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


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|FORM 10-K

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xAnnual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended
AUGUST 31, 2008
OroTransition Report Pursuant
to Section 13 or 15(d) of
The Securities Exchange Act of 1934

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|Commission FileNo. 33-94644

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

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|North Dakota
(State of incorporation)                                                     | 23-7222188
(I.R.S. Employer Identification Number)
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|7525 Red River Road
Wahpeton, North Dakota 58075
(Address of principal executive offices) | (701) 642-8411
(Registrants telephone number)    

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 if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act 
     o YES x NO

Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. 
     o YES x NO

Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES x NO o

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

Indicate
by check mark if 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 2b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Accelerated
filer o
      Non-accelerated filer x
      Smaller Reporting Co o

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
2b-2 of the Exchange Act). YES o NO x





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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.

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

SHAREHOLDER
STOCK VALUE

The
Company is a closed cooperative whose common stock and preferred stock are
subject to significant restrictions on transfer and eligibility requirements.
No public market for voting and non-voting common equity of the Company is
established and it is unlikely in the foreseeable future that a public market
for its voting and non-voting common equity will develop.

Stock
purchased by investors in the Company typically do not use valuation methods
that are commonly used for stock bought or sold on the open market for personal
or institutional investment purposes.

The
Company is typically referred to as a Closed Cooperative. In a Closed
Cooperative, members must purchase equity (represented by classes of preferred
shares) in a cooperative to acquire the rights to participate in the cooperatives
business, and membership must be approved by the Cooperatives Board of Directors. The Company requires
shareholders to own a Unit of Preferred Stock, which currently entitles a
member to grow and deliver a maximum number of acres of sugarbeets per unit as
authorized by the Board of Directors for each farming year. See Part II Item 5
for a more detailed explanation.

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As
of November 24, 2008, 483 shares of the Companys Common Stock and 72,200
units of the Registrants Preferred Stock, each consisting of 1 share of
Class A Preferred Stock, 1 share of Class B Preferred Stock and 1 share of
Class C Preferred Stock, were outstanding.

The
Company has not made any repurchases of its securities in the fourth quarter of
the fiscal year covered by this Annual Report on Form 10-K.

There
is only a limited, private market for shares of the Companys Common or
Preferred Stock, as such shares may be held only by farmer-producers who are
eligible for membership in the Company. The Companys common stock and
preferred stock are not listed or admitted for trading on any stock market, any
system of inter-dealer quotation, or on the Pink Sheets, the OTC Bulletin Board
or any other quotation service for market makers. Transfer of shares, if any,
is subject to significant restriction, including the approval of the Companys
Board of Directors and the requirement that preferred stock must be transferred
together. Therefore, there is no established public trading market for any
class of common equity of the Company and it is unlikely that a public market
for the Companys units will develop in the foreseeable future.

A
number of stock transfers, representing approximately 3 percent of available
stock, were not arms length (estate settlements, estate planning from one
generation to the next, etc.) and an accurate value for that stock was not
available. The Company believes that less than 1 percent of its available stock
was traded at arms length during the fiscal year ended August 31, 2008. Of the
stock transferred at arms length, the transfers were made during the second and
third quarters of the Companys fiscal year and, to the best of the Companys
knowledge, ranged in price from $3,300 to $2,900 per unit. The fourth quarter
did not have any arms length transactions. The value of stock is highly
dependent upon an individual stockholders ability to raise sugarbeets
successfully both agronomically and financially. Prior to purchasing stock, a
potential stockholder is advised to properly research the agronomic aspect of
stock ownership.

DOCUMENTS
INCORPORATED BY REFERENCE

None

PART I

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|ITEM 1. | BUSINESS

GENERAL

The
Company is a North Dakota agricultural cooperative that was formed in 1972 and
currently has 483 members. Membership in the Company is limited to sugarbeet
growers located in those areas of North Dakota and Minnesota within an
approximate fifty (50) mile radius of the Companys offices and sugarbeet
processing facilities in Wahpeton, North Dakota. The Companys facilities allow
the members to process their sugarbeets into sugar and other products. The
products are pooled and then marketed through the services of marketing agents
under contract with the Company. The sugar-marketing agent, United Sugars
Corporation, is a cooperative association owned by its members, the Company, American Crystal Sugar Company and United States Sugar
Corporation. The Companys sugarbeet molasses and sugarbeet pulp are also
marketed through a marketing agent, Midwest Agri-Commodities Company. Midwest
Agri-Commodities Company is a cooperative association owned by its members, the
Company, American Crystal Sugar Company, Southern Minnesota Beet Sugar
Cooperative and Michigan Sugar Company. The Company owns a 100 percent interest
in Minn-Dak Yeast Company, Inc. (Minn-Dak Yeast), which has facilities
located adjacent to the Companys sugar production facilities, and which
produces fresh bakers yeast.

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The
Companys corporate headquarters are located at 7525 Red River Road, Wahpeton,
North Dakota 58075, telephone number (701) 642-8411. Its fiscal year ends
August 31. The Companys website is www.mdf.coop. The Company files
annual, quarterly and periodic reports with the United States Securities and
Exchange Commission (SEC). The SEC maintains an Internet site at
http:/www.sec.gov that contains reports and other information filed
electronically about the Company.

PRODUCTS AND PRODUCTION

The Company is engaged primarily in the production and marketing of sugar from
sugarbeets. The Company also produces and markets certain co-products,
sugarbeet molasses and sugarbeet pulp pellets. The Companys subsidiary
Minn-Dak Yeast uses a portion of the Companys sugarbeet molasses as the growth
medium in the production of fresh bakers yeast. Minn-Dak Yeast provided
revenues totaling approximately 6 percent of the Companys total revenues for
the fiscal year ended August 31, 2008.

The
Company processes sugarbeets grown by its members at its sugarbeet processing
facility located in Wahpeton, North Dakota. The processing period generally
occurs from September to March or April of the following year, depending on the
size of the crop.

Because
the Companys harvest period is much shorter than its processing period,
sugarbeet long-term storage is very important to maximize the earnings from
each crop year. Each harvest is unique and critical judgments are made by the
agricultural staff regarding each crop. Judgments are impacted by the weather
conditions at the time of harvest. If the weather is too warm or too cold the
sugarbeets will not store well.

The
Company uses what it considers to be the best industry practices to preserve
and extend the quality of sugarbeets it has in storage. The methods utilized by
the Company include, but are not limited to: minimizing pile height, leveling
the tops of piles, infrared scanning, timely hauling, splitting piles, passive
ventilation, active ventilation, covering active ventilation piles with
plastic, storage sheds, and insulating sugarbeets in storage sheds. Each method
is evaluated for its anticipated economic impact for each crop year.

The
period during which the Companys processing facility is in operation to
process sugarbeets into sugar and co-products is referred to as the campaign.
The campaign typically begins in September of each year and continues until the
available supply of sugarbeets has been depleted. Once the sugarbeets arrive at
the processing facility, the basic steps in producing sugar from them include:
washing; slicing into thin strips called cossettes; extracting the sugar from
the cossettes in a diffuser; purifying the resulting raw juice and boiling
it, first in an evaporator to thicken it and then in vacuum pans to crystallize
the sugar; separating the sugar crystals in a centrifuge; drying the sugar; and
storing sugar in bulk form for bulk and bag shipping.

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

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RECENT
CROPS

The
Companys members harvested 1.9 million tons of sugarbeets from the 2008-crop,
approximately 19 percent less than the most recent 5-year average. The
Companys shareholder/growers were unable to harvest approximately 30 percent
of the crop due to extremely wet harvest conditions in a significant part of
its growing area. Sugar content of the 2008-crop at harvest was 5 percent below
the average of the five most recent years. Due to the lower harvested tons and
lower sugar content, the Companys production of sugar from the 2008-crop
sugarbeets is expected to be 27 percent less than the average of the five most
recent years of sugar production. This forward-looking material is based on the
Companys expectations regarding the processing of the 2008 sugarbeet crop; the
actual production results obtained by processing those sugarbeets could differ
materially from the Companys current estimate as a result of factors that
include changes in production efficiencies and storage conditions for the
Companys sugarbeets.

The
Companys initial sugarbeet payment estimate totals $38.00 per ton or
$0.13466351 per harvested /bonus extractible pound of sugar, with the final
sugarbeet payment determined in October of 2009. This projected payment is 19
percent less than the final 2007-crop payment per ton and 14 percent less per
pound of extractible sugar. The lower projected 2008-crop payment per ton
results from fewer total tons of beets processed, lower sugar content in the
sugarbeets and increased operating and fixed costs per ton; and offset somewhat
by higher sugar and by-product prices versus the prior year.

For
a discussion of the 2008, 2007 and 2006 crops and results of operations for
fiscal years 2008, 2007 and 2006, see MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

MARKETING,
CUSTOMERS AND PRICING

The
Companys ability to market sugar each year under the current U.S. Farm Bill is
highly dependent upon the U.S. Department of Agricultures (USDA) Overall
Allotment Quantity (OAQ) announcements. For the current allocation year the
Company has allocation rights to market 5.7 million cwt of refined sugar based
on the current USDA OAQ announcement of 8,925,000 short tons raw value
(STRV). The USDA OAQ has varied from a high of 9,300,000 STRV to a low of
8,100,000 STRV over the past six years. Each 100,000 STRV of OAQ computes to
63,000 cwt of base marketing allocations for the Company. Each 1,000 acres of
planted sugarbeets is estimated to produce 56,000 cwt of sugar for sale from an
average crop. To the extent the Companys sugar production exceeds its
marketing allocations, it must carry the additional sugar in inventory until
the next year, sell sugar without allocations to another sugar processor, sell
sugar to non-human consumption users, sell sugar for export or reduce future
plantings of sugarbeet acres. The Company may find it necessary to reduce
planted acreage in a future year in order to balance production with available
allocations.

United
Sugars Corporation (United Sugars), a common marketing agency operating on a
cooperative basis, is the marketer for the Companys sugar. The Company owns
United Sugars along with two other sugar-producing companies (American Crystal
Sugar Company and United States Sugar Corporation) and exists to market sugar
produced by the three member owners.

As
of this writing the Company has a 12 percent ownership interest in United
Sugars with contributed capital totaling $1.0 million.

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The
Company, as well as the other members of United Sugars, has entered into a
Uniform Member Marketing Agreement with United Sugars, as amended on
September 20, 2007. Under that agreement, the sugar produced by the Company is
pooled with sugar produced by the other sugar-producing member owners and is
then sold through the efforts of United Sugars. The Company receives payment
for its sugar by receiving its pro rata share of the net proceeds from the sale
of the pooled sugar. The net proceeds of such sales represent the gross
proceeds of the sale of the sugar, adjusted for the various costs and expenses
of marketing the pooled sugar, including the Companys pro rata share of the
marketing and sales expenses incurred by United Sugars. Any net proceeds from
the operation of United Sugars are distributed to the members on a patronage
basis.

United
Sugars sells industrial bulk sugar, industrial bagged sugar, packaged sugar for
retail and specialty sugars. It distributes both cane sugar and beet sugar, and
distributes sugar to customers over a large geographical area. United Sugars
markets the Companys sugar primarily to industrial users such as
confectioners, breakfast cereal manufacturers and bakeries. The customer base
of United Sugars includes most of the large domestic industrial sugar users.
The customer base also includes retail grocery companies and wholesalers. The
Company has no single customer, which accounts for more than ten percent (10%)
of its consolidated revenues. For the fiscal year ended August 31, 2008, 95
percent of the Companys sugar was shipped in bulk form, mostly to industrial
users, and 5 percent in bagged powdered sugar.

The
prices at which United Sugars sells the Companys sugar fluctuate periodically
based on changes in domestic sugar supply and demand. Bulk sugar, the largest
portion of the Companys sales, is contracted one or more quarters in advance,
with the effect of stabilizing fluctuations in revenue from quarter to quarter.
Retail (grocery) products are sold mostly on a quarterly basis. Current net
selling prices for sugar are forecast to be higher than the prior year because
of: (1) decreased levels of domestic sugar availability, which is due to lower
than historical planted sugarbeet acres and the loss of 15 percent of cane
sugar refining capacity; and (2) increased demand for sugar. Lower planted
sugarbeet acres are due to the increased value of competing crops in the U.S.
and loss of cane sugar refining capacity was due to a major dust explosion,
which took out of production a large cane refinery until the end of this
calendar year, at the earliest.

The
Company markets its co-products, dried sugarbeet pulp and sugarbeet molasses,
through Midwest Agri-Commodities Company (Midwest Agri), a common marketing
agency operating on a cooperative basis, whose members are the Company,
American Crystal Sugar Company, Southern Minnesota Beet Sugar Cooperative and
Michigan Sugar Company. Midwest Agri markets sugarbeet pulp, sugarbeet molasses
and other liquid livestock feed for its member owners as well as non-members.
Sugarbeet pulp is marketed to livestock feed mixers, livestock feeders and
other animal feed sellers (pets, horses etc.) in the United States and foreign
markets. Sugarbeet molasses is marketed to yeast and pharmaceutical
manufacturers and for use in animal feeds in the United States.

As of this writing the Company has a 25 percent
ownership interest in Midwest Agri with contributed capital totaling less than
$0.1 million.

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

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For
the year ended August 31, 2008, approximately 57 percent of Midwest Agris
sugarbeet pulp production was exported to Asia, Europe, and Africa and the
remaining 43 percent was sold in North America. The market for sugarbeet pulp
is affected by the worldwide supply of dried sugarbeet pulp, the availability
and quality of competitive feedstuffs, the cost of transportation and by the
strength of the U.S. dollar relative to local currencies in export markets.
Dried sugarbeet pulp prices increased in FY 2008 due primarily to decreased
production of dried sugarbeet pulp, high demand, and increasing corn and other
commodity prices used in animal feeds. Production of dried sugarbeet pulp
decreased in the United States as a result of lower yields in most growing
areas. Sugarbeet molasses prices decreased in FY 2008 primarily due to
increased molasses production in India and Pakistan, causing an oversupply in
the world market. World market prices were down resulting in lower prices to
the U.S. feed trade.

Co-product
sales accounted for approximately 11 percent of the Companys total
consolidated net sales revenue during FY 2008. This relationship is primarily a
function of the average market prices for sugar, sugarbeet pulp, and sugarbeet
molasses and is not necessarily indicative of future relationships between co-product,
fresh yeast and sugar revenues, because prices and production of these products
fluctuate independently of each other.

The
Companys subsidiary company Minn-Dak Yeast manufactures bagged and cream fresh
bakers yeast in a plant located adjacent to the Companys sugar plant in
Wahpeton, North Dakota. A portion of the Companys sugarbeet molasses
production is used in Minn-Dak Yeasts process and is sold through a supply
agreement between the two companies. Minn-Dak Yeast has a long-term marketing
agreement with National Yeast LLC to market and sell all production of its
yeast. That agreement will expire on May 31, 2011.

GROWERS
AGREEMENTS

The
Company purchases virtually all of its sugarbeets from members under contract
with the Company. All members have automatically renewing contracts with the
Company covering each growing season (the Growers Agreements). At the end of
each year, the Growers Agreement automatically extends for an additional year,
so that such agreements always have a remaining term of one year, unless the
Company, prior to the automatic renewal, has given notice of termination. In
that situation, the agreement will not renew, but will continue in effect for
the then remaining year under the agreement. Each Unit of Preferred Stock
currently entitles a member to grow the maximum number of acres per share
authorized by the Board of Directors for each farming year. The Companys Board
of Directors has the discretion to adjust the acreage that may be planted for each
Unit of Preferred Stock held by the members. For the 2008-crop year the
Companys Board of Directors authorized its members to plant 1.52 acres per
unit. For the 2009-crop year, the Companys Board of Directors has authorized
members a planting level of up to 1.60 acres but no less than 1.40 acres per unit; however, this authorization is
subject to change by the board before the planting of the 2009-crop. The
increased authorized acres for planting are due to a desire to more fully
utilize the Companys plant capacity and the anticipated sugar marketing
allocations that will be available for the 2009-crop production. (For a
discussion of the current farm bill sugar allocations, see Managements
Discussion on Government Programs and Regulations.)

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

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

COMPANY DISTRICTS

The
Companys by-laws provide that the Companys members are to be divided into
districts for the purposes of voting and the election of members of the Board
of Directors. Those districts do not have specific geographic boundaries but,
instead, contain a loosely defined area representing the area served by a
particular piling station to which members deliver their sugarbeets for storage
until the sugarbeets are to be processed. When a member joins the Company, he
or she is assigned to a particular district based upon criteria including: (i)
the physical location of the shareholders sugarbeet growing acres relative to
a piling site; (ii) if the previous criteria do not clearly indicate the
district to which the shareholder should be assigned, then the physical
location of the shareholders base of farming operations relative to a piling
site (some members deliver sugarbeets to more than one piling site due to the
locations of their various fields, even though they are assigned to membership
in only one district); and (iii) if the first two criteria do not provide a
clear indication of the district to which the shareholder should be assigned,
then the shareholder is given the option of being assigned to the district
which would best serve the needs of that shareholder.

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

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RESEARCH AND DEVELOPMENT

The
Company conducts very little research and development activity, but does
participate in some sugar industry research and development activities. Any
research findings are then shared by the entire sugar industry. Participatory
research and development is accomplished through such organizations as the Beet
Sugar Development Foundation and North Dakota/Minnesota Research and Education
Board. The Company participates in the organizations listed above through the
efforts of its representatives to the boards of directors of those entities.
The Companys representatives, either a member of the Companys Board of
Directors or a management employee of the Company, allow the Company to
participate in and help direct agricultural and factory operations research and
development activities carried out by the listed organizations. Those
organizations also have established various committees on which the Company has
placed certain of its employees. That practice is designed to provide the
company with direct access to any research and development information
available from the applicable committees. None of the Companys employees or
directors devotes a significant portion of their time and energies to the
activities described in this section.

During
the fiscal year ended on August 31, 2008, the Company contributed approximately
$0.1 MM to the North Dakota/Minnesota Research and Education Board to fund that
entitys research and development activities and the Company spent $0.2 MM for
research aimed at process improvements.

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

ENVIRONMENTAL
MATTERS

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

The
Company has $0.1 million of environmental capital improvements budgeted for the
fiscal year ending August 31, 2009, the same as for fiscal year 2008.

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

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MARKET
AND COMPETITION

Current
U.S. Government statistics estimate total U.S. sugar deliveries for domestic
food and beverage consumption at 197.7 million cwt refined for the fiscal year
beginning October 1, 2007 and ending September 30, 2008. For the same period ending
in 2007, total deliveries were 185.3 million cwt refined. Comparing the two
years shows demand increased 6.7 percent for U.S. sugar sellers. According to
the USDA, much of the increase in sugar deliveries is likely due to
substituting for high fructose corn syrup (HFCS). The USDA also believes that
deliveries for FY 2009 will depend to some degree upon relative prices between
refined sugar and HFCS. U.S. Government information indicates that from FY 2005
through FY 2008 deliveries in all categories of industrial end users (bakery
& cereal, beverages, ice cream & dairy, canned, bottled and frozen food
and multiple uses) increased; while confectionery deliveries have remained
fairly constant. The U.S. Government estimates that FY 2009 deliveries will
total 196.3 million cwt refined, about .7 of one percent less than FY 2008.

Given
the size of the domestic market, the Companys sugar production and sales
represent approximately 3.5 percent of the total domestic market for refined
sugar in 2008. United Sugars Corporation, which sells the Companys production
through a sugar marketing pool, represented approximately 27 percent share of
the FY2008 U.S. sugar market.

The
U.S. refined sugar market has grown over the past fifteen years at a rate about
equal to population growth, despite a loss of demand to the substitution of
high fructose corn syrups for sugar in beverages and certain food products.
Non-nutritive sweeteners such as aspartame and Sucralose have also been
developed as a substitute for sugar. The substitution of non-sugar sweeteners
for sugar not only reduced demand for sugar in the United States, but has also
resulted in a high degree of sugar industry contraction. Also, sugar companies
have been consolidating or closing as a result of marketplace conditions. Today
there are seven sugar sellers, with approximately 90 percent of U.S. sugar
market share concentrated in the top five sellers, most of which are integrated
sugarbeet and sugarcane suppliers. The Companys main competitors in the
domestic market are Imperial Sugar Company, American Sugar Refining Company,
Amalgamated Sugar Company and Cargill. Competition in the U.S. sugar industry,
because sugar is a fungible commodity, is primarily based upon price, customer
service and reliability as a supplier.

GOVERNMENT PROGRAMS AND REGULATION

Domestic
sugar prices are supported under a program administered by the United States
Department of Agriculture (USDA). Under the current program, which was
initiated in 1981 and extended under the Food Security Act of 1985, the Food,
Agriculture, Conservation and Trade Act of 1990, the Federal Agriculture
Improvement and Reform Act of 1996, the Farm Security and Rural Investment Act
of 2002 and now the Food, Conservation, and Energy Act of 2008 (the Farm
Bill), the price of sugar is required to be maintained above the price at
which producers could forfeit sugar to repay non-recourse loans obtained
through the Commodity Credit Corporation (CCC). The USDA maintains sugar
prices without cost to the U.S. Treasury by regulating the quantity of sugar
imports. The U.S. currently imports approximately 23 percent of its total
domestic needs.

Food,
Conservation, and Energy Act of 2008

The
Farm Bill was enacted in June 2008. It contains several provisions related to
the domestic sugar industry, with the ultimate goal of such provisions to
achieve balance and stability in the U.S. sugar market while minimizing the
cost to the Federal government. The Farm Bill applies to the 2008 through
2012-crop years. Generally, the Farm Bill restricts imports of foreign sugar,
maintains a non-recourse loan program, and establishes a system of marketing
allocations for sugarbeet and sugarcane producers in an attempt to balance the
supply and demand for sugar in the U.S. domestic sugar market.

10

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Under
the Farm Bill, sugar processors can borrow funds on a non-recourse basis from
the Commodity Credit Corporation (CCC), with repayment of such funds secured by
sugar. When the price of sugar drops below the forfeiture price, the processors
can forfeit the sugar securing the loans to the CCC in lieu of repayment.
Processors may also obtain CCC loans for in-process sugar or syrups at 80
percent of the loan rate.

The
USDA has historically maintained sugar prices above the forfeiture price
without cost to the U.S. Treasury by regulating the supply of sugar in the U.S.
market through regulating the quantity of sugar imports and the establishment
of an overall allotment quantity for the domestic sugar producers. Under the
Tariff Rate Quota (TRQ) implemented October 1, 1990, sugar-producing
countries are allowed to export a fixed quantity of sugar into the United
States duty-free or subject to minimal duties. The amount of the TRQ
established by USDA for FY 2009 is 1,231,497 short tons raw value (STRV), or
the minimum access commitment level under World Trade Organization (WTO).
In addition, the USDA also set the FY 2009 refined TRQ at 104,251 STRV,
increased the FY 2008 refined sugar TRQ by 300,000 STRV (citing a tight market
for refined sugar) and estimated the entry from the Central American Free Trade
Agreement and Dominican Republic Free Trade Agreement (CAFTA, DR trade
agreement) a TRQ of 121,760 STRV. The USDA has projected that the amount of raw
and refined sugar TRQ from all sources will total 1,458,344 STRV for FY 2009.

The
Farm Bill sets an 18-cent per pound loan rate for raw cane sugar and a
22.9-cent per pound loan rate for refined beet sugar. Both loan rates are
effective for the 2008-year crop. The Farm Bill also provides for gradual loan
rate increases for both raw cane sugar and refined beet sugar for the crop
years 2009 through 2012; so that for the 2012 crop the raw cane sugar loan rate
would equal 18.75 cents per pound and 24.09 cents per pound for refined beet
sugar.

In
order to reduce the risk of sugar forfeitures to the CCC and to provide balance
in the marketplace, the Farm Bill establishes annual flexible marketing
allotments for both cane and sugarbeet sugar processors. The Farm Bill requires
the USDA to set the overall allotment quantity (OAQ) for the U.S. domestic
sugar market for each crop year at no less than 85 percent of the estimated
quantity of sugar for domestic consumption. Once the USDA has determined the
OAQ for a crop year, it then determines each allotment for sugarbeet and
sugarcane sugar by multiplying the OAQ by 54.35 percent for beet and 45.65
percent for cane. An individual processors allocation of the allotment for a
crop year is determined by formula set forth in the Farm Bill. Each domestic
processor of sugar, which includes the Company, is provided an allocation
whenever allotments are in effect, based upon that formula. Sugarbeet processor
allocations are based on each sugar processors sugar production history, while
sugar cane processor allocations are based on past marketings, ability to
market and past processings. The USDA annually establishes individual
processors allocations.

Under
the Farm Bill, a processor may market sugar in excess of its allocation if such
sales (i) enable another processor to meet its allocation,
(ii) facilitate the export of sugar or (iii) are made for nonhuman
consumption. Or any sugar in excess of a processors allocation may be
held until such time that allotments are lifted or additional allocations become
available. The USDA can assess a penalty equal to three times the U.S. market
value of any quantity of sugar marketed in excess of a processors allocation.
The Farm Bill and its related regulations do not allow marketing allocations to
be traded among processors. The Farm Bill does, however, provide for the
transfer of allocations associated with a particular processing facility in the
event ownership of the facility is transferred.

The
marketing allotments and allocations set forth under the Farm Bill affect the
sugar processed from the 2008 crop through the 2012 crop. On an annual basis,
the marketing allotments, and the corresponding allocation to the Company, will
determine the amount of sugar the Company can sell into the domestic market.
The Companys allocation may reduce the amount of sugar the Company can market for a given year, thus reducing the number of
acres of sugarbeets required for processing. The Company anticipates that it
may have to increase or reduce its authorized planted acres each year to more
closely match its anticipated allocation of sugar sales. The Company also
manages its allocation needs by selling non-allocation sugar to other sugar
producers and for non-human consumption needs, which are not counted against
allocation sales.

11

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North
American Free Trade Agreement

The
Company believes the North American Free Trade Agreement (NAFTA) could
present a potential serious public policy challenge to itself and the domestic
sugar industry. Under the terms of the NAFTA text the agreement established a
common market between the United States and Mexico in sugar in
2008. Effective January 1, 2008, under NAFTA, there are no duties or
quantitative restraints between the two countries on all sugar and HFCS trade.

Should
there be low world raw sugar prices it would be economically viable for Mexican
sugar to enter the United States in any year, if the Mexican interests so
choose. Since January 1, 2008 there has not been a sugar market disruption due
to NAFTA in the US for a variety of reasons; mostly those reasons have to do
with the market conditions that currently exist in the US and Mexico, including
supply / demand reasons. It is possible that the NAFTA could, in the future,
have a material adverse effect on the Company through 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 to the Company earnings. The magnitude of the impact cannot be
determined at this time.

World
Trade Organization

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

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

The
147 members of the WTO reached an agreement July 31, 2004, on a framework for
the final phase of the Doha Development Agenda of global trade talks. The
original deadline to complete talks by January 1, 2005, has been postponed a
number of times. Talks have stalled repeatedly and currently there appears to
be little chance of WTO countries completing the Doha in the short term. The
effect of any final WTO agreement on United States farm programs and
the sugar program in particular and the Company will depend largely on the
details of the agreement, which have not yet been fully negotiated.

12

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Dominican
Republic - Central American Free Trade Agreement

The
Dominican Republic - Central American Free Trade Agreement (DR-CAFTA) was
signed into law in 2005 and was substantially implemented starting on
January 1, 2006. As a result, the Company has seen an increase in the
amount of sugar that will be imported into the United States as a result of
this agreement. The impact of this trade agreement on the Company will continue
to be assessed by taking into consideration this and all of the other
agreements that require certain amounts of raw or refined sugar to be imported
to the US, and the resultant amount of sugar that becomes available for sale in
the domestic sugar marketplace. It is possible that the trade agreement could
have a material adverse effect on the Company through 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 the Company earnings. The magnitude of the impact cannot be
determined at this time.

Regional
and Bilateral Free Trade Agreements

The
United States 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 of sugar. The Company believes
these agreements, if they reach fruition, could negatively impact the Companys
profitability. The primary agreements under consideration, to the Companys
knowledge, are the Free Trade Area of the Americas; the U.S.-Colombia Free
Trade Agreement; the U.S.-Peru Free Trade Agreement; the U.S.-Ecuador Free
Trade Agreement; the Thailand Free Trade Agreement; the U.S.-Panama Free Trade
Agreement and the South African Customs Union Free Trade Agreement. Many of the
countries included in these agreements are major sugar producers and exporters.
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. The U.S. sugar industry and
the Company recognize the potential negative impact that would result if these
agreements were entered into by the United States.

The
impact of the various trade agreements on the Company can not be assessed at
this time due to the uncertainty concerning the terms of the agreements and
whether they will ultimately be implemented. It is possible, however, that the
passage of various trade agreements could have a material adverse effect on the
Company through 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 to the Company
earnings. The magnitude of the impact cannot be determined at this time.

