UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549



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FORM 10-Q

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xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: May 31, 2008



OR



oTRANSITION REPORT PURSUANT TO SECTION 13 AND 15(d) OF THE

SECURITES EXCHANGE ACT OF 1934



Commission file: No. 33-94644



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MINN-DAK FARMERS COOPERATIVE

(Exact named of registrant as specified in its charter)



North Dakota

        23-7222188(State or other jurisdiction ofIncorporation or organization)

        (I.R.S. EmployerIdentification No.)7525 Red River RoadWahpeton, North Dakota

        58075(Address of principalexecutive offices)

        (Zip Code)




(701) 642-8411

(Registrants telephone number, including area code)



Not Applicable

(Former name, former address and former fiscal year,

if changed since last report)



SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

NONE



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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, and (2) has been subject to such filing requirements for the past 90 days.

YESxNOo



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large Accelerated Filero
        Accelerated Filero
        Non-Accelerated Filerx
        Smaller Reporting Coo




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YESoNOx



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



Class of Common Stock

        

        Outstanding atJune 18, 2008$250 Par Value

        

        483




Minn-Dak Farmers Cooperative (The Company) 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 Company 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 Company has not registered any of its securities under Section 12(g) of the Exchange Act. The Company 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 Company, which is a cooperative association as defined in the Agricultural
Marketing Act of 1929. 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 Company. The provisions, which do not apply to the Company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.





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PART I.  FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



MINN-DAK FARMERS COOPERATIVE

CONSOLIDATED BALANCE SHEETS

ASSETS

(In Thousands)



ASSETS

        

        May 31, 2008(Unaudited)

        

        Aug 31, 2007(Audited)CURRENT ASSETSCash

        

        $

        459

        

        $

        255ReceivablesTrade accounts

        

        

        12,885

        

        

        18,621Growers

        

        

        7,438

        

        

        4,907Receivable from affiliates

        

        

        2,203

        

        

        Other receivables

        

        

        3

        

        

        90Total Receivables

        

        

        22,529

        

        

        23,618InventoriesRefined sugar, in-process sugar, pulp and molassesto be sold on a pooled basis

        

        

        71,950

        

        

        32,843Non-member refined sugar

        

        

        757

        

        

        29Sugarbeets / Raw Sugar Inventory

        

        

        

        

        

        Yeast

        

        

        149

        

        

        168Materials and supplies

        

        

        9,485

        

        

        9,046Total Inventories

        

        

        82,341

        

        

        42,086Deferred charges

        

        

        872

        

        

        2,038Prepaid expenses

        

        

        610

        

        

        1,066Other current assets

        

        

        1,346

        

        

        436Current deferred income tax asset

        

        

        688

        

        

        688Total current assets

        

        

        108,845

        

        

        70,187PROPERTY, PLANT AND EQUIPMENTLand and land improvements

        

        

        25,184

        

        

        25,184Buildings

        

        

        37,481

        

        

        37,481Factory/Agricultural equipment

        

        

        138,386

        

        

        137,994Other equipment

        

        

        4,066

        

        

        4,097Construction in progress

        

        

        4,936

        

        

        1,383Total Property, Plant and Equipment

        

        

        210,053

        

        

        206,139Less accumulated depreciation

        

        

        (117,494

        )

        

        (111,843

        )Net Property, Plant and Equipment

        

        

        92,559

        

        

        94,296OTHER ASSETSInvestment in stock of other corporations, unconsolidatedmarketing subsidiaries and other cooperatives

        

        

        11,867

        

        

        11,500Other long-term assets

        

        

        2,148

        

        

        1,683Total Other Assets

        

        

        14,015

        

        

        13,183TOTAL ASSETS

        

        $

        215,419

        

        $

        177,666




See Notes to Consolidated Financial Statements.





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MINN-DAK FARMERS COOPERATIVE

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

(In Thousands)



LIABILITIES AND MEMBERS' INVESTMENT

        

        May 31, 2008(Unaudited)

        

        

        Aug 31, 2007(Audited)CURRENT LIABILITIESShort-term notes payable

        

        $

        39,196

        

        $

        19,000Current portion of long-term debt, capital leases and bonds payable

        

        

        4,602

        

        

        4,507Accounts payable:Trade

        

        

        6,199

        

        

        4,841Growers

        

        

        23,226

        

        

        23,289Income tax

        

        

        

        

        

        122Total Accounts Payable

        

        

        29,425

        

        

        28,252Payable to affiliates

        

        

        0

        

        

        842Accrued Liabilities

        

        

        4,248

        

        

        4,358Total current liabilities

        

        

        77,471

        

        

        56,959LONG-TERM DEBT, CAPITAL LEASES, AND BONDSPAYABLE, NET OF CURRENT PORTION

        

        

        28,122

        

        

        32,424LONG-TERM DEFERRED INCOME TAX LIABILITY

        

        

        

        

        

        LONG-TERM UNRECOGNIZED TAX BENEFITS LIABILITY

        

        

        261

        

        

        LONG-TERM PENSION LIABILITY

        

        

        4,910

        

        

        4,910COMMITMENTS AND CONTINGENCIES

        

        

        

        

        

        Total liabilities

        

        

        110,764

        

        

        94,293MEMBERS' INVESTMENTPreferred stock:Class A - 100,000 shares authorized, $105 par value;72,200 shares issued and outstanding

        

        

        7,581

        

        

        7,581Class B - 100,000 shares authorized, $75 par value;72,200 shares issued and outstanding

        

        

        5,415

        

        

        5,415Class C - 100,000 shares authorized, $76 par value;72,200 shares issued and outstanding

        

        

        5,487

        

        

        5,487Total Preferred stock

        

        

        18,483

        

        

        18,483Common stock, 600 shares authorized, $250 par value;issued and outstanding, 483 shares at May 31, 2008and 484 shares at August 31, 2007

        

        

        121

        

        

        121Paid in capital in excess of par value

        

        

        32,094

        

        

        32,094Nonqualified allocated patronage

        

        

        46,876

        

        

        27,599Accumulated other comprehensive loss

        

        

        (2,368

        )

        

        (2,368

        )Retained earnings

        

        

        9,449

        

        

        7,444Total Member Investment

        

        

        104,655

        

        

        83,373TOTAL LIABILITIES AND MEMBER INVESTMENT

        

        $

        215,419

        

        $

        177,666




See Notes to Consolidated Financial Statements.





