C>            <C>            <C>
Net income, as reported                                 $   2,319      $   1,755      $   4,199      $   6,639

Add: Stock-based employee compensation expense
        included in reported net income, net of tax            21             11             58             57
Less: Stock-based employee compensation expense
        determined under the fair value method for
        all awards, net of tax                               (263)          (234)          (953)          (749)
                                                        ---------      ---------      ---------      ---------
   Pro forma net income                                 $   2,077      $   1,532      $   3,304      $   5,947

Earnings per share:
Reported basic earnings per common share                $    0.26      $    0.21      $    0.48      $    0.83
                                                        =========      =========      =========      =========
Reported diluted earnings per common share              $    0.26      $    0.21      $    0.48      $    0.82
                                                        =========      =========      =========      =========
Pro forma basic earnings per common share               $    0.24      $    0.18      $    0.38      $    0.75
                                                        =========      =========      =========      =========
Pro forma diluted earnings per common share             $    0.23      $    0.18      $    0.37      $    0.73
                                                        =========      =========      =========      =========
</TABLE>


    In December 2003, the Financial Accounting Standards Board ("FASB") issued
revised SFAS No. 132 (revised 2003), "Employer's Disclosure about Pensions and
Other Post-Retirement Benefits." SFAS No. 132 (R) requires additional
disclosures in annual financial statements about the types of plan assets,
investment strategy, measurement dates, plan obligations, cash flows, and
components of net periodic benefit cost of defined benefit pension plans and
other post-retirement benefit plans. The annual disclosure requirements are
effective for fiscal years ending after December 15, 2003. SFAS No. 132 (R) also
requires interim disclosure of the elements of net periodic benefit cost and the
total amount of contributions paid or expected to be paid during the current
fiscal year if significantly different from amounts previously disclosed. The
interim disclosure requirements are effective for interim periods beginning
after December 15, 2003. The Company adopted the interim disclosure requirements
in its Condensed Consolidated Financial Statements for the quarter ended May 31,
2004 as disclosed in Note 10.

    In May 2004, the FASB issued FASB Staff Position No. 106-2 ("FSP 106-2"),
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003" (the "Act"). The Act introduces
a prescription drug benefit under Medicare (Medicare Part D) as well as a
federal subsidy to sponsors of post-retirement health care benefit plans that
provide a benefit that is at least actuarially equivalent to Medicare Part D.
The Company's post-retirement health care benefit plan provides no prescription
drug benefit to Medicare eligible salaried retirees, and the prescription drug
benefit provided to Medicare eligible hourly retirees is insured and the
insurance premium is fully paid by the retirees. The benefits of the Act are
expected to be realized by the Company's retirees and the Act will have no
effect on the Company's results of operations, financial position or liquidity.

    3--INVENTORIES

    The components of inventory are as follows:

<TABLE>
<CAPTION>
                             May 31,    August 31,
                              2004        2003
                             -------    ---------
                               (In thousands)
<S>                          <C>         <C>
Raw materials and other      $13,719     $11,470
Work in progress                 641         569
Finished goods                18,133      14,800
                             -------     -------
       Total inventories     $32,493     $26,839
                             =======     =======
</TABLE>


                                       7
<PAGE>


    4--PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                              May 31,       August 31,
                                               2004           2003
                                             ---------      ----------
                                                  (In thousands)
<S>                                          <C>            <C>
Land                                         $  15,597      $  14,511
Plant and equipment                            290,210        278,884
Construction in progress                         8,037          7,323
                                             ---------      ---------
                                               313,844        300,718
Accumulated depreciation                      (185,955)      (171,942)
                                             ---------      ---------
       Net property, plant and equipment     $ 127,889      $ 128,776
                                             =========      =========
</TABLE>

    Favorable Australian and New Zealand currency exchange rates have increased
net property, plant and equipment in the first nine months of fiscal 2004 by
approximately $4.1 million.

    5--RESTRUCTURING RESERVE

    In fiscal 2002, the Company announced a strategic restructuring of its
business operations, including the relocation of its headquarters from
Washington to Colorado. As a result, the Company recorded restructuring costs
totaling $1.4 million related to severance and other exit activity expenses. The
restructuring covered seven employees, all of which were terminated by May 31,
2004. In fiscal 2004, $0.4 million in severance costs were paid. The
restructuring reserve at May 31, 2004 of $0.1 million represents remaining
severance costs to be paid in fiscal 2004.