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

13

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EMPLOYEES

As of November 3, 2008,
the Company had 307 full-time employees, of whom 270 were hourly and 37 were
salaried. It also employs approximately 403 additional hourly seasonal workers
during the sugarbeet harvest and processing campaign. The Company
has a collective bargaining agreement with the Bakery, Confectionery, Tobacco
Workers and Grain Millers International Union (AFL-CIO, CLC) for its factory
employee group. The contract became effective June 1, 2005 and continues
through May 31, 2011. Office, clerical, management, truck drivers and harvest
employees are not unionized. Full time employees are provided with health,
dental and vision insurance, a defined benefit or defined contribution
retirement plan, a 401(k) retirement savings plan, a long term disability plan,
sick leave plan, term life insurance, vacation plan and holiday pay. Seasonal
workers are also provided some of these same employee benefits. The Company
considers its employee relations to be excellent.

|         |             
|-------- | ------------
|ITEM 1A. | RISK FACTORS

If
any of the following risks actually occur, the Companys results of operations,
cash flows and the trading price of our common stock could be negatively
impacted. Although the Company believes that it has identified and discussed
below the key, significant risk factors affecting its business, there may be
additional risks and uncertainties that are not presently known or that are not
currently believed to be significant that may adversely affect its performance
or financial condition.

Regional and Bilateral Trade Agreements          In
the event that the United States government enters into bilateral trade
agreements with sugar producing countries, the amount of sugar in the domestic
sugar market could be impacted. A change in the supply of sugar could put
pressure on the price of sugar, which would impact the Companys profitability.

Government
Programs and Regulations; LegislationThe
nature and scope of future legislation and regulation affecting the sugar
market cannot be predicted and there can be no assurance that price supports
and market protections will continue in their present forms. If the price
support programs were eliminated in their entirety, or if certain protections
the United States government 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 effects could negatively impact the desirability of growing sugarbeets for
delivery to the Company, the Companys financial results, and the Companys
continued viability.

Unregulated
Foreign CompetitionUnder
the current terms of the NAFTA and other government regulations, imports of
sugar from Mexico may enter the U.S. market. These imports could oversupply the
U.S. market and negatively affect the price of sugar. The Company, along with
the domestic sugar industry, is seeking improvements to NAFTA to address the
matter. If the sugar industry is unsuccessful in these and any other endeavors
it pursues to prevent the influx of Mexican sugar into the U.S. market, there
could be adverse financial consequences to the Company and its members.

The Farm
BillThe
impact of the Farm Bill on the operations of the Company cannot be completely
predicted. The long-term ramifications of the marketing allotment and
allocation program depend on the Companys base allocation received on an
annual basis and its ability to obtain access, if necessary, to additional
allocations at a reasonable price.

14

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Operating
Expenses and Sugar Prices

The
Company has an ongoing strategy of maximizing profitability by controlling
operating expenses and maximizing production of sugar. This strategy is
necessary because the price of sugar has remained within a fairly narrow
government program controlled price range. The strategy includes ongoing
activities that include constant review of costs and a capital expenditure
program that emphasizes efficiencies through cost reduction or production
increases. The Company cannot be assured that its continued efforts in this
area will result in its continued or increased profitability.

The
Company consumes large quantities of energy in its operations. The Company
annually consumes coal, electricity, metallurgical coke, diesel fuel, and
natural gas; therefore significant changes in energy prices would have a
significant affect on the operating costs of the Company. The Company also
consumes operating supplies whose costs are impacted by the price of energy,
and therefore the price to the Company. The Company has a strategy to purchase
its energy needs and operating supplies as cheaply as possible through
long-term contracts, volume purchases and competitive bidding.

Weather
and Other FactorsThe
sugarbeet, as with most other crops, is affected by weather conditions during
the growing and harvesting seasons. Additionally, weather conditions during the
processing season affect the Companys ability to store sugarbeets held for
processing. Growing and storage conditions different from the Companys
expectations may change the quantity and quality of sugarbeets available for
processing and therefore may affect the quantity of sugar produced by the
Company. A significant reduction in the quantity or quality of sugarbeets
harvested resulting from adverse weather conditions, disease (such as
rhizomania) or other factors could result in increased per unit processing
costs and decreased production, with adverse financial consequences to the
Company and its members.

|         |                           
|-------- | --------------------------
|ITEM 1B. | UNRESOLVED
 STAFF COMMENTS

There
are no unresolved written SEC staff comments regarding the Companys periodic
or current reports under the Securities Exchange Act of 1934.

|        |           
|------- | ----------
|ITEM 2. | PROPERTIES

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

The
properties are adequate to process normal and above normal crop sizes, and for
the last three years have averaged a slice rate of 9,864 tons per day. The
2006-crop was the largest tonnage in the history of the Company, amounting to
approximately 3,019,000 tons of sugarbeets. If the Company encounters normal
weather patterns, which will in turn provide normal long-term sugarbeet storage
conditions, then it does not anticipate having material difficulties in
processing crops equal in size to the 2006-crop. Achievement of the levels of
slice and sugar production in the factory is due mostly to the quality of the
crop and the Companys effort to maximize the potential production from a crop.

Minn-Dak
Yeast Company (MDYC), of which the Company is a 100 percent owner, operates a
single factory yeast manufacturing business at Wahpeton, North Dakota. MDYC
owns the factory and the land on which it is located. During fiscal 2008, fresh
yeast was produced and sold into the domestic yeast marketplace.

15

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

|        |                   
|------- | ------------------
|ITEM 3. | LEGAL
 PROCEEDINGS

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

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

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

On July 16, 2008 the
Companys shareholders voted to add Section 5 to its By-Laws as an amendment.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | Section
 5. UNIT RETAINS PAID IN MONEY. The corporation shall pay a price per pound of
 extractable sugar to the shareholder for beets delivered and accepted by the
 corporation in the form of a unit retain paid in money, previously referred
 to as the Grower Payment. This Unit Retain Paid in Money shall be paid to a
 patron with respect to products marketed for him, the amount of which is
 fixed without reference to the net earnings of the organization pursuant to
 an agreement between the organization and the shareholder. | 

At
the Annual Meeting of Shareholders which is to be held on December 9, 2008, the
following seats on the board of directors will be up for election: District #4,
District #5, and District #7. A brief biography of each of the candidates for
the open seats follows. The District #4 director, Michael Hasbargen, is not
eligible for reelection as he as completed all the terms allowed under the
Company bylaws.

DISTRICT
#4

PATRICK
FREESE graduated Breckenridge High School in 1977 and North Dakota College of
Science in 1979. From 1979 to 1985 Mr. Freese worked as a sales coordinator for
Chief Industries in Grand Island, NE. Mr. Freese has been farming near Kent, MN
since 1985. Mr. Freese has, and continues to, serve his community and church in
several areas. He was a member and chairman of the Minn-Dak Farmers Cooperative
Political Action Committee. Mr. Freese is a member of various farm and
commodity organizations.

16

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DISTRICT
#5

BRENT
DAVISON has been a director since 2003 and is currently serving as the board
vice chairman. Mr. Davison earned his B.S. degree in Education at Concordia University,
Moorhead, MN, graduating in 1972. Mr. Davison taught school in Warren, MN from
1972 until coming home to farm near Tintah, Minnesota area in 1974. He is
currently serving on the Tintah Township Board and is a former volunteer
fireman and first responder. Mr. Davison is also one of Minn-Daks
representatives to the American Sugarbeet Growers Association in Washington,
DC. He also serves on the board of directors for United Sugars Corporation.

DISTRICT
#7

DALE
BLUME has been a director
since 2005 and also serves on the board of directors for Minn-Dak Yeast
Company. He graduated from the NDSU
with a degree in Ag Economics in 1973. He began farming in 1971 and continues
to be actively farming today. Mr. Blume is one of Minn-Dak Farmers Cooperatives
original stockholders. Mr. Blume is a member of the
Delaware Township Board, and is a director at the First State Bank in
Kensington, MN. He is also the co-chairman of the administrative council and on
the financial committee of the United Methodist Church in Herman.

PART II

|        |                                                                    
|------- | -------------------------------------------------------------------
|ITEM 5. | MARKET FOR COMPANYS COMMON EQUITY AND RELATED STOCKHOLDER
 MATTERS

SHAREHOLDER
STOCK VALUE

The
Company is typically referred to as a closed cooperative. In a closed
cooperative, members must purchase equity (represented by classes of preferred
shares) in a cooperative to acquire the rights to participate in the
cooperatives business, and membership must be approved by the Companys Board
of Directors.

The
Companys equity consists of common stock and preferred stock. The Companys
preferred stock consists of Class A preferred stock, Class B preferred stock
and Class C preferred stock, with one share of each class of preferred stock
constituting a unit of preferred stock.

Stock
is not purchased in the Company using the traditional valuation methods used
for stock commonly bought or sold for personal or institutional investment
purposes.

A
requirement for owning the Companys stock includes the shareholder being
actively engaged in farming and having an active interest in the crop being
produced.

The
Company believes a shareholder purchases the Companys stock in order to secure
acreage delivery rights, and therefore is based upon the purchasers ability to
make a profit by delivering sugarbeets to the Company.

The
Company believes each individual shareholder will have a different financial
model for its economic analysis of Company stock purchase. Estimates for direct
input costs to raise a sugarbeet crop vary significantly from shareholder to
shareholder. The Company has no direct knowledge of the total of the direct
input costs.

17

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A
shareholder is at risk for the size and quality of the sugarbeet crop to be
raised. The ability of a shareholder to raise a quality crop of significant
quantity to not only cover the shareholders input costs, but also provide for
a return on stock ownership and stockholder management inputs is key to
determining the economic value the Companys stock holds for the shareholder or
potential shareholder.

A
shareholder is able to insure the risk of growing a crop through the purchase
of Federal Crop Insurance. The Federal Crop Insurance program is managed by
RMA, a branch of the United States Government. Changes in the Federal Crop
Insurance program may have a significant impact on the level of financial risk
that a shareholder may be able to insure.

A
shareholder is also at financial risk based on the ability of the Company to
pay the shareholder a sugarbeet payment that provides him/her with a profit.

Because
the return to a shareholder is based upon the results of an entire year, the
Company believes reliance upon one quarter of financial activity in comparison
to a similar quarter of activity in a prior year is of limited value versus
comparisons made at fiscal year end. Quarterly financial statements have
significant management judgments regarding the final crop value.

Because
the Company and other sugar companies have different methods of describing and
paying their shareholders for sugarbeets delivered, the publicly announced
payments by companies need to be adjusted for quality, patronage, trucking, and
re-hauling costs to arrive at a comparable payment to the shareholder/grower
for the delivery of those sugar beets.

The
Companys common stock and preferred stock are not listed or admitted for
trading on any stock market, any system of inter-dealer quotation, or on the
Pink Sheets, the OTC Bulletin Board or any other quotation service for market
makers. Transfer of shares, if any, is subject to significant restriction,
including the approval of the Companys Board of Directors and the requirement
that preferred stock must be transferred together. Therefore, there is no
established public trading market for any class of common equity of the Company
and it is unlikely that a public market for the Companys units will develop in
the foreseeable future.

Further,
the rules of the Securities and Exchange Commission require that the Company
provide a line graph presenting the cumulative, five-year returns on an indexed
basis with a broad market index and either a nationally recognized industry
standard or an index of peer companies selected by the Company. Because there
is no established public trading market for any class of the Companys equity
securities, the Company is unable to estimate the value of any class of the
Companys equity securities or present a line graph or any other information
comparing the value of any of the Companys equity securities with any index.

As
of November 24, 2008, there were 483 holders of the Companys common stock and
483 holders of units of the Companys preferred stock.

The
Company has not transacted any repurchases of its securities in the fourth
quarter of the fiscal year covered by this Annual Report on Form 10-K.

There
is only a limited, private market for shares of the Companys Common or
Preferred Stock. A number of stock transfers, representing approximately 3
percent of available stock, were not arms length (estate settlements, estate
planning from one generation to the next, etc.) and an accurate value for that
stock was not available. The Company believes that less than 1 percent of its
available stock was traded at arms length during the fiscal year ended August
31, 2008. Of the stock transferred at arms length, the transfers were made
during the second and third quarters of the Companys fiscal year and ranged in price from $3,300 to $2,900 per unit. The
fourth quarter did not have any arms length transactions. The value of stock is
highly dependent upon an individual stockholders ability to raise sugarbeets
successfully both agronomically and financially. Prior to purchasing stock, a
potential stockholder is advised to properly research the agronomic aspect of
stock ownership.

18

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Holders
of the Companys common stock are entitled to share in the Companys profits
and losses based upon sugar delivered, to receive distributions of the
Companys net cash flow when declared by the Board of Directors, to participate
in the distribution of the Companys assets if it dissolves or liquidates, and,
to vote on matters submitted to a vote of the Companys members. Under state
law and the Companys Bylaws, each member of the Company is entitled to one
vote, regardless of the number of shares the member holds. Holders of the
Companys common stock are committed under Uniform Delivery and Marketing
Agreements to grow and deliver a minimum and maximum number of acres of
sugarbeets per unit of preferred stock as authorized by the Board of Directors
for each farming year. The Companys common stock and preferred stock may be
held only by farmer-producers who are eligible for membership in the Company
and may only be transferred with the consent of the Board of Directors of the
Company.

The
Company has never declared a dividend. The Company distributes its patronage
based upon net margins in the form of qualified or non-qualified allocated
patronage using the sugar delivered for the crop year as the distribution
factor.

19

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|        |                         
|------- | ------------------------
|ITEM 6. | SELECTED
 FINANCIAL DATA

The following table summarizes selected financial data
for each of the last five fiscal years. The selected financial data of the
Company should be read in conjunction with the financial statements and related
notes included in Item 8. of this
report.

|                                                                                                   |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|-------------------------------------------------------------------------------------------------- |  | ---------------------------- | --------- | ---- | - | --------- |  | ---- | --------- | ---- | - | --------- |  | - | --------- | 
|                                                                                                   |  | Fiscal Year Ended August 31, |          
|FINANCIAL DATA                                                                                     |  | 2008                         |           | 2007 |   | 2006      |  | 2005 |           | 2004 |  
|(in thousands)                                                                                     |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Revenues                                                                                           |  | $                            | 243,573   |      | $ | 278,571   |  | $    | 176,967   |      | $ | 189,681   |  | $ | 198,941   | 
|Distribution of net proceeds (1)                                                                   |  |                              | 110,863   |      |   | 148,415   |  |      | 76,096    |      |   | 88,408    |  |   | 107,909   | 
|Total assets                                                                                       |  |                              | 177,063   |      |   | 177,666   |  |      | 163,129   |      |   | 158,996   |  |   | 168,563   | 
|Long-term debt, including current maturities                                                       |  |                              | 31,872    |      |   | 36,931    |  |      | 42,008    |      |   | 44,455    |  |   | 50,215    | 
|Members investment (2)                                                                            |  |                              | 84,016    |      |   | 83,373    |  |      | 83,951    |      |   | 83,410    |  |   | 82,150    | 
|Property and equipment additions, net of retirements                                               |  |                              | 8,560     |      |   | 4,947     |  |      | 4,426     |      |   | 4,916     |  |   | 5,917     | 
|Working capital                                                                                    |  |                              | 9,648     |      |   | 13,228    |  |      | 14,025    |      |   | 12,433    |  |   | 14,578    | 
|                                                                                                   |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|RATIOS                                                                                             |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Ratio of long-term debt to equity (3)                                                              |  |                              | .32       |      |   | .39       |  |      | .45       |      |   | .47       |  |   | .56       | 
|Ratio of net proceeds to fixed charges (4)                                                         |  |                              | 35.36     |      |   | 35.56     |  |      | 22.50     |      |   | 31.42     |  |   | 37.99     | 
|Current ratio                                                                                      |  |                              | 1.16      |      |   | 1.23      |  |      | 1.36      |      |   | 1.38      |  |   | 1.39      | 
|                                                                                                   |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|PRODUCTION DATA (5)                                                                                |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Acres harvested (members)                                                                          |  |                              | 107,649   |      |   | 116,646   |  |      | 102,121   |      |   | 98,819    |  |   | 112,849   | 
|Tons of sugarbeets purchased (members)                                                             |  |                              | 2,208,622 |      |   | 3,019,475 |  |      | 1,810,269 |      |   | 2,295,904 |  |   | 2,264,154 | 
|Tons purchased per acre harvested                                                                  |  |                              | 20.52     |      |   | 25.89     |  |      | 17.73     |      |   | 23.23     |  |   | 20.06     | 
|Payment to members per ton of sugarbeets delivered, plus allocated
 patronage and unit retains (6) |  | $                            | 48.96     |      | $ | 49.06     |  | $    | 41.89     |      | $ | 38.08     |  | $ | 47.35     | 
|                                                                                                   |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Sugar (cwts):                                                                                      |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Produced (from member and purchased
sugarbeets)                                                    |  |                              | 6,914,346 |      |   | 7,822,687 |  |      | 4,848,804 |      |   | 5,868,576 |  |   | 6,424,346 | 
|Sold (includes purchased sugar)                                                                    |  |                              | 7,060,619 |      |   | 7,301,360 |  |      | 4,844,315 |      |   | 6,093,437 |  |   | 6,602,252 | 
|                                                                                                   |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Beet pulp pellets (tons):                                                                          |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Produced                                                                                           |  |                              | 107,600   |      |   | 147,888   |  |      | 101,328   |      |   | 119,054   |  |   | 112,483   | 
|Sold                                                                                               |  |                              | 106,006   |      |   | 151,791   |  |      | 105,138   |      |   | 113,913   |  |   | 110,424   | 
|                                                                                                   |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Beet molasses (tons):                                                                              |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Produced                                                                                           |  |                              | 99,349    |      |   | 130,878   |  |      | 79,599    |      |   | 89,797    |  |   | 104,883   | 
|Sold                                                                                               |  |                              | 87,803    |      |   | 88,652    |  |      | 47,007    |      |   | 73,824    |  |   | 92,852    | 
|Sold for Yeast
 Subsidiary Production                                                              |  |                              | 25,307    |      |   | 31,513    |  |      | 21,821    |      |   | 23,586    |  |   | 20,621    | 
|                                                                                                   |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Yeast (pounds, in thousands):                                                                      |  |                              |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Produced                                                                                           |  |                              | 37,436    |      |   | 39,248    |  |      | 34,787    |      |   | 32,043    |  |   | 29,253    | 
|Sold                                                                                               |  |                              | 37,436    |      |   | 39,152    |  |      | 34,670    |      |   | 31,984    |  |   | 29,436    | 

20

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

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

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

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

(5)     Information for a
fiscal year relates to the crop planted and harvested in the preceding calendar
year (e.g., information for the fiscal year ended August 31, 2008, relates to
the 2007 crop).

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

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 AND RESULTS OF OPERATIONS

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

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
historical experience and other assumptions 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 of the assumptions,
estimates and judgments increases, the level of precision decreases, meaning
that actual results could 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 material changes in the estimates are reasonably likely to occur from
period to period. The Companys critical accounting estimates include the
following:

21

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Inventory
ValuationInventories
of refined sugar, sugar thick juice and pulp and molasses to be sold on a
pooled basis are valued at net realizable value, while third-party purchased
refined sugar to be sold on a pooled basis is valued at the lower of cost or
market. Inventory of yeast is valued at the lower of average cost or market.
Materials and supplies are valued at most recent purchase that approximates
cost. During the periods when sugarbeets are purchased from growers, but not
yet converted into granulated sugar or sugar thick juice, that inventory is
valued at grower 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. The Company derives its estimates from sales
contracts, recent sales and evaluations of market conditions and trends.
Changes in market conditions may cause estimates to differ from actual results.

Property
and Equipment, Property and Equipment Held for Lease, and DepreciationProperty
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 fiscal year covered by this report. However, considerable management
judgment is necessary to estimate future cash flows, which may differ from
actual results.

Defined
Benefit Pension Plan

The
Company maintains and administers a non-contributory 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. 87, Employers Accounting for Pensions,
(SFAS No 87) 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 |   | 2007 |     | 2006 | 
|                                    |  |      |   |      |     |      | 
|Discount Rate                       |  | 6.5  | % |      | 6.5 | %    |  | 6.5 | % | 
|Expected return on plan assets      |  | 8.0  | % |      | 8.0 | %    |  | 8.0 | % | 
|Rate of total Compensation Increase |  | 4.3  | % |      | 4.3 | %    |  | 4.3 | % | 

22

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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 determination of the 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 determination of
the appropriate rate.

In
September 2006, the FASB issued SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Post-retirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132R. This standard requires employers to
recognize the under funded or over funded status of defined benefit pension and
Post-retirement plans as an asset or liability in its statement of financial
position, and recognize changes in the funded status in the year in which the
changes occur through accumulated other comprehensive loss, which is a
component of stockholders equity. This standard also eliminates the
requirement for Additional Minimum Pension Liability (AML) require under SFAS
No. 87. As a result of the application of SFAS No. 158 as of August 31, 2008
and 2007 the Company increased liabilities by $639,310 and $3,947,430. These
liabilities were offset to accumulated Other Comprehensive Loss and long-term
deferred tax assets. As a result of SFAS No. 158, in the year ended August 31,
2007 the Company recognized an after-tax decrease in accumulated other comprehensive
loss of $2,368,458 and in the year ended August 31, 2008 the Company recognized
an increase in Other Comprehensive Loss associated with the year ended August
31, 2007 of $1,578,972 and $639,310 for the year ended August 31, 2008. During the implementation fiscal year ended August
31, 2007, the Company recorded a future tax benefit associated with FAS 158.
The Company changed its estimate of future tax benefit associated with FAS 158
during the fiscal year ended August 31, 2008. A review of how the future tax
benefits associated with FAS 158 flow directly to the shareholder/grower was a
determining factor for the change in estimate. During the fiscal year ended
August 31, 2008 all future tax benefits associated with FAS 158 were removed
and the total FAS 158 impact recorded as Other Comprehensive Loss.

Income
TaxesDetermining
the consolidated provision for income tax expense, income tax liabilities and
deferred tax assets and liabilities involves judgment. The Company calculates
income taxes in each of the tax jurisdictions in which it operates. This
involves estimating current tax liability in each jurisdiction as well as
making judgments regarding the valuation of deferred tax assets. Tax
liabilities can involve complex issues and may require an extended period to
resolve.

On
September 1, 2007 The Company adopted the provisions of FASB Interpretation
(FIN) No. 48, Accounting for Uncertainty in
Income Taxes  An Interpretation of FASB Statement No. 109. FIN 48
prescribes a threshold for the financial statement recognition and measurement
of a tax position taken or expected to be taken in an income tax return. FIN 48
requires that the company determine whether the benefits of tax positions are
more likely than not of being sustained upon audit based upon the technical
merits of the tax position. For tax positions that are more likely than not of
being sustained upon audit, the Company recognizes the largest amount of the
benefit that is more likely than not of being sustained in our financial
statements. For tax positions that are not more likely than not of being
sustained upon audit, the Company does not recognize any portion of the benefit
in its financial statements.

23

---



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 co-products it
sells, are subordinated to all member business expenses. In addition, actual
cash payments to members are spread over a period of approximately one year
following delivery of sugarbeet crops to the Company and are net of unit
retains and patronage allocated to them,
both of which remain available to meet the Companys capital requirements. This
member financing arrangement may result in an additional source of liquidity
and reduced outside financing requirements in comparison to a similar business
operated on a non-cooperative basis. However, because sugar is sold throughout
the year (while sugarbeets are processed primarily between September and April)
and because substantial amounts of equipment are required for its operations,
the Company has utilized substantial outside financing on both a seasonal and
long-term basis to fund such operations. The short and long-term financing has
been primarily provided by CoBank (the Bank). The Company has a short-term
line of credit with the Bank totaling $50.0 million, of which $25.6 million was
available as of August 31, 2008. The Company also has a $15.0 million bid loan
supplement facility through the Bank. The Company also has available the USDA
Sugar Loan Provisions contained in the 2008 Farm Bill to provide an additional
source of seasonal financing for the 2008 and future crops.

On
June 1, 2008, the Companys loan agreements were scheduled to be renewed. For
administrative purposes, the Company and its primary lender agreed in May to
extend these loans through September 1, 2008. In August, these agreements were
again administratively extended through November 1, 2008. On October 30, 2008
the Company and its primary lender agreed to a new set of loan agreements which
maintained the same levels of seasonal borrowing capacity and bid loan
capacity, but added $10.0 MM to its term loan agreement, with the repayment of
these additional funds being amortized over twelve quarterly payments and added
to the end of the current amortization period.

The
loan agreements between the Bank and the Company obligate the company to
maintain the following financial covenants, and 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 August 31, 2008 the Company was in compliance with its loan agreement
covenants with the Bank.

Net
Cash provided by operations totalled $14.0 million for the year ended August
31, 2008, as compared to $9.4 million for the previous year. This increase of
$4.6 million was primarily due to changes in the amount due to growers of $17.4
million offset by changes in the amount due from growers of $7.3 million. The
amount due to growers was primarily due to a smaller crop, while the amount due
from growers was primarily due to costs related to increased costs of sugarbeet
seed.

The
net cash used in investing activities totalled $8.7 million for the year ended
August 31, 2008, as compared to $4.6 million for the previous year. The
increase of $4.1 million was primarily due to increased levels of capital
expenditures related to improved factory efficiencies, safety and replacement
activities.

The
net cash used in financing activities totalled $5.9 million for the year ended
August 31, 2008 as compared to $4.7 million for the previous year. This
increase of $1.2 million was primarily due to increased equity revolvement
related to the 2006-crop offset by $1.0 million of additional seasonal
borrowing.

The
company anticipates that the funds necessary for working capital requirements
and future capital expenditures will be derived from operations, short-term
borrowings, depreciation, patronage and long-term borrowings.

24

---



Working
capital decreased $3.6 million for fiscal year 2008. The Company funds its
capital expenditure and debt retirement needs primarily from operating
activities. As of August 31, 2008 the Company had approximately 4-years of
long-term debt remaining with the Bank and it has two tax exempt bond issues,
series 1996 with $3.8 million remaining to be paid and series 2002 with $11.7
million remaining to be paid.

Because
the Company and the Bank chose to delay the modification of the loan agreements
for administrative reasons, the additional financing necessary to achieve the
working capital position was delayed until October 2008. This delay in the
modification of the loan agreements was known in advance to cause the working
capital position to be below earlier estimates, but within the expectations of
the Bank and Company.

The
Company has protected itself from interest rate fluctuations through a strategy
of using tax-exempt bond financing and a term debt portfolio that fixes rates
and maturities into the future on set amounts of debt. The Bank current term
debt portfolio, comprised of $13.1 MM using variable interest rates and $12.7
MM using fixed interest rates over various maturities, is expected to provide
the Company stable term debt interest rates over the next four years at similar
rates to current market rates for maturities of the same type. An increase or
decrease in the interest rate market of the recent historic past is expected to
be immaterial on the profitability of the Company as a result of its interest
rate strategy. Capital expenditures for the years ended August 31, 2008, 2007
and 2006 totaled $8.7 MM, $4.9 MM and $4.7 MM, respectively.

Capital
expenditures for fiscal year 2009 have been approved at $10.7 million. The
Company modified its long-term debt agreement with the Bank in order to fund
some of these capital expenditures. The capital expenditures are for normal
efficiency, safety and replacement activities. Failure by the Company to make
capital expenditures over a period of years would result in the Company being
less competitive due to its failure to reduce costs and increase operating
efficiencies.

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

Payments Due by Period (Includes October 2008
$10 Million loan addition)

|                                   |  |         |  |                    |  |              |  |             |  |                | 
|---------------------------------- |  | ------- |  | ------------------ |  | ------------ |  | ----------- |  | -------------- | 
|Contractual
 Obligations           |  | Total   |  | Less
 Than 1
 Year |  | 1 - 3
 Years |  | 4 5
 Years |  | After 5
 Years | 
|Long-Term Debt                     |  | $25.9MM |  | $2.5MM             |  | $10.0MM      |  | $6.7MM      |  | $6.7MM         | 
|Bonds Payable                      |  | $15.5MM |  | $2.0MM             |  | $ 5.3MM      |  | $2.1MM      |  | $6.1MM         | 
|Capital Leases                     |  | $ 0.6MM |  | $0.1MM             |  | $ 0.2MM      |  | $0.3MM      |  | 0              | 
|Unconditional Purchase Obligations |  | 0       |  | 0                  |  | 0            |  | 0           |  | 0              | 
|Other Long-Term Obligations        |  | 0       |  | 0                  |  | 0            |  | 0           |  | 0              | 
|Total Long Term Obligations        |  | $42.0MM |  | $4.6MM             |  | $15.5MM      |  | $9.1MM      |  | $12.8MM        | 
|Interest-Long Term Debt & Bond     |  | $ 7.1MM |  | $1.3MM             |  | $ 3.1MM      |  | $1.5MM      |  | $1.2MM         | 
|Operating Leases                   |  | $ 1.8MM |  | $1.0MM             |  | $ 0.7MM      |  | $0.1MM      |  | 0              | 
|Total Contractual Obligations      |  | $50.9MM |  | $6.9MM             |  | $19.3MM      |  | $10.7MM     |  | $14.0MM        | 

25

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

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

RESULTS OF OPERATIONS

Comparison of the years ended August 31, 2008
and 2007

Net
payments to members for sugarbeets delivered by the shareholder/growers,
decreased by $37.6 million or 27 percent in fiscal year 2008 and totaled $103.0
million. As of August 31, 2008, the board of directors authorized payment to
shareholders for prior years member patronage and per unit retains (including
equity payments to estates of deceased shareholders) totaling $4.4 million
compared to $6.0 million in the previous year. The payment of $4.4 million will
leave approximately 4.5 years of prior years patronage and per unit retains
still outstanding  the same as the prior year.