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MINN-DAK FARMERS COOPERATIVE

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)



Three Months Ended

        

        Nine Months EndedMay 31,2008

        

        May 31,2007

        

        May 31,2008

        

        May 31,2007REVENUE:Sales of sugar, co-products and yeast, net of discounts

        

        $

        65,953

        

        $

        74,666

        

        $

        184,651

        

        $

        186,552Changes in finished goods inventory and in-process sugar at NRV

        

        

        (3,939

        )

        

        (2,093

        )

        

        39,106

        

        

        70,287Other income

        

        

        1,083

        

        

        1,157

        

        

        1,347

        

        

        1,209Total Revenue

        

        

        63,097

        

        

        73,730

        

        

        225,104

        

        

        258,048EXPENSES:Production costs of sugar, in-process sugar, co-products and yeast sold

        

        

        21,855

        

        

        16,721

        

        

        63,362

        

        

        57,110Sales and distribution costs

        

        

        15,291

        

        

        17,877

        

        

        37,569

        

        

        36,591General and administrative

        

        

        2,007

        

        

        1,348

        

        

        4,993

        

        

        4,471Interest

        

        

        805

        

        

        1,493

        

        

        2,743

        

        

        3,812Loss on disposition of property and equipment

        

        

        99

        

        

        11

        

        

        113

        

        

        9Total Expenses

        

        

        40,057

        

        

        37,450

        

        

        108,780

        

        

        101,993NET PROCEEDS RESULTING FROM MEMBERAND NON-MEMBER BUSINESS

        

        $

        23,040

        

        

        36,280

        

        $

        116,324

        

        $

        156,055DISTRIBUTION OF NET PROCEEDSCredited to member's investmentComponents of net incomeIncome from non-member business

        

        $

        569

        

        $

        3

        

        $

        2,261

        

        $

        11Patronage income

        

        

        1,917

        

        

        795

        

        

        19,277

        

        

        26,674Net income credited to member's investment

        

        

        2,486

        

        

        798

        

        

        21,538

        

        

        26,685Allocated costs of sugarbeets paid or payable to growers for production to date

        

        

        20,554

        

        

        35,482

        

        

        94,786

        

        

        129,370NET PROCEEDS RESULTING FROM MEMBER ANDNON-MEMBER BUSINESS

        

        $

        23,040

        

        $

        36,280

        

        $

        116,324

        

        $

        156,055




See Notes to Consolidated Financial Statements.





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MINN-DAK FARMERS COOPERATIVE

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)



Nine Months Ended,May 31,2008

        

        May 31,2007OPERATING ACTIVITIESIncome allocated to members' investment

        

        $

        21,538

        

        $

        26,685Add (deduct) noncash items:Depreciation and amortization

        

        

        6,395

        

        

        6,171Equipment disposals - loss

        

        

        113

        

        

        9Net income allocated from unconsolidated marketing subsidiaries

        

        

        (6

        )

        

        (11

        )Noncash portion of patronage capital credits

        

        

        (616

        )

        

        (714

        )Changes in operating assets and liabilitiesAccounts receivable and advances

        

        

        1,089

        

        

        (2,629

        )Inventory and prepaid expenses

        

        

        (40,708

        )

        

        (69,672

        )Deferred charges and other assets

        

        

        547

        

        

        973Accounts payable, accrued liabilities and other liabilities

        

        

        6,260

        

        

        21,983Net cash used in operating activities

        

        

        (5,388

        )

        

        (17,205

        )INVESTING ACTIVITIESProceeds from disposition of property, plant and equipment

        

        

        17

        

        

        6Capital expenditures

        

        

        (4,437

        )

        

        (2,517

        )Issuance of notes receivable

        

        

        25

        

        

        (55

        )Patronage received from other coops

        

        

        273

        

        

        240Net cash used in investing activities

        

        

        (4,122

        )

        

        (2,326

        )FINANCING ACTIVITIESNet proceeds from issuance of short-term debt

        

        

        20,196

        

        

        27,725Net proceeds from issuance of long-term debt and capital leases

        

        

        320

        

        

        Payment of long-term debt and capital leases

        

        

        (4,527

        )

        

        (4,211

        )Payment of financing fees

        

        

        (236

        )

        

        (261

        )Payment of allocated patronage

        

        

        (6,039

        )

        

        (3,620

        )Net cash provided by financing activities

        

        

        9,714

        

        

        19,633NET INCREASE IN CASH

        

        

        204

        

        

        102CASH, BEGINNING OF YEAR

        

        

        255

        

        

        224CASH, END OF QUARTER

        

        $

        459

        

        $

        326SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash payments forInterest

        

        $

        2,771

        

        $

        4,376Income taxes, net of refunds

        

        $

        1,301

        

        $

        149




See Notes to Consolidated Financial Statements.





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MINN-DAK FARMERS COOPERATIVE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.

        The consolidated financial statements of the Company and that of its subsidiary company Minn Dak Yeast Company (Minn Dak Yeast) for the nine month periods ended May 31, 2008 and 2007 are unaudited and reflect all adjustments (consisting of normal recurring adjustments and the FASB Interpretation No. 48 (FIN 48) change in accounting adjustment) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, contained in the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 2007. The results of operations for the nine months ended May 31, 2008 are not necessarily indicative of the results for the entire fiscal year ending August 31, 2008.




2.

        Inventories of refined sugar, in-process 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 price that approximates cost. During the periods when sugarbeets are purchased from growers and/or non-members, but not yet converted into refined sugar or in-process sugar, that inventory is valued at grower/and or non-members
payment cost. In valuing inventories at net realizable value, the Company, in effect sells the remaining inventory to the subsequent periods sugar and co-product pool. Pooled product inventories will normally increase to a peak valuation at the end of the processing campaign and decrease to a low point of valuation at or near fiscal year end.




3.