    In the first quarter of fiscal 2004, the Company's Australian business
implemented an organizational restructure plan and expensed $0.3 million as
restructuring costs related to severance and fringe benefits for five employees.
As of May 31, 2004, all five of the employees have been terminated and all
severance and related costs have been paid.

    In the second quarter of fiscal 2004, the Company's Industrial
Ingredients--North America business implemented a workforce reduction of 38
employees, all of which were terminated during the second quarter. In connection
therewith, $0.5 million was charged to operating expense as restructuring costs.
As of May 31, 2004, all severance and related costs were paid.

    In the third quarter of fiscal 2004, the Company's Australian business
recorded a restructuring charge of $0.4 million related to a workforce reduction
of 11 employees at its Tamworth, New South Wales, facility. The restructure
reserve at May 31, 2004 of $0.2 million represents severance and related
benefits to be paid in fiscal 2004.

    6--DEBT

    On October 7, 2003, Penford replaced its existing secured credit and
inventory financing credit facilities with a new $105 million secured credit
facility with a group of U.S. and Australian banks. The revolving lines of
credit expire on October 7, 2006 and the term loans expire on October 7, 2008.
Interest rates under the new credit facility are based on either LIBOR (or the
Australian equivalent) or the prime rate, depending on the selection of
borrowing options. All of Penford's assets secure the credit facility and the
new agreement includes, among other things, financial covenants with limitations
on indebtedness and capital expenditures and maintenance of fixed charge and
leverage ratios. For the quarter ended May 31, 2004, the Company was in
compliance with the covenants and expects to be in compliance for the remainder
of the fiscal year. At May 31, 2004, the Company had $29.7 million outstanding
under its revolving credit facilities and $48.9 million in term loans.

    7--TAXES

    The Company's effective tax rate for the three and nine months ended May 31,
2004 and 2003 varied from the U.S. federal statutory rate due to U. S. tax
credits related to research and development and the favorable tax effect of
export sales from the U.S. Income tax expense for the nine months ended May 31,
2004 included a $0.3 million second quarter charge for the effects of the final
implementation of the new Australian consolidation tax legislation.


                                       8
<PAGE>


    8--OTHER COMPREHENSIVE INCOME (LOSS)

    The components of total comprehensive income (loss) are as follows:

<TABLE>
<CAPTION>
                                                     Three months ended          Nine months ended
                                                           May 31,                     May 31,
                                                    ----------------------     ----------------------
                                                      2004          2003         2004          2003
                                                    --------      --------     --------      --------
                                                                      (In thousands)
<S>                                                 <C>           <C>          <C>           <C>
Net income                                          $  2,319      $  1,755     $  4,199      $  6,639
Foreign currency translation adjustments              (4,122)        2,456        4,283         6,264
Change in unrealized gains on derivative
   instruments that qualify as cash flow hedges           82           823          (86)          (22)
                                                    --------      --------     --------      --------
       Total comprehensive income (loss)            $ (1,721)     $  4,125     $  9,305      $ 12,881
                                                    ========      ========     ========      ========
</TABLE>


    9--NON-OPERATING INCOME, NET

    Non-operating income, net consists of the following:

<TABLE>
<CAPTION>
                                         Three months ended       Nine months ended
                                              May 31,                  May 31,
                                         -------------------     --------------------
                                          2004        2003        2004         2003
                                         -------     -------     -------      -------
                                                        (In thousands)
<S>                                      <C>         <C>         <C>          <C>
Loss on early extinguishment of debt     $    --     $    --     $  (665)     $    --
Gain on sale of Hi-maize(R) business          --          --          --        1,916
Gain on sale of investment                    --          --         150           --
Royalty and licensing income                 434         400       1,197          806
Other                                         71         227         328           87
                                         -------     -------     -------      -------
    Total                                $   505     $   627     $ 1,010      $ 2,809
                                         =======     =======     =======      =======
</TABLE>


    In October 2003, Penford refinanced its existing secured credit and
inventory financing credit agreements and wrote off the unamortized deferred
transaction costs related to these credit agreements. In the first quarter of
fiscal 2003, Penford sold certain assets of its resistant starch Hi-maize(R)
business and recorded a gain on the sale. The Company also licensed the rights
to its resistant starch intellectual property portfolio for applications in
human nutrition. The Company will receive annual royalties for a period of seven
years or until a maximum of $11.0 million has been received. The initial
licensing fee of $2.25 million is being amortized over the life of the royalty
agreement.