Revenues
for the year ended August 31, 2008 were comprised of Sugar 83 percent, Pulp 7
percent, Yeast 6 percent and Molasses 4 percent.

Consolidated
revenue for the year ended August 31, 2008, decreased 12.6 percent or $35.0
million from 2007. Revenue from total sugar sales decreased $16.0 million or
7.2 percent, reflecting a 2.8 percent decrease in cwt. sold and a 4.4 percent
decrease in the average net selling price per cwt. Revenue from co-products
decreased 7.8 percent, reflecting a decrease of 19.4 percent in volume and an
11.6 percent increase in the average selling price per ton. The decrease in
volume of sugar and co-products sold from the 2007-crop is attributable to the
smaller crop size, including the non-member purchased beets; with reduced
production of sugar being offset slightly by higher quality sugarbeets
processed.

Revenues
from yeast sales increased 2 percent reflecting a decrease in volume of 4.4
percent, and an increase in the average net selling price of 6.4 percent.
Increased selling prices were necessary to help defray a portion of substantial
increases in operating materials and shipping costs experienced in the
production and sale of yeast.

The value
of finished product inventories in fiscal year 2008 decreased $4.4 million from
fiscal year 2007, mostly the result of a decrease in the volume of ending sugar
inventory. Sugar inventory was lower due to the timing of contract off-take
from customers.

All
expenses, exclusive of grower payments for sugarbeets and cost of non-member
purchased beets, decreased $4.9 million or 4 percent. Minn-Dak Farmers
Cooperative (MDFC) expenses decreased $5.4 million, while Minn-Dak Yeast
Company expenses, after eliminations, increased $0.5 million.

The cost
per cwt. of sugar produced increased 9 percent versus the prior year due to factory maintenance
costs being higher than normal in the areas of solid waste disposal and the
lime kiln, and fixed costs on a per unit basis exceeding that of the prior year
due to the record crop processed in fiscal year 2007.

Of the $5.4
million decrease in the MDFC expenses, the cost of operations decreased $2.5
million, or 4 percent due to
the smaller volume of sugarbeets processed versus the record 2006-crop,
including the record length of the 2006-crop processing period.

Sales and
Distribution costs decreased $1.8 million or 4 percent. Decreases are mainly
the result of the reduction in the production and sale of finished goods from
the smaller sugarbeet crop and reduced cost of sugar marketing allocations.
Sugar marketing allocation costs decreased $3.4 million, or 54 percent due to
the smaller amount of allocation needed for the marketing of the 2007 crop
versus the record volume 2006 crop. General and Administrative expenses increased $0.2 million or 2 percent.
Employee costs and professional fees were the primary reasons for the increase.
Interest expense decreased $1.1 million reflecting a lower average level of
seasonal and term debt and a decreased rate of interest.

26

---



Other
business income before income taxes increased $0.1 million due primarily to a
combination of prior period activities, offset by higher losses on the disposal
of equipment. Income taxes increased $1.5 million due mainly to increased
non-member income.

Comparison of the years ended August 31, 2007
and 2006

Net
payments to members for sugarbeets delivered by the shareholder/growers,
increased by $69.0 million or 96 percent in fiscal year 2007 and totaled $140.6
million. As of August 31, 2007, the Board of Directors authorized the payment
of prior years member patronage and per unit retains (including equity
payments to estates of deceased shareholders) totaling $6.0 million to
shareholders compared to $3.6 million in the previous year. The payment of $6.0
million will leave approximately 4.5 years of prior years patronage and per
unit retains withheld versus the prior year of 4.9 years withheld.

Revenues
for the year ended August 31, 2007 were comprised of Sugar 84 percent, Pulp 7
percent, Yeast 5 percent and Molasses 4 percent.

Revenue for
the year ended August 31, 2007, increased $101.6 million or 57 percent from 2006. Revenue from total sugar sales
increased $73.5 million or 50 percent
reflecting a 47 percent increase in
cwt. sold, and a 3 percent increase
in the average net selling price per cwt. Revenue from co-products increased 68
percent, reflecting an increase of
38 percent in volume, and a 30 percent increase in the average selling price per ton.
The increase in volume of sugar and co-products sold from the 2006-crop is
attributable to the larger crop size and quality when compared to the 2005 crop
of beets delivered by shareholder/growers plus the 2005-crop non-member
purchased beets.

Revenues
from yeast sales increased 37 percent reflecting an increase in volume of 13
percent, and an increase in the average net selling price of 24 percent.
Selling prices increased due to a combination of two factors: (1) a change in
the way that yeast selling prices are determined under a different marketing
agreement that Minn Dak Yeast Company (MDYC) entered into in May 2006, and
which accounted for the majority of increase in the calculation of the yeast
price, and (2) somewhat higher selling prices for yeast.

The value
of finished product inventories in fiscal year 2007 increased $12.6 million from
fiscal year 2006, mostly the result of an increase in the volume of ending
sugar inventory. Sugar inventory was larger due to the timing of contract
off-take for a select number of customers.

Expenses,
exclusive of grower payments for sugarbeets and cost of non-member purchased
beets, increased $30.1 million or 30 percent. Minn-Dak Farmers Cooperative
(MDFC) expenses increased $27.9 million, while Minn-Dak Yeast Company expenses
increased $2.2 million.

The
production cost per cwt. of sugar produced decreased 31 percent versus the
prior year due to a combination of a 62 percent increase in sugar produced with
only a corresponding 12 percent increase in total costs.

Of the
$27.9 million increase in the MDFC expenses, the cost of operations increased
$7.0 million, or 12 percent due to the record volume of sugarbeets processed, including
the record length of the 2006-crop processing period.

27

---



Sales and
Distribution costs increased $21.4 million or 74 percent. Increases are mainly
the result of the increase in the production and sale of finished goods from
the larger sugarbeet crop and from the cost of sugar marketing allocations. Sugar marketing allocation costs increased
$5.0 million or 400 percent from the 2005-crop and were due to the amount of
allocation acquired to allow for the marketing of the large 2006 crop. General
and Administrative expenses increased $0.9 million or 15 percent. Employee
costs, beet transportation equipment depreciation and expenses associated with
sugar policy and farm bill renewal was the primary reasons for the increase.
Interest expense increased $0.8 reflecting a higher level of seasonal debt and
an increased rate of interest.

Other
business income increased $0.7 million in fiscal year 2007 due primarily to the
yeast business being accounted for as patronage business and income on the
yeast business qualifying for cooperative tax treatment.

Comparison of the Years Ended August 31, 2006
and 2005

Net
payments to members for sugarbeets delivered by the shareholder/growers,
decreased by $10.6 million or 13 percent in fiscal year 2006 and totaled $71.6
million. As of August 31, 2006, the Board of Directors authorized the payment
of prior years member patronage and per unit retains (including equity
payments to estates of deceased shareholders) totaling $3.6 million to
shareholders compared to $4.6 million in the previous year. The payment of $3.6
million will leave approximately 4.9 years of prior years patronage and per
unit retains withheld versus the prior year of 7.6 years withheld.

Revenues
for the year ended August 31, 2006 were comprised of Sugar 84 percent, Pulp 7
percent, Yeast 5 percent and Molasses 4 percent.

During
the year ended August 31, 2006, the Company purchased 156,788 tons of
sugarbeets from a sugarbeet processor due to a shorter than normal sugarbeet
supply from the Companys shareholder/growers. The purchase comprised 8 percent
of all sugarbeets purchased by the Company for the year.

On
April 30, 2006, the Company acquired the non-controlling 20 percent interest in
its Minn-Dak Yeast subsidiary from Sensient Technologies Corporation.

Revenue for
the year ended August 31, 2006, decreased $12.7 million or 7 percent from 2005.
Revenue from total sugar sales decreased $16.1 million or 10 percent reflecting
a 19 percent decrease in cwt. sold, and a 9 percent increase in the average net
selling price per cwt. Revenue from co-products decreased 10 percent,
reflecting a decrease of 22 percent in volume, offset by a 12 percent increase
in the average selling price per ton. The decrease in volume of sugar and
co-products sold from the 2005-crop is attributable to the lower crop size and
quality when compared to the 2004 crop of sugarbeets delivered by
shareholder/growers.

Revenues
from yeast sales increased 28 percent reflecting an increase in volume of 8
percent, and an increase of 20 percent in the price of yeast due to a change in
the marketing arrangement. A different marketing arrangement changed the
methodology used in the determination of the selling price for yeast.

The value
of finished product inventories in fiscal year 2006 increased $0.5 million from
fiscal year 2005.

Cost of
product sold, on a consolidated basis, exclusive of grower payments for
sugarbeets and cost of outside purchased sugarbeets, remained the same.
However, the Companys costs decreased $1.5 million and Minn-Dak Yeasts costs
increased $1.5 million.

28

---



Of the $1.5
million decrease in the Companys cost of product sold, the cost of operations
decreased due to a shorter processing season. Offsetting those costs somewhat
were maintenance costs, which increased as a result of the late start (October rather than September) of the
2005-crop processing period. The offsetting increase of $1.5 million in cost of
product sold by Minn-Dak Yeast was due to a $0.6 million increase in the cost
of molasses (29 percent price increase and 10 percent volume increase), $0.6
million of purchased cream yeast (no purchases in prior fiscal year) and $0.3
million increase in the cost of chemicals, due primarily to the increase in
volume of production.

Sales and
Distribution costs decreased $8.1 million or 22 percent. Decreases are mainly
the result of lower costs of purchased sugar (less volume) and the lower cost
of marketing allocations (less volume). General and Administrative expenses
decreased $0.4 million or 6 percent. Employee costs and trade association dues
were the primary reasons for the decrease. Interest expense increased $0.6
million reflecting a lower level of debt and an increased rate of interest.

Overall,
the cost per cwt. of sugar produced increased 18 percent versus the prior year
due to a 1 percent increase in costs and a 17 percent reduction in sugar
produced.

Other
business income increased $0.2 million in fiscal year 2006 due primarily to
transactions related to the acquisition of 100 percent ownership in Minn-Dak
Yeast, offset by less patronage dividends received from other cooperatives.

Estimated Fiscal Year 2009 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 2008
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 2008 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 1.9 million tons of sugarbeets from the 2008-crop,
approximately 19 percent less than the most recent 5-year average. The
Companys shareholder/growers were unable to harvest approximately 30 percent
of the crop due to extremely wet harvest conditions in a significant part of
its growing area. Sugar content of the 2008-crop at harvest was 5 percent below
the average of the five most recent years. Due to the lower harvested tons and
lower sugar percent, the Companys production of sugar from the 2008-crop
sugarbeets is expected to be 27 percent less than the average of the five most recent
years of sugar production. This forward-looking material is based on the
Companys expectations regarding the processing of the 2008 sugarbeet crop; the
actual production results obtained by processing those sugarbeets could differ
materially from the Companys current estimate as a result of factors that
include changes in production efficiencies and storage conditions for the
Companys sugarbeets.

The
Companys initial sugarbeet payment estimate totals $38.00 per ton or
$0.13466351 per harvested /bonus extractible pound of sugar, with the final
sugarbeet payment determined in October of 2009. This projected payment is 19
percent less than the final 2007-crop payment per ton and 14 percent less per
pound of extractible sugar. The lower projected 2008-crop payment per ton
results fewer total tons of beets processed, lower sugar content in the
sugarbeets and increased operating and fixed costs per ton; and offset somewhat
by higher sugar and by-product prices versus the prior year.

29

---



For
a discussion of the 2008, 2007 and 2006 crops and results of operations for
fiscal years 2008, 2007 and 2006, see MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

|          |                                                            
|--------- | -----------------------------------------------------------
|ITEM
 7A. | QUANTITATIVE
 AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market
risk is the risk of loss to future earnings, to fair values or to future cash
flows that may result from changes in the price of a financial instrument. The
value of a financial instrument may change as a result of changes in the
interest rates, exchange rates, commodity prices, equity prices and other
market changes. Market risk is attributed to all market-risk sensitive
financial instruments, including long-term debt.

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

The
Company has long-term tax-exempt bonds using a variable interest rate.
Borrowing levels have been $15.5 million for 2008, $17.4 million for 2007 and
$19.1 million for 2006. The historic interest rates for these instruments have
been under 5 percent with an anticipated fluctuation of less than 1 percent per
year.

The
Companys short-term debt rates will vary from year to year based on the
short-term interest rate market changes. Average short-term debt borrowing
levels have been $36.0 million, $39.2 million, and $24.7 million for the years
2008, 2007, and 2006, respectively. Because each years short-term debt is
closely associated with each years crop size and the finished goods market
value from that crop, the interest fluctuations will have a direct impact on
the final grower sugarbeet crop payment.

The
Company will from time to time have purchase obligations in foreign currency as
a result of approved capital expenditure projects, and may reduce the risk of
currency exchange by forward purchasing the applicable currency required for
the expenditures.

The Company
does not believe that it is subject to any material market risk exposure with
respect to interest rates, exchange rates, commodity prices, equity prices and
other market changes that would require disclosure under this item.

|         |                                             
|-------- | --------------------------------------------
|ITEM
 8. | FINANCIAL
 STATEMENTS AND SUPPLEMENTARY DATA

The
consolidated financial statements of the Company for the fiscal years ended
August 31, 2008, 2007 and 2006 have been audited by Eide Bailly, LLP,
independent registered public accounting firm. Such consolidated financial
statements have been included herein in reliance upon the report of Eide
Bailly, LLP. The consolidated financial statements of the Company are included
in Appendix A to this annual report.

|         |                                                                                     
|-------- | ------------------------------------------------------------------------------------
|ITEM
 9. | CHANGES
 IN OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have
been no changes in or disagreements with accountants on accounting and
financial disclosure.

30

---



|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Sarbanes-Oxley Act:The
Sarbanes-Oxley Act continues to have the interpretation of its rules reviewed
and changed. The Company is in compliance with the rules and interpretations of
these rules as they are stated. The below listed areas of activity are not to
be considered an all inclusive list, but rather an indication of how the
Companys Board of Directors and Management are approaching future compliance
requirements.

Audit Committee: The
audit committee is active in the oversight of the Companys accounting,
auditing, and key risk management areas. The Companys bylaws require any board
member to be actively engaged in the production of sugarbeets, therefore, the
financial expert requirement for the audit committee is restricted to the pool
of available directors who are eligible to serve on the audit committee.
Therefore there is no financial expert, as defined within the provisions
contained in the Securities and Exchange Commission that serves on the Audit
Committee. However, the Company believes that, taken as a whole, the members of
the Audit Committee have sufficient education, experience and qualifications to
carry out their duties. The Audit Committee has formulated a confidential and
anonymous employee system to allow employees to report concerns regarding
questionable accounting or auditing matters. The Audit Committee has adopted a
code of ethics policy for top management.

The
Audit Committee has reviewed and discussed separately with management, the
independent auditors, and within the Audit Committee the financial statements
and the quality of accounting principles and significant judgments affecting
the financial statements contained in this Form 10-K filing. As a result of
these reviews and discussions, the Audit Committee considers the financial
statements contained here to be fairly presented.

Internal Controls:The
Companys payments to growers are derived from crop pools with each years
harvest creating a Crop Pool. It is the Companys practice to use accounting
methods to allocate revenues and costs in a manner that such revenues and
expenses associated with each pool are consistently applied on a year-to-year
and a pool-to-pool basis. The Company has formalized a process whereby the material
risks associated with the Company are determined, documented as to how these
risks are to be managed and, where appropriate, reviewed by the Audit
Committee.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
| | 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
 and subsequently convicted of a felony. The Company was adequately covered by
 business insurance for this loss.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

31

---



|                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                   
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                          | 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 did not present a reasonable
 possibility that a material misstatement of its financial statements would
 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.
|                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                   
|                                                                          | While this
 remediation plan was completed by mid-March 2008, the Company continued to
 review the effectiveness of its internal controls and seek improvements to
 its internal control environment. This review and improvement process
 suggested that additional changes in internal control over financial
 reporting were required and were implemented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                   
|Managements Annual Report on Internal Control over Financial
 Reporting.
|                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                   
|(a)                                                                       | Managements Annual Report on Internal
 Control over Financial Reporting.The Companys management
 is responsible for establishing and maintaining adequate internal control
 over financial reporting; as such term is defined in Rules 13a-15(f) and 15d
  15(f) of the Exchange Act. Under the supervision and with the participation
 of its management, including the Chief Executive Officer and Chief Financial
 Officer, the Company conducted an evaluation of the effectiveness of its internal
 control over financial reporting based upon the framework in Internal Control  Integrated Framework
 issued by the Committee of Sponsoring Organizations of the Treadway
 Commission. Based on that evaluation, the Companys management concluded that its
 internal control over financial reporting is effective as of August 31, 2008                                                                                                                                                                                                                                                                                                                                     
|                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                   
|(b)                                                                       | Disclosure Controls and Procedures.As
 of the end of the period covered by this report, the Company carried out an
 evaluation, under the supervision and with the participation of its
 management, including the Chief Executive Officer and Chief Financial
 Officer, of the effectiveness of the design and operation of the Companys disclosure
 controls and procedures, as such term is defined in Rules 13a-15(e) and
 15d-15(e) of the Exchange Act. Based upon that evaluation, the Companys Chief
 Executive Officer and Chief Financial Officer concluded that as of the end of
 the period covered by this report, the Companys disclosure controls and procedures
 were effective to ensure that information required to be disclosed by it in
 reports it files or submits under the Exchange Act is (1) recorded,
 processed, summarized and reported within the time periods specified in SEC
 rules and forms, and (2) accumulated and communicated to the Companys management,
 including its Chief Executive Officer and Chief Financial Officer, to allow
 timely decisions regarding required disclosure                                                         
|                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                   
|(c)                                                                       | Attestation.This
 annual Report does not include an attestation report of the Companys
 registered public accounting firm regarding internal control over financial
 reporting. Managements report was not subject to attestation by the
 Companys registered public accounting firm pursuant to temporary rules of
 the Securities and Exchange Commission that permit the Company to provide
 only managements report in this annual report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                   
|(d)                                                                       | Changes in Internal Control over Financial
 Reporting. There was no change in the Companys internal
 control over financial reporting during the fiscal quarter ended August 31,
 2008 that has materially affected, or is reasonably likely to materially
 affect, its internal control over financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

32

---



The Companys internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those
policies and procedures that:

| |   |                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pertain to
 the maintenance of records that in reasonable detail accurately and fairly
 reflect the transactions and dispositions of our assets;                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                    
| |  | Provide
 reasonable assurance that transactions are recorded as necessary to permit
 preparation of financial statements in accordance with generally accepted
 accounting principles, and that its receipts and expenditures are being made
 only in accordance with authorizations of management and the Companys directors; and
| |   |                                                                                                                                                                                                                                                                                                                                    
| |  | Provide
 reasonable assurance regarding prevention and timely detection of
 unauthorized acquisition, use or disposition of the Companys assets that could have a
 material effect on its financial statements.                                                                                                                   

Internal
control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems that are deemed to be effective provide only
reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION

None

33

---



PART
III.

|         |                                                        
|-------- | -------------------------------------------------------
|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND
 CORPORATE GOVERNANCE

Information Regarding Directors

The table
below lists the current directors of Minn-Dak Farmers Cooperative. The Board of
Directors consists of one director from each of the nine districts. Directors
must be common shareholders or representatives of common shareholders belonging
to the district they represent and are elected by the members of that district.
In the case of a common shareholder who is other than a natural person, a duly
appointed or elected representative of such common shareholder may serve as a
director. The directors have been elected to serve three-year terms expiring in
December of the years indicated in the table below. One director is elected
each year from three selected districts. Brief biographies for each of the
directors are included after the table.

|                                                              |  |     |  |                             |  |                 |  |                           | 
|------------------------------------------------------------- |  | --- |  | --------------------------- |  | --------------- |  | ------------------------- | 
|Name and
 Address                                             |  | Age |  | District                    |  | Director
 Since |  | Term Expires
 In December | 
|                                                              |  |     |  |                             |  |                 |  |                           | 
|Dale Blume
 17668 CO RD 11
 Norcross, MN 56274-3050           |  | 58  |  | District #7
  Lehman       |  | 2005            |  | 2008(1)                   | 
|                                                              |  |     |  |                             |  |                 |  |                           | 
|Dennis Butenhoff 
 14319 150th St. So.
 Barnesville, MN 56514 |  | 62  |  | District #9
  Peet         |  | 2004            |  | 2010                      | 
|                                                              |  |     |  |                             |  |                 |  |                           | 
|Brent Davison 
 7950 770th Ave 
 Tintah, MN 56583             |  | 57  |  | District #5
  Hawes        |  | 2003            |  | 2008(2)                   | 
|                                                              |  |     |  |                             |  |                 |  |                           | 
|Douglas Etten 
 30427 W. Stalker Road 
 Dalton, MN 56324      |  | 57  |  | District #8
  Lyngaas      |  | 1997            |  | 2009                      | 
|                                                              |  |     |  |                             |  |                 |  |                           | 
|Michael Hasbargen 
 2553 360th ST 
 Breckenridge, MN 56520    |  | 63  |  | District #4
  Factory East |  | 1993            |  | 2008(3)                   | 
|                                                              |  |     |  |                             |  |                 |  |                           | 
|Dennis Klosterman 
 7942 CTY RD 1
 Mooreton, ND 58061         |  | 48  |  | District #3
  Gorder       |  | 2004            |  | 2010                      | 
|                                                              |  |     |  |                             |  |                 |  |                           | 
|Russell Mauch 
 16305 Hwy 13
 Barney, ND 58008                |  | 53  |  | District #2
  Factory West |  | 1998            |  | 2010                      | 
|                                                              |  |     |  |                             |  |                 |  |                           | 
|Charles Steiner 
 2851 310th AV 
 Foxhome, MN 56543-9312      |  | 58  |  | District #6
  Yaggie       |  | 2000            |  | 2009                      | 
|                                                              |  |     |  |                             |  |                 |  |                           | 
|Alton Theede 
 609 3rd AV SE 
 Hankinson, ND 58041            |  | 64  |  | District #1
  Tyler        |  | 2003            |  | 2009                      | 

34

---



|   |                                                                                                                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1) | Mr. Blumes term as a director of the Company from District #7-Lehman
 expires on December 9, 2008.                                                                                                                            
|2) | Mr. Davisons term as a director of the Company from District
 #5-Hawes expires on December 9, 2008.                                                                                                                           
|3) | Mr. Hasbargens term as director of the Company from District
 #4-Factory East expires on December 9, 2008. Mr. Hasbargen has served the
 maximum 5-3 year terms on the board of directors and is not eligible for
 reelection.

Dale
Blumehas been
a director since 2005 and also serves on the board of directors for
Minn-Dak Yeast Company. He graduated
from the NDSU with a degree in Ag Economics in 1973. He began farming in 1971
and continues to be actively farming today. Mr. Blume is one of Minn-Dak
Farmers Cooperatives original stockholders. Mr. Blume is a member of the Delaware Township Board, and is a director at the First
State Bank in Kensington, MN. He is also the co-chairman of the administrative
council and on the financial committee of the United Methodist Church in
Herman.

Dennis
Butenhoff has been a director since 2004 and serves on
the board of directors of Minn-Dak Yeast Company. Mr. Butenhoff graduated from Barnesville High School, Barnesville, MN in
1965. Prior to serving his country in the military, Mr. Butenhoff attended
North Dakota State University for 4 years, focusing on Ag economics. He has
been farming in the Baker/Barnesville area since 1967. Mr. Butenhoff has served
Trinity Lutheran Church as a Sunday school teacher and church elder.

Brent
Davison has been a director since 2003 and currently
serves as the board vice chairman. Mr. Davison earned his B.S. degree in
Education at Concordia University, Moorhead, MN, graduating in 1972. Mr.
Davison taught school in Warren, MN from 1972 until coming home to farm near
Tintah, Minnesota area in 1974. He is currently serving on the Tintah Township
Board and is a former volunteer fireman and first responder. Mr. Davison is
also one of Minn-Daks representatives to the American Sugarbeet Growers
Association in Washington, DC and serves on the board of directors for United
Sugars Corporation.

Douglas
Etten has been a director since 1997 and currently serves as the
board chairman. Mr. Etten has been farming near Foxhome, MN since graduating
from Concordia College in Business and Math in 1974. He is also one of
Minn-Daks representatives to the American Sugarbeet Growers Association in
Washington, DC. He also serves on the board of directors of Minn-Dak Yeast
Company, United Sugars Corporation, and Midwest Agri-Commodities Company.

Michael
Hasbargen has been a director since 1993 and has served as the
Companys board chairman and vice chairman. Mr. Hasbargen has been farming near
Breckenridge, MN since graduating from NDSU in Ag Economics in 1967. He is also
one of Minn-Daks representatives to the American Sugarbeet Growers Association
in Washington, DC. Mr. Hasbargen is the brother-in-law of Mr. Steven Caspers,
Executive Vice President & Chief Financial Officer.

Dennis Klostermanhas been a
director since
2004. Mr. Klosterman graduated from Wahpeton High School in Wahpeton in 1978.
He began farming with his father and brother in the Mooreton, ND area in 1979
while attending North Dakota State College of Science and North Dakota State
University. Mr. Klosterman has, and continues to, serve his community and
church in several areas. He was a member and chairman of the Minn-Dak Farmers
Cooperative Political Action Committee. Mr. Klosterman is a member of various
farm and commodity organizations. He also serves on the board of directors for
Midwest Agri-Commodities Company.

Russell
Mauch has been a director since 1998 and currently serves as board
treasurer. Mr. Mauch graduated from North Dakota State University in 1977 with
a B.S. in agriculture. From 1979 to 1981 Mr. Mauch was a commercial and
agriculture loan officer for First Bank Corporation in Valley City, ND. Mr.
Mauch has been farming near Barney, ND since 1981. Mr. Mauch also serves on the
board of directors for United Sugars Corporation and as one Minn-Daks
representatives to the American Sugarbeet Growers Association in Washington,
DC.

35

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Charles Steinerhas been a director
since
2000 and currently serves as the board secretary. Mr. Steiner has been farming
near Foxhome, MN since 1969. Mr. Steiner graduated from the Northwest School of
Agriculture, University of Minnesota at Crookston, MN. Mr. Steiner serves as
the ex-officio member on the board of directors for United Sugars Company.

Alton Theede has been a director
since 2003.
Mr. Theede has been farming in the Fairmount, North Dakota area since 1966. He
earned his B.S. degree in Business Administration from the University of North
Dakota, Grand Forks, ND. Mr. Theede currently serves on the board of directors
for the local CHS (Cenex Harvest States) and is very involved in community
service. Mr. Theede has been and continues to be active in serving the
congregation of St. Phillips Catholic Church in Hankinson, ND. He also serves
on the board of directors for Minn-Dak Yeast Company.

The Board
of Directors meets monthly. The Company provides its directors with minimal
compensation, consisting of (i) a payment of $270.00 per meeting for regular
and special board meetings, (ii) the greater (a) $135.00 for any day in which
directors partake in activities on the Companys behalf that take less than
five hours or (b) $270.00 for any day in which directors partake in activities
on the Companys behalf that take five hours or more. The Chairman of the Board
of Directors also receives a flat $500.00 per month to compensate for the extra
duties associated with that position.

Information
about Committees of the Board of Directors

The Board
of Directors has established a Compensation Committee, an Audit Committee and a
Nominating Committee. The composition and function of these committees are set
forth below

Compensation
Committee.The Compensation Committee operates under a
written charter and discharges the Boards responsibilities relating to the
fair and competitive compensation for the Chief Executive Officer, including
reviewing and approving goals and objectives relating to the compensation of
the Chief Executive Officer and the performance of the Chief Executive Officer.
Based on its review, the Compensation Committee makes recommendations to the
Board of Directors regarding the elements of the Chief Executive Officers
compensation and the Compensation Committee, along with the Board of Directors,
approves the compensation and other benefits of the Chief Executive Officer. A
copy of the current charter of the Compensation Committee is available by
following the link to About MDFC on the Companys website at www.mdf.coop
During 2008, the members of the Compensation Committee are Messrs. Charles
Steiner (Chair), Dennis Butenhoff, Dennis Klosterman, Brent Davison and Alton
Theede.