        In September 2007, and effective as of August 31, 2007, the Company declared a revolvement of the remaining 94% of the unit retains and allocated patronage for the 2000-crop totaling $4.3 million and 48% of the unit retains and allocated patronage for the 2001-crop totaling $1.7 million. These amounts were accrued as of August 31, 2007 and paid to the stockholders on September 21, 2007.




In October 2007, the Company allocated to members $7.6 million of patronage from the 2006-crop in the form of non-qualified allocated patronage credits.



4.

        As of May 31, 2008, the Company had  $96.8 million of short-term credit capacity, with $39.2 million being utilized, leaving a remaining short-term credit capacity of $57.6 million. The $96.8 million consists of $50.0 million short-term line of credit from the Bank, $15.0 million bid loan supplement facility through the Bank, which is currently available from the Bank upon request by the Company, however, it is contingent upon the Banks lending capacity at the time of request, and $31.8 million of USDA Commodity Credit Corporation sugar loan capacity. The increase in seasonal debt from
August 31, 2007 to May 31, 2008  is due to normal seasonal operations and the funding necessary to cover crop payments to growers.




5.

        The Companys shareholders harvested 2,208,622 tons of sugarbeets from the 2007-crop, which created an initial estimated payment liability of $87.1 million, which has been increased by $7.7 million as of May 31, 2008 to $94.8 million. The Companys payment for the 2007-crop sugarbeets, made through May 31, 2008, totaled $71.6 million, leaving an estimated balance payable to shareholders of $23.2 million.




6.

        The Financial Accounting Standards Board has issued Financial Accounting Standards No. 158, Employers Disclosure about Pensions and Other Post-Retirement Benefits. This standard requires disclosures to interim and annual financial statements, which are effective and adopted for the interim period financial statements ending May 31, 2008, but does not change the recognition requirements related to pensions and post-retirement benefits.






6

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Components of Net Periodic Benefit Cost for the Nine Months Ended May 31, 2008



(In 000s)

        

        Pension Plan

        

        Other Than Pension Plan2008

        

        2007

        

        2008

        

        2007Service Cost

        

        $

        718

        

        $

        737

        

        $

        0

        

        $

        0Interest Cost

        

        

        1,175

        

        

        1,154

        

        

        0

        

        

        0Expected return on plan assets

        

        

        (1,216

        )

        

        (1,022

        )

        

        0

        

        

        0Amortization of prior service cost

        

        

        25

        

        

        44

        

        

        0

        

        

        0Amortization of transition cost

        

        

        0

        

        

        0

        

        

        0

        

        

        0Amortization of net (gain) loss

        

        

        (1

        )

        

        181

        

        

        0

        

        

        0Net periodic benefit cost

        

        $

        701

        

        $

        1,094

        

        $

        0

        

        $

        0




Through the nine months ended May 31, 2008, the Company has made $1.1 million of contributions as compared to $1.1 million through the nine months ended May 31, 2007. The Company anticipates contributing $-0- million in additional funds to its pension plan in FY 2008, for a total of $1.1 million. Contributions in FY 2007 totaled $1.1 million.



7.

        Recently Issued Accounting Pronouncements:


FAS 141 (R) Business Combinations  This statement defines the acquirer, establishes the acquisition date, and defines how the acquisition method is applied to financials. It also recognizes and measures goodwill or a gain from a bargain purchase. The pronouncement is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively. The application of this statement will only apply and be effective should the Company acquire the business assets of another entity after August 31, 2010.



FAS 157 Fair Value Measurements dated September 2006  This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosure about fair value measurements. In February 2008 the FASB Issued FSP FAS 157-2. This FASB Staff Position (FSP) delays the effective date of FASB Statement No. 157, Fair Value Measurements, for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The delay is intended to allow the Board and constituents additional time to consider the effect of various implementation issues that have arisen, or that may arise, from the application of Statement 157. These statements do not require any new fair value measurements. However, the application of these
statements may change the accounting practice regarding any future mergers and acquisitions by the company.



FAS 158 Employers Accounting for Defined Benefit Pension Plans and other Post Retirement Plans  This statement requires an employer that is a business entity and sponsors one or more single-employer defined benefit plans to recognize the funded status of a benefit plan, measured as the difference between plan assets at fair value and the projected benefit obligation in the financial statement.



In September of 2006, the FASB issued FAS No. 158 Employers Accounting for Defined Benefit Pension Plans and Other Post Retirement plans. This pronouncement had been adopted by the Company with the notation that the Company would continue to measure its plans liabilities as of May 31. However, with full adoption of FAS 158, the new measurement date for liability will be August 31, which would result in a one-time addition to liability equal to approximately one-fourth of the Companys annual pension liability accrual. The Company is expecting to adopt this portion of the pronouncement for its fiscal year ending August 31, 2009.



FAS 159 The Fair Value Option for Financial Assets and Financial LiabilitiesOn February 15, 2007, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No 115 (SFAS 159), which permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected shall be reported in earnings. The fair value option may be applied instrument by instrument with a few exceptions, and is irrevocable unless a new election date occurs. SFAS 159 is effective as of the beginning of an entitys fiscal year that begins after November
15, 2007. Early adoption is permitted in certain circumstances. Retrospective application to fiscal years preceding the effective date (or early adoption date) is prohibited. The Company expects to adopt SFAS 159 starting with the fiscal year beginning September 1, 2008. The adoption of this statement is not expected to have a material effect on the Companys future reported financial position or results of operations.





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FAS 160  Non-controlling Interests in Consolidated Financial Statement-an amendment of ARB No. 51  This statement requires all entities to report non-controlling (minority) interest in subsidiaries in the same way as equity in the consolidated financial statements to improve the relevance, comparability, and transparency of financial information provided to investors. The Company no longer has a non-controlling interest in any of its consolidated reporting entities. The application of this statement would only apply and be effective should the Company be involved in a non-controlling (minority) interest activity in a subsidiary after August 31, 2010.



FAS 161 Disclosures About Derivative Instruments and Hedging Activities. On March 19, 2008 the FASB Issued Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures About Derivative Instruments and Hedging Activities.This statement is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact that SFAS 161 will have on the Consolidated Financial Statements.



