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

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FORM 10-K   x Annual Report Pursuant to
Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended
AUGUST 31, 2006


Or


o Transition Report Pursuant to Section 13 or 15(d)
of
The Securities Exchange Act of 1934


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Commission File
No. 33-94644


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

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


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

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

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 an accelerated filer (as defined in Rule
2b-2 of the Act).     YES o NO x

Indicate
by check mark if the registrant is a shell company (as defined in Rule 2b-2 of
the Act).     YES oNO 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

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.

As
of November 21, 2006, 480 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

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outstanding. There is only a limited, private market
for shares of the Companys Common or Preferred Stock, as such shares may be
held only by farmer-producers who are eligible for membership in the Company.
The Companys shares are not listed for trading on any exchange or quotation
system. A number of stock transfers, representing approximately 6% of
available stock, were not arms length (estate settlements, estate planning from
one generation to the next, etc.) and an accurate value for that stock was not
available. Management believes that less than 1% of the Companys available
stock was traded at arms length during the fiscal year ended August 31, 2006.
Of the stock transferred at arms length, the transfers were made during the
first, second and third quarters of the Companys fiscal year and, to the best
of our knowledge, ranged in price from $2,550 to $2,850 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   
|         
|ITEM
  1. | BUSINESS

GENERAL

The
Company is a North Dakota agricultural cooperative that was formed in 1972 and
currently has 480 members. Membership in the Company is limited to sugarbeet
growers located in those areas of North Dakota and Minnesota within an
approximate fifty (50) mile radius of the Companys offices and sugarbeet
processing facilities in Wahpeton, North Dakota. The Companys facilities allow
the members to process their sugarbeets into sugar and other products. The
products are pooled and then marketed through the services of a marketing agent
under contract with the Company. The sugar-marketing agent, United Sugars
Corporation, is a cooperative association owned by its members, the Company,
American Crystal Sugar Company and United States Sugar Corporation. The
Companys 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% 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.

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.

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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, of the sugar it produces. The
Companys subsidiary Minn-Dak Yeast uses the Companys sugarbeet molasses as
the growth medium in the production of fresh bakers yeast. Minn-Dak Yeast
provided revenues totaling approximately 5% of the Companys total revenues for
the fiscal year ended August 31, 2006.

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

The
Companys sugarbeet co-products include sugarbeet molasses, sugarbeet pulp
pellets and pressed pulp. After the extraction of raw juice from the cossettes,
the remaining pulp is dried, processed into pellets and sold as animal feed or
not dried and sold as wet animal feed to the local market. The 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 3.0 million tons of sugarbeets from the 2006-crop,
approximately 45% above the most recent 5-year average, due to increased yields
per acre and higher than average harvested acres. Sugar content of the
2006-crop at harvest was 1% below the average of the five most recent years
because of higher than normal rainfall the two months prior to harvest. Due to
the higher harvested tons and slightly below average sugar content, the
Companys production of sugar from the 2006-crop sugarbeets is expected to be
34% more 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 2006 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 $40.21 per ton or
$0.134844 per harvested /bonus extractible pound of sugar, with the final
sugarbeet payment determined in October of 2007. This projected payment is
slightly more than the final 2005-crop payment per ton and slightly less per
pound of extractible sugar. The higher projected 2006-crop payment per ton
results from higher sugar and co-product production, co-product prices and
decreased operating and fixed costs per ton, offset by lower sugar prices
versus the prior year.

For
a discussion of the 2005, 2004 and 2003 crops and results of operations for
fiscal years 2006, 2005 and 2004, 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. Currently, the Company has allocation
rights to market 5.8 million cwt of refined sugar based on the current USDA OAQ
announcement of 8,750,000 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
five years. Each 100,000 STRV of OAQ computes to 66,000 cwt of marketing
allocations for the Company. Each 1,000 acres of planted sugarbeets is
estimated to produce 55,000 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

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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% ownership interest in United Sugars with
contributed capital totaling $1.3 million.

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

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, 2006, 91% of
the Companys sugar was shipped in bulk form, mostly to industrial users, and
9% in bagged powdered sugar.

The
prices at which United Sugars sells the Companys sugar fluctuates 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 lower than the prior year because
of: (1) increased levels of domestic sugar availability, which is due to higher
than average yields and/or planted acres in sugarbeets and sugarcane in the US;
and (2) increased levels of imported sugar in amounts that the Company believes
is in excess of market needs.

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.

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As
of this writing the Company has a 25% ownership interest in Midwest Agri, and
has contributed capital that totals 12% of all capital from members.

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 various members on a patronage basis.