Nominating
Committee.Shareholders from each district select two
shareholders to serve as a Nominating Committee for that district. The
Nominating Committee for each district is responsible for facilitating
nominations for the position of director by shareholders of that district and
evaluating whether shareholder proposed nominees are qualified candidates. Each
Nominating Committee operates under a series of written guidelines relating to
the legal requirements for the Companys directors, qualifications of nominees,
and process for soliciting shareholder nominees. During 2008, the members of
the Nominating Committee were Messrs. Brian Lacey (Chair), Jim Blaufuss, Paul
Tschakert, Darin Raguse, Gary Brunkow and Jerry Bryson. In fiscal 2008, there have not been any material changes to the
procedures by which shareholders may recommend nominees to the Companys Board
of Directors.

36

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Audit
Committee.The Audit Committee assists the Board in
fulfilling its responsibility relating to corporate accounting and reporting
practices of the Company, the quality and integrity of financial reports, the
financial reporting processes, the system of internal controls; the qualifications,
independence and performance of the independent auditors; and compliance by the
Company with certain legal and regulatory requirements. The Audit Committee has the authority to
retain, compensate, oversee and terminate the independent auditors. The Audit
Committee reviews the Company annual audited financial statements, quarterly
financial statements and filings with the Securities and Exchange Commission.
The Audit Committee also pre-approves all audit and non-audit services
performed by the independent auditor. The Audit Committee operates under a
written charter that is available by following the link to Corporate
Governance on the Companys website at www.mdf.coop. During 2008, the Audit
Committee consisted of Messrs. Russ Mauch (Chair), Dale Blume, Dennis
Butenhoff, Mike Hasbargen and Alton Theede.

The Board
of Directors has reviewed the education, experience and other qualifications of
each of the members of its Audit Committee. After review, the Board of
Directors has determined that none of the members of the Audit Committee meet
the Securities and Exchange Commission definition of an audit committee
financial expert. However, the Company believes that, taken as a whole, the
members of Audit Committee have sufficient education, experience and
qualifications to carry out their duties.

Executive Officers

The table
below lists the senior management employees of the Company, none of whom owns
any common or preferred shares. Brief biographies for each of the officers are
included after the table.

|                    |  |     |  |                                                      
|------------------- |  | --- |  | -----------------------------------------------------
|Name                |  | Age |  | Position                                             
|                    |  |     |  |                                                      
|David H.
 Roche     |  | 61  |  | President
 and Chief Executive Officer               
|                    |  |     |  |                                                      
|Steven M.
 Caspers  |  | 58  |  | Executive
 Vice President and Chief Financial Officer
|                    |  |     |  |                                                      
|Jeffrey L.
 Carlson |  | 53  |  | Vice
 President Operations                           
|                    |  |     |  |                                                      
|John Haugen         |  | 56  |  | Vice
 President Engineering                          
|                    |  |     |  |                                                      
|Thomas D.
 Knudsen  |  | 54  |  | Vice
 President Agriculture                          
|                    |  |     |  |                                                      
|Richard D.
 Ames    |  | 51  |  | Operations
 Manager of Minn Dak Yeast                
|                    |  |     |  |                                                      
|Susan
 Johnson      |  | 61  |  | Communications
 Manager                              
|                    |  |     |  |                                                      
|Allen E.
 Larson    |  | 53  |  | Controller
 and Chief Accounting Officer             
|                    |  |     |  |                                                      
|John S
 Nyquist     |  | 53  |  | Purchasing
 Manager                                  
|                    |  |     |  |                                                      
|Greg J.
 Schmalz    |  | 57  |  | Director
 Human Resources                            
|                    |  |     |  |                                                      
|Kevin R.
 Shannon   |  | 54  |  | Safety
 Director                                     

David
H. Roche is Minn-Dak Farmers Cooperatives third
president and CEO. He joined the Wahpeton, ND based sugar cooperative on March
1, 2001. He serves on the boards of United Sugars Corporation and Midwest
Agri-Commodities. Mr. Roche is chairman of the board for Minn-Dak Yeast
Company. In addition, he is a trustee of the United States Beet Sugar
Association, and a member of the board of directors of The Sugar Association,
Washington, D.C. Mr. Roche began his sugar industry career as a controller for
Michigan Sugar Company in 1976. He progressed through the ranks until he was
named president in 1994. In 1996 he became president of Savannah Foods
Industrial and was appointed senior vice president of Savannah Foods &
Industries. Imperial Sugar Company acquired controlling interest in Savannah in
1998. He was named as a managing director and senior vice president. Mr. Roche
holds an MBA in Accounting from Michigan State University and became a
Certified Public Accountant in 1974.

37

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Steven
M. Caspers is a graduate of the University of North
Dakota with a Bachelor of Science in Business Administration and a major in
Accounting. He has been employed with the Company since May 5, 1974. Mr. Caspers is president of Minn-Dak Yeast Company. Mr.
Caspers is the brother-in-law of Mr. Michael Hasbargen, Director.

Jeffrey L.
Carlson is a graduate of the University of Minnesota-Morris with a
Bachelor of Arts in Chemistry and the University of North Dakota with a Ph.D.
in Physical Chemistry. He received his MBA from North Dakota State University
in 2001. Mr. Carlson began his career as a research chemist and an assistant
professor in 1986. Mr. Carlson began his employment with the Company on June 4,
1990.

John
R. Haugen was promoted to the position of Director of
Engineering on November 2, 2001 and to Vice President Engineering on August 1,
2002. He started his career with Minn-Dak Farmers Cooperative in 1976 as an
Assistant Engineer and prior to this promotion held the position of Senior
Engineer. Mr. Haugen is a graduate of the University of North Dakota and holds
a BS in Mechanical Engineering.

Thomas
D. Knudsen is a graduate of North Dakota State
University with a Bachelor of Science in horticulture and has attended the Beet
Sugar Institute at Fort Collins, Colorado. He began employment with the Company
on May 24, 1977.

Richard
W. Ames has been serving as the Operations Manager of
Minn-Dak Yeast since 1989. He began his employment with the Company in
September 1986. Dr. Ames holds a Ph.D. in Chemistry from University of North
Dakota, which he earned in 1986. He is an active member of the American
Chemical Society.

Susan
M. Johnson has attended several post-secondary
education classes in fields related to her employment at the Company. Ms.
Johnson began her career in the accounting department as receptionist and
payroll clerk. She has also been employed in the human resources department,
the executive offices, and is currently in the position of communications
manager/executive administrative assistant. Ms. Johnson began employment with
the Company on June 26, 1978.

Allen
E. Larson is a graduate of Moorhead State University
with a Bachelor of Science in Business Administration and a major in
Accounting. He has been employed with the Company since October 26, 1981.

John S.
Nyquist attended the North Dakota State College of Science, majoring
in Accounting and Computer Programs. Mr. Nyquist began his purchasing and
inventory control experience in 1975 in the Company storeroom. Mr. Nyquist is
active in local civic and fraternal organizations. Mr. Nyquist began employment
with the Company on September 15, 1975.

Greg
J. Schmalz is a graduate of the University of North
Dakota, Grand Forks, with a Bachelor of Arts Degree in Sociology and a Masters
Degree in Guidance and Counseling. Mr. Schmalz is a member of the Society of
Human Resources Management and the Agassiz Valley Human Resources Association.
He began his career in human resources in 1979. He has been employed with the
Company since August 30, 2004.

Kevin R.
Shannon attended Taylor Institute and Vanguard Vo-Tech, majoring in
Instrumentation. He is active in local civic organizations. Mr. Shannon began
his technical and supervisory career in 1974. His employment with the Company
began on June 1, 1983. Prior to becoming the safety director in September of
1992, Mr. Shannon was the Companys tare lab supervisor.

38

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Code of
Ethics for Executive Officers

The Company
has adopted a code of ethics that applies to all directors, officers and
employees, including its principal executive officer, principal financial
officer and controller. This code of ethics is included in its Standards
of Business Conduct which is publicly available by following the link to
Corporate Governance at its website at www.mdf.coop.

The Company intends to satisfy
the disclosure requirements of the Securities and Exchange Commission regarding
certain amendments to, or waivers from, provisions of its code of ethics that
apply to the Companys principal executive officer, principal financial
officer, principal accounting officer or controller by posting such information
on the Companys website at www.mdf.coop.

39

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|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION

Compensation Discussion and
Analysis

The
following discussion and analysis describes the Companys compensation
objectives and policies as applied to the following executive officers who are
referred to in this Annual Report on Form 10-K as the Named Executive Officers:

| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | David H. Roche, President
 and Chief Executive Officer;                  
| |  | Steven M. Caspers,
 Executive Vice President and Chief Financial Officer;
| |  | Thomas D. Knudsen, Vice
 President Agriculture;                          
| |  | John Haugen, Vice
 President Engineering; and                            
| |  | Jeffrey L. Carlson, Vice
 President Operations.                          

This
section is intended to provide a framework within which to understand the
actual compensation awarded to or earned by the Named Executive Officers during
the year ended August 31, 2008, as reported in the compensation tables and
accompanying narrative sections appearing on pages 43 to 51 of this Annual
Report on Form 10-K.

Role of the Compensation Committee in Determining
Executive Compensation

The
primary responsibility of the Compensation Committee is to discharge the
Boards responsibilities relating to the fair and competitive compensation of
the Companys Chief Executive Officer. This responsibility includes reviewing
and recommending to the Board the compensation and other terms of employment of
the Chief Executive Officer, overseeing significant aspects of compensation and
benefit programs in which the Chief Executive Officer participates, and
approving performance-based goals and compensation. The Compensation Committee
also annually reviews the Chief Executive Officers compensation and evaluates
the Chief Executive Officers performance.

Under
its charter, the Committee has the authority to engage the services of outside
advisors, experts and others to assist it in performing its duties. While the
Compensation Committee has used the services of a compensation consultant in
the past, it did not do so in determining fiscal year 2008 compensation for the
Chief Executive Officer. The Compensation Committee may choose to use the
services of a compensation consultant in the future.

Role of Management in Compensation Process

The
Compensation Committee does not oversee or design compensation programs for any
of the Named Executive Officers other than the Chief Executive Officer. The
Compensation Committee believes that it is the responsibility of the Chief
Executive Officer, as the highest-ranking executive, to implement the business
goals of the Company established by the Board of Directors and to manage the
Companys business against an annual budget established by the Board of
Directors. In this regard, the Chief Executive Officer is responsible for
determining a strategy for achieving these goals, including the allocation of
personnel, time and financial resources consistent with the budget. The
Compensation Committee believes it is the responsibility of the Chief Executive
Officer to manage and compensate the other Named Executive Officers in a manner
that provides sufficient incentives for these employees to meet the business
goals of the Company and to control compensation and benefits expense for all
employees, including the Named Executive Officers. In reviewing the performance
of the Chief Executive Officer each year, the Compensation Committee takes into
consideration the extent to which the
Chief Executive Officer has successfully fulfilled these responsibilities and
holds the Chief Executive Officer accountable for the performance of each
executive officer reporting to him.

40

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In
determining compensation for the Chief Executive Officer, the Compensation
Committee solicits input from the Director of Human Resources and the Chief
Financial Officer, primarily relating to the cost of the Companys compensation
programs and the financial performance of the Company. None of the Named
Executive Officers, other than the Chief Executive Officer, has a role in
establishing executive compensation. From time to time, some of the Named
Executive Officers are invited to attend meetings of the Compensation
Committee. However, no Named Executive Officer attends any executive session of
the Compensation Committee or is present during deliberations or determination
of that Named Executive Officers compensation.

While
the Chief Executive Officer does not seek approval from the Compensation
Committee for the compensation of the other Named Executive Officers, the Chief
Executive Officer does discuss their compensation with the Compensation
Committee and with the Board of Directors from time to time to solicit input
and advice.

Compensation Philosophy and Design of Compensation
Programs

The
Compensation Committees philosophy is to provide competitive levels of
compensation that are consistent with the Companys annual and long-term
performance goals. The Compensation Committee attempts to balance the financial
interests of the Chief Executive Officer against the Companys goal of
maximizing its return to its shareholders. In determining the competitiveness
of its programs, the Compensation Committee reviews the compensation offered by
other local employers, as well as other sugar production cooperatives, such as
American Crystal Sugar Company and Southern Minnesota Beet Sugar Cooperative.
When determining compensation for the Chief Executive Officer, the Compensation
Committee considers whether the form and amount of compensation is consistent
with its philosophy.

The
Compensation Committee has set the Chief Executive Officers base salary at or
below base salaries of similar positions in the region and in the Companys
industry. The Compensation Committee adjusts base salary comparables for the
size of the Companys operations, both in terms of tons of sugarbeets processed
and the quantity of sugar produced. The Compensation Committee has set base
salary lower than comparable salaries believing that variable cash
compensation, tied to specific performance measures, should constitute a
significant portion of the Chief Executive Officers overall cash compensation.
For the Named Executive Officers other than the Chief Executive Officer, the
Chief Executive Officer sets base salaries annually based, in part, on base
salaries of similar positions as reported by surveys, data and other market
information. The Chief Executive Officer also reviews the executives personal
performance, the need for the salary to remain competitive with other
organizations in the industry and the general budgetary guidelines established
by the Chief Executive Officer. The Chief Executive Officer has typically set
the base salaries of the other Named Executive Officers near the median
reported for that position.

41

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The
variable cash compensation is provided through two bonus programs, one based on
return per acre (referred to as the Profit Sharing Bonus) and one recommended
by the Compensation Committee for Board of Directors approval based upon the
results of an annual performance review (the Performance Bonus). The
Compensation Committee intends the Profit Sharing Bonus to be fairly
challenging and that average financial performance measured by return per acre
will result in a relatively low level of Profit Sharing Bonus, while above
average or exceptional financial performance would be required before a higher
level Profit Sharing Bonus is earned by the Chief Executive Officer. Because
return per acre is the measure that best quantifies the Companys return to
shareholders, the Compensation
Committee believes that this measure is appropriate to align the Chief
Executive Officers interests with those of the shareholders. With the renewal
agreement entered into between the Company and the Chief Executive Officer on
August 31, 2008, the Profit Sharing Bonus criteria were adjusted to make this
bonus more challenging. For example, the new formula increased the minimum
return per acre that must be achieved to result in any bonus and achievement of
a return per acre to growers that would have resulted in the maximum bonus to
the Chief Executive Officer ($50,000) will now result in a bonus amount that is
significantly less ($25,000). The Compensation Committee also attempted to
provide incentives for superior performance by increasing the amount of bonus
that could be earned at the newly established highest level of achievement. The
Compensation Committee believed that these changes, which were determined in
fiscal year 2008 and effective beginning with fiscal year 2009, were consistent
with the philosophy stated above. In addition, the Compensation Committee
believed that the higher minimum return per acre was appropriate because it
acknowledged increased expenses experienced by shareholder/growers since the
Profit Sharing Bonus formula was adopted in 2001. The new minimum return per
acre is designed to ensure that bonuses will be paid only when
shareholders/growers receive a meaningful return. In accordance with the terms
of the renewal agreement entered into on August 31, 2008, the Compensation
Committee will review the Profit Sharing Bonus formula every two years to
ensure it continues to provide appropriate incentives consistent with the
Compensation Committees philosophy. See Employment and Post-Employment
Arrangements for a description of Mr. Roches employment agreement, as amended
by the renewal agreement.

In
determining the total compensation for the other Named Executive Officers, the
Chief Executive Officer ascribes to much the same philosophy as the
Compensation Committee but the Chief Executive Officer also considers internal
pay equity, external competitiveness and the contribution of each executive to
the Companys overall performance when determining base salary and eligibility
for a discretionary performance-based bonus.

Elements of In-Service Compensation

The
Compensation Committee followed the guiding principles outlined above in the
development and administration of the compensation of the Chief Executive
Officer while employed by the Company. The elements of in-service compensation
of the Chief Executive Officer consist of base salary, a Profit Sharing Bonus
based on return to shareholders and a discretionary Performance Bonus based on
the Chief Executive Officers individual performance.

The
Named Executive Officers, other than the Chief Executive Officer, receive compensation
while employed with the Company consisting of a base salary and a discretionary
performance bonus determined by the Chief Executive Officer based upon the
Companys overall performance and the individual performance of the Named
Executive Officer.

The
Company does not believe that personal benefits or perquisites (i.e. perks)
are appropriate as a significant element of compensation, in particular because
perks are not conditioned upon performance and are not based upon contribution
to the Companys business. None of the Named Executive Officers received perks
that were a significant compensation element in 2008.

42

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Base Salaries

Mr.
Roche and the Company entered into an employment agreement in 2001 and since
that time, the Company has annually reviewed Mr. Roches performance to
determine whether to retain Mr. Roches services and to establish a salary for
Mr. Roche. The Compensation Committee set Mr. Roches base salary in August
2007 at the time the Company entered into the renewal of Mr. Roches employment
agreement through August 31, 2008. Mr. Roches annual base salary for 2008 was
set at $333,700, an increase
of 3.5 percent from the annual base salary of $322,500 for 2007. The
Compensation Committee increased Mr. Roches base salary primarily to recognize
an increase in the cost of living over the prior year. Mr. Roche determined
salaries for the other Named Executive Officers in July 2008 using the
guidelines set forth above.

The
following table sets forth the annual base salaries for 2008 and 2007 for each
of the other Named Executive Officers, as well as the percentage increase in
2008 as compared to 2007:

|                         |  |                          |  |                          |  |                           
|------------------------ |  | ------------------------ |  | ------------------------ |  | --------------------------
|Named
 Executive Officer |  | 2008 Annual
 Base Salary |  | 2007 Annual
 Base Salary |  | % Increase
 2008 Over 2007
|                         |  |                          |  |                          |  |                           
|Steven M. Caspers        |  | $171,100                 |  | $165,300                 |  | 3.5%                      
|Thomas D. Knudsen        |  | $125,500                 |  | $121,000                 |  | 3.7%                      
|John Haugen              |  | $120,000                 |  | $115,500                 |  | 3.9%                      
|Jeffrey L. Carlson       |  | $133,600                 |  | $125,600                 |  | 6.4%                      

Cash Bonus Programs

The
cash bonus element of total compensation is available to the Named Executive
Officers through a discretionary individual performance bonus, which for the
Chief Executive Officer is referred to as the Performance Bonus. The Chief
Executive Officer is also eligible for the Profit Sharing Bonus, a cash bonus
based upon the return per acre to growers in the fiscal year.

In
July 2008, the Compensation Committee and the Board of Directors conducted a
performance review of Mr. Roche for fiscal 2008, in part to determine whether Mr.
Roche would receive a Performance Bonus. Consistent with its process in prior
years, this performance review solicited a rating from the Board of Directors
of Mr. Roches performance in areas such as leadership, communication, budget
and time management, as well as overall performance. This information was
compiled anonymously and discussed among the Board members. The Board of
Directors reviewed Mr. Roches achievements for 2008, including his executive
leadership, Mr. Roches contribution to the successful processing and marketing
of the sugarbeet crop in fiscal 2008, his involvement and leadership in
industry affairs, and the competitive financial returns to the shareholders, in
determining whether to award a Performance Bonus and the amount of the Performance
Bonus. In view of the variety of the factors and the amount of information
considered as well as the complexity and subjectivity of these matters, the
Compensation Committee did not find it practical to, and did not attempt to,
make specific assessments of, quantify, rank or otherwise assign relative
weights to the specific factors considered by the Board or by the Compensation
Committee. Individual members of the Compensation Committee may have given
different weight to different factors. For 2008, the Compensation Committee
awarded Mr. Roche a Performance Bonus of $31,000.

43

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Mr.
Roche determined the discretionary performance bonus amounts to be paid to the
other Named Executive Officers and, consistent with past practice, he presented
this information to the Compensation Committee and the Board of Directors for
feedback in July 2008. In establishing the performance bonus awards for the
other Named Executive Officers, Mr. Roche considered their individual
contribution toward achieving the Company goals, and the level of return to
shareholders measured through dollars paid per acre of sugarbeets grown. The
Company and Mr. Roche continue to develop a more formal program for executive
officers (other than the Chief Executive Officer) for determining performance
bonus awards that will clearly specify goals to be achieved and the level of
bonus payment (as a percent of base salary) at various levels of achievement of
the goals. The following table
shows the individual Performance Bonus paid to each of the Named Executive
Officers for 2008 and also shows the performance bonus as a percentage of 2008
salary:

|                         |  |                        |  |                               |  
|------------------------ |  | ---------------------- |  | ----------------------------- | -
|Named
 Executive Officer |  | 2008 Performance Bonus |  | % Of 2008 Annual
 Base Salary
|                         |  |                        |  |                              
|David H. Roche           |  | $31,000                |  | 9                             | %
|Steven M. Caspers        |  | $45,000                |  | 26                            | %
|Thomas D. Knudsen        |  | $27,000                |  | 22                            | %
|John Haugen              |  | $27,000                |  | 23                            | %
|Jeffrey L. Carlson       |  | $27,000                |  | 20                            | %

For
Mr. Roche, the Profit Sharing Bonus consists of a cash bonus based upon the
return per acre to growers, with a matrix determining the amount of Profit
Sharing Bonus at various levels of return per acre. The matrix was established
by the 2001 employment agreement between Mr. Roche and the Company and sets
forth the Profit Sharing Bonus that would be earned by him at various levels of
return per acre to the growers as follows:

|                            |  |                             
|--------------------------- |  | ----------------------------
|Return Per
 Acre to Growers |  | Profit
 Sharing Bonus Amount
|                            |  |                             
|$700 - $749                 |  | $10,000                     
|$750 - $799                 |  | $20,000                     
|$800 - $849                 |  | $30,000                     
|$850 - $899                 |  | $40,000                     
|Over $900                   |  | $50,000                     

For
the purposes of the Profit Sharing Bonus, return per acre is the amount
received by the shareholders/growers as a grower payment for sugarbeets and
does not include patronage, retains or trucking payments. For 2008, the return
per acre to the growers was in excess of $900 per acre resulting in a Profit
Sharing Bonus to Mr. Roche of $50,000. Mr. Roches Profit Sharing Bonus and
Performance Bonus resulted in an aggregate bonus of $81,000, resulting in an
amount equal to 24 percent of his 2008 annual base salary.

Elements of Post-Termination Compensation

In
2001, the Company entered into an employment agreement with Mr. Roche relating
to his service as the President and Chief Executive Officer, which was amended
by a renewal agreement dated August 28, 2007 for the term of September 1, 2007
to August 31, 2008. Under this employment agreement as amended, Mr. Roche will
be paid his then-current base salary for a period of twelve months in the event
of termination of Mr. Roches employment without cause, upon receipt of a general
release and compliance with provisions of the renewal relating to
confidentiality of Company information. Mr. Roche is not entitled to
post-employment payments in the event of termination of Mr. Roches employment
by Mr. Roche, by the Company for cause, or by reason of death or disability.
For the purposes of the employment agreement, for cause means willful
misconduct in following the legitimate directions of the Board of Directors;
breach of loyalty to the cooperative; conviction of a felony; habitual
drunkenness; excessive absenteeism not related to illness, sick leave or
vacations, but only after notice from the Board of Directors followed by a
repetition of such excessive absenteeism; dishonesty; or continuous conflicts
of interest after notice in writing from the Board of Directors.

44

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If
Mr. Roches employment were terminated without cause on August 31, 2008, he
would receive $333,700 in post-termination benefits, payable over a
twelve-month period.

The
Compensation Committee believed that the modification to Mr. Roches employment
agreement to provide for payments following termination of Mr. Roches
employment without cause struck the right balance between the interests of the
Company and Mr. Roches interests. The definition of cause allows the Company
to terminate Mr. Roche in the case where the Companys business or reputation
may be harmed but fairly protects Mr. Roche from termination without proper
cause. The Compensation Committee also believed that a twelve-month severance
period was appropriate in light of the number of years of service Mr. Roche has
provided the Company, the dollar amount of the benefit, the fact that the
amount is payable over a twelve-month period (rather than in a lump sum), and
that it is conditioned upon Mr. Roche signing a release of claims in favor of
the Company and Mr. Roches compliance with his confidentiality obligations.

Other
than with respect to Mr. Roche, the Company does not have employment agreements
or arrangements with any of the other Named Executive Officers. Other than with
respect to the post-termination benefits to Mr. Roche under his employment
agreement, the Company does not provide for severance or any other
post-termination benefits to the Named Executive Officers, except through plans
in which executive officers participate generally. See Executive Compensation
 Employment and Post-Employment Arrangements in this Annual Report on Form
10-K for a discussion of the terms of the employment agreement with Mr. Roche.

Impact of Regulatory Requirements

In
determining the compensation policies, programs and actions to be taken by the
Company with respect to executive compensation, the Compensation Committee
considers the impact of accounting rules, securities rules and tax rules. The
Compensation Committee also regularly reviews changes in these regulatory
requirements to determine their applicability and impact on the Company.

Summary Compensation Table

The
following table shows information concerning compensation earned for services
in all capacities during fiscal year 2008 for: (i) David H. Roche, who served
as the Companys Chief Executive Officer in fiscal year 2008; (ii) Steven M.
Caspers, who served as the Companys Chief Financial Officer in fiscal year
2008; and (iii) the three other most highly compensated executive officers of
the Company whose total compensation was at least $100,000, less the amount
representing the change in pension value and nonqualified deferred compensation
earnings (together referred to as the Named Executive Officers).

|                    |  |      |  |            |         |           |   |                                                                                       |  |                              |        |       |   |        |  |   |         | 
|------------------- |  | ---- |  | ---------- | ------- | --------- | - | ------------------------------------------------------------------------------------- |  | ---------------------------- | ------ | ----- | - | ------ |  | - | ------- | 
|Name and
 Position  |  | Year |  | Salary (1) |         | Bonus (2) |   | Change in 
 Pension Value
 and
 Nonqualified 
 Deferred 
 Compensation 
 Earnings (3) |  | All Other
 Compensation
 (4) |        | Total |  
|                    |  |      |  |            |         |           |   |                                                                                       |  |                              |        |       |  
|David H. Roche,     |  | 2008 |  | $          | 333,483 |           | $ | 81,000                                                                                |  | $                            | 54,772 |       | $ | 21,887 |  | $ | 491,142 | 
|President & CEO     |  | 2007 |  | $          | 322,232 |           | $ | 120,000                                                                               |  | $                            | 58,625 |       | $ | 20,459 |  | $ | 521,316 | 
|Steven M. Caspers,  |  | 2008 |  | $          | 171,470 |           | $ | 45,000                                                                                |  | $                            | 72,623 |       | $ | 9,156  |  | $ | 298,249 | 
|Executive VP & CFO  |  | 2007 |  | $          | 165,701 |           | $ | 65,000                                                                                |  | $                            | 49,408 |       | $ | 19,476 |  | $ | 299,585 | 
|Thomas D. Knudsen,  |  | 2008 |  | $          | 126,011 |           | $ | 27,000                                                                                |  | $                            | 34,373 |       | $ | 7,610  |  | $ | 194,994 | 
|VP Agriculture      |  | 2007 |  | $          | 121,528 |           | $ | 36,000                                                                                |  | $                            | 22,045 |       | $ | 6,264  |  | $ | 185,837 | 
|John Haugen,        |  | 2008 |  | $          | 120,309 |           | $ | 27,000                                                                                |  | $                            | 39,141 |       | $ | 8,023  |  | $ | 194,473 | 
|VP Engineering      |  | 2007 |  | $          | 115,808 |           | $ | 36,000                                                                                |  | $                            | 25,231 |       | $ | 23,190 |  | $ | 200,229 | 
|Jeffrey L. Carlson, |  | 2008 |  | $          | 133,740 |           | $ | 27,000                                                                                |  | $                            | 24,477 |       | $ | 7,957  |  | $ | 193,174 | 
|VP Operations       |  | 2007 |  | $          | 126,113 |           | $ | 36,000                                                                                |  | $                            | 15,021 |       | $ | 6,488  |  | $ | 183,622 | 

45

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| |     |                                                                                                                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1)  | A portion of the salary of
 each of Messrs. Roche and Caspers was deferred into the Companys
 Nonqualified Deferred Compensation Plan. Amounts shown are not reduced to
 reflect the deferral elections of any of the Named Elective Officers.                                                                                  
| | (2) | This column reflects
 bonuses earned in the year indicated, including both a discretionary and
 profit sharing bonus, where applicable. See Compensation Discussion and
 Analysis  Elements of In-Service Compensation  Cash Bonus Programs for a
 description of bonuses that may be earned by the Named Executive Officers.
| | (3) | Amounts in this column
 reflect the aggregate increase in actuarial present value of the benefits
 under the pension plan and supplemental pension plan as applicable. A portion
 of the change in pension benefits value is attributable to the additional
 year of service, any annual salary increase and bonus received.     
| | (4) | Amounts in this column
 include:                                                                                                                                                                                                                                                                                                 

|                   |  |                                                             |  |                          |   |                                                             |  |                         |        |           |  |   |        |  |  |  |   |        |  | 
|------------------ |  | ----------------------------------------------------------- |  | ------------------------ | - | ----------------------------------------------------------- |  | ----------------------- | ------ | --------- |  | - | ------ |  |  |  | - | ------ |  | 
|                   |  | FY 2008                                                     |  | FY 2007                  |  
|                   |  |                                                             |  |                          |  
|Name               |  | Company
 Contributions
 to Defined
 Contribution
 Plans (a) |  | Insurance 
 Premiums (b) |   | Company
 Contributions
 to Defined
 Contribution
 Plans (a) |  | Insurance
 Premiums (b) |        | Other (c) | 
|                   |  |                                                             |  |                          |   |                                                             |  |                         |        |           | 
|David H. Roche     |  | $9,313                                                      |  |                          | $ | 12,574                                                      |  |                         | $8,963 |           |  | $ | 11,495 |  |  |  |   |       |  | 
|Steven M. Caspers  |  | $6,296                                                      |  |                          | $ | 2,860                                                       |  |                         | $7,198 |           |  | $ | 2,742  |  |  |  | $ | 9,537  |  | 
|Thomas D. Knudsen  |  | $6,480                                                      |  |                          | $ | 1,130                                                       |  |                         | $5,161 |           |  | $ | 1,103  |  |  |  |   |       |  | 
|John Haugen        |  | $6,252                                                      |  |                          | $ | 1,771                                                       |  |                         | $4,952 |           |  | $ | 1,579  |  |  |  | $ | 16,659 |  | 
|Jeffrey L. Carlson |  | $6,790                                                      |  |                          | $ | 1,167                                                       |  |                         | $5,364 |           |  | $ | 1,124  |  |  |  |   |       |  | 

|    |                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------
|(a) | Reflects the Companys
 contribution to the 401(k) plan for each Named Executive Officer.                                               
|(b) | Includes premiums paid by
 the Company for life insurance coverage in excess of $50,000 and supplemental
 long-term disability coverage.
|(c) | Reflects amounts paid in
 cash to Named Executive Officers for vacation hours.                                                          

2008 Pension Benefits

The
table below sets forth information on the pension benefits for the Named
Executive Officers under each of the following:

|  |                                                                      
|- | ---------------------------------------------------------------------
| | Minn-Dak
 Farmers Cooperative Pension Plan; and                      
| 
| | Minn-Dak
 Farmers Cooperative Supplemental Executive Retirement Plan.