FAS 162 The Hierarchy of Generally Accepted Accounting Principles - In May 2008, the FASB issued FAS No. 162.  FAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental entities. FAS 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect the adoption of this statement to have a material impact on its results of operations, financial position or cash flows.



8.

        Change in Accounting Policy:


The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, on September 1, 2007. As a result of the implementation of FIN 48, the Company recognized an increase in the liability for unrecognized tax benefits of $.3 million, which was accounted for as a reduction to the September 1, 2007, balance of retained earnings.





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ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION



This Discussion should be read in conjunction with information contained in the Consolidated Financial Statements     and Notes thereto and in our Annual Report on Form 10K for fiscal year ended August 31, 2007.



OVERVIEW



The following discussion and analysis relates to the financial condition and results of operations of Minn-Dak Farmers Cooperative  (the Company) for the nine months ended May 31, 2008 (the third quarter of the Companys 2008 fiscal year). The Companys fiscal year runs from September 1 to August 31.



Any statements regarding future market prices, anticipated costs, agricultural results, operating results and other statements that are not historical facts contained in this Quarterly Report on Form 10-Q 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 risks, including those set forth in the Companys reports filed with the Securities and Exchange Commission, including
Item 1A of Part I of the Companys Annual Report on Form 10-K for the year ended August 31, 2007. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. These forward-looking statements are made as of the date of this report and the Company assumes no obligation to update such forward-looking statements, or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.



Critical Accounting Policies

Preparation of the Companys consolidated financial statements requires estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. Management continually evaluates these estimates based on its professional judgment and other criteria it believes to be reasonable under the circumstances.



The difficulty in applying these policies arises from the assumptions, estimates and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions. As the difficulty increases, the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated.



Estimates are considered to be critical if they meet both of the following criteria:  (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and (2) other materially different estimates could have been reasonably made or changed from period to period.



There have been no material changes, other than adoption of FIN 48, to the Companys critical accounting policies since the filing of its Annual Report on form 10-K for the year ended August 31, 2007. The Companys critical accounting estimates include the following:



Inventory Valuation

Finished goods inventories of sugar, pulp and molasses are valued at estimated net realizable value. The Company derives its estimates from sales contracts, recent sales and evaluations of market conditions and trends. Changes in market conditions may cause managements estimates to differ from actual results.



Derivative and Hedging Activities

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, requires the Company to recognize all derivatives, as defined, on the balance sheet at fair value.





9

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The Company periodically enters into fixed asset purchase contracts with foreign manufactures and these contracts require portions of the total contract price to be paid in Euros. If the financial exposure is significant, the Company may enter into derivative contracts to reduce its exposure to variability in foreign currency markets associated with a fixed asset purchase.



During the second quarter ended February 29, 2008 the Company entered into various Euro Forward Contracts with a call option. The Company recorded the premiums paid for the call option contracts as a derivative asset. At May 31, 2008 the Company determined the fair value and accordingly recorded a gain in the accompanying financial statements. All individual and cumulative transactions related to the Euro Forward contract were less than $0.1 million. These Call Options expire at various dates in June, July and August 2008.



Property and Equipment, Property and Equipment Held for Lease, and Depreciation

Property and equipment, and property and equipment held for lease are depreciated for financial reporting purposes principally using straight-line methods with estimated useful lives ranging from 3 to 40 years. Economic circumstances or other factors may cause managements estimates of expected useful lives to differ from actual.



The Company reviews its property and equipment, and property and equipment held for lease for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum of the future cash flows is less than the carrying amount of the asset. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. There were no impairment losses incurred during the nine months covered by this report. However, considerable management judgment is necessary to estimate future cash flows on equipment held for lease and therefore these management estimates may differ from actual results.



Defined Benefit Pension Plan

The Company maintains and administers a defined benefit pension plan. The annual cost of this plan can be significantly affected by changes in assumptions and differences between expected and actual experience. The Company utilizes actuarial methods required by SFAS No. 158,  Employers Accounting for Defined Benefit Pension Plans and Other Post Retirement Plans to account for its defined benefit pension plan. The actuarial methods require numerous assumptions to calculate the net periodic pension benefit expense and the related projected benefit obligations for our defined benefit pension plan. Two of the most significant assumptions are the discount rates and expected long-term rate of return on plan assets. In making these assumptions, the Company is required to consider current market conditions, including changes in interest assumptions.



Key assumptions used to determine annual pension expense are as follows:



2008

        2007Discount rate

        6.50%

        6.50%Expected return on plan assets

        8.0%

        8.0%Rate of total compensation increase

        4.3%

        4.3%




Discount Rate:  An assumed discount rate is required to be used in the pension plan actuarial valuation. The discount rate is a significant assumption. The Companys methodology for selecting the discount rate for the companys plan is to seek guidance from outside pension experts for an appropriate discount rate.



Expected Return on Plan Assets:  The expected long-term rate of return on plan assets should, over time, approximate the actual long-term returns on pension plan assets. The Companys methodology for selecting the Expected Return on Plan Assets is to seek guidance from outside pension experts for an appropriate rate.



Income Taxes

Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves management judgment. The Company calculates income taxes in each of the tax jurisdictions in which we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets.





10

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The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48),Accounting for Uncertainty in Income Taxes,on September 1, 2007. As a result of the implementation of FIN 48, the Company recognized an increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the September 1, 2007, balance of retained earnings.



The total amount of unrecognized tax benefits as of September 1, 2007 and May 31, 2008, respectively, are $0.3 million and $0.3 million. These amounts at September 1, 2007 and May 31, 2008, respectively, include accrued interest and penalties of $0.1 million and $0.1 million.



After the September 1, 2007 implementation of FIN 48, the Company recognizes interest accrued related to unrecognized tax benefits in tax expense.