                                       9
<PAGE>


    NOTE 10 - PENSION AND POST-RETIREMENT BENEFIT PLANS

    The following represents the net periodic pension and post-retirement
benefit costs and related components in accordance with SFAS No. 132 (R) as
described in Note 2:

<TABLE>
<CAPTION>
                                    Three months ended        Nine months ended
Defined benefit plans                    May 31,                    May 31,
                                   --------------------      --------------------
                                    2004         2003         2004         2003
                                   -------      -------      -------      -------
                                                   (In thousands)
<S>                                <C>          <C>          <C>          <C>
Service cost                       $   229      $   179      $   686      $   537
Interest cost                          472          460        1,417        1,379
Expected return on plan assets        (434)        (427)      (1,302)      (1,282)
Amortization and deferrals             167           95          500          286
                                   -------      -------      -------      -------
   Net periodic benefit cost       $   434      $   307      $ 1,301      $   920
                                   =======      =======      =======      =======
</TABLE>

<TABLE>
<CAPTION>
                                 Three months ended     Nine months ended
Post-retirement plan                   May 31,               May 31,
                                 ------------------     -----------------
                                  2004       2003        2004       2003
                                 ------     ------      ------     ------
                                            (In thousands)
<S>                              <C>        <C>         <C>        <C>
Service cost                     $  126     $   77      $  379     $  232
Interest cost                       213        176         639        528
Amortization                         15        (16)         44        (48)
                                 ------     ------      ------     ------
   Net periodic benefit cost     $  354     $  237      $1,062     $  712
                                 ======     ======      ======     ======
</TABLE>

    Penford previously disclosed in its consolidated financial statements for
the year ended August 31, 2003 that it expected to make minimum contributions to
the pension plans of $1.8 million during fiscal 2004. Contributions of $1.1
million have been made to the pension plans during the first nine months of
fiscal 2004. Penford does not anticipate any additional contributions to the
plans for the remainder of fiscal 2004. Required contributions to the pension
plans during fiscal 2004 were reduced as a result of federal funding relief
legislation.



                                       10
<PAGE>


    11--SEGMENT REPORTING

    Financial information for the Company's three segments is presented below.
The first two segments, Industrial Ingredients--North America and Food
Ingredients--North America, are broad categories of end-market users, primarily
served by the Company's U.S. operations. The third segment is the Company's
geographically separate operations in Australia and New Zealand, which are
engaged primarily in the food ingredients business. A fourth item for "corporate
and other" activity is presented to provide reconciliation to amounts reported
in the condensed consolidated financial statements. Corporate and other
represents the activities related to the corporate headquarters such as public
company reporting, personnel costs of the executive management team,
corporate-wide professional services and elimination and consolidation entries.
The elimination of intercompany sales between Australia/New Zealand operations
and Food Ingredients--North America of $192,000 and $459,000 for the three and
nine month periods ended May 31, 2004, respectively, and $135,000 and $472,000
in the three and nine month periods ended May 31, 2003, respectively, is
presented separately since the chief operating decision maker views segment
results prior to intercompany eliminations.

<TABLE>
<CAPTION>
                                                   Three months ended             Nine months ended
                                                         May 31,                       May 31,
                                                 ------------------------      ------------------------
                                                   2004           2003           2004           2003
                                                 ---------      ---------      ---------      ---------
                                                                     (In thousands)
<S>                                              <C>            <C>            <C>            <C>
Sales:
   Industrial Ingredients--North America         $  38,679      $  34,912      $ 107,006      $ 104,272
   Food Ingredients--North America                  11,417         10,954         34,283         33,418
   Australia/New Zealand operations                 22,580         20,304         66,306         56,551
   Intercompany sales                                 (192)          (135)          (459)          (472)
                                                 ---------      ---------      ---------      ---------
                                                 $  72,484      $  66,035      $ 207,136      $ 193,769
                                                 =========      =========      =========      =========

Income from operations:
   Industrial Ingredients--North America (1)     $   2,964      $   2,190      $   6,079      $   7,390
   Food Ingredients--North America                   1,096          1,113          3,714          4,499
   Australia/New Zealand operations (2)              1,692          1,217          3,500          3,682
   Corporate and other (3)                          (1,864)        (1,400)        (4,556)        (4,831)
                                                 ---------      ---------      ---------      ---------
                                                 $   3,888      $   3,120      $   8,737      $  10,740
                                                 =========      =========      =========      =========
</TABLE>

---------------------------------------------------
(1) Restructuring costs of $487,000 have been included in income from operations
    in the nine months ended May 31, 2004.
(2) Restructuring costs of $384,000 and $638,000 have been included in income
    from operations for the three and nine months ended May 31, 2004,
    respectively.
(3) Restructuring reserve adjustment of $(117,000) is included in income from
    operations in the nine months ended May 31, 2003.