46

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Both
the Pension Plan and the SERP are described in more detail in Item 11.
Executive Compensation of this Annual Report on Form 10-K under the section
entitled Employment and
Post-Employment Arrangements  Post-Employment
Arrangements for Named Executive Officers.

No
pension benefits were paid to any of the Named Executive Officers in fiscal
year 2008. The Company does not have a policy permitting granting of additional
years of pension service. Further information on these pension plans, is
included within this section of this Item of Form 10-K entitled Compensation
Discussion and Analysis.

The
amounts reported in the table below equal the present value of the accumulated
benefit at August 31, 2008, for the Named Executive Officers under each plan
based upon the assumptions described in footnote 2.

|                   |  |              |  |                                       |  |                                            |         | 
|------------------ |  | ------------ |  | ------------------------------------- |  | ------------------------------------------ | ------- | 
|Name               |  | Plan Name    |  | Number of Years
 Credited Service (1) |  | Present Value of 
 Accumulated Benefit (2)
|                   |  |              |  |                                       |  |                                           
|David H. Roche     |  | Pension Plan |  | 8                                     |  | $                                          | 185,022 | 
|                   |  | SERP         |  | 8                                     |  | $                                          | 173,922 | 
|Steven M. Caspers  |  | Pension Plan |  | 35                                    |  | $                                          | 592,505 | 
|                   |  | SERP         |  | 35                                    |  | $                                          | 12,510  | 
|Thomas D. Knudsen  |  | Pension Plan |  | 32                                    |  | $                                          | 272,711 | 
|John Haugen        |  | Pension Plan |  | 33                                    |  | $                                          | 310,891 | 
|Jeffrey L. Carlson |  | Pension Plan |  | 18                                    |  | $                                          | 154,687 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | An employee earns a full
 year of credited service in the pension plan with 1,000 or more hours of
 service during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(2) | The accumulated benefit is
 based on service and earnings (base salary and bonus, as described above)
 considered by the plans for the period through August 31, 2008. It includes
 the value of contributions made by the Named Executive Officers throughout
 their careers. For the Pension Plan and SERP, the present value has been calculated
 assuming the Named Executive Officers will remain in service until age 65,
 the age at which retirement may occur without any reduction in benefits, and
 that the benefit is payable under the available forms of annuity consistent
 with the assumptions as described in Note 13 to the financial statements
 contained elsewhere in this Annual Report on Form 10-K. As described in such
 note, the interest assumption is 6.5 percent for fiscal year 2008. The
 post-retirement mortality assumption is based on the 1983 Group Annuity
 Mortality Table.

Nonqualified Deferred Compensation

The
table below provides information on the non-qualified deferred compensation of
the Named Executive Officers in fiscal year 2008 under the Companys
Nonqualified Deferred Compensation Plan (the Deferred Compensation Plan).
Under the terms of the Deferred Compensation Plan, participants may elect to
defer receipt of their compensation and the Deferred Compensation Plan provides
a means for deferrals of compensation. The
Deferred Compensation Plan is
described in more detail in Item 11. Executive Compensation of this Annual
Report on Form 10-K under the section entitled Employment and
Post-Employment Arrangements  Post-Employment
Arrangements for Named Executive Officers.

47

---



Executive
Compensation of this Annual Report on Form 10-K under the section entitled Employment and Post-Employment Arrangements 
Post-Employment Arrangements for Named
Executive Officers.

|                   |  |                                                       |        |                                               |  |                                                          |         |                                                |  |   |  |   |         | 
|------------------ |  | ----------------------------------------------------- | ------ | --------------------------------------------- |  | -------------------------------------------------------- | ------- | ---------------------------------------------- |  | - |  | - | ------- | 
|Name               |  | Executive 
 Contributions in 
 Fiscal Year 2008 
 (1) |        | Aggregate Earning 
 in Fiscal Year 2008 
 (2) |  | Distributions and
 Withdrawals in
 Fiscal Year 2008
 (3) |         | Aggregate 
 Balance at 
 August 31, 2008 
 (4)
|                   |  |                                                       |        |                                               |  |                                                          |         |                                               
|David H. Roche     |  | $                                                     | 85,000 |                                               |  | ($                                                       | 13,813) |                                                |  |  |  | $ | 165,236 | 
|Steven M. Caspers  |  |                                                       |       |                                               |  | ($                                                       | 4,231)  |                                                |  |  |  | $ | 51,879  | 
|Thomas D. Knudsen  |  |                                                       |       |                                               |  | ($                                                       | 1,426)  |                                                |  |  |  | $ | 17,970  | 
|John Haugen        |  |                                                       |       |                                               |  | ($                                                       | 1,147)  |                                                |  |  |  | $ | 14,047  | 
|Jeffrey L. Carlson |  |                                                       |       |                                               |  |                                                          |        |                                                |  |  |  |   |        | 

|    |                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The annual salary
 deferrals included in this column are reflected in the salary column of the
 Summary Compensation Table. The deferrals of the bonus awards reflected in
 this column are reported in the bonus column of the Summary Compensation
 Table.
|(2) | Amounts in this column
 include gains and losses on deferred compensation invested through the
 Deferred Compensation Plan. None of the earnings or losses in this column are
 included in the Summary Compensation Table.                                  
|(3) | Amounts in this column
 reflect the Distributions and Withdrawals in Fiscal Year 2008.                                                                                                                                                                      
|(4) | Amounts in this column
 reflect the aggregate balance at 2008 fiscal year end.                                                                                                                                                                              

Employment and
Post-Employment Arrangements

Agreement with David H. Roche

On
March 1, 2001, the Company entered into an employment agreement with David H.
Roche to serve as its President and Chief Executive Officer with an initial
term through August 31, 2002. This initial term has been renewed for 12-month
periods running from September 1 to August 31 of the following year. Under the
terms of the employment agreement, Mr. Roche is eligible for an increase in
this base salary based upon an annual performance review and eligible for a
profit sharing bonus based upon return per acre. See Compensation Discussion
and Analysis  Elements of In-Service Compensation  Cash Bonus Programs for
the matrix associated with the return per acre bonus. The Board of Directors
also has the discretion to grant Mr. Roche a performance bonus regardless of
whether the return per acre bonus is awarded. Mr. Roche is also eligible for
health, dental and vision insurance on the same terms as other non-union
employees, as well as other group benefits such as term life insurance,
accidental death and dismemberment insurance, long-term disability insurance.
If Mr. Roche retires as Chief Executive Officer on or after his 62nd birthday,
the Company will provide him with medical insurance until he reaches age 65.
Mr. Roche will also be included in the Companys non-qualified deferred
compensation plan, the pension plan, supplemental executive retirement plan and
401(k) plan.

During
any term of the employment agreement, the agreement may be terminated by either
party upon written notice to the other at least ninety days prior to the end of
the term, by the Company for material breach or just cause by Mr. Roche and
upon Mr. Roches death or disability. For the purposes of the employment
agreement, material breach and just cause mean willful misconduct in
following legitimate directions of the Board of Directors; breach of loyalty to
the cooperative; conviction of a felony; habitual drunkenness; excessive
absenteeism not related to illness, sick leave or vacations, but only
after notice from the Board of Directors followed by a repetition of such
excessive absenteeism; dishonesty; or continuous conflicts of interest after
notice in writing from the Board of Directors.

48

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On
August 28, 2007, the Company and Mr. Roche entered into a renewal agreement for
the period September 1, 2007 to August 31, 2008. In the renewal agreement, Mr.
Roches annual base salary was set at $333,700 for the one-year period ended
August 31, 2008. The renewal agreement also operated as an amendment to
the termination provisions of the 2001 employment agreement. Under
the employment agreement as modified by the renewal agreement, Mr.
Roches employment may be terminated by either party upon 90 days advance
notice, by the Company for material breach or just cause (as those terms
are defined in the renewal agreement) and upon Mr. Roches death or
disability. Under the renewal agreement, if the Company terminates Mr.
Roches employment without cause, the Company will pay Mr. Roches then-current
base salary for a period of 12 months, conditioned upon receipt of a general
release and compliance with provisions of the renewal agreement relating
to confidentiality of Company information. This post-employment payment does
not apply to termination of Mr. Roches employment by Mr. Roche, by the Company
for cause, or by reason of death or disability. The renewal agreement also
added a provision to the employment agreement by which Mr. Roche
agrees to keep confidential certain Company information during the term of
his employment with the Company and following termination of employment.

On
August 31, 2008, the Company and Mr. Roche entered into a renewal agreement for
the period September 1, 2008 to August 31, 2009. In the renewal agreement, Mr.
Roches annual base salary was set at $343,700 for the one-year period ended
August 31, 2009. The renewal agreement also operated as an amendment
to the profit sharing bonus provisions of the
2001 employment agreement. Under the profit sharing bonus, Mr. Roche
may earn a cash bonus based on the return per acre to growers and with the
renewal agreement, the amounts that Mr. Roche may earn at various levels of
return per acre were adjusted to be as follows beginning with fiscal year 2009:

|                            |  |                             
|--------------------------- |  | ----------------------------
|Return Per
 Acre to Growers |  | Profit
 Sharing Bonus Amount
|                            |  |                             
|$825 - $900                 |  | $15,000                     
|$901 - $915                 |  | $25,000                     
|$976 - $1,050               |  | $35,000                     
|$1,105 - $1,125             |  | $45,000                     
|$1,126 - $1,200             |  | $55,000                     
|$1,201 and over             |  | $65,000                     

The
calculation of returns per acre is the same as under the prior agreement, which
is the amount received by the shareholders/growers as a grower payment for
sugarbeets not including patronage, retains or trucking payments. The renewal
agreement entered into on August 31, 2008 also states that the scale set forth
above will be reviewed every two years.

Post-Employment Arrangements for Named Executive Officers

The
Companys employment agreement with Mr. Roche does not provide for severance
(unless terminated without cause) or any other post-termination payments for
2008, except through plans in which the Named Executive Officers participate
generally. The Company provides post-employment compensation for the Named
Executive Officers, David H. Roche, Steven M. Caspers, Thomas D. Knudsen,
Jeffrey L. Carlson and John Haugen, through the following plans:

| |   |                                               
| | - | ----------------------------------------------
| |  | Defined benefit retirement
 plan;             
| |  | Supplemental executive
 retirement plan;      
| |  | Non-qualified deferred
 compensation plan; and
| |  | 401(k) retirement savings
 plan.              

49

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The
Company has established the Minn-Dak Farmers Cooperative Pension Plan. The
Pension Plan is a noncontributory, defined benefit retirement plan, which is
available to all of its eligible employees. For 2008, there were approximately
325 eligible current employees participating in the Pension Plan, including the
Named Executive Officers. The benefits of the Pension Plan are funded by
periodic contributions by the Company to a retirement trust that invests the
contributions and earnings from such contributions to pay benefits to
employees. The Pension Plan provides for the payment of a monthly retirement
benefit determined under a formula based on years of service and each
employees compensation level. Benefits are paid to the employees upon reaching
early (age 55 or older) or normal (age 65) retirement age. The plan also
provides for the payment of certain disability and death benefits. See the
table entitled Pension Benefits under Item 11. Executive Compensation of this
Annual Report on Form 10-K for information on the benefits for 2008 to each of
the Named Executive Officers under the Pension Plan.

The
Board of Directors adopted a Supplemental Executive Retirement Plan on January
21, 1997. Subject to the discretion of the Board of Directors, the Company
credits to the account of each executive eligible to participate in the
Supplemental Plan amounts equal to the difference between the benefits actually
payable to the executive under the provisions of the defined benefit retirement
plan and the amounts which would have been payable under the defined benefit
retirement plan if certain provisions of the Internal Revenue Code did not
prohibit the payment of such benefits. Of the Named Executive Officers, Messrs.
Roche and Caspers participated in the Supplemental Executive Retirement Plan in
2008. See the table entitled Pension Benefits under Item 11. Executive
Compensation of this Annual Report on Form 10-K for information on the
benefits for 2008 to Messrs. Roche and Caspers under the Supplemental Executive
Retirement Plan. Unlike the Companys Pension Plan, the Supplementary Executive
Retirement Plan is an unfunded, unsecured obligation of the Company and is not
qualified for tax purposes.

On
August 1, 1978 the Company executed an adoption agreement establishing an
unfunded Nonqualified Deferred Compensation Plan (the Deferred Compensation
Plan) for a select group of management or highly compensated employees. Under
the terms of the Deferred Compensation Plan, certain employees may elect to
defer receipt of their compensation and the Deferred Compensation Plan provides
a means for deferrals of compensation into various investment options. The
participants may change their election among these options no more than one
time per quarter. The income earned does not constitute an above-market
interest rate as defined by the Securities and Exchange Commission.

Under
the Deferred Compensation Plan, participants may elect to defer any amount of
their current salary and bonus as of the end of the prior year for the first
payroll period beginning in the next year of the Deferred Compensation Plan.
Income will be gained or lost on a daily basis as a result of the participants
directed investment of his/her account. The participant is vested in those
earnings immediately. Participants are eligible for payouts from the Deferred
Compensation Plan at termination, death or disability. With respect to
distributions, participants may only elect to receive payments in the form of
cash over no more than ten annual installments. While the Company does not
provide any matching contribution under the Companys 401(k) retirement savings
plan for compensation amounts deferred into the Deferred Compensation Plan, the
Company does have the discretion to make nonelective or matching contributions
to the Deferred Compensation Plan. Participants have no right, either directly
or indirectly, to anticipate, sell, assign or otherwise transfer any benefit
accrued under the Deferred Compensation Plan. In addition, no participant has
any interest in any Company assets set aside as a source of funds to satisfy
its benefit obligations under the Deferred Compensation Plan, including the
establishment of any trust. Participants have the status of general unsecured
creditors of the Company and
the Deferred Compensation Plan constitutes an unsecured promise by the Company
to make benefit payments in the future. See the table entitled Nonqualified
Deferred Compensation under Item 11. Executive Compensation in this
Annual Report on Form 10-K for information on the benefits for 2008 for each of
the Named Executive Officers under the Deferred Compensation Plan.

50

---



The
Company maintains a Section 401(k) retirement savings plan that permits
employees, including the Named Executive Officers, to elect to set aside a
portion of their gross compensation on a pre-tax basis in a trust to pay future
retirement benefits. The Company provides a matching contribution of 100
percent of each employees first 4 percent of compensation that is set-aside
under the plan. The amounts set aside by each employee and the Company vests
immediately. Benefits under the 401(k) plan begin to be paid to the employee:
(i) upon the attainment of normal retirement at age 65, or if the employee
chooses, any time after early retirement at or after age 55; (ii) the date the
employee terminates employment with the Company; or (iii) a pre-retirement distribution
equal to the value of the employees 401(k) account, provided the employee has
attained age 59 1/2 and provided a written consent of the spouse (if married).
Federal law limited employee pre-tax income contributions to $15,500 in
calendar year 2007 for each participating employee age 49 and under, and
$20,500 for each participating employee age 50 and older. For calendar year
2008, employee pre-tax income contributions were limited to $15,500 for each
participating employee age 49 and under and $20,500 for each participating
employee age 50 and older. See the table entitled Summary Compensation Table
for information on the benefits for 2008 to each of the Named Executive
Officers under the Companys 401(k) plan.

Beginning
in fiscal year 2008, the Company also maintains a defined contribution pension
plan for all newly hired employees who are not part of a collective bargaining
arrangement. None of the Named Executive Officers participate in this defined
contribution pension plan.

51

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DIRECTOR COMPENSATION

Directors
of the Company received the following amounts for Board and committee service
in fiscal year 2008: $270 per regular Board meeting, special Board meeting and
committee meeting. In addition, from time to time the Company requests that
directors represent the Companys interests at various industry meetings and
conferences, meetings with government or regulators, meetings with shareholders
and growers and other meetings with stakeholders. For attendance at each
meeting requested by the Company, each director receives $135 per day
for service of less than five hours and $270 per day for service of more than
five hours. The Chairman
of the Board of Directors also receives an additional retainer of $500 per
month to compensate for the extra duties associated with that position. Mr. Doug Etten
served as the Chairman of the Board of Directors in fiscal year 2008.

The
following table shows for fiscal year 2008, the cash and other compensation
earned by each of the Companys directors. Other than cash retainer and meeting
fees earned in fiscal year 2008 as described above, none of the Companys
directors earned any other cash or other compensation.

|                  |  |                                    |   |        |  |  |  |   |        |  | 
|----------------- |  | ---------------------------------- | - | ------ |  |  |  | - | ------ |  | 
|Name of Director  |  | Fees
 Earned or 
 Paid in Cash (1) |   | Total  | 
|                  |  |                                    |   |        | 
|Dale Blume        |  |                                    | $ | 8,670  |  |  |  | $ | 8,670  |  | 
|Dennis Butenhoff  |  |                                    | $ | 9,720  |  |  |  | $ | 9,720  |  | 
|Brent Davison     |  |                                    | $ | 13,500 |  |  |  | $ | 13,500 |  | 
|Doug Etten        |  |                                    | $ | 21,110 |  |  |  | $ | 21,110 |  | 
|Michael Hasbargen |  |                                    | $ | 14,830 |  |  |  | $ | 14,830 |  | 
|Dennis Klosterman |  |                                    | $ | 6,790  |  |  |  | $ | 6,790  |  | 
|Russell Mauch     |  |                                    | $ | 16,735 |  |  |  | $ | 16,735 |  | 
|Charles Steiner   |  |                                    | $ | 13,284 |  |  |  | $ | 13,284 |  | 
|Alton Theede      |  |                                    | $ | 6,400  |  |  |  | $ | 6,440  |  | 

|    |                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes the amount of
 cash compensation earned or paid in fiscal year 2008 for Board and committee
 service, as well as for attendance at meetings requested by the Company.

52

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REPORT OF THE COMPENSATION COMMITTEE

The
preceding report of the Compensation Committee shall not be deemed to be
filed with the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any future filing under the Securities Act of
1933, as amended, or the 1934 Securities Exchange Act, as amended, except to
the extent that the Company specifically incorporates it by reference in such
filing.

The
Compensation Committee has reviewed and discussed the section of this Annual
Report on Form 10-K for the year ended August 31, 2008 entitled Compensation
Discussion and Analysis (the CD&A) with management. In reliance on this
review and discussion, the Compensation Committee recommended to the Board of
Directors that the CD&A be included in this Annual Report on Form 10-K for
the year ended August 31, 2008 for filing with the Securities and Exchange
Commission.

By the Compensation Committee of the Board of Directors

Charles Steiner (Chair)
Dennis Butenhoff
Dennis Klosterman
Brent Davison
Alton Theede

53

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|          |                                                                
|--------- | ---------------------------------------------------------------
|ITEM
 12. | SECURITY
 OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Under
state law and the Companys Bylaws, each member of the cooperative is entitled
to one vote, regardless of the number of shares the member holds. The Common
Stock of the Company is voting stock and each member of the Company holds one
share of Common Stock. The Preferred Stock of the Company is non-voting stock.
The Companys stock can only be held by individuals who are sugarbeet growers.
To the Companys knowledge, as of November 3, 2008, no person owned
beneficially more than 5 percent of the Companys outstanding shares and none
of the principal officers listed above owned any such shares. As members of the
cooperative, each director owns one share of Common Stock and is entitled to
one vote. As a group, the directors own 4.98 percent of the outstanding
Preferred Stock.

|                   |  |                       |  |               |  |             |             
|------------------ |  | --------------------- |  | ------------- |  | ----------- | ------------
|Name               |  | Position with Company |  | No. of Shares |  | % of Shares
|                   |  |                       |  |               |  |            
|                  
|Dale Blume         |  | Director              |  | 213           |  |             | less than 1%
|                  
|Dennis
 Butenhoff  |  | Director              |  | 185           |  |             | less than 1%
|                  
|Brent
 Davison     |  | Director              |  | 1,000         |  |             | 1.4%        
|                  
|Douglas
 Etten     |  | Director              |  | 430           |  |             | less than 1%
|                  
|Michael
 Hasbargen |  | Director              |  | 350           |  |             | less than 1%
|                  
|Dennis Klosterman  |  | Director              |  | 235           |  |             | less than 1%
|                  
|Russell
 Mauch     |  | Director              |  | 474           |  |             | less than 1%
|                  
|Charles
 Steiner   |  | Director              |  | 380.5         |  |             | less than 1%
|                  
|Alton Theede       |  | Director              |  | 325           |  |             | less than 1%
|                  
|All
 Directors     |  |                       |  | 3,592.5       |  |             | 4.98%       

|          |                                                                           
|--------- | --------------------------------------------------------------------------
|ITEM
 13. | CERTAIN
 RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Each
of the Companys directors is also a sugarbeet grower or a shareholder member
or representative of a shareholder member. By virtue of their status as such
members of the Company, each director or the member he represents sells
sugarbeets to the Company and receives payments for those sugarbeets; also,
each director could potentially receive grower trucking payments. Such payments
for sugarbeets and trucking payments, either separately or together, can often
exceed $120,000. However, such payments that are received by the directors, or
the entities they represent, are on the same basis as payments received by
other members of the Company for the delivery and payment of their sugarbeets.
Except for the sugarbeet sales and receipt of grower trucking payments
described in the preceding sentences, since the beginning of fiscal year 2008,
the Company has not entered into any transaction and there are no currently
proposed transactions, in which the Company was or is to be a participant and
the amount involved exceeds $120,000 and in which any related person had or
will have a direct or indirect material interest.

54

---



The charter
of the Audit Committee provides that the Audit Committee is responsible for
reviewing and approving the terms and conditions of all of transactions the
Company enters into in which an officer, director or 5 percent or greater
shareholder or any affiliate of these persons has a direct of indirect material
interest. The Standards of Business Conduct, which is applicable to all of the
Companys employees and directors, also prohibits the Companys employees,
including executive officers, and the Companys directors from engaging in
conflict of interest transactions. Requests for waivers by the Companys
executive officers and directors from the provisions of, or requests for
consents by the Companys executive officers and directors under, the Standards
of Business Conduct must be made to the Audit Committee.

In addition, the
Company has a formal related person transaction approval policy, which sets
forth the Companys policies and procedures for the review, approval or
ratification of any transaction required to be reported in its filings with the
Securities and Exchange Commission. The Companys policy applies to any
financial transaction, arrangement or relationship or any series of similar
transactions, arrangements or relationships in which the Company is a
participant and in which a related person has a direct or indirect interest.
Through the policy, the Audit Committee has also identified and pre-approved
certain transactions with related persons, including:

| |   |                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | employment of executive officers, director compensation to be
 reported in the Companys Annual Report on Form 10-K,                                                                                                                                                
| |  | payment of ordinary expenses and business reimbursements;                                                                                                                                                                                                           
| |  | transactions with related companies in which the dollar amount does
 not exceed $60,000 or 2 percent of the other companys total revenues;                                                                                                                         
| |  | charitable contributions in which the dollar amount does not exceed
 $25,000 or 2 percent of the charitable organizations receipts;                                                                                                                                
| |  | payments made under our articles of incorporation, bylaws, insurance
 policies or other agreements relating to indemnification;                                                                                                                                     
| |  | transactions in which our shareholders receive proportional benefits,
 specifically including payments to shareholders for sugarbeets of a similar
 quality and quantity and grower trucking payments to shareholders based upon
 generally applicable formulas; and
| |  | transactions that involve competitive bid, banking transactions and
 transactions where the terms of which are regulated by law or
 governmental authority.                                                                                                         

The Audit Committee
must approve any related person transaction subject to this policy before
commencement of the related party transaction. If pre-approval is not feasible,
the Audit Committee may ratify, amend or terminate the related person
transaction. The Audit Committee will analyze the following factors, in
addition to any other factors the Audit Committee deems appropriate, in
determining whether to approve a related party transaction:

| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | whether the
 terms are fair to the Company;                                                                                                                                       
| |  | whether the
 terms of the related party transaction are no less favorable than terms
 generally available to an unaffiliated third-party under the same or similar
 circumstances;
| |  | whether the
 related party transaction is material to the Company;                                                                                                                
| |  | the role the
 related party has played in arranging the transaction;                                                                                                              
| |  | the
 structure of the related party transaction;                                                                                                                                  
| |  | the interests
 of all related parties in the transaction;                                                                                                                         
| |  | the extent
 of the related partys interest in the transaction; and                                                                                                               
| |  | whether the
 transaction would require a waiver of the Standards of Business Conduct.                                                                                             

55

---



The Audit
Committee may, in its sole discretion, approve or deny any related person
transaction. Approval of a related person transaction may be conditioned upon
the Company and the related person taking such precautionary actions, as the
Audit Committees deems appropriate.

Independence of Directors and Committee
Members

The Board
of Directors undertook a review of director independence in November 2008 as to
all nine directors then serving. As part of that process, the Board reviewed
all transactions and relationships between each director (or any member of his
immediate family) and the Company, its executive officers and its auditors, and
other matters bearing on the independence of directors. Although none of the
Companys securities are listed on any stock exchange, the Board of Directors
is required to select and apply the independence standards of a stock exchange.
For the purposes of determining the independence of the Companys directors and
committee members, the Board of Directors selected the NASDAQ Marketplace
Rules. As a result of its review, the Board of Directors affirmatively
determined that each director, other than Mr. Michael Hasbargen, are
independent according to the independence definition of the NASDAQ
Marketplace Rules. Mr. Hasbargen is related by marriage to Steven M. Caspers,
an executive officer of the Company.

The Company
has also established separate criteria for eligibility to serve as a member of
the Companys Compensation Committee and Audit Committee.

The charter
of the Compensation Committee requires that this committee consist of no fewer
than three Board members and that no director shall be a member if the director
currently is, or at any time during the past two fiscal years has been employed
by the Company or in the judgment of the Executive Committee, has a
relationship that would interfere with the exercise of independent judgment in
carrying out responsibilities as a director or member of the Compensation
Committee. Each member of our Compensation Committee meets these requirements.