RESULTS OF OPERATIONS



Comparison of the three months ended May 31, 2008 and May 31, 2007

In the Consolidated Statements of Operations, Distribution of Net Proceeds, allocated costs of sugarbeets paid or payable to growers for production to date, net of unit retention capital, totaled $20.6 million, a decrease of $14.9 million or 42.1% from the prior year.  As of May 31, 2008, Management has estimated the Fiscal 2008 payment to growers for sugarbeets at $94.8 million, which is $45.8 million or 32.6% less than the prior year. The decrease in payments to members is primarily due to a decrease of 0.8 million tons, or 36.7% in the number of delivered tons of sugarbeets. The payment is based upon (i) an average delivered sugar content of 17.4%, (ii) a total member and non-member sugarbeet crop to process of 2.5 million tons and (iii) the Companys projected selling price for its sugar, which is currently estimated to be lower than the previous year.



Revenues for the quarter ended May 31, 2008 were comprised of Sugar 84%, Pulp 5%, Molasses 5% and Yeast 6%.



Revenue and inventory changes for the three months ended May 31, 2008 decreased  $10.6 million from the 2007 period. Revenue from the sale of finished goods decreased $8.7 million and the change in the value of inventories increased $1.9 million.



Revenue from the sale of sugar decreased $7.2 million, or 11.4% reflecting an 8.3% decrease in volume and a 3.1% decrease in the sales price for sugar. The volume decrease was due to a smaller crop. The price decrease was continued movement toward more historical price levels after several hurricanes severely limited sugar supply and increased prices.



Revenue from pulp sales decreased $2.1 million, or 37.7% reflecting a 50.3% decrease in sales volume and a 12.6% increase in the average gross selling price.  The decrease in volume is primarily the result of lower pool production this year. The increase in gross selling price was due to high demand for pulp and rising prices for corn and other commodities used in feed rations.



Revenue from molasses sales increased $0.6 million, or 25.6% reflecting a
30.5% increase in sales volume and a 4.9% decrease in the average gross selling
price. The increase in volume is due to heavier shipments during this period vs.
last year when volume was below average. The decrease in gross selling price was
due to a higher volume of sales into a lower priced market vs. the same period
last year.



Revenues from yeast sales increased less than $0.1 million, or 0.1%
reflecting a 5.8% increase in the average selling price and a 5.7% decrease in
the sales volume. Marketplace prices are higher, a reflection of much higher
factory input and freight costs experienced by the industry, necessitating some
pass-through of these costs to customers. Volume decreases resulted from
decreased demand from existing customers.



The other contributing factor to the change in revenues results from the change in finished goods inventories. The decrease in the value of finished goods inventories for the three months ended May 31, 2008 amounted to $3.9 million or $1.8 million more of a decrease in the value of finished goods inventories for the three months ended May 31, 2007. The primary factor for the decreased change in inventories was due to a lower hundredweight increase of process sugar inventories.





11

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In the consolidated Statement of Operations, Expenses section, production costs of sugar, in-process sugar, co-products and yeast totaled $21.9 million, $5.1 million or 30.7% more than the prior year. The costs of the purchased non-member sugarbeets are amortized evenly throughout the processing period based on hundredweight of sugar produced or sugar thick juice. The Company did not purchase non-member sugarbeets in the prior year. Marketing costs totaled $15.3 million, $2.6 million or 14.5% less than the third quarter ended May 31, 2007. The increase in marketing costs is primarily due to increased sales volume for this period versus the prior period.



Comparison of the nine months ended May 31, 2008 and May 31, 2007

In the Consolidated Statements of Operations, Distribution of Net Proceeds, allocated costs of sugarbeets paid or payable to growers for production to date, net of unit retention capital, totaled $94.8 million, a decrease of $34.6 million or 26.7% from the prior year. As of May 31, 2008, Management has estimated the Fiscal 2008 payment to growers for sugarbeets at $94.8 million, which is $45.8 million or 32.6% less than the prior year. The decrease in payments to members is primarily due to a decrease of 0.8 million tons, or 36.7% in the number of delivered tons of sugarbeets. The payment is based upon (i) an average delivered sugar content of 17.4%, (ii) a total member and non-member sugarbeet crop to process of 2.5 million tons and (iii) the Companys projected selling price for its sugar, which is currently estimated to be lower than the previous year.



Revenues for the nine months ended May 31, 2008 were comprised of Sugar 83%, Pulp 7%, Molasses 5% and Yeast 5%.



Revenue and inventory changes for the nine months ended May 31, 2008 decreased  $32.9 million from the 2007 period. Revenue from the sale of finished goods decreased $1.9 million and the change in the value of inventories decreased $31.0 million.



Revenue from the sale of sugar decreased  $0.8 million, or 0.5% reflecting a 5.9% increase in volume and a 6.4% decrease in the sales price for sugar. The volume increase was in response to a major plant accident at a competitor and resultant supply shortage in the market. The price decrease was continued movement toward more historical price levels after several hurricanes severely limited sugar supply and increased prices.



Revenue from pulp sales decreased $2.0 million or 17.6%, reflecting a 31.6% decrease in sales volume and a 14.0% increase in the average gross selling price. The decrease in volume is primarily the result of lower pool production this year. The increase in gross selling price was due to high demand for pulp and rising prices for corn and other commodities used in feed rations.



Revenue from molasses sales increased $0.6 million or 7.8%, reflecting a 7.3% increase in sales volume and a 0.5% increase in the average gross selling price.  The increase in volume is due to heavier shipments during this period vs. last year. Sugarbeet molasses prices are only marginally higher this year than last year.



Revenues from yeast sales increased  $0.3 million or 2.7%, reflecting a 6.5% increase in the average selling price and a 3.8% decrease in the sales volume.  Marketplace prices are higher, a reflection of much higher factory input and freight costs experienced by the industry, necessitating some pass-through of these costs to customers. Volume decreases resulted from decreased demand from existing customers.



The other contributing factor to the change in revenues results from the change in finished goods inventories. The increase in the value of finished goods inventories for the nine months ended May 31, 2008 amounted to $39.1 million or $30.0 million less than the increase in the value of finished goods inventories for the nine months ended May 31, 2007. The primary factor for a reduced change in inventories was due to a lower increase in the hundredweight of sugar inventories. Fiscal year 2007 began with below normal inventories due to an anticipated high level of 2006-crop production and had above normal production and pricing for the nine month period ended May 31, 2007. Fiscal year 2008 began with more normal inventories and had production and pricing at more historical levels.