<TABLE>
<CAPTION>
                                            May 31,     August 31,
                                              2004         2003
                                            --------    ----------
                                               (In thousands)
<S>                                         <C>          <C>
Total assets:
   Industrial Ingredients-North America     $105,775     $106,732
   Food Ingredients--North America            31,655       35,205
   Australia/New Zealand operations           97,986       85,269
   Corporate and other                        29,772       23,687
                                            --------     --------
                                            $265,188     $250,893
                                            ========     ========
</TABLE>




                                       11
<PAGE>


    12--EARNINGS PER SHARE

    Basic earnings per share reflects only the weighted average common shares
outstanding during the period. Diluted earnings per share reflects weighted
average common shares outstanding and the effect of any dilutive common stock
equivalent shares. The following table presents the computation of diluted
weighted average shares outstanding for the three and nine months ended May 31,
2004 and 2003.

<TABLE>
<CAPTION>
                                              Three months ended   Nine months ended
                                                     May 31,            May 31,
                                              ------------------   ------------------
                                                2004      2003      2004      2003
                                                -----     -----     -----     -----
                                                           (In thousands)
<S>                                             <C>       <C>       <C>       <C>
Weighted average common shares outstanding      8,771     8,404     8,713     7,974
Dilutive stock options                            162        85       122       125
                                                -----     -----     -----     -----
Weighted average common shares outstanding,
    assuming dilution                           8,933     8,489     8,835     8,099
                                                =====     =====     =====     =====
</TABLE>










                                       12
<PAGE>


ITEM 2:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

    The statements contained in this Quarterly Report on Form 10-Q ("Quarterly
Report") that are not historical facts, including, but not limited to statements
found in the Notes to Condensed Consolidated Financial Statements and in Item 2
- Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements that represent management's beliefs
and assumptions based on currently available information. Forward-looking
statements can be identified by the use of words such as "believes," "may,"
"will," "looks," "should," "could," "anticipates," "expects," or comparable
terminology or by discussions of strategies or trends.

    Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it cannot give any assurances that
these expectations will prove to be correct. Such statements by their nature
involve substantial risks and uncertainties that could significantly affect
expected results. Actual future results could differ materially from those
described in such forward-looking statements, and the Company disclaims any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. Among the
factors that could cause actual results to differ materially are the risks and
uncertainties discussed in this Quarterly Report, including those referenced
above, and those described from time to time in other filings with the
Securities and Exchange Commission which include, but are not limited to,
competition; the possibility of interruption of business activities due to
equipment problems, accidents, strikes, weather or other factors; product
development risk; changes in corn and other raw material prices and
availability; changes in general economic conditions or developments with
respect to specific industries or customers affecting demand for the Company's
products including unfavorable shifts in product mix; unanticipated costs,
expenses or third party claims; the risk that results may be affected by
construction delays, cost overruns, technical difficulties, nonperformance by
contractors or changes in capital improvement project requirements or
specifications; interest rate and energy cost volatility; foreign currency
exchange rate fluctuations; or other unforeseen developments in the industries
in which Penford operates.


RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2004

    Results of operations for the Company's three segments are presented below.
The first two segments, Industrial Ingredients--North America and Food
Ingredients--North America, are broad categories of end-market users, primarily
served by the Company's U.S. operations. The third segment is the Company's
geographically separate operations in Australia and New Zealand, which are
engaged primarily in the food ingredients business. Corporate and other
represents the activities related to the corporate headquarters such as public
company reporting, personnel costs of the executive management team,
corporate-wide professional services and elimination and consolidation entries.