The charter
of the Audit Committee requires that the Audit Committee be comprised of at
least three members, all of who must be independent from management and the
Company. The members of the Audit Committee should also include directors with
financial or accounting backgrounds if available. The Board of Directors has
reviewed the education, experience and other qualifications of each of the
members of its Audit Committee. After review, the Board of Directors has
determined that none of the members of the Audit Committee meet the Securities
and Exchange Commission definition of an audit committee financial expert.
However, the Company believes that, taken as a whole, the members of Audit
Committee have sufficient education, experience and qualifications to carry out
their duties.

|         |                                        
|-------- | ---------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND
 SERVICES

|   |                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Audit Fees -
 paid to the Companys principal accountant for the audit of annual financial
 statements and review of financial statements included in Forms 10-Q during
 the fiscal year ended August 31, 2008 totaled $78,750 (including a $3,000
 progress billing for the 2008 audit) and $75,775 (including a $2,500 progress
 billing for the 2007 audit) for the fiscal year ended August 31, 2007.
|  
|2. | Audit
 Related Fees  none                                                                                                                                                                                                                                                                                                                                                                               
|  
|3. | Tax Fees 
 paid to the Companys principal accountant for professional services rendered
 for tax compliance, tax advice, and tax planning totaled $19,380 for fiscal
 year ended August 31, 2008 and $16,558 for the fiscal year ended August 31,
 2007.                                                                                                                                               

56

---



|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.                                                                                            | All Other
 Fees (Employee Benefit and USDA Audits)  paid to the Companys principal
 accountant for services other than detailed in Items 1 thru 3 above total
 $18,775 for the fiscal year ended August 31, 2008 and $20,225 for the fiscal
 year ended August 31, 2007.                                                                                                                                                                                                                                    
|                                                                                             
|5.                                                                                            | It is part
 of the audit committees duties to appoint, compensate, and oversee the
 engagement of, retention, or replacement of, the independent auditors who
 audit the financial statements of the Company and its subsidiaries. The audit
 committee approves all audit services to be performed by the independent
 auditor. The committee ensures that the independent auditor is not engaged to
 perform any non-audit services that are considered prohibited activities by
 the Sarbanes-Oxley law.
|                                                                                             
|The audit
 committee approves 100 percent of the services described in items 1 thru 4
 above.
|                                                                                             
|6.                                                                                            | The
 percentage of hours expended on the principal accountants engagement to
 audit the Companys financial statements for the most recent fiscal year that
 were attributed to work performed by persons other than the principal
 accountants full-time, permanent employees is zero.                                                                                                                                                                                                                     

57

---



PART
IV.

|          |                                            
|--------- | -------------------------------------------
|ITEM
 15. | EXHIBITS
 AND FINANCIAL STATEMENT SCHEDULES

| |                                         |                                                                                             |                                                                                                                
| | --------------------------------------- | ------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------
| | Documents filed as part of this report:
| |                                        
| | a.                                      | Consolidated Financial Statements                                                          
| |                                         |                                                                                             | -Report of Independent Registered Public Accounting Firm                                                       
| |                                         |                                                                                             | -Consolidated Statements of Operations for the Years Ended August 31,
 2008, 2007 and 2006                     
| |                                         |                                                                                             | -Consolidated Balance Sheet as of August 31, 2008, 2007 and 2006                                               
| |                                         |                                                                                             | -Consolidated Statements of Changes in Members Investments for the
 years ended August 31, 2008, 2007 and 2006
| |                                         |                                                                                             | -Notes to the Consolidated Financial Statements                                                                
| |                                         |                                                                                             |                                                                                                                
| | b.                                      | Financial Statement Schedules  None                                                       
| |                                         |                                                                                             |                                                                                                                
| | c.                                      | The exhibits to this Annual Report on Form 10-K are listed in the
 Exhibit Index, Item 15c.

58

---



|          |                                                         
|--------- | --------------------------------------------------------
|Item 15a. | Report of Independent Registered
 Public Accounting Firm

The Audit
CommitteeMinn-Dak Farmers Cooperative
Wahpeton, North Dakota

We have
audited the accompanying consolidated balance sheets of Minn-Dak Farmers Cooperative
(a North Dakota cooperative association) as of August 31, 2008, 2007, and 2006,
and the related consolidated statements of operations, change in members
investments and cash flows for the years then ended. These financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we do not express such an opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Minn-Dak Farmers Cooperative as of August
31, 2008, 2007, and 2006, and the results of its operations and
its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

/S/S Eide
Bailly LLP

Fargo, North
Dakota
October 17, 2008

59

---



MINN-DAK
FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2008, 2007, AND 2006

|                                                                                     |  |      |             |      |   |             |  |   |             | 
|------------------------------------------------------------------------------------ |  | ---- | ----------- | ---- | - | ----------- |  | - | ----------- | 
|                                                                                     |  | 2008 |             | 2007 |   | 2006        | 
|                                                                                     |  |      |             |      |   |             | 
|ASSETS                                                                               |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|CURRENT ASSETS                                                                       |  |      |             |      |   |             |  |   |             | 
|Cash                                                                                 |  | $    | 159,175     |      | $ | 254,906     |  | $ | 223,593     | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Receivables                                                                          |  |      |             |      |   |             |  |   |             | 
|Trade accounts                                                                       |  |      | 16,376,068  |      |   | 18,620,647  |  |   | 15,141,356  | 
|Growers                                                                              |  |      | 7,313,090   |      |   | 4,907,384   |  |   | 4,551,852   | 
|Income tax                                                                           |  |      | 234,461     |      |   |            |  |   | 85,647      | 
|Other                                                                                |  |      | 2,551       |      |   | 90,227      |  |   | 24,169      | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      | 23,926,170  |      |   | 23,618,258  |  |   | 19,803,024  | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Advances to affiliates - Midwest
 Agri-Commodities Co. and United Sugars Corporation |  |      | 1,492,451   |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Inventories                                                                          |  |      |             |      |   |             |  |   |             | 
|Refined sugar, pulp and molasses to be sold
 on a pooled basis                       |  |      | 28,452,755  |      |   | 32,843,130  |  |   | 20,222,901  | 
|Sugarbeets                                                                           |  |      |            |      |   |            |  |   | 2,017,662   | 
|Nonmember refined sugar                                                              |  |      | 1,357,893   |      |   | 28,793      |  |   | 34,955      | 
|Yeast                                                                                |  |      | 167,799     |      |   | 167,808     |  |   | 165,856     | 
|Materials and supplies                                                               |  |      | 10,159,944  |      |   | 9,046,232   |  |   | 7,116,506   | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      | 40,138,391  |      |   | 42,085,963  |  |   | 29,557,880  | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Deferred charges                                                                     |  |      | 1,436,316   |      |   | 2,038,296   |  |   | 1,506,495   | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Prepaid expenses and other assets                                                    |  |      | 2,149,816   |      |   | 1,502,146   |  |   | 1,010,569   | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Current deferred income tax asset                                                    |  |      | 145,000     |      |   | 688,000     |  |   | 607,000     | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Total current assets                                                                 |  |      | 69,447,319  |      |   | 70,187,569  |  |   | 52,708,561  | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|PROPERTY, PLANT AND EQUIPMENT                                                        |  |      |             |      |   |             |  |   |             | 
|Land and land improvements                                                           |  |      | 26,476,273  |      |   | 25,183,905  |  |   | 24,636,738  | 
|Buildings                                                                            |  |      | 37,592,109  |      |   | 37,481,480  |  |   | 37,474,147  | 
|Factory/Ag equipment                                                                 |  |      | 141,263,455 |      |   | 137,993,774 |  |   | 134,313,021 | 
|Other equipment                                                                      |  |      | 4,512,610   |      |   | 4,096,525   |  |   | 3,954,002   | 
|Construction in progress                                                             |  |      | 4,500,912   |      |   | 1,382,936   |  |   | 933,339     | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      | 214,345,359 |      |   | 206,138,620 |  |   | 201,311,247 | 
|Less accumulated depreciation                                                        |  |      | 119,566,871 |      |   | 111,843,105 |  |   | 103,991,337 | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      | 94,778,488  |      |   | 94,295,515  |  |   | 97,319,910  | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|OTHER ASSETS                                                                         |  |      |             |      |   |             |  |   |             | 
|Investment in unconsolidated marketing
 subsidiaries and other cooperatives          |  |      | 11,523,024  |      |   | 11,500,298  |  |   | 11,017,442  | 
|Investment restricted for capital bond
 projects                                     |  |      | 40          |      |   |            |  |   | 600         | 
|Long-term deferred income taxes                                                      |  |      |            |      |   | 150,000     |  |   |            | 
|Other                                                                                |  |      | 1,314,031   |      |   | 1,532,847   |  |   | 2,082,765   | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      | 12,837,095  |      |   | 13,183,145  |  |   | 13,100,807  | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  | $    | 177,062,902 |      | $ | 177,666,229 |  | $ | 163,129,278 | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 

60

---



MINN-DAK
FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2008, 2007, AND 2006

|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|--------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | - | - | ----------- | 
|                                                                                                    |  | 2008 |             | 2007 |   | 2006        |  
|                                                                                                    |  |      |             |      |   |             |  
|LIABILITIES AND MEMBERS INVESTMENT                                                                 |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|CURRENT LIABILITIES                                                                                 |  |      |             |      |   |             |   |   |             | 
|Short-term notes payable                                                                            |  | $    | 24,440,000  |      | $ | 19,000,000  |   | $ | 14,445,000  | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|Current portion of long-term debt and
 capital leases                                               |  |      | 2,594,188   |      |   | 2,591,849   |   |   | 2,564,630   | 
|Current portion of bonds payable                                                                    |  |      | 2,010,000   |      |   | 1,915,000   |   |   | 1,665,000   | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      | 4,604,188   |      |   | 4,506,849   |   |   | 4,229,630   | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|Accounts payable                                                                                    |  |      |             |      |   |             |   |   |             | 
|Trade                                                                                               |  |      | 9,511,225   |      |   | 4,840,632   |   |   | 2,069,323   | 
|Growers                                                                                             |  |      | 17,429,879  |      |   | 23,289,239  |   |   | 14,482,531  | 
|Income tax                                                                                          |  |      |            |      |   | 122,271     |   |   |            | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      | 26,941,104  |      |   | 28,252,142  |   |   | 16,551,854  | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|Payable to affiliates - Midwest
 Agri-Commodities Co. and United Sugars Corporation                 |  |      |            |      |   | 842,476     |   |   | 532,661     | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|Accrued liabilities                                                                                 |  |      | 3,814,018   |      |   | 4,357,762   |   |   | 2,923,978   | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|Total current liabilities                                                                           |  |      | 59,799,310  |      |   | 56,959,229  |   |   | 38,683,123  | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|LONG-TERM DEBT AND CAPITAL LEASES, NET OF
 CURRENT PORTION                                          |  |      | 13,778,143  |      |   | 16,923,816  |   |   | 20,362,925  | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|BONDS PAYABLE                                                                                       |  |      | 13,490,000  |      |   | 15,500,000  |   |   | 17,415,000  | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|LONG-TERM DEFERRED INCOME TAX LIABILITY                                                             |  |      | 443,000     |      |   |            |   |   | 1,840,000   | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|LONG-TERM UNRECOGNIZED TAX BENEFITS
 LIABILITY                                                      |  |      | 256,075     |      |   |            |   |   |            | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|LONG-TERM PENSION LIABILITY                                                                         |  |      | 5,280,180   |      |   | 4,910,277   |   |   | 877,294     | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|COMMITMENTS AND CONTINGENCIES (NOTE 11)                                                             |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|Total liabilities                                                                                   |  |      | 93,046,708  |      |   | 94,293,322  |   |   | 79,178,342  | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|MEMBERS INVESTMENT                                                                                 |  |      |             |      |   |             |   |   |             | 
|Preferred stock                                                                                     |  |      |             |      |   |             |   |   |             | 
|Class A - 100,000 shares authorized, $105
 par value; 72,200 shares issued and outstanding          |  |      | 7,581,000   |      |   | 7,581,000   |   |   | 7,581,000   | 
|Class B - 100,000 shares authorized $75 par
 value; 72,200 shares issued and outstanding            |  |      | 5,415,000   |      |   | 5,415,000   |   |   | 5,415,000   | 
|Class C - 100,000 shares authorized, $76
 par value; 72,200 shares issued and outstanding           |  |      | 5,487,200   |      |   | 5,487,200   |   |   | 5,487,200   | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      | 18,483,200  |      |   | 18,483,200  |   |   | 18,483,200  | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|Common stock, 600 shares authorized, $250
 par value; 483 shares issued and outstanding on 8-31-08, |  |      |             |      |   |             |   |   |             | 
|484 shares outstanding on 8-31-07 and
 480 shares outstanding on 8-31-06                            |  |      | 120,750     |      |   | 121,000     |   |   | 120,000     | 
|Paid in capital in excess of par                                                                    |  |      | 32,094,407  |      |   | 32,094,407  |   |   | 32,094,407  | 
|Unit retention capital                                                                              |  |      |            |      |   |            |   |   |            | 
|Qualified allocated patronage                                                                       |  |      |            |      |   |            |   |   |            | 
|Nonqualified allocated patronage                                                                    |  |      | 28,298,508  |      |   | 27,598,667  |   |   | 26,077,023  | 
|Accumulated other comprehensive loss                                                                |  |      | (4,890,516  | )    |   | (2,368,458  | ) |   |            | 
|Retained earnings                                                                                   |  |      | 9,909,845   |      |   | 7,444,091   |   |   | 7,176,306   | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      | 84,016,194  |      |   | 83,372,907  |   |   | 83,950,936  | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 
|                                                                                                    |  | $    | 177,062,902 |      | $ | 177,666,229 |   | $ | 163,129,278 | 
|                                                                                                    |  |      |             |      |   |             |   |   |             | 

61

---



MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 2008, 2007, AND 2006

|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|------------------------------------------------------------------------------------------------------------ |  | ---- | ----------- | ---- | - | ----------- |  | - | ----------- | -
|                                                                                                             |  | 2008 |             | 2007 |   | 2006        | 
|                                                                                                             |  |      |             |      |   |             | 
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|REVENUE                                                                                                      |  |      |             |      |   |             |  |   |             |  
|From sales of sugar, sugar co-products, and yeast,
net of discounts                                          |  | $    | 243,573,467 |      | $ | 278,571,049 |  | $ | 176,966,668 |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|EXPENSES                                                                                                     |  |      |             |      |   |             |  |   |             |  
|Production costs of sugar, co-products, and yeast sold                                                       |  |      | 73,592,737  |      |   | 69,697,547  |  |   | 62,716,367  |  
|Sales and distribution costs                                                                                 |  |      | 48,667,319  |      |   | 50,494,042  |  |   | 29,049,229  |  
|General and administrative                                                                                   |  |      | 7,275,736   |      |   | 7,104,136   |  |   | 6,173,050   |  
|Interest                                                                                                     |  |      | 3,230,496   |      |   | 4,296,972   |  |   | 3,544,118   |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|                                                                                                             |  |      | 132,766,288 |      |   | 131,592,697 |  |   | 101,482,764 |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|OTHER INCOME                                                                                                 |  |      | 1,536,150   |      |   | 1,436,693   |  |   | 1,381,750   |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER
BUSINESS BEFORE
 NON-CONTROLLING INTEREST AND INCOME TAXES |  |      | 112,343,329 |      |   | 148,415,045 |  |   | 76,865,654  |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|INCOME TAXES                                                                                                 |  |      | (1,479,959  | )    |   |            |  |   | (672,000    | )
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|NON-CONTROLLING INTEREST IN INCOME OF SUBSIDIARIES                                                           |  |      |            |      |   |            |  |   | (97,233     | )
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS                                                   |  | $    | 110,863,370 |      | $ | 148,415,045 |  | $ | 76,096,421  |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|DISTRIBUTION OF NET PROCEEDS                                                                                 |  |      |             |      |   |             |  |   |             |  
|Credited to members investment                                                                              |  |      |             |      |   |             |  |   |             |  
|Components
 of net income                                                                                    |  |      |             |      |   |             |  |   |             |  
|Income from non-member business                                                                              |  | $    | 2,721,265   |      | $ | 267,785     |  | $ | 260,282     |  
|Patronage income                                                                                             |  |      | 5,117,244   |      |   | 7,560,504   |  |   | 4,220,538   |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|Net income credited to members
investment                                                                   |  |      | 7,838,509   |      |   | 7,828,289   |  |   | 4,480,820   |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|Payments to members for sugarbeets, net of unit
retention capital                                            |  |      | 103,024,861 |      |   | 140,586,756 |  |   | 71,615,601  |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  
|NET PROCEEDS RESULTING FROM MEMBER AND NONMEMBER BUSINESS                                                    |  | $    | 110,863,370 |      | $ | 148,415,045 |  | $ | 76,096,421  |  
|                                                                                                             |  |      |             |      |   |             |  |   |             |  

62

---



MINN-DAK
FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS INVESTMENTS 
YEARS ENDED AUGUST 31, 2008, 2007, AND 2006

|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|----------------------------------------------- |  | ---------------- | ---------- | ------------- | - | ---------------------------------------- | - | ------------------------ | ---------- | ------------------------------- | - | ----------------------------------- | - | --------------------------------------- | -------- | - | - | ---------- | - | - | ---------- | -
|                                                |  | Preferred
 Stock |            | Common
 Stock |   | Paid in Capital
 In Excess of
 Par Value |   | Unit
 Retention
 Capital |            | Qualified
 Allocated
 Patronage |   | Non-Qualified
 Allocated
 Patronage |   | Accumulated
 Other
 Comprehensive
 Loss |         
|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |         
|                                               
|BALANCE, AUGUST 31, 2005                        |  | $                | 18,483,200 |               | $ | 119,250                                  |   | $                        | 32,094,407 |                                 | $ | 1,379,798                           |   | $                                       | 722,691  |   | $ | 23,694,526 |   | $ |           |  
|Stock - Sales - common (14 shares)              |  |                  |            |               |   | 3,500                                    |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Repurchases - common(11 shares)                 |  |                  |            |               |   | (2,750                                   | ) |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Revolvement of unit retention capital           |  |                  |            |               |   |                                          |   |                          |            |                                 |   | (1,379,798                          | ) |                                         |          |   |   |            |   |   |            |  
|Revolvement of prior years allocated
patronage |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         | (722,691 | ) |   | (1,838,041 | ) |   |            |  
|Net income for the year ended August 31,
2006   |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   | 4,220,538  |   |   |            |  
|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Comprehensive Income (Loss)                     |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|BALANCE, AUGUST 31, 2006                        |  |                  | 18,483,200 |               |   | 120,000                                  |   |                          | 32,094,407 |                                 |   |                                    |   |                                         |         |   |   | 26,077,023 |   |   |           |  
|Stock - Sales - common (10 shares)              |  |                  |            |               |   | 2,500                                    |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Repurchases - common(6 shares)                  |  |                  |            |               |   | (1,500                                   | ) |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Revolvement of unit retention capital           |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Revolvement of prior years allocated
patronage |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   | (6,038,860 | ) |   |            |  
|Net income for the year ended August 31,
2007   |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   | 7,560,504  |   |   |            |  
|Pension liability adjustment                    |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   | (2,368,458 | )
|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Comprehensive Income (Loss)                     |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|BALANCE, AUGUST 31, 2007                        |  |                  | 18,483,200 |               |   | 121,000                                  |   |                          | 32,094,407 |                                 |   |                                    |   |                                         |         |   |   | 27,598,667 |   |   | (2,368,458 | )
|Stock - Sales - common (8 shares)               |  |                  |            |               |   | 2,000                                    |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Repurchases - common(9 shares)                  |  |                  |            |               |   | (2,250                                   | ) |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Revolvement of unit retention capital           |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Revolvement of prior years allocated
patronage |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   | (4,417,403 | ) |   |            |  
|Adoption of FIN 48                              |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Net income for the year ended August 31,
2008   |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   | 5,117,244  |   |   |            |  
|Pension liability adjustment                    |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   | (2,522,058 | )
|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|Comprehensive Income (Loss)                     |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  
|BALANCE, AUGUST 31, 2008                        |  | $                | 18,483,200 |               | $ | 120,750                                  |   | $                        | 32,094,407 |                                 | $ |                                    |   | $                                       |         |   | $ | 28,298,508 |   | $ | (4,890,516 | )
|                                                |  |                  |            |               |   |                                          |   |                          |            |                                 |   |                                     |   |                                         |          |   |   |            |   |   |            |  

63

---



MINN-DAK
FARMERS COOPERATIVE 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
YEARS ENDED AUGUST 31, 2008, 2007, AND 2006

|                                                                           |  |      |            |      |   |             |   |   |            |  
|-------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ----------- | - | - | ---------- | -
|                                                                           |  | 2008 |            | 2007 |   | 2006        |  
|                                                                           |  |      |            |      |   |             |  
|OPERATING ACTIVITIES                                                       |  |      |            |      |   |             |   |   |            |  
|Income allocated to members
investment                                    |  | $    | 7,838,509  |      | $ | 7,828,289   |   | $ | 4,480,820  |  
|Accumulated other comprehensive loss                                       |  |      | (2,522,058 | )    |   | (2,368,458  | ) |   |           |  
|Add (deduct) noncash items                                                 |  |      |            |      |   |             |   |   |            |  
|Depreciation and amortization                                              |  |      | 8,551,590  |      |   | 8,264,023   |   |   | 8,086,383  |  
|(Gain) Loss on disposal of equipment                                       |  |      | 112,747    |      |   | 3,393       |   |   | (27,330    | )
|Contributed asset                                                          |  |      |           |      |   |            |   |   | (620,000   | )
|Net loss allocated from unconsolidated marketing
subsidiaries              |  |      | 43,419     |      |   | 57,149      |   |   | 54,971     |  
|Noncash portion of patronage capital
credits                               |  |      | (644,842   | )    |   | (714,194    | ) |   | (415,113   | )
|Deferred income taxes                                                      |  |      | (1,136,000 | )    |   | 2,071,000   |   |   | 474,000    |  
|(Increase)/Decrease in cash surrender of retired
executive life
 insurance |  |      | 20,224     |      |   | (55,048     | ) |   | (27,308    | )
|Non-controlling interest                                                   |  |      |           |      |   |            |   |   | 97,233     |  
|Changes in assets and liabilities:                                         |  |      |            |      |   |             |   |   |            |  
|Accounts receivable and advances                                           |  |      | (2,408,377 | )    |   | (3,591,066  | ) |   | (7,122,580 | )
|Inventory and prepaid expenses                                             |  |      | 1,299,903  |      |   | (13,019,660 | ) |   | (1,677,147 | )
|Deferred charges and other                                                 |  |      | 629,083    |      |   | 4,204       |   |   | 73,402     |  
|Accounts payable, accrued liabilities, and other
liabilities               |  |      | 2,174,685  |      |   | 10,929,112  |   |   | 5,029,349  |  
|                                                                           |  |      |            |      |   |             |   |   |            |  
|                                                                           |  |      |            |      |   |             |   |   |            |  
|NET CASH FROM OPERATING ACTIVITIES                                         |  |      | 13,958,883 |      |   | 9,408,744   |   |   | 8,406,680  |  
|                                                                           |  |      |            |      |   |             |   |   |            |  
|                                                                           |  |      |            |      |   |             |   |   |            |  
|INVESTING ACTIVITIES                                                       |  |      |            |      |   |             |   |   |            |  
|Investments restricted for capital lease
projects                          |  |      | (40        | )    |   | 600         |   |   | 1,491,330  |  
|Proceeds from disposition of property, plant and
equipment                 |  |      |           |      |   | 30,404      |   |   | 111,156    |  
|Capital expenditures                                                       |  |      | (8,710,803 | )    |   | (4,865,834  | ) |   | (4,720,891 | )
|Acquisition of Minn Dak Yeast non-controlling
interest                     |  |      |           |      |   |            |   |   | (2,768,383 | )
|Capital adjustment of marketing subsidiary                                 |  |      | 325,357    |      |   | (61,072     | ) |   | 95,766     |  
|Net proceeds from patronage refunds and equity
revolvements                |  |      | 272,726    |      |   | 240,461     |   |   | 209,205    |  
|                                                                           |  |      |            |      |   |             |   |   |            |  
|                                                                           |  |      |            |      |   |             |   |   |            |  
|NET CASH USED FOR INVESTING ACTIVITIES                                     |  |      | (8,112,760 | )    |   | (4,655,441  | ) |   | (5,581,817 | )
|                                                                           |  |      |            |      |   |             |   |   |            |  
|                                                                           |  |      |            |      |   |             |   |   |            |  
|FINANCING ACTIVITIES                                                       |  |      |            |      |   |             |   |   |            |  
|Sale (repurchase) of common stock, net                                     |  |      | (250       | )    |   | 1,000       |   |   | 750        |  
|Net proceeds from issuance of short-term
debt                              |  |      | 5,440,000  |      |   | 4,555,000   |   |   | 4,645,000  |  
|Proceeds from long term debt/lease                                         |  |      | 180,804    |      |   |            |   |   | 3,523,633  |  
|Dividends paid to non-controlling
shareholder                              |  |      |           |      |   |            |   |   | (250,000   | )
|Payment of financing fees                                                  |  |      | (284,410   | )    |   | (260,570    | ) |   | (288,664   | )
|Payment of long-term debt                                                  |  |      | (5,239,138 | )    |   | (5,076,890  | ) |   | (5,971,078 | )
|Payment of unit retains and allocated
patronage                            |  |      | (6,038,860 | )    |   | (3,940,530  | ) |   | (4,912,052 | )
|                                                                           |  |      |            |      |   |             |   |   |            |  
|                                                                           |  |      |            |      |   |             |   |   |            |  
|NET CASH USED FOR FINANCING ACTIVITIES                                     |  |      | (5,941,854 | )    |   | (4,721,990  | ) |   | (3,252,411 | )
|                                                                           |  |      |            |      |   |             |   |   |            |  
|                                                                           |  |      |            |      |   |             |   |   |            |  
|NET CHANGE IN CASH                                                         |  |      | (95,731    | )    |   | 31,313      |   |   | (427,548   | )
|                                                                           |  |      |            |      |   |             |   |   |            |  
|CASH, BEGINNING OF YEAR                                                    |  |      | 254,906    |      |   | 223,593     |   |   | 651,141    |  
|                                                                           |  |      |            |      |   |             |   |   |            |  
|                                                                           |  |      |            |      |   |             |   |   |            |  
|CASH, END OF YEAR                                                          |  | $    | 159,175    |      | $ | 254,906     |   | $ | 223,593    |  
|                                                                           |  |      |            |      |   |             |   |   |            |  

64

---



MINN-DAK
FARMERS COOPERATIVE 
CONSOLIDATED STATEMENTS OF CASHFLOWS 
YEARS ENDED AUGUST 31, 2008, 2007, AND 2006

|                                                          |  |      |           |      |   |           |  |   |           | 
|--------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | --------- | 
|                                                          |  | 2008 |           | 2007 |   | 2006      | 
|                                                          |  |      |           |      |   |           | 
|                                                          |  |      |           |      |   |           |  |   |           | 
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION         |  |      |           |      |   |           |  |   |           | 
|Cash payments for                                         |  |      |           |      |   |           |  |   |           | 
|Interest                                                  |  | $    | 3,438,931 |      | $ | 4,848,602 |  | $ | 3,570,574 | 
|                                                          |  |      |           |      |   |           |  |   |           | 
|                                                         
|Income tax payment                                        |  | $    | 1,930,729 |      | $ | 160,050   |  | $ | 293,525   | 
|                                                          |  |      |           |      |   |           |  |   |           | 
|                                                          |  |      |           |      |   |           |  |   |           | 
|SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES |  |      |           |      |   |           |  |   |           | 
|                                                         
|Contributed asset                                         |  | $    |          |      | $ |          |  | $ | 620,000   | 
|                                                          |  |      |           |      |   |           |  |   |           | 

65

---



|          |                                                        
|--------- | -------------------------------------------------------
|NOTE 1  - | PRINCIPAL ACTIVITY AND SIGNIFICANT
 ACCOUNTING POLICIES

Principal Business Activity

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

The majority
of the net proceeds from the Company are from member business.

Principles of Consolidation

The financial
statements include the accounts of the Company and its subsidiary, Minn-Dak
Yeast, which, as of May 1, 2006, is 100 percent owned by the Company. Prior to
August 31, 2006, Minn-Dak Yeast Company activity was accounted for as
non-patronage business. Effective September 1, 2006, Minn-Dak Yeast Company
activity has been accounted for as patronage business.

Receivable and Credit Policy

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

Credit Risk

The Company
and subsidiary grant credit to food processors located throughout the United
States. In addition, the Company grants credit to member-growers located in
North Dakota and Minnesota, for sugarbeet seed and limited produced
co-products.

Inventories

Inventories of
refined sugar, thick juice, pulp and molasses to be sold on a pooled basis are
valued at net realizable value, while third-party purchased refined sugar to be
sold on a pooled basis is valued at the lower of cost or market. Inventory of
yeast is valued at the lower of average cost or market. Materials and supplies
are valued at most recent purchase that approximates cost. During the periods
when sugarbeets are purchased from growers, but not yet converted into bin
sugar or thick juice, that inventory is valued at grower 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.

66

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Deferred Charges

Agricultural
development and labor procurement costs incurred in connection with the
sugarbeet crop to be harvested in September and October, of the following
fiscal year, are deferred and subsequently charged to expense during the
ensuing processing period.

Property, Plant, Equipment and Depreciation

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

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

Capitalized
assets include indirect costs such as fringe benefits, interest, and
engineering when appropriate. The indirect costs capitalized for the years
ended August 31, 2008, 2007, and 2006 were $133,775, $158,642 and $152,751,
respectively. There was no construction-period interest capitalized for the
years ended August 31, 2008, 2007 and 2006.

Goodwill and Other Intangible Assets

In accordance
with Statement of Financial Accounting Standards (SFAS) No. 142, the Company
does not amortize goodwill. The Company evaluates goodwill and other intangible
assets for impairment at least annually or whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recovered.