In the consolidated Statement of Operations, Expenses section, production costs of sugar, in-process sugar, co-products and yeast totaled $63.3 million, $6.2 million or 10.9% more than the prior year. The increase is a combination of the purchase of non-member sugarbeets from another sugar processor, offset by 231 processing days for the period ended May 31, 2008 versus 266 operating days for the period ending May 31, 2007. The operating days were reduced due to the 2007-crop being significantly smaller than the 2006-crop, which resulted in a later start and earlier end of the processing season. The costs of the purchased non-member sugarbeets are amortized evenly throughout the processing period based on hundredweight of sugar produced or sugar thick juice. Marketing costs totaled $37.5 million, $1.0 million or 2.7% more than the first nine months ended May 31, 2007. The increase in marketing costs is
primarily due to increased sales volume for this period versus the prior period.





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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, all three 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 CoBank (the Bank). The Company has a short-term line of credit with the Bank totaling $50.0 million, of which $31.4 million was available as of May 31, 2008. The Company also has a $15.0 million bid loan supplement facility through the Bank, of which $15.0 million was available on May 31, 2008. The bid loan supplement facility is currently available from the Bank upon request by the Company, however, is contingent upon the Banks lending capacity at the time of request. The Company also had $31.8 million of additional seasonal financing capacity for the period ending May 31, 2008 through the USDA Commodity Credit Corporation under the USDA Sugar Loan Provisions contained in the 2002 Farm Bill, of which $11.2 million was available on May 31, 2008.



The loan agreements between the Bank and the Company are normally renewed each year by the end of the third quarter and are in place for a twelve-month period. The delay in the renewal of the farm program legislation delayed the decision making process on a number of capital expenditures. As a result of the delay in determining the financial needs of the Company, the Bank administratively extended the loan agreements under the same terms and conditons from May 31, 2008 to August 31, 2008. In addition, due to the uncertainty of the Companys decisions on more than one material capital expenditure, the Bank has proposed, and the Company is considering, the possibility of further extending the loan renewal process administratively in the interests of efficiently conducting the loan renewal process.



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





        Maintain a current ratio of no less than 1.10 for the first quarter of a fiscal year and 1.15 for all other quarter and fiscal year ends;




        Maintain a long-term debt and capitalized leases to equity ratio of not greater than .8:1;




        Maintain available cash flow to current long-term debt ratio as defined in the agreement of not less than 1.25:1.




As of May 31, 2008 the Company was in compliance with its loan agreement covenants with the Bank.



Working Capital as of May 31, 2008 totals $31.4 million compared to $13.2 million at August 31, 2007, an increase of $18.2 million for the period. Increased working capital is a result of normal financing, operational and capital expenditure activities of the Company. The Companys normal working capital position pattern is to increase during the first, second and third quarters of its fiscal year and decline during the fourth quarter. The fourth quarter decline is normally attributed to inter-campaign maintenance costs, a higher level of capital spending during the non-operating period, and the recording of shareholder equity revolvements.



The estimated working capital for August 31, 2008 is approximately $11.9 million dollars and, in the Companys opinion, will approximate that number at fiscal year end unless the loan renewal is further extended for administrative purposes. The Company funds its capital expenditure and debt retirement needs primarily from operating activities. The Company has approximately five years of Bank long-term debt remaining and it has two tax-exempt bond issues, one with approximately three years remaining and one with approximately eleven years remaining.





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Capital expenditures for fiscal year 2008 have been approved at $13.3 million; however, some of those capital expenditures are contingent upon further study. The Company anticipates funding a significant portion of these expenditures through a modification to its long-term debt agreement with the Bank. Capital expenditures during the nine months ended May 31, 2008 totaled $4.4 million.



The primary factor for the change in the Companys consolidated cash flow for the nine months ended May 31, 2008 was due to the seasonal needs of the 2007/2008 sugarbeet-processing season. The majority of the seasonal borrowing needs is the result of the scheduled $71.6 million in payments made through May 31, 2008 to growers for the 2007-crop.The cash used to provide for operations of $4.8 million and investing activities of $4.2 million was funded through financing activities of $9.7 million. The net cash provided through financing activities of $9.7 million was primarily provided through proceeds from the issuance of short-term debt and capital leases of $20.4 million, offset by payment of long-term debt and financing fees of $4.7 million and payment of unit retains and allocated patronage to shareholders of $6.0 million.



Below is a table detailing the Companys loan and lease payment obligations:



Contractual Obligations

        

        Total

        

        LessThan 1Year

        

        1 - 3Years

        

        4 5Years

        

        After 5YearsLong-Term Debt

        

        $16.6MM

        

        $2.5MM

        

        $10.8MM

        

        $3.3MM

        

        0Bonds Payable

        

        $15.5MM

        

        $2.0MM

        

        $  5.3MM

        

        $2.1MM

        

        $6.1MMCapital Leases

        

        $  0.6MM

        

        $0.1MM

        

        $  0.2MM

        

        $0.3MM

        

        0Unconditional Purchase Obligations

        

        0

        

        0

        

        0

        

        0

        

        0Other Long-Term Obligations

        

        0

        

        0

        

        0

        

        0

        

        0Total Long Term Obligations

        

        $32.7MM

        

        $4.6MM

        

        $16.3MM

        

        $5.7MM

        

        $6.1MMInterest-Long Term Debt & Bond

        

        $   4.7MM

        

        $1.1MM

        

        $   2.6MM

        

        $0.6MM

        

        $0.4MMOperating Leases

        

        $   2.5MM

        

        $1.2MM

        

        $   1.2MM

        

        $0.1MM

        

        0Total Contractual Obligations

        

        $39.9MM

        

        $6.9MM

        

        $20.1MM

        

        $6.4MM

        