    Management Overview

    Consolidated sales for three months ended May 31, 2004, increased $6.4
million or 10% to $72.5 million from $66.0 million in fiscal 2003 reflecting
higher volumes at Penford's Industrial Ingredients--North America business and
favorable Australian and New Zealand currency exchange rates. The decline in
grain costs at Penford's Australia/New Zealand operations as well as effective
implementation of productivity improvement programs worldwide improved gross
margin for the third quarter of fiscal 2004 to $12.0 million from $10.2 million
in fiscal 2003. Gross margin as a percent of sales increased to 16.6% in the
third quarter of fiscal 2004 from 15.4% in the prior year period. Sales for the
nine months ended May 31, 2004 were $207.1 million, an increase of $13.4
million, or 7%, over the same period in fiscal 2003, primarily due to favorable
currency exchange rates, partially offset by volume decline and price
competition at the Company's Australia and New Zealand operations.


                                       13
<PAGE>


    Reduced discretionary spending and workforce reductions have held operating
and research and development expenses to 10.7% of sales for the third quarter of
fiscal 2004. Operating income for the quarter ended May 31, 2004 included a $0.4
million restructuring charge related to a workforce reduction at the Company's
Australian business which affected 11 employees. Operating income for the nine
months ended May 31, 2004 declined by $2.0 million from the prior year period,
due primarily to higher natural gas costs and restructuring costs of $1.1
million. A discussion of segment results of operations follows.

    Sales

    Sales at the Company's Industrial Ingredients--North America business unit
increased by $3.8 million, or 11%, to $38.7 million in the third quarter of
fiscal 2004 compared to the prior year period. Volumes rose 7% as paper mill
customers experienced increased orders from their end markets, increasing
Penford's sales by approximately $2.4 million. Improvements in average pricing
also contributed to the increase in sales. Sales for the nine months ended May
31, 2004 rose $2.7 million, or 3% from the prior year period, due primarily to
improvements in average pricing.

    Sales for the Australia/New Zealand operations increased $2.3 million, or
11%, and $9.8 million, or 17%, in the three and nine months ended May 31, 2004,
respectively, compared to the prior year periods. Favorable currency exchange
rates were the dominant factor for the increase, offset by lower volumes and the
effects of pricing incentives resulting from competition from imported products.

    Third quarter fiscal 2004 sales for the Food Ingredients--North America
business increased $0.5 million, or 4%, to $11.4 million compared to the prior
year quarter. Sales for the nine months ended May 31, 2004 increased $0.9
million, or 3%, over last year. Sales for both the third quarter and fiscal 2004
year to date increased due to stronger sales of potato coatings products and new
binding, coating and marinade products for processed meat applications.

    Income from operations

    Income from operations at Penford's Industrial Ingredients--North America
business unit increased $0.8 million in the third quarter of fiscal 2004 to $3.0
million compared to the year ago period. Gross margin as a percent of sales
increased to 15.0% for the quarter ended May 31, 2004 from 14.5% the previous
year on increased revenues, better efficiency due to higher plant utilization
and reduced manufacturing costs from process improvements. These improvements in
gross margin were offset by approximately $0.2 million in higher natural gas
costs, which remains above levels a year ago. Income from operations decreased
$1.3 million for the nine months ended May 31, 2004 compared to the same period
last year and gross margin as a percent of sales declined to 14.1% from 15.6%
last year. Improvements in average sales pricing were more than offset by higher
natural gas costs of approximately $1.7 million, increased retirement costs of
approximately $0.8 million and second quarter 2004 restructuring costs of $0.5
million. See Note 5 to the Condensed Consolidated Financial Statements.

    Income from operations at the Company's Australia/New Zealand operations
increased $0.5 million to $1.7 million in the third quarter of fiscal 2004
compared to the prior year period. Gross margin as a percent of sales increased
to 15.0% in the third quarter of fiscal 2004 from 11.4% in the same period last
year. Gross profit increased $1.1 million due primarily to lower grain input
costs and the impact of workforce reductions announced during the first half of
fiscal 2004, partially offset by competitive pricing. Operating income for the
third quarter of fiscal 2004 includes a $0.4 million charge related to
additional headcount reductions announced during the third quarter at
Australia's plant in Tamworth, New South Wales. Operating income for the nine
months ended May 31, 2004 declined $0.2 million from the prior year on lower
sales volumes, competitive pricing and $0.6 million of restructuring costs,
partially offset by lower grain costs and favorable currency exchange rates. The
fiscal 2004 third quarter and year-to-date restructuring costs have been
reflected as a separate line in the accompanying Condensed Consolidated
Statements of Income. See Note 5 to the Condensed Consolidated Financial
Statements.