Investments in Unconsolidated Marketing
Subsidiaries, and Other Cooperatives

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

Investments in
Other Cooperatives - The investments in stocks and capital credits of other
cooperatives are stated at cost, plus the Companys share of allocated
patronage and capital credits.

Income Taxes

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

67

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Revenue Recognition

The Company
generally recognizes revenue at the point of customer receipt.

Accounting Estimates

The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Self-Funded Insurance

The Contract
year for the Companys employee health plan starts January 1 and ends December
31. In Fiscal year 2008, the Company operated with a fully insured employee
health plan through December 2007. The Company switched to a self-funded
employee health plan January 1, 2008. Beginning January 1, 2008 the Company
contracted with a North Dakota insurance carrier to insure individual health
claims exceeding $40,000 and aggregate annual health claims in excess of 120
percent of expected claims for the plan year. The Company estimates its
exposure for claims incurred but not paid at the end of each reporting period
and uses historical information supplied by the Companys insurance carrier to
estimate its liability for these claims. This liability is subject to a total
limitation that varies, based on employee enrollment and factors that are
established at each contract renewal. Actual claims experience may differ from
Company estimates.

Uninsured Cash Balance

The Company
maintains cash balances at various financial institutions. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. At times during the year, the Companys balances exceeded this limit.
The Company does not consider this a material risk.

Impairment and Disposal of Long-Lived Assets

The Company
accounts for impairment or disposal of long-lived assets in accordance with the
provisions of SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
long-lived assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Long-lived assets to be disposed
of by sale are reported at the lower of the carrying amount or fair value less
costs to sell, and will cease to be depreciated. SFAS No. 144 also requires
long-lived assets to be disposed of other than by sale to be considered as held
and used until disposed of, requiring the depreciable life to be adjusted as an
accounting change.

68

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Shipping and Handling Costs

Shipping and
handling costs are included in cost of product sold upon receipt of the
Companys product by its customers as well as the net realizable value
calculations of the inventory through allocations from the Companys marketing
Subsidiary.

Advertising

The Companys
advertising costs are expensed as incurred.

Pension Liability

In accordance
with FAS 158, the Company records the liability for its defined benefit
retirement plan as the benefit obligation in the financial statements. During
implementation in the fiscal year ended August 31, 2007, the Company recorded a
future tax benefit associated with FAS 158 based upon estimated patronage/non
patronage business. However, as the Company reviews the future tax benefits
associated with FAS 158 for patronage/non patronage business annually, the
Company has determined that the future tax benefits associated with FAS 158 for
the year ended August 31, 2008 will be patronage sourced and, therefore, will
flow directly to the shareholder/grower. As a result all future tax benefits
associated with FAS 158, as of August 31, 2008, were reversed and the total FAS
158 impact recorded as Other Comprehensive Loss.

69

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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. Relative to SFAS 157, the FASB issued FASB Staff Position (FSP)
 157-1, 157-2 and 157-3. FSP 157-1 amends SFAS 157 to exclude SFAS No. 13, Accounting for Leases, and its related
 interpretive accounting pronouncements that address leasing transactions,
 while FSP 157-2 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
 until first quarter of fiscal 2010 and 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. On
 October 10, 2008, the Financial Accounting Standards Board (FASB) issued FASB
 Staff Position (FSP) FAS 157-3, Determining
 the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.
 The FSP clarifies the application of FASB Statement No. 157, Fair Value Measurements,in a market
 that is not active and provides an example to illustrate key considerations
 in determining the fair value of a financial asset when the market for that
 financial asset is not active. The FSP is effective upon issuance, including
 prior periods for which financial statements have not been issued. Revisions
 resulting from a change in the valuation technique or its application should
 be accounted for as a change in accounting estimate following the guidance in
 FASB Statement No. 154, Accounting Changes
 and Error Corrections. However, the disclosure provisions in
 Statement 154 for a change in accounting estimate are not required for revisions resulting
 from a change in valuation technique or its application.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

70

---



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 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.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In March
 2007, the FASB ratified the Emerging Issues Task Force (EITF) consensus on
 EITF Issue No. 06-10. Accounting for Collateral Assignment Split-Dollar Life
 Insurance. This EITF indicates that an employer should recognize a liability
 for Post-retirement benefits related to collateral assignment split-dollar
 life insurance arrangements. In addition, the EITF provides guidance for the
 recognition of an asset related to a collateral assignment split-dollar life
 insurance arrangement. The EITF is effective for fiscal years beginning after
 December 15, 2007. The Company will adopt the EITF as required and management
 does not expect it to have a material impact on the Companys results of
 operations, financial condition and liquidity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

71

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|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                             | The FASB has
 issued FASB Staff Position (FSP) FAS 133-1 and FIN 45-4, Disclosure about Credit Derivatives and Certain
 Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation
 No. 45; and Clarification of the Effective Date of FASB Statement No. 161.
 This FSP amends FAB Statement No. 133, Accounting
 for Derivation Instruments and Hedging Activities, to require
 disclosure by sellers of credit derivatives, including credit derivatives
 embedded in a hybrid instrument. This FSP also amends FASB Interpretation No.
 45, Guarantors Accounting and Disclosure
 Requirement for Guarantees, Including Indirect Guarantees of Indebtedness of
 Others, to require an additional disclosure about the current
 status of the payment/performance risk of a guarantee. Further, this FSP
 clarifies the Boards intent about the effective date of FASB Statement No.
 161, Disclosures about Derivative
 Instruments and Hedging Activities. This FSP becomes effective for
 the Company on November 30, 2008. The Company does not expect that the
 adoption of this FSP will have a material effect on the Companys financial
 statements.
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|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 $255,511, which was accounted for as a
 reduction to the September 1, 2007, balance of retained earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Concentration and Sources of Labor

The Companys
total factory campaign and full time workforce consists of 463 employees, of
which 57 percent is covered by a collective bargaining agreement. The agreement
expires on May 31, 2011.

Risks and Uncertainties

Interest costs
- The Company is at risk for interest rate changes in both seasonal and
long-term debt. The Company has long-term variable and fixed rates on a
substantial portion of its long-term debt. The variable rate has limited
variability on its rate; therefore the Company does not consider its interest
rate risk for long-term debt to be material. Short-term debt risk is not
expected to have a material impact on the Companys annual return to its
growers.

Accumulated
Other Comprehensive Loss

SFAS No. 130,
Reporting Comprehensive Income, establishes rules for reporting comprehensive
income and loss and its components. Accumulated other comprehensive loss
consists of the SFAS No. 158 adjustment and is presented in the Statement of
Members Investment. See Note 13.

72

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|          |                      
|--------- | ---------------------
|NOTE 2  - | BUSINESS COMBINATIONS

The Company
acquired the 20 percent non-controlling interest in Minn-Dak Yeast from
Sensient Technologies Corp. (Sensient) in May of 2006. The Company now owns
100 percent of Minn-Dak Yeast. The supplemental disclosure of non-cash
investing and financing activities related to the acquisition of the
non-controlling interest in Minn-Dak Yeast is shown below.

The
acquisition cost for the non-controlling interest of Minn-Dak Yeast that was
acquired from Sensient, including purchase price, legal fees and appraisal
fees, was $2,768,383.

|                        |  |   |           |  
|----------------------- |  | - | --------- | -
|Items
 acquired are:    |  |   |           |  
|New working capital     |  | $ | 1,011,804 |  
|Machinery and equipment |  |   | 1,008,313 |  
|Land and buildings      |  |   | 276,576   |  
|Other assets            |  |   | 77,000    |  
|Customer relations      |  |   | 514,000   |  
|Non-compete agreement   |  |   | 62,000    |  
|Goodwill                |  |   | 110,152   |  
|Long-term liabilities   |  |   | (291,462  | )
|                        |  |   |           |  
|                        |  | $ | 2,768,383 |  
|                        |  |   |           |  

Intangible
assets derived from the purchase of the non-controlling interest in Minn-Dak
Yeast include Goodwill, which is not being amortized, and Customer Relations
and a Non-Compete Agreement, which are being amortized on a straight-line basis
over 5 years. The amortization of these intangible assets for the year ended
August 31, 2008 and 2007 and 2006 were $143,127, $38,400 and $12,800
respectively.

There are no
contingent provisions or Research and Development assets purchased or written
off in the purchase agreement between the Company and Sensient.

|          |            
|--------- | -----------
|NOTE 3  - | INVESTMENTS

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

|                                    |  |      |            |      |   |            |  |   |            | 
|----------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | 
|                                    |  | 2008 |            | 2007 |   | 2006       | 
|                                    |  |      |            |      |   |            | 
|                                   
|United
 Sugars Corporation          |  | $    | 971,797    |      | $ | 1,255,082  |  | $ | 1,287,943  | 
|Midwest
 Agri-Commodities           |  |      | 10,867     |      |   | 96,359     |  |   | 59,576     | 
|CoBank                              |  |      | 4,801,609  |      |   | 4,676,881  |  |   | 4,575,738  | 
|Dakota
 Valley Electric Cooperative |  |      | 5,632,704  |      |   | 5,409,879  |  |   | 5,036,016  | 
|Other                               |  |      | 106,047    |      |   | 62,097     |  |   | 58,169     | 
|                                    |  |      |            |      |   |            |  |   |            | 
|                                   
|                                    |  | $    | 11,523,024 |      | $ | 11,500,298 |  | $ | 11,017,442 | 
|                                    |  |      |            |      |   |            |  |   |            | 

73

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|          |                                                            
|--------- | -----------------------------------------------------------
|NOTE 4  - | SHORT-TERM DEBT, LONG-TERM DEBT,
 AND CAPITAL LEASE PAYABLE

Short-Term Debt

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

|                                                                                        |  |      |            |      |   |            |  |   |            | 
|--------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | 
|                                                                                        |  | 2008 |            | 2007 |   | 2006       | 
|                                                                                        |  |      |            |      |   |            | 
|                                                                                       
|Seasonal loan with CoBank, due November 1,
 2008, interest variable, currently at 3.41% |  | $    | 24,440,000 |      | $ | 19,000,000 |  | $ | 14,445,000 | 
|                                                                                        |  |      |            |      |   |            |  |   |            | 

The Company
has a $50,000,000 seasonal line of credit with CoBank, with $25,560,000
available on August 31, 2008. The Company also has a $15,000,000 bid loan
supplement facility through CoBank. As of August 31, 2008 there were no
advances against this line. Advances, maturity dates, and interest rates on the
supplemental facility, which expires on November 1, 2008, are not guaranteed.
The lines are secured with a first lien on substantially all property and
equipment and current assets of the Company. The Company also utilizes the
USDAs CCC Sugar Loan Program to provide an additional source of seasonal
financing.

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

|                         |  |      |            |      |   |            |   |   |            |  
|------------------------ |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                         |  | 2008 |            | 2007 |   | 2006       |  
|                         |  |      |            |      |   |            |  
|                        
|Maximum borrowings       |  | $    | 57,767,930 |      | $ | 74,850,000 |   | $ | 43,225,000 |  
|                         |  |      |            |      |   |            |   |   |            |  
|                        
|Average borrowing levels |  | $    | 36,003,083 |      | $ | 39,241,154 |   | $ | 24,655,769 |  
|                         |  |      |            |      |   |            |   |   |            |  
|                        
|Average interest rates   |  |      | 4.23       | %    |   | 6.32       | % |   | 5.70       | %
|                         |  |      |            |      |   |            |   |   |            |  

Long-Term Debt

On May 23,
2008 The Companys primary lender has extended the Companys loan agreements,
which were due to expire on June 1, 2008, for a period of 92 days. The
extension was intended to relieve some administrative issues resulting from the
delay in the passage of the Farm Bill in Congress. On August 26, 2008 the
Companys primary lender, CoBank, administratively extended the Companys
seasonal and term lines of credit from September 1, 2008 up to and including
November 1, 2008. All other terms of the loan agreements will remain the same
until such date that the Company and CoBank execute a new and/or replacement
supplement.

The Company
and CoBank have mutually agreed to modify the annual renewal date to a date
that is closer to the Companys finalization of its annual business plan. The
intent of this date change is to provide the Company and CoBank with more
accurate information to project the Companys annual borrowing requirements.

74

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

|                                                                                                                                                                                                                                                                                   |  |      |            |      |   |            |   |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                                                                                                                                                                                                                                   |  | 2008 |            | 2007 |   | 2006       |  
|                                                                                                                                                                                                                                                                                   |  |      |            |      |   |            |  
|CoBank term loan, with fixed and variable
 rates, due in varying principal repayments through August 20, 2013, variable
 interest rate currently at 3.41%, with a first lien on substantially all
 property, equipment, and current assets of the Company located in Wahpeton,
 ND |  | $    | 15,789,655 |      | $ | 19,113,793 |   | $ | 22,437,931 |  
|                                                                                                                                                                                                                                                                                   |  |      |            |      |   |            |   |   |            |  
|                                                                                                                                                                                                                                                                                   |  |      |            |      |   |            |   |   |            |  
|Less current maturities                                                                                                                                                                                                                                                            |  |      | (2,493,103 | )    |   | (2,493,103 | ) |   | (2,493,103 | )
|                                                                                                                                                                                                                                                                                   |  |      |            |      |   |            |   |   |            |  
|                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                   |  | $    | 13,296,552 |      | $ | 16,620,690 |   | $ | 19,944,828 |  
|                                                                                                                                                                                                                                                                                   |  |      |            |      |   |            |   |   |            |  

The Company
has complied with the terms of its loan agreement covenants for the years ended
August 31, 2008, 2007 and 2006.

In addition,
the Company can make special advance payments on its term loans with CoBank
after its seasonal loans have been paid in full, with the understanding that
the special advance payments will be re-advanced subject to the reinstatement
provisions, prior to the granting of any new seasonal loans. Any such advance
payments are subject to a commitment fee of .25 percent of the daily
un-advanced commitment.

Interest
expense for the years ended August 31, 2008, 2007 and 2006 totaled $3,230,496,
$4,296,972 and $3,544,118, respectively.

Principal
amounts due on the Companys long-term debt are as follows:

|                        |  |  |   |            | 
|----------------------- |  |  | - | ---------- | 
|Years ending August 31, |  |  |   |            | 
|                        |  |  |   |            | 
|                       
|2009                    |  |  | $ | 2,493,103  | 
|2010                    |  |  |   | 3,324,138  | 
|2011                    |  |  |   | 3,324,138  | 
|2012                    |  |  |   | 3,324,138  | 
|2013                    |  |  |   | 3,324,138  | 
|                        |  |  |   |            | 
|                       
|                        |  |  | $ | 15,789,655 | 
|                        |  |  |   |            | 

75

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Capital Leases

The Company is
the lessee of equipment under capital leases, with varying expiration dates.
The assets and liabilities under capital leases are recorded at the lower of
the present value of the minimum lease payments or the fair value of the asset.
The cost of these assets is $821,950 and accumulated depreciation at August 31,
2008 is $468,472. This equipment is being depreciated over its estimated useful
life. Depreciation of assets under these capital leases is included in
depreciation expense.

Minimum future
lease payments under capital leases are as follows:

|                                            |  |   |         |         | 
|------------------------------------------- |  | - | ------- | ------- | 
|Years ending August 31,                     |  |   |         |         | 
|                                            |  |   |         |         | 
|                                           
|2009                                        |  |   | $       | 128,840 | 
|2010                                        |  |   |         | 128,840 | 
|2011                                        |  |   |         | 128,840 | 
|2012                                        |  |   |         | 201,173 | 
|2013                                        |  |   |         | 71,216  | 
|                                            |  |   |         |         | 
|                                           
|Total
 minimum lease payments               |  | $ | 658,909 |        
|                                            |  |   |         |        
|Less: Amount
 representing interest         |  |   | 76,232  |        
|                                            |  |   |         |        
|Present
 value of net minimum lease payment |  | $ | 582,677 |        
|                                            |  |   |         |        

|                       | 
|---------------------- | 
|NOTE 5 - BONDS PAYABLE

The Company
financed construction projects related to the processing facility through the
sale of Solid Waste Disposal Revenue and Industrial Development Revenue Bonds,
Series 1996 and 2002, by Richland County North Dakota. The Company has leased
the property and equipment from the County for the sum of the annual principal
and interest payments on the bonds. Under the terms of the lease, the Company
is responsible for the real estate taxes, insurance, repairs and maintenance,
and other costs incident to the ownership of the property. The leased property
is included with property and equipment in the financial statements and the
bonds have been recorded as a direct obligation of the Company. Ownership of
the property and equipment will transfer to the Company when the bonds are
repaid in full. The bonds are guaranteed by the Company. The Company has letter
of credit arrangements with a bank that provide security for obligations under
the bonds payable totaling approximately $15,995,000 at August 31, 2008. There
were no outstanding advances under these letter of credit arrangements at
August 31, 2008. Details relative to the Companys obligations under the lease
agreement are as follows:

76

---



|                 |  |                          |   |                 |           |                  |  |       |           |           |   |             |  |   |            |  |   |            | 
|---------------- |  | ------------------------ | - | --------------- | --------- | ---------------- |  | ----- | --------- | --------- | - | ----------- |  | - | ---------- |  | - | ---------- | 
|                 |  | 2008                     |   |                 |           |                  |  |       |          
|                 |  |                          |   |                 |           |                  |  |       |          
|Payee            |  | Variable
 Interest
 Rate |   | Final
 Maturity |           | Current
 Portion |  | Total |           | 2007Total |   | 2006
 Total | 
|                 |  |                          |   |                 |           |                  |  |       |           |           |   |             | 
|                 |  |                          |   |                 |           |                  |  |       |           |           |   |             |  |   |            |  |   |            | 
|Richland County, |  |                          |   |                 |           |                  |  |       |           |           |   |             |  |   |            |  |   |            | 
|North Dakota     |  | 2.09                     | % |                 | Jan
 2011 |                  |  | $     | 1,185,000 |           | $ | 3,755,000   |  | $ | 4,880,000  |  | $ | 5,945,000  | 
|                 |  |                          |   |                 |           |                  |  |       |           |           |   |             |  |   |            |  |   |            | 
|Richland County, |  |                          |   |                 |           |                  |  |       |           |           |   |             |  |   |            |  |   |            | 
|North Dakota     |  | 1.99                     | % |                 | Apr
 2019 |                  |  | $     | 825,000   |           |   | 11,745,000  |  |   | 12,535,000 |  |   | 13,135,000 | 
|                 |  |                          |   |                 |           |                  |  |       |           |           |   |             |  |   |            |  |   |            | 
|                 |  |                          |   |                 |           |                  |  |       |           |           |   |             |  |   |            |  |   |            | 
|                 |  |                          |   |                 |           |                  |  | $     | 2,010,000 |           | $ | 15,500,000  |  | $ | 17,415,000 |  | $ | 19,080,000 | 
|                 |  |                          |   |                 |           |                  |  |       |           |           |   |             |  |   |            |  |   |            | 

Minimum future principal
payments required on the obligations under bonds payable are as follows:

|                         |  |   |            | 
|------------------------ |  | - | ---------- | 
|Years
 ending August 31, |  |   |            | 
|                        
|2009                     |  | $ | 2,010,000  | 
|2010                     |  |   | 2,120,000  | 
|2011                     |  |   | 2,230,000  | 
|2012                     |  |   | 955,000    | 
|2013                     |  |   | 1,005,000  | 
|Thereafter               |  |   | 7,180,000  | 
|                         |  |   |            | 
|                         |  |   |            | 
|                         |  | $ | 15,500,000 | 
|                         |  |   |            | 

Bond
financing costs incurred in connection with the financing of the construction
projects related to the processing facility have been capitalized. The Company
is amortizing the bond financing costs over the terms of the financing
obtained. The effective interest method of amortization is used.

Amortization
of bond financing cost for the years ended August 31, 2008, 2007 and 2006
totaled $28,362, $33,340 and $36,938, respectively.

NOTE 6 - MEMBERS INVESTMENT AND GROWER PAYMENTS

The
ownership of nondividend bearing common stock is restricted to a
member-producer, as defined in the by-laws of the Company. Each member-producer
shall own only one share of common stock and is entitled to one vote at any
meeting of the members. Each member-producer is also required to purchase units
of preferred stock and is entitled to grow the maximum acres per unit of
preferred stock as is authorized by the Board of Directors each farming year.
The Companys Board of Directors authorized the members to plant 1.50, 1.60 and
1.50 acres per unit of preferred stock for the fiscal years 2008, 2007 and
2006, respectively. A unit
consists of one share each of Class A, Class B and Class C preferred stock.

77

---



The
preferred shares are nonvoting and nondividend bearing. All transfers and sales
of stock must be approved by the Companys Board of Directors.

The Companys net income,
determined in accordance with generally accepted accounting principles
consistently applied, shall be distributed annually on the basis of delivered
pounds of sugar, in cash or in the form of credits to each member-producers
patronage credit account as established on the books of the Company. In the
event of a loss in any one-year, the Company shall act in such a manner as to
first recoup the loss from those patrons who were patrons in the year in which
the loss occurred.

Under the terms of the
Company sugarbeet growing contracts with each of its member-producers, the
Company is obligated to pay the member-producers for sugarbeets delivered at a
price per pound of extractable sugar. However, if, in the opinion of the
Companys Board of Directors, the working capital position of the Company is
insufficient, the Company shall withhold and/or retain from the price to be
paid per pound of extractable sugar such amounts as are deemed by the Board of
Directors to be necessary for operations, the deductions to be made at such
time and in a manner as the Board of Directors shall decide. The amount so
withheld and or retained
shall be evidenced in the records of the Company by allocated patronage and/or
per unit retains in favor of the growers. The Board of Directors has the power
to determine whether such allocated patronage and/or per unit retains shall be
qualified or nonqualified for income tax purposes.

The Company allocated
non-qualified patronage to the members for the years ended August 31, 2008,
2007 and 2006 of $5,117,244, $7,560,504 and $4,220,538, respectively.

During the year ended August
31, 2008, the Company revolved the remaining 52 percent of the allocated
patronage for the fiscal year ended August 31, 2002 totaling $1,868,412 and 54
percent of the allocated patronage for the fiscal year ended August 31, 2003,
totaling $2,548,991.

During the year ended August
31, 2007, the Company revolved the remaining 94 percent of the allocated
patronage for the fiscal year ended August 31, 2001, totaling $4,324,506 and 48
percent of the allocated patronage for the fiscal year ended August 31, 2002,
totaling $1,714,354.

During the year ended August
31, 2006, the Company revolved the remaining 55 percent of the unit retains and
allocated patronage for the fiscal year ended August 31, 1997, totaling
$2,490,804 and 100 percent of the unit retains and allocated patronage for the
fiscal years ended August 31 1998 and 1999 totaling $870,090, and 6 percent of
the unit retains and allocated patronage for the fiscal year ended August 31,
2001 totaling $259,452 for a grand total revolved of $3,620,346. There were no
unit retains or equity withheld during the fiscal year ended August 31, 2000.
In addition, during fiscal year 2006, although the grower payable was correctly
stated on the August 31, 2005 balance sheet, a misclassification was relied
upon to make the final 2004 crop grower payment, resulting in a payment that
exceeded the amount that was required. The Company has corrected the grower
payment by reducing the 2004 crop allocated patronage by $320,224.

NOTE 7 - INVESTMENT IN MARKETING COOPERATIVES

The Company has formed
common marketing agency agreements with United Sugars Corporation (United
Sugars) and Midwest Agri-Commodities (Midwest) to be the exclusive marketing
agents for all products produced by them and other member processors.

78

---



The Companys ownership
requirement in United Sugars is calculated periodically and is based on the
average volume of sugar produced during the five previous fiscal years. The
investment is accounted for on the equity method and the amount of sales and
related costs recognized by each member processor is allocated based on their
pro-rata share of production for the year. The Company provided United Sugars
with cash advances on an ongoing basis for operating and marketing expenses
incurred. During the years ended August 31, 2008, 2007 and 2006, the Company
had advanced $34,383,138, $30,775,443 and $19,719,946, respectively. The
Company had outstanding advances due to/(from) United Sugars as of August 31,
2008, 2007 and 2006 of $(2,064,472), $36,638 and $353,465, respectively. The
Company accounts for United Sugars SFAS No. 158 as an additional change in
accumulated other comprehensive income (loss).

The Company has a one-fourth
ownership interest in Midwest. The amount of the investment is accounted for
using the equity method. All sugarbeet pulp and a portion of the molasses
produced are sold by Midwest as an agent for the Company. The amount of sales
and related costs to be recognized by each owner is allocated based on their
pro-rata share of production for the year. The owners provide Midwest with cash
advances on an ongoing basis for operating and marketing expenses incurred by
Midwest. The Company advanced Midwest during the years ended August 31, 2008,
2007 and 2006, $9,026,985, $9,410,648 and $6,361,130, respectively. The Company
had outstanding advances due to Midwest as of August 31, 2008, 2007 and 2006 of
$572,020, $805,838 and $179,196, respectively. The owners of Midwest guarantee,
on a pro-rate basis, the $5,500,000 short-term line of credit that Midwest has
with CoBank. The Company accounts for Midwests SFAS No. 158 as an additional
change in accumulated other comprehensive income (loss).

NOTE 8 - INCOME TAXES

The Company is a nonexempt
cooperative as described under Section 1381(a)(2) of the Internal Revenue Code
of 1986. Accordingly, net margins from business done with member patrons, which
are allocated and paid as prescribed in Section 1382 of the Code, will be
taxable to the members and not to the Company. To the extent that net margins
are not allocated and paid as stated above or arise from business done with
non-members, the Company shall have taxable income subject to corporate income
tax rates.

The significant components
of deferred tax assets and liabilities included on the balance sheet at August
31, are as follows:

|                                                                  |  |      |            |      |   |            |  |   |            |  
|----------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | -
|                                                                  |  | 2008 |            | 2007 |   | 2006       | 
|                                                                  |  |      |            |      |   |            | 
|                                                                  |  |      |            |      |   |            |  |   |            |  
|                                                                  |  |      |            |      |   |            |  |   |            |  
|Deferred tax assets                                               |  |      |            |      |   |            |  |   |            |  
|Non-qualified unit retains and allocated patronage
due to members |  | $    | 11,319,000 |      | $ | 11,040,000 |  | $ | 10,431,000 |  
|Net operating loss carryforwards                                  |  |      | 5,706,455  |      |   | 4,393,000  |  |   | 4,543,000  |  
|Other                                                             |  |      | 2,427,545  |      |   | 3,428,000  |  |   | 1,013,000  |  
|                                                                  |  |      |            |      |   |            |  |   |            |  
|                                                                  |  |      |            |      |   |            |  |   |            |  
|Total deferred tax assets                                         |  |      | 19,453,000 |      |   | 18,861,000 |  |   | 15,987,000 |  
|                                                                  |  |      |            |      |   |            |  |   |            |  
|                                                                  |  |      |            |      |   |            |  |   |            |  
|Deferred tax liabilities                                          |  |      |            |      |   |            |  |   |            |  
|Depreciation                                                      |  |      | 16,325,000 |      |   | 15,834,000 |  |   | 15,152,000 |  
|Other                                                             |  |      | 3,426,000  |      |   | 2,189,000  |  |   | 2,068,000  |  
|                                                                  |  |      |            |      |   |            |  |   |            |  
|                                                                  |  |      |            |      |   |            |  |   |            |  
|Total deferred tax liabilities                                    |  |      | 19,751,000 |      |   | 18,023,000 |  |   | 17,220,000 |  
|                                                                  |  |      |            |      |   |            |  |   |            |  
|                                                                  |  |      |            |      |   |            |  |   |            |  
|Net deferred tax asset (liability)                                |  | $    | (298,000   | )    | $ | 838,000    |  | $ | (1,233,000 | )
|                                                                  |  |      |            |      |   |            |  |   |            |  
|                                                                  |  |      |            |      |   |            |  |   |            |  
|Classified as follows                                             |  |      |            |      |   |            |  |   |            |  
|Current asset                                                     |  | $    | 145,000    |      | $ | 688,000    |  | $ | 607,000    |  
|Long-term asset (liability)                                       |  |      | (443,000   | )    |   | 150,000    |  |   | (1,840,000 | )
|                                                                  |  |      |            |      |   |            |  |   |            |  
|                                                                  |  |      |            |      |   |            |  |   |            |  
|Net deferred tax asset (liability)                                |  | $    | (298,000   | )    | $ | 838,000    |  | $ | (1,233,000 | )
|                                                                  |  |      |            |      |   |            |  |   |            |  

79

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The
state and federal operating loss carry forwards totaling approximately
$14,267,654 will expire in 2015 through 2027.