        $6.5MM






ESTIMATED FISCAL YEAR 2008 / CROP YEAR 2007 INFORMATION



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 2007 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 2007 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, the quantity of sugar produced from the sugarbeet crop, changes in plant production efficiencies and sugarbeet
storage conditions 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 harvested 2.2 million tons of sugarbeets from the 2007-crop, approximately 6% below the most recent 5-year average, due to difficult growing conditions early in the growing season. The Company purchased 0.3 million tons of non-member 2007-crop sugarbeets from a neighboring sugar processor. Sugar content of the 2007-crop at harvest was 1% above the average of the five most recent years. The Companys original estimate projected the sugar production from the 2007-crop to be 4% more than the average of the five most recent years of sugar production. The Companys operating and fixed costs must be deducted from the revenues generated from the sale of products produced from each ton of sugarbeets. Original estimated revenues for the 2007-crop year were expected to be 22% below the 2006-crop-year due to reduced sugar production and lower sugar prices; offset somewhat by higher
co-product prices. The original estimated deduction of operating costs and non-member sugarbeet purchases results in an estimated 2007-crop gross payment to growers for sugarbeets of $87.1 million, which was $53.5 million less than that of the record 2006-crop year of $140.6 million. The original estimated 2007-crop sugarbeet payment had decreased as a result of less harvested tons, higher operating costs and lower sugar prices; and was increased by more sugar per ton of sugarbeets harvested and higher molasses and pulp prices.





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The Companys initial sugarbeet payment estimate totaled $39.43 per ton or $0.133028 per harvested/bonus pound of sugar, with the final sugarbeet payment determined in October of 2008. This original projected payment per pound was 15% less than the final 2006-crop payment per pound. The projected 2007-crop payment per ton results from what management believes is a consistent approach to forecasting sugar production and sugar production costs. While the crop had been harvested, it was still at risk for adverse storage conditions, which may have meant that actual results may have differed from forecast.



As of May 31, 2008, the Companys management estimated an additional $7.7 MM value for the member sugarbeets. The primary source of the value increase was due to an increase in the amount of sugar produced from the crop. These management judgments regarding the value of member purchased sugarbeets resulted in the Companys management, subsequent to May 31, 2008, recommending to the Board of Directors an increase to the 2007-crop beet payment of $7.7 million to $42.90 per ton or $0.144752 per harvested/bonus pound of sugar. The Board of Directors, at their June 2008 meeting, approved the change to the payment.



As of the date of this report, the Company has completed its 2007-08 processing season. During the fourth quarter of the Companys fiscal year, maintenance costs have the greatest potential to differ from management estimates. The Company is not aware of any issues that would result in a material adverse impact on the Companys revised estimated $42.90 per ton final sugarbeet payment.





ESTIMATED FISCAL YEAR 2009 INFORMATION



On November 27, 2007, the Companys Board of Directors determined that the planting level for the 2008-crop will be 150% of member preferred shares plus a 2% measuring tolerance for a total planting of 152% of member preferred shares. The 2007 crop planted acres were approved by the Board of Directors at the level of 152% of member-preferred shares. The Company believes only a limited number of acres were not planted up to the maximum allowed levels.



Growing conditions for the 2008-crop have not been ideal due to cooler and wetter conditions than normal. The crop has held up well in spite of conditions and has good potential dependent upon the growing conditions for the remainder of the growing season.





OTHER INFORMATION



Federal programs, regulations and trade agreements



The Food, Conservation, and Energy Act of 2008, otherwise known as the Farm Bill was recently been passed by Congress and has become law with an effective date of October 1, 2008. The Company considers the provisions of the Sugar Title in the Farm Bill to be supportive to the idea of a viable, continuing domestic sugar industry. The Sugar Title in the Farm Bill addresses a number of important elements, including: (1) an increase in the sugar loan rate; (2) the addition of sugar-to-ethanol provisions that should help to balance sugar supply and demand in the U.S. as well as reduce the likelihood of sugar loan forfeitures, which in turn reduces the likelihood of government cost to the program; and (3) language that provides domestic sugar processors with a steady share of domestic sugar consumption.



Provisions of the current Farm Bill and existing trade agreements between the United States and various foreign countries regulate domestic and imported sugar sales in the U.S. Currently imports provide, on average, about 22% of the total domestic consumption of sugar in the U.S., and it is the opinion of the Company and the U.S. sugar industry as a whole that any significant increase in the amount of imported sugar to the U.S. marketplace could result in serious adverse sugar pricing consequences. The U.S. government is pursuing an aggressive agenda on international trade. It is seeking to negotiate new free trade agreements with a number of countries and regions that are major producers and exporters of sugar. The Company believes that these agreements, if negotiated and ratified, could negatively impact the sugarbeet payment to the shareholders and the Companys profitability. If increases in
guaranteed access or reductions in sugar tariffs are included in these agreements, excess sugar from these regions could enter the U.S. market and put pressure on domestic sugar prices.





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The current Farm Bill provides price support provisions for sugar. However, if that price support program, including the Tariff Rate Quota system for imported sugar, were eliminated in its entirety, or if the effectiveness that the U.S.s 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 may result in a reduction in acreage that can be planted by the Companys shareholders, and/or a reduction in sugar selling prices and a corresponding reduction in the sugarbeet payment to the shareholders and in the Companys earnings. This, in turn, could impact the Companys continued viability and the desirability of growing sugarbeets for
delivery to the Company.



North American Free Trade Agreement



The North American Free Trade Agreement (NAFTA) governs sweetener trade between the U.S. and Mexico. Under the NAFTA, tariffs on over-quota imports of sugar from Mexico, which have been systematically reduced since the agreement start, expired on January 1, 2008. This means that sugar from Mexico may now enter and be sold in the U.S. in any quantity without the added cost of tariffs. The U.S. Government forecasts that Mexico will export 600,000 short tons raw value to the U.S. in 2008, which would represent approximately 5.8% of domestic sugar consumption for food; and 550,000 short tons raw value in 2009, representing approximately 5.2% of domestic sugar consumption for food. Key variables that ultimately will determine the amount of imports from Mexico include: 1) Mexican production; 2) Mexican high fructose corn syrup use; 3) Mexican third-country imports and possible substitution; 4) Mexican
government policy decisions, such as a proposed ethanol program and others that could mitigate or increase exports to the U.S.; and 4) possible U.S. and Mexico government agreement on a rational sugar trade policy, other than what currently exists in the NAFTA. Excessive imports of Mexican sugar could cause material harm to the U.S. sugar market, however, the Company is unable to determine what the level of imports would need to be in order to trigger material harm. Based upon current domestic supply and demand numbers it does not appear that the sugar imports as projected by the U.S. Government for 2008 and 2009 would be sufficient to trigger material harm to the U.S. sugar market.