                                       14
<PAGE>


    Third quarter income from operations at the Food Ingredients--North American
business unit was comparable to the same period in fiscal 2003. In the third
quarter of fiscal 2004, gross margin as a percent of sales declined to 24.8%
from 25.8% last year due to higher input costs and sales incentive programs to
strengthen market position in the potato coatings product categories. Operating
income for the nine months ended fiscal 2004 declined by $0.8 million due to
lower plant utilization in the second quarter of fiscal 2004 caused by a
five-week shut down in dextrose production to balance inventories and second
quarter manufacturing plant inefficiencies. Higher natural gas costs also
continue to negatively affect gross margins.

    Corporate operating expenses

    Corporate operating expenses for the third quarter of fiscal 2004 increased
$0.5 million over the prior year period primarily related to higher public
company costs. Operating expenses declined $0.3 million in the nine months ended
May 31, 2004, compared to prior year period due to lower executive personnel and
recruiting costs, and a reduction in overall discretionary spending, offset by
higher third quarter public company costs.

    Interest and taxes

    Interest expense decreased $0.2 million and $0.9 million in the three and
nine months ended May 31, 2004, respectively, compared to the same periods in
the prior year. Lower average debt outstanding during the periods and lower
interest rates equally contributed to the decline in interest rates.

    The Company's effective tax rate for the three and nine months ended May 31,
2004 and 2003 varied from the U.S. federal statutory rate due to U. S. tax
credits related to research and development and the favorable tax effect of
export sales from the U.S. Income tax expense for the nine months ended May 31,
2004 included a $0.3 million second quarter charge for the effects of the final
implementation of the new Australian consolidation tax legislation.

    Non-operating income, net

    Non-operating income, net consists of the following:

<TABLE>
<CAPTION>
                                         Three months ended       Nine months ended
                                               May 31,                 May 31,
                                         -------------------     --------------------
                                          2004        2003        2004         2003
                                         -------     -------     -------      -------
                                                       (In thousands)
<S>                                      <C>         <C>         <C>          <C>
Loss on early extinguishment of debt     $    --     $    --     $  (665)     $    --
Gain on sale of Hi-maize(R) business          --          --          --        1,916
Gain on sale of investment                    --          --         150           --
Royalty and licensing income                 434         400       1,197          806
Other                                         71         227         328           87
                                         -------     -------     -------      -------
    Total                                $   505     $   627     $ 1,010      $ 2,809
                                         =======     =======     =======      =======
</TABLE>

    In October 2003, Penford refinanced its existing secured credit and
inventory financing credit agreements and wrote off the unamortized deferred
transaction costs related to these credit agreements. In the first quarter of
fiscal 2003, Penford sold certain assets of its resistant starch Hi-maize(R)
business and recorded a gain on the sale. The Company also licensed the rights
to its resistant starch intellectual property portfolio for applications in
human nutrition. The Company will receive annual royalties for a period of seven
years or until a maximum of $11.0 million has been received. The initial
licensing fee of $2.25 million is being amortized over the life of the royalty
agreement.


                                       15
<PAGE>


    LIQUIDITY AND CAPITAL RESOURCES

    At May 31, 2004, Penford had working capital of $44.4 million compared to
$39.0 million at August 31, 2003. Cash flow from operations was $15.9 million
and $18.4 million for the nine months ended May 31, 2004 and 2003, respectively.
The decrease in operating cash flow is primarily due to an increase in working
capital.

    Cash flow from investing activities declined approximately $5.6 million in
the nine months of fiscal 2004 compared to the same period in the prior year.
This decline is due to cash receipts totaling $3.7 million related to the
Company's sale of certain assets of its Hi-maize(R) business and an upfront
licensing fee for the use of certain intellectual property in the first quarter
of fiscal 2003, and an increase in fiscal 2004 capital expenditures of $2.1
million.

    On October 7, 2003, Penford replaced its existing secured credit and
inventory financing credit facilities with a new $105 million secured credit
facility with a group of U.S. and Australian banks. The revolving lines of
credit expire on October 7, 2006 and the term loans expire on October 7, 2008.
Interest rates under the new credit facility are based on either LIBOR (or the
Australian equivalent) or the prime rate, depending on the selection of
borrowing options. All of Penford's assets secure the credit facility and the
new agreement includes, among other things, financial covenants with limitations
on indebtedness and capital expenditures and maintenance of fixed charge and
leverage ratios. For the quarter ended May 31, 2004, the Company was in
compliance with the covenants and expects to be in compliance for the remainder
of the fiscal year. At May 31, 2004, the Company had $29.7 million outstanding
under its revolving credit facilities and $48.9 million in term loans.