The
provision for income taxes is as follows

|                                     |  |      |           |      |   |          |   |   |         | 
|------------------------------------ |  | ---- | --------- | ---- | - | -------- | - | - | ------- | 
|                                     |  | 2008 |           | 2007 |   | 2006     |  
|                                     |  |      |           |      |   |          |  
|                                     |  |      |           |      |   |          |   |   |         | 
|Current expense (benefit)            |  | $    | 1,097,545 |      | $ | (492,000 | ) | $ | 200,000 | 
|Net change in temporary
 differences |  |      | 382,414   |      |   | 492,000  |   |   | 472,000 | 
|                                     |  |      |           |      |   |          |   |   |         | 
|                                     |  |      |           |      |   |          |   |   |         | 
|Provision for income taxes           |  | $    | 1,479,959 |      | $ |         |   | $ | 672,000 | 
|                                     |  |      |           |      |   |          |   |   |         | 

Significant temporary timing
differences between financial and income tax reporting are as follows:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | When non-qualified unit
 retention capital and allocated patronage are elected by the Board of
 Directors, the Company is not allowed an income tax deduction until they are
 distributed in cash to the member-producers, whereas qualified unit retention
 capital and allocated patronage are deducted when declared.                                                                                                                                                                                                                                                                                             
| | 2. | Depreciation - For
 financial reporting purposes, the companies use straight-line and accelerated
 methods of depreciation with lives of 8 to 40 years, while, for income tax
 purposes, the companies use required statutory depreciable lives and methods.                                                                                                                                                                                                                                                                                                                                                         
| | 3. | Non-qualified patronage
 credits from investments in other cooperatives - For financial statement
 purposes, the companies recognize income when the patronage credit
 notification is received while, for income tax purposes, the companies
 recognize income when the patronage is received in cash.                                                                                                                                                                                                                                                                                                              
| | 4. | Inventory capitalization -
 For income tax reporting purposes, certain overhead costs are included as a
 part of inventory costs in accordance with inventory capitalization rules.
 These costs are charged to expense as incurred for financial reporting
 purposes.                                                                                                                                                                                                                                                                                                                                               
| | 5. | Recognition of vacation
 pay - For financial reporting purposes, vacation pay is charged to expense as
 accrued, whereas, for income tax purposes, vacation pay is deducted in
 accordance with IRS rules.                                                                                                                                                                                                                                                                                                                                                                                                           
| | 6. | Capital leases  For
 financial reporting purposes, equipment under a capital lease are included in
 fixed assets and depreciated using a straight line method, with a
 corresponding liability also recorded. For tax purposes, statutory
 depreciable lives and methods are used.                                                                                                                                                                                                                                                                                                                                  
| | 7. | On August 31, 2006, the
 Company had $1,607,000 in non-member long-term tax liability. This liability
 resulted from the book to tax differences for Minn-Dak Yeast non-member
 activity. As of September 1, 2006, Minn-Dak Yeast activity has been
 classified as member activity. The Company will amortize the $1,607,000
 long-term liability over the approximate remaining book life of the Minn-Dak
 Yeast assets. During the year ended August 31, 2008, the Company amortized
 $236,280 of the liability as non-member business, leaving a remaining balance
 of $1,134,440 to be amortized in future years.

80

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An amendment to FASB
Statements No 87, 88, 106 and 132R in 2006, known as FAS 158, resulted in the
Company recognizing a decrease in accumulated other comprehensive income/loss.
The change in the year-end deferred tax balance includes the effect of
recording this additional obligation in addition to the annual provision for
deferred income tax asset/liability, as discussed in Note 13.

Adoption of FASB Interpretation No. 48

On September 1, 2007 The
Company adopted the provisions of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109. FIN 48 prescribes a
threshold for the financial statement recognition and measurement of a tax
position taken or expected to be taken in an income tax return. FIN 48 requires
that the company determine whether the benefits of tax positions are more likely
than not of being sustained upon audit based upon the technical merits of the
tax position. For tax positions that are more likely than not of being
sustained upon audit, the Company recognizes the largest amount of the benefit
that is more likely than not of being sustained in our financial statements.
For tax positions that are not more likely than not of being sustained upon
audit, the Company does not recognize any portion of the benefit in our
financial statements.

The total amount of
unrecognized tax benefits as of August 31, 2008 is $256,075. These amounts
include accrued interest and penalties of $73,764.

The aggregate changes in the
balance of our gross unrecognized tax benefits were as follows for the period
indicated:

|                                                                                     |  |      |         | 
|------------------------------------------------------------------------------------ |  | ---- | ------- | 
|Year Ended August 31,                                                                |  | 2008 |        
|                                                                                     |  |      |        
|                                                                                     |  |      |         | 
|Balance unrecognized tax
 benefits at September 1, 2007 (date of adoption of FIN 48) |  | $    | 255,511 | 
|Increases for tax positions related to current
year                                  |  |      | 564     | 
|Increases for tax positions related to prior
year                                    |  |      |        | 
|Reductions for tax positions of prior
years                                          |  |      |        | 
|Decreases related to settlements                                                     |  |      |        | 
|Reductions due to lapsed statute of
limitations                                      |  |      |        | 
|                                                                                     |  |      |         | 
|Balance unrecognized tax
 benefits at August 31, 2008                                |  | $    | 256,075 | 
|                                                                                     |  |      |         | 

Tax returns filed as of
August 31, 2002 through current filings are open for examination.

NOTE 9 - DEPRECIATION

The Companys depreciation
expense for the years ended August 31, 2008, 2007 and 2006 was $8,095,659,
$7,953,469 and $7,750,601, respectively.

81

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NOTE 10 - ENVIRONMENTAL MATTERS

The Company is subject to
extensive federal and state environmental laws and regulations with respect to
water and air quality, solid waste disposal and odor and noise control. The
Company conducts an ongoing and expanding control program designed to meet
these environmental laws and regulations. While the Company will continue to
have ongoing environmental compliance requirements, currently there are no
pending regulatory enforcement actions and the Company believes that it is in
substantial compliance with applicable environmental laws and regulations.

The Company cannot predict
whether future changes in environmental laws or regulations might increase the
cost of operating its facilities and conducting its business. Any such changes
could have financial consequences for the Company and its members.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

During FY 1997, the Company
entered into a long-term lease agreement on a property, which included
providing a guarantee for the notes to finance the leased property. The
Companys contingent liability related to these notes totaled $586,815 as of
August 31, 2008.

During FY 2000, the Company
sold certain notes receivable with recourse. The Companys contingent liability
related to these notes totaled $196,940 as of August 31, 2008.

During FY 2008, the Company
entered into a non-pool sugar marketing agreement relating to the 2008 crop
year. The Companys remaining commitment for this marketing agreement is
$2,200,000.

NOTE 12 - OPERATING LEASES

The Company is a party to
various operating leases for vehicles and equipment. Future minimum payments
for the years ending August 31, under these obligations, are as follows:

|                        |  |   |           | 
|----------------------- |  | - | --------- | 
|Years ending August 31, |  |   |           | 
|                        |  |   |           | 
|                        |  |   |           | 
|2010                    |  |   | 1,024,082 | 
|2011                    |  |   | 812,304   | 
|2012                    |  |   | 1,348     | 
|2012                    |  |   | 674       | 
|                        |  |   |           | 
|                        |  | $ | 1,838,408 | 
|                        |  |   |           | 

Operating lease and contract
expenses for the years ended August 31, 2008, 2007 and 2006, totaled
$1,535,475, $1,834,441 and $869,310, respectively.

NOTE 13 - EMPLOYEE BENEFIT PLANS

401(k) Plan

The Company has a qualified
401(k) employee benefit plan that covers all employees meeting eligibility
requirements. The Companys matching contribution to the plan is at a level of
100 percent of employee contributions, with a maximum of 4 percent of
compensation for the years ended August 31, 2008, 2007, and 2006. Employer
contributions to the plan for the years ended August 31, 2008, 2007 and 2006
totaled $631,063, $570,045 and $511,936, respectively.

82

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Effective September 1, 2007, individual participating employees who
have met the nonelective eligibility requirements of the plan received a
contribution of 4 percent of their compensation each pay period as provided by
the plan. Individuals participating in this benefit are excluded from the
non-contributory defined benefit plan. Employer contribution to the plan for
the year ended August 31, 2008 totaled $35,126.

Pension plan

The Company has a
non-contributory defined benefit plan, which covers substantially all employees
who meet certain requirements of age, hours worked per year, years of service,
and age at retirement or termination. The pension funding policy is to deposit
with independent trustees amounts allowable by law. Trust funds and deposits
with insurance companies are maintained to provide pension benefits to plan
participants and their beneficiaries. The Companys measurement date for the
years ended August 31, 2008, 2007 and 2006 have been May 31, 2008, 2007 and
2006 respectively. For the year ended August 31, 2009, the Company will be
required to change the measurement date to August 31, 2009.

Non-qualified benefit plans

The Company has various
non-qualified plans for those employees who meet certain requirements.

The Supplemental Executive
Retirement Plan (SERP) is designed to make an employee who should exceed the annual
compensation limit of the Company s defined benefit plan. This plan is
unfunded; therefore there are no assets for this plan.

The Non-Qualified Deferred
Compensation plan allows an employee to defer wages to a future date. The
deferment becomes part of the company assets. To receive payments under this
plan, the participant must meet the requirements of the plan or separate from
the Company.

Non-Qualified key-life
insurance. The Company has life insurance policies on a former executive
sufficient to cover a $500,000 obligation to the former executives estate. The
policies are self sufficient, and requiring no additional funding for the term
of the policies.

Changes in accounting guidelines

In August 2006, the Pension
Protection Act (PPA) was signed into law. The PPA modified the funding
requirements for defined benefit pension plans by subjecting defined benefit
plans to 100 percent of the current liability-funding target. Defined benefit
plans with a funding status of less than 80 percent of the current liability
are defined as being at risk. The PPA is effective for the 2008 plan year.
The Companys qualified defined benefit plan is funded in excess of 80 percent,
and therefore the Company expects that the plan will not be subject to the at risk
funding requirements of the PPA and that the law will not have a material
impact on future contributions.

83

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In September 2006, the FASB
issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and
Other Post-retirement Plans, an amendment of FASB Statements No. 87, 88, 106
and 132R. This standard requires employers to recognize the under funded or
over funded status of defined benefit pension and Post-retirement plans as an
asset or liability in its statement of financial position, and recognize
changes in the funded status in the year in which the changes occur through
accumulated other comprehensive loss, which is a component of stockholders
equity. This standard also eliminates the requirement for Additional Minimum
Pension Liability (AML) required under SFAS No. 87. As a result of the
application of SFAS No. 158 as of August 31, 2008 and 2007 the Company
increased liabilities by $639,310 and
$3,947,430. These liabilities were offset to accumulate other comprehensive
loss and long-term deferred tax assets. As a result of SFAS No. 158, in the
year ended August 31, 2007 the Company recognized an increase in accumulated
other comprehensive loss of $2,368,458 and in the year ended August 31, 2008
the Company recognized an increase in Other Comprehensive Loss of $2,218,282
for the year ended August 31, 2008. During implementation in the fiscal year
ended August 31, 2007, the Company recorded a future tax benefit associated
with FAS 158 based upon estimated patronage/non patronage business. However, as
the Company reviews the future tax benefits associated with FAS 158 for
patronage/non patronage business annually, the Company has determined that the
future tax benefits associated with FAS 158 for the year ended August 31, 2008
will be patronage sourced and, therefore, will flow directly to the
shareholder/grower. As a result all future tax benefits associated with FAS
158, as of August 31, 2008, were reversed and the total FAS 158 impact recorded
as Other Comprehensive Loss.

The following
table sets forth the plans funded status at August 31:

|                                                   |  |      |            |      |   |            |   |   |            |  
|-------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                   |  | 2008 |            | 2007 |   | 2006       |  
|                                                   |  |      |            |      |   |            |  
|                                                  
|Change in benefit obligation                       |  |      |            |      |   |            |   |   |            |  
|Benefit obligation at beginning of year            |  | $    | 25,712,339 |      | $ | 23,525,263 |   | $ | 21,732,459 |  
|Service cost                                       |  |      | 940,135    |      |   | 958,696    |   |   | 858,210    |  
|Interest cost                                      |  |      | 1,558,671  |      |   | 1,530,008  |   |   | 1,401,578  |  
|Experience (gain)/loss due to participant
 changes |  |      | (1,291,058 | )    |   | 447,986    |   |   | 537,767    |  
|Benefits paid                                      |  |      | (818,778   | )    |   | (749,614   | ) |   | (1,004,751 | )
|                                                   |  |      |            |      |   |            |   |   |            |  
|                                                   |  |      |            |      |   |            |   |   |            |  
|Benefit obligation at end of year                  |  |      | 26,101,309 |      |   | 25,712,339 |   |   | 23,525,263 |  
|                                                   |  |      |            |      |   |            |   |   |            |  
|                                                   |  |      |            |      |   |            |   |   |            |  
|Change in plan assets                              |  |      |            |      |   |            |   |   |            |  
|Fair value of plan assets at beginning of
 year    |  |      | 20,277,824 |      |   | 16,961,551 |   |   | 15,469,222 |  
|Actual return on plan assets                       |  |      | (360,683   | )    |   | 2,990,887  |   |   | 1,377,080  |  
|Employer contribution                              |  |      | 1,060,000  |      |   | 1,075,000  |   |   | 1,120,000  |  
|Benefits paid                                      |  |      | (818,778   | )    |   | (749,614   | ) |   | (1,004,751 | )
|                                                   |  |      |            |      |   |            |   |   |            |  
|                                                   |  |      |            |      |   |            |   |   |            |  
|Fair value of plan assets at end of year           |  |      | 20,158,363 |      |   | 20,277,824 |   |   | 16,961,551 |  
|                                                   |  |      |            |      |   |            |   |   |            |  
|                                                   |  |      |            |      |   |            |   |   |            |  
|Funded status                                      |  |      | (5,942,946 | )    |   | (5,434,515 | ) |   | (6,563,712 | )
|Unrecognized net actuarial loss                    |  |      |           |      |   |           |   |   | 5,165,493  |  
|Unrecognized prior service cost                    |  |      |           |      |   |           |   |   | 258,737    |  
|Unrecognized transition (asset) obligation         |  |      |           |      |   |           |   |   |           |  
|                                                   |  |      |            |      |   |            |   |   |            |  
|                                                   |  |      |            |      |   |            |   |   |            |  
|Accrued benefit cost liability                     |  | $    | (5,942,946 | )    | $ | (5,434,515 | ) | $ | (1,139,482 | )
|                                                   |  |      |            |      |   |            |   |   |            |  

84

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Amount
recognized in the statement of financial position consists of:

|                        |  |                  |            |      |   |            |   |   |   | 
|----------------------- |  | ---------------- | ---------- | ---- | - | ---------- | - | - | - | 
|                        |  | Pension Benefits |           
|                        |  | 2008             |            | 2007 |   | 2006       |  
|                        |  |                  |            |      |   |            |  
|Non-current
 assets     |  | $                |           |      | $ |           |   | $ |  | 
|Current
 liabilities    |  |                  | (780,009   | )    |   | (660,125   | ) |   |  | 
|Noncurrent
 liabilities |  |                  | (5,162,937 | )    |   | (4,774,390 | ) |   |  | 
|                        |  |                  |            |      |   |            |   |   |   | 
|                        |  | $                | (5,942,946 | )    | $ | (5,434,515 | ) | $ |  | 
|                        |  |                  |            |      |   |            |   |   |   | 

|                    |  |      |         |      |   |           |  |   |   | 
|------------------- |  | ---- | ------- | ---- | - | --------- |  | - | - | 
|                    |  | 2008 |         | 2007 |   | 2006      | 
|                    |  |      |         |      |   |           | 
|Net loss            |  | $    | 690,734 |      | $ | 3,745,541 |  | $ |  | 
|Prior
 service cost |  |      | (32,782 | )    |   | 201,889   |  |   |  | 
|                    |  |      |         |      |   |           |  |   |   | 
|                    |  | $    | 657,952 |      | $ | 3,947,430 |  | $ |  | 
|                    |  |      |         |      |   |           |  |   |   | 

The
accumulated benefit obligation for all defined benefit pension plans for the
years ended August 31, 2008, 2007 and 2006 were $19,721,092, $18,725,646 and
$17,037,625, respectively.

|                                              |  |      |   |      |     |      |  |     |   | 
|--------------------------------------------- |  | ---- | - | ---- | --- | ---- |  | --- | - | 
|                                              |  | 2008 |   | 2007 |     | 2006 | 
|                                              |  |      |   |      |     |      | 
|                                              |  |      |   |      |     |      |  |     |   | 
|Weighted-average assumptions as of August
 31 |  |      |   |      |     |      |  |     |   | 
|Discount rate                                 |  | 6.5  | % |      | 6.5 | %    |  | 6.5 | % | 
|Expected return on plan assets                |  | 8.0  | % |      | 8.0 | %    |  | 8.0 | % | 
|Rate of total compensation increase           |  | 4.3  | % |      | 4.3 | %    |  | 4.3 | % | 

The net periodic pension cost
for the years ended August 31, includes the following components:

|                                                 |  |      |            |      |   |            |   |   |            |  
|------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                 |  | 2008 |            | 2007 |   | 2006       |  
|                                                 |  |      |            |      |   |            |  
|                                                 |  |      |            |      |   |            |   |   |            |  
|Components on net periodic benefit cost          |  |      |            |      |   |            |   |   |            |  
|Service cost                                     |  |      | 940,135    |      | $ | 958,696    |   | $ | 858,210    |  
|Interest cost                                    |  |      | 1,558,671  |      |   | 1,530,008  |   |   | 1,401,578  |  
|Expected return on plan assets                   |  |      | (1,621,109 | )    |   | (1,362,530 | ) |   | (1,244,528 | )
|Amortization of prior service cost               |  |      | 32,782     |      |   | 56,848     |   |   | 86,905     |  
|Amortization of transition amount                |  |      |           |      |   |           |   |   | 175        |  
|Amortization of unrecognized net actuarial
 loss |  |      |           |      |   | 239,581    |   |   | 217,126    |  
|                                                 |  |      |            |      |   |            |   |   |            |  
|                                                 |  |      |            |      |   |            |   |   |            |  
|Net periodic benefit cost                        |  | $    | 910,479    |      | $ | 1,422,603  |   | $ | 1,319,466  |  
|                                                 |  |      |            |      |   |            |   |   |            |  

85

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The Companys
pension plan weighted-average asset allocation at August 31, 2008, by asset
category is as follows:

|                  |  |      |       |  
|----------------- |  | ---- | ----- | -
|                  |  | 2008 |      
|                  |  |      |      
|Asset Category    |  |      |       |  
|Equity securities |  |      | 66.00 | %
|Debt securities   |  |      | 30.90 | %
|Other             |  |      | 3.10  | %
|                  |  |      |       |  
|                  |  |      |       |  
|Total             |  |      | 100   | %
|                  |  |      |       |  
|                  |  |      |       |  

Investment Philosophy

The Companys
investment philosophy to achieve acceptable returns with reasonable risks
involves diversification into different investment asset classes, which in
turn, mitigates an over exposure to any one segment of investment alternatives,
avoids market timing, and controls fees.

Contributions

The Company
expects to contribute $1,060,000 to its pension plan in 2009.

The following
benefit payments, which reflect expected future service, as appropriate, are
expected to be paid:

|                          |  |  |           | 
|------------------------- |  |  | --------- | 
|2009                      |  |  | 796,017   | 
|2010                      |  |  | 707,908   | 
|2011                      |  |  | 799,620   | 
|2012                      |  |  | 915,358   | 
|Thereafter,
 through 2017 |  |  | 6,002,178 | 

As a result of
SFAS No. 158, the Company has recognized a charge to accumulated other
comprehensive loss as follows:

|                              |  |      |           |      |   |           |  |   |   | 
|----------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | - | 
|Fiscal
 Year Ended August 31: |  | 2008 |           | 2007 |   | 2006      | 
|                              |  |      |           |      |   |           | 
|                              |  |      |           |      |   |           |  |   |   | 
|Beginning Balance             |  | $    | 2,368,458 |      | $ |          |  | $ |  | 
|Minn Dak Farmers Cooperative  |  |      | 2,218,280 |      |   | 2,368,458 |  |   |  | 
|United Sugars                 |  |      | 209,017   |      |   |          |  |   |  | 
|Midwest Agri                  |  |      | 94,761    |      |   |          |  |   |  | 
|                              |  |      |           |      |   |           |  |   |   | 
|                              |  |      |           |      |   |           |  |   |   | 
|Ending Balance                |  |      | 4,890,516 |      |   | 2,368,458 |  |   |  | 
|                              |  |      |           |      |   |           |  |   |   | 

86

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NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value
of a financial instrument is generally defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced liquidation sale. Quoted market prices are generally not
available for the Companys financial instruments. Accordingly, fair values are
based on judgments regarding anticipated cash flows, future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. Changes in the assumptions could
significantly affect the estimates.

The following
methods and assumptions were used by the Company to estimate fair value of the
financial instruments, and the estimated fair values of the Companys financial
instruments as of August 31, 2008, 2007 and 2006, are as follows:

Investments - The
investments in CoBank, Dakota Valley Electric Cooperative, Inc. and all other
cooperatives are stated at cost, plus the cooperatives share of allocated
patronage and capital credits. The investments in United Sugars Corporation and
Midwest Agri-Commodities are accounted for using the equity method, wherein the
investments are recorded at the amount of the underlying equity in the net
assets of the investments and adjusted to recognize the cooperatives share of
the undistributed earnings or losses. The Company believes it is not
practicable to estimate the fair value without incurring excessive costs
because there is no established market for this stock and it is inappropriate
to estimate future cash flows, which are largely dependent on future patronage
earnings of the investment.

Long-term debt and bonds payable-
The fair value of obligations under long-term debt and bonds payable are
estimated based on the quoted market prices for the same or similar issues or
on the current rates offered for debt of similar maturities. The carrying
amount on the financial statements approximates fair market value.

87

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|          |         
|--------- | --------
|Item 15c. | Exhibits

|       |                                                                                                                                                                                                                                                                                                          
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Index  |                                                                                                                                                                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                          
|3(i)   | Articles of Amendment to the Articles of Incorporation of Minn-Dak
 Farmers Cooperative. Incorporated by reference from the Companys Annual
 Report on Form 10-K for the fiscal year ended August 31, 1996 as filed on
 November 21, 1996.                                                              
|3(ii)  | Articles of Incorporation of Minn-Dak Farmers Cooperative. Incorporated
 by reference from the Companys Registration Statement on Form S-1 (File No.
 33-94644), declared effective September 11, 1995.                                                                                                 
|3(iii) | Amended Bylaws of Minn-Dak Farmers Cooperative.                                                                                                                                                                                                                                                          
|10(a)  | Growers Agreement (three-year Agreement) (example of agreement
which
 each Shareholder is required to sign). Incorporated by reference from the
 Companys Annual Report on Form 10-k for the fiscal year ended August 31,
 2007 as filed on November 29, 2007.                                         
|10(b)  | Amended and Restated Uniform Member Marketing Agreement by and
 between United Sugars Corporation and Minn-Dak Farmers Cooperative
 Incorporated by reference from the Companys Annual Report on Form 10-k for
 the fiscal year ended August 31, 2007 as filed November 29, 2007                        
|10(e)  | Memorandum of Understanding and Uniform Member Agreement by and
 between Midwest Agri-Commodities Company and Minn-Dak Farmers Cooperative.
 Incorporated by reference from the Companys Annual Report on Form 10-K for
 the fiscal year ended August 31, 2006 as filed on November 28, 2006.           
|10(k)  | Agreement for Electrical Service. Incorporated by reference from the
 Companys Registration Statement on Form S-1 (File No. 33-94644), declared
 effective September 11, 1995.                                                                                                                          
|10(l)  | Master Coal Purchase and Sale Agreement and Railroad Equipment Lease
 Agreement (Confidential Treatment has been requested as to certain
 provisions). Incorporated by reference from the Companys Annual Report on
 Form 10-K for the fiscal year ended August 31, 2006 as filed on November 28,
 2006.
|10(m)  | Minn-Dak Farmers Cooperative Pension Plan. Incorporated by reference
 from the Companys Registration Statement on Form S-1 (File No. 33-94644),
 declared effective September 11, 1995.                                                                                                                 
|10(p)  | Amendment to Minn-Dak Farmers Cooperative Pension Plan. Incorporated
 by reference from the Companys Annual Report on Form 10-K for the fiscal
 year ended August 31, 1997 as filed on November 25, 1997.                                                                                               
|10(q)  | Amendment to Minn-Dak Farmers Cooperative Pension Plan. Incorporated
 by reference from the Companys Annual Report on Form 10-K for the fiscal
 year ended August 31, 1998 as filed on November 24, 1998.                                                                                               
|10(r)  | David H. Roche Employment Agreement. Incorporated by reference from
 the Companys Annual Report on Form 10-K for the fiscal year ended August 31,
 2001 as filed on November 29, 2001 and Renewal Agreement, dated August 26,
 2008.                                                                    
|12     | Statement re Computation of Ratio of Net Proceeds to Fixed Charges.                                                                                                                                                                                                                                      
|21     | Subsidiaries of the Registrant. Incorporated by reference from the
 Companys Registration Statement on Form S-1 (File No. 33-94644), declared
 effective September 11, 1995.                                                                                                                            
|31.1   | Certification of the President/Chief Executive Officer in accordance
 with Section 302 of the Sarbanes-Oxley Act.                                                                                                                                                                                        
|31.2   | Certification of the Executive Vice President/Chief Financial Officer
 in accordance with Section 302 of the Sarbanes-Oxley Act.                                                                                                                                                                         
|31.3   | Certification
 of the Controller/Chief Accounting Officer in accordance with Section 302 of
 the Sarbanes-Oxley Act.                                                                                                                                                                                     
|32     | Certification of the President/Chief Executive Officer and the
 Executive Vice President/Chief Financial Officer in accordance with Section
 906 of the Sarbanes-Oxley Act.                                                                                                                              
|99.1   | Audit Committee Charter. Incorporated by reference from the
Companys
 Annual Report on Form 10-K for the fiscal year ended August 31, 2003 as filed
 on November 26, 2003.                                                                                                                              

*Management
Contract, compensatory plan or arrangement

88

---



SIGNATURES

PURSUANT TO
THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

| |                               |                            
| | ----------------------------- | ---------------------------
| | MINN-DAK
 FARMERS COOPERATIVE
| |                              
| | BY                            | /S/ David H.
 Roche        
| |                               |                            
| |                               | DAVID H. ROCHE, PRESIDENT  
| |                               | AND CHIEF EXECUTIVE OFFICER

PURSUANT TO
THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DUTIES INDICATED.

|                       |  |                              |  |            
|---------------------- |  | ---------------------------- |  | -----------
|SIGNATURE              |  | TITLE                        |  | REPORT DATE
|                       |  |                              |  |            
|/s/ David H.
 Roche    |  | President and                |  | 11-26-08   
|                       |  |                              |  |            
|David H.
 Roche        |  | Chief Executive Officer      |  |            
|                       |  |                              |  |            
|/s/ Steven
 M. Caspers |  | Executive Vice President and |  | 11-26-08   
|                       |  |                              |  |            
|Steven M.
 Caspers     |  | Chief Financial Officer      |  |            
|                       |  |                              |  |            
|/s/ Allen E.
 Larson   |  | Controller and               |  | 11-26-08   
|                       |  |                              |  |            
|Allen E.
 Larson       |  | Chief Accounting Officer     |  |            
|                       |  |                              |  |            
|/s/ Dale Blume         |  |                              |  | 11-26-08   
|                       |  |                              |  |            
|Dale Blume             |  | Director                     |  |            
|                       |  |                              |  |            
|/s/ Dennis
 Butenhoff  |  |                              |  | 11-26-08   
|                       |  |                              |  |            
|Dennis
 Butenhoff      |  | Director                     |  |            
|                       |  |                              |  |            
|/s/ Brent
 Davison     |  |                              |  | 11-26-08   
|                       |  |                              |  |            
|Brent
 Davison         |  | Director                     |  |            
|                       |  |                              |  |            
|/s/ Doug
 Etten        |  |                              |  | 11-26-08   
|                       |  |                              |  |            
|Doug Etten             |  | Director                     |  |            
|                       |  |                              |  |            
|/s/ Michael
 Hasbargen |  |                              |  | 11-26-08   
|                       |  |                              |  |            
|Michael
 Hasbargen     |  | Director                     |  |            
|                       |  |                              |  |            
|/s/ Dennis
 Klosterman |  |                              |  | 11-26-08   
|                       |  |                              |  |            
|Dennis
 Klosterman     |  | Director                     |  |            
|                       |  |                              |  |            
|/s/ Russell
 Mauch     |  |                              |  | 11-26-08   
|                       |  |                              |  |            
|Russell
 Mauch         |  | Director                     |  |            
|                       |  |                              |  |            
|/s/ Charles
 Steiner   |  |                              |  | 11-26-08   
|                       |  |                              |  |            
|Charles
 Steiner       |  | Director                     |  |            
|                       |  |                              |  |            
|/s/ Alton
 Theede      |  |                              |  | 11-26-08   
|                       |  |                              |  |            
|Alton Theede           |  | Director                     |  |            

89

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