Regional and Bilateral Free Trade Agreements



The U.S. Government has negotiated or is currently negotiating free trade agreements with a number of countries and regions that are major producers of sugar. The primary agreements under consideration that affect sugar, to the Companys knowledge, are the Columbia Free Trade Agreement; the Peru Free Trade Agreement; the Thailand Free Trade Agreement; the Panama Free Trade Agreement; the Free Trade Area of the Americas; the South African Customs Union Free Trade Agreement, and others. The Columbia Free Trade Agreement and the Panama Free Trade Agreement have been completed, signed, but as yet not been ratified by the U.S. Congress. The Company is uncertain if these two trade agreements will be brought before Congress for a vote in 2008. The Peru Free Trade Agreement has been completed, signed and ratified by the U.S. Congress.



The Doha Round negotiations of the World Trade Organization have resumed at some level but it is unclear at this time whether these negotiations will result in an agreement any time soon. There currently are ongoing efforts among key member countries (including the U.S.) to negotiate and finish the Doha Round. If formal negotiations are successful, the outcome of any negotiated arrangement could have adverse consequences for the Company.



The U.S. sugar industry and the Company recognize the potential negative impact that would result if these trade agreements are entered into by the U.S. and are taking steps to attempt to manage the situation. The Company and the sugar industry intend to continue to focus significant attention on trade issues in the future.





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Sarbanes-Oxley Act Internal Control Reporting



The Company is in the process of complying with the mandates of Section 404 of the Sarbanes-Oxley Act of 2002, which requires the Company to furnish a report by management on internal control over financial reporting, including managements assessment of the effectiveness of such controls, in the Companys annual reports for fiscal years ending on or after December 15, 2007. Thus, the Company must first comply with the Section 404 requirements in its Annual Report on Form 10-K for the year ended August 31, 2008.



The Company has hired an outside consulting firm to assist in meeting the requirements to certify that the Company is in compliance with the Section 404 requirements by August 31, 2008. Significant progress has been made in this area and the Company strongly believes it will be able to meet the certification requirements by August 31, 2008.





ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



There have been no material changes to the Companys Quantitative and Qualitative Disclosures About Market Risk since the filing of the Companys Annual Report on Form 10-K for the year ended August 31, 2007.





ITEM 4. CONTROLS AND PROCEDURES



The Company has carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and given the progress toward resolution of the embezzlement matter described below as of the end of the period covered by this report, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective.



There have been significant changes in the Companys internal control over financial reporting that occurred during the nine-month period covered by this report that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting. These changes are intended to improve the Companys internal control over financial reporting and remediate the internal controls the Company identified as compromised in connection with the embezzlement preliminarily described (as a subsequent event) in the Companys Quarterly Report on Form 10-Q for the quarter ended November 30, 2007 and more fully described below.



In late December 2007, the Company identified a series of thefts committed by an employee that had responsibilities related to the preparation of the Companys financial statements. The Companys management immediately began an investigation, under the supervision of the Audit Committee, to determine the extent of the theft and to gauge the adequacy of the Companys internal controls. In early January 2008, the Companys Audit Committee also engaged forensic auditors to conduct a separate investigation and that investigation was substantially completed by late February 2008. After these investigations, the Companys management believes that this embezzlement was committed through issuances of stolen/forged checks to the employee or the employees creditors over a period of ten years, with the embezzlement concealed through fraudulent accounting entries and reconciliations. Upon
discovery of the embezzlement, the employee was terminated from employment with the Company. Currently, criminal charges are pending against the employee.



Through the investigations of this embezzlement, management identified control deficiencies in two primary areas: segregation of duties, and adequacy and accuracy of documentation relating to general ledger and general journal entries. The amounts embezzled were individually, on an annual basis, and in the aggregate not material to the Company. The embezzlement did not result in any material misstatements of the Companys financial statements for any of the affected periods nor did it require any adjustment to the Companys financial statements for any period. Based upon this and other factors, the Companys management believes that the deficiencies in internal control over financial reporting does not present a reasonable possibility that a material misstatement of its financial statements will not be prevented or detected on a timely basis. Nonetheless, the Companys management does
believe that these deficiencies were important enough to merit attention by management and therefore, the Companys management believes that the deficiencies in internal control over financial reporting were significant deficiencies.





        In the beginning of February 2008, the Companys management designed and implemented a plan to remediate the deficiencies in internal control over financial reporting identified through the investigations and to generally enhance the Companys internal control over financial reporting.






17

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While this remediation plan was completed by mid-March 2008, the Company continues to review the effectiveness of its internal controls and seek improvements to its internal control environment. This review and improvement process may suggest that additional changes in internal control over financial reporting are required or advisable in future quarters.



The Companys management does not expect that its disclosure controls and procedures and its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.





PART II. OTHER INFORMATION



Item 1.  Legal Proceedings

None



Item 1A. Risk Factors.

None



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None



Item 3. Defaults upon Senior Securities

None



Item 4. Submission of Matters to a Vote of Security Holders

None



Item 5. Other Information

None



Item 6. Exhibits

a)

        Exhibits

        Item #31.1  Section 302 Certification of the President & Chief Executive OfficerItem #31.2  Section 302 Certification of the Executive Vice President & Chief Financial OfficerItem #31.3  Section 302 Certification of the Controller & Chief Accounting OfficerItem #32.1  Section 906 Certification of the Chief Executive Officer and Chief Financial Officer








18

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SIGNATURES



Pursuant to the requirement 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.





MINN-DAK FARMERS COOPERATIVE(Registrant)Date:

        July 15, 2008

        

        /s/ DAVID H. ROCHEDavid H. RochePresident and Chief Executive OfficerDate:

        July 15, 2008

        

        /s/ STEVEN M. CASPERSSteven M. CaspersExecutive Vice President and Chief Financial Officer








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