    During the nine month period ended May 31, 2004, the Company paid dividends
of $1.6 million representing $0.18 per share, the same per share dividend rate
as the nine month period ended May 31, 2003. On June 29, 2004, the Board of
Directors declared a dividend of $0.06 per common share payable on September 3,
2004 to shareholders of record as of August 13, 2004. Any future dividends will
be paid at the discretion of the Company's board of directors and will depend
upon, among other things, earnings, financial condition, cash requirements and
availability, and contractual requirements.

    RECENT ACCOUNTING PRONOUNCEMENTS

    In December 2003, the Financial Accounting Standards Board ("FASB") issued
revised SFAS No. 132 (revised 2003), "Employer's Disclosure about Pensions and
Other Post-Retirement Benefits." SFAS No. 132 (R) requires additional
disclosures in annual financial statements about the types of plan assets,
investment strategy, measurement dates, plan obligations, cash flows, and
components of net periodic benefit cost of defined benefit pension plans and
other post-retirement benefit plans. The annual disclosure requirements are
effective for fiscal years ending after December 15, 2003. SFAS No. 132 (R) also
requires interim disclosure of the elements of net periodic benefit cost and the
total amount of contributions paid or expected to be paid during the current
fiscal year if significantly different from amounts previously disclosed. The
interim disclosure requirements are effective for interim periods beginning
after December 15, 2003. The Company adopted the interim disclosure requirements
in its Condensed Consolidated Financial Statements for the quarter ended May 31,
2004 as disclosed in Note 10.

    In May 2004, the FASB issued FASB Staff Position No. 106-2 ("FSP 106-2"),
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003" (the "Act"). The Act introduces
a prescription drug benefit under Medicare (Medicare Part D) as well as a
federal subsidy to sponsors of post-retirement health care benefit plans that
provide a benefit that is at least actuarially equivalent to Medicare Part D.
The Company's post-retirement health care benefit plan provides no prescription
drug benefit to Medicare eligible salaried retirees, and the prescription drug
benefit provided to Medicare eligible hourly retirees is insured and the
insurance premium is fully paid by the retirees. The benefits of the Act are
expected to be realized by the Company's retirees and the Act will have no
effect on the Company's results of operations, financial position or liquidity.


                                       16
<PAGE>


ITEM 3:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

    The Company is exposed to market risks from adverse changes in interest
rates, foreign currency exchange rates and commodity prices. Since August 31,
2003, there have been no significant changes in the Company's exposure to market
risks.

ITEM 4:    CONTROLS AND PROCEDURES.

    Under the supervision and with the participation of management, including
the Chief Executive Officer and Chief Financial Officer, the Company has
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, as of the end of the period covered
by this report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that these disclosure controls and procedures
are effective such that information related to the Company required to be
disclosed in the Securities and Exchange Commission ("SEC") reports (i) is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms, and (ii) is accumulated and communicated to the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.












                                       17
<PAGE>


                           PART II - OTHER INFORMATION



ITEM 6:           EXHIBITS AND REPORTS ON FORM 8-K.

 (a)     Exhibits

<TABLE>
<S>                   <C>
         31.1         Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

         31.2         Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

         32           Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
                      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>

(b)      Reports on Forms 8-K.

         A Form 8-K was filed on March 24, 2004 relating to the Registrant's
         financial information for the second fiscal quarter ended February 29,
         2004, as presented in a press release on March 22, 2004.









                                       18
<PAGE>


                                   SIGNATURES




Pursuant to the requirements 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.



                                  Penford Corporation
                                  ----------------------------------------------
                                  (Registrant)




July 14, 2004                     /s/ Steven O. Cordier
                                  ----------------------------------------------
                                  Steven O. Cordier
                                  Vice President, Chief Financial Officer and
                                  Corporate Secretary






                                       19
<PAGE>


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
  Exhibit No.                                                   Description
----------------    ----------------------------------------------------------------------------------------------------
<S>                 <C>
     31.1           Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     31.2           Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     32             Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
                    1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>