For
the year ended August 31, 2006, approximately 49% of Midwest Agris sugarbeet
pulp production was exported to Asia, Europe, and Africa and the remaining 51%
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 and by the strength of the U.S. dollar relative to local
currencies in export markets. Dried sugarbeet pulp prices increased in FY 2006
due primarily to reduced production of dried sugarbeet pulp in the United
States. Production of dried pulp in the United States was lower as a result of
a reduction in sugarbeet acres planted, lower yields in the Red River Valley
growing area, and high natural gas prices which reduced the amount of pulp that
was dried and pelleted. Sugarbeet molasses prices increased in FY 2006
primarily due to the continued shortage of worldwide supplies of both cane and
sugarbeet molasses in the market. Successive poor crops in Asia as well as the
increased usage of cane molasses for ethanol production have resulted in lower
supplies of cane molasses. The reduction of acreage combined with lower yields
in some United States growing areas put additional pressure on the amount of
sugarbeet molasses available for sale domestically.

Co-product
sales accounted for approximately 11% of the Companys total consolidated net
sales revenue during FY 2006. This relationship is primarily a function of the
average market prices for sugar, sugarbeet pulp, sugarbeet molasses and fresh
yeast 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.

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GROWERS
AGREEMENTS

The
Company purchases virtually all of its sugarbeets from members under contract
with the Company. All members have three-year contracts with the Company
covering the growing seasons of 2006 through 2008 (the Growers Agreements).
At the end of each year, the Growers Agreement automatically extends for an
additional year, so that such agreements always have a remaining term of three
years, unless the Company, prior to the automatic renewal, has given notice of
termination. In that situation, the agreement will not renew, but will continue
in effect for the two-year period then remaining under the agreement. Each Unit
of Preferred Stock currently entitles a member to grow 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
2006-crop year the Companys Board of Directors authorized members to plant
1.62 acres per unit. For the 2007-crop year, the Companys Board of Directors
has authorized members to plant 1.52 acres per unit, however, this
authorization is subject to change by the board before the planting of the
2007-crop. The reduced authorized acres for planting is due in part to the
large 2006-crop resulting in less sugar marketing allocations being available
for the 2007-crop production. (For a discussion of the current farm bill sugar
allocations, see Managements Discussion on Government Programs and
Regulations.)

Under
the terms of the Growers Agreement, each member receives payment for his or her
sugarbeets based on a price per pound of extractable and bonus sugar. The price
per pound of extractable and bonus sugar is determined by dividing the total
grower distribution of net proceeds (less the amount credited to members
investment from member patronage and credited to retained earnings from
non-member patronage) by the total of members pounds of extractable and bonus
sugar. Extractable pounds of sugar are obtained by the processing of 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% of
the estimated price per pound of extractable sugar. A second installment is
paid in early February; that installment, in combination with the first
installment, will not exceed 70% of the estimated price per pound of
extractable sugar. A third installment is paid in early April, with the
aggregate of all installments paid to that date not to exceed 80% of the
estimated price per pound of extractable sugar. A fourth installment payment is
paid in early July, with the total of installment payments to that date not to
exceed 95% of the estimated price per pound of extractable sugar. The final
payment is determined after the end of the Companys fiscal year, ending on
August 31, and is in an amount necessary to bring the total of all payments to
the price to be paid per pound of extractable sugar to all growers during the
applicable fiscal year. In addition, the Companys annual patronage net income,
if any, which is equal to the Companys sales less all

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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.

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, Sugar Association, and North Dakota/Minnesota
Research and Education Board. The Company participates in the organizations
listed above through the efforts of its representatives to the boards of
directors of those entities. The Companys representatives, either a member of
the Companys Board of Directors or a management employee of the Company, allow
the Company to participate in and help direct agricultural and factory
operations research and development activities carried out by the listed
organizations. Those organizations also have established various committees on
which the Company has placed certain of its employees. That practice is
designed to provide the company with direct access to any research and
development information available from the applicable committees. None of the
Companys

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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, 2006, the Company contributed approximately
$92,000 to the North Dakota/Minnesota Research and Education Board to fund that
entitys research and development activities. $21,000 was given to the Beet
Sugar Development Foundation in connection with their research activities, and
$115,000 to the Sugar Association for their research activities and membership
dues. In addition, through the auspices of the Beet Sugar Development
Foundation, the Company, together with other interested companies, is
participating in the financing of a full commercial test project involving the
growing, harvesting, processing and sale of sugar and co-products produced from
bio-tech sugarbeet seed. The Companys share of this project cost will total
approximately $75,000 and is evidenced in the form of a loan that is intended
to be repaid to the Company through the proceeds derived from the sale of sugar
and co-products produced from the project. The balance owed to the Company at fiscal
year end totaled approximately $34,000.

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 been notified under new National Emission Standards for Hazardous
Air Pollutants for Industrial Commercial and Institutional Boilers and Process
Heaters Rules finalized on September 13, 2004, that it is listed as a major
source of certain hazardous air pollutants and not in compliance with the new
rules. The company has until September 13, 2007 to come into compliance with
these regulations. At this time the Company believes that it will be compliant
within the time period required under the regulations and does not anticipate
the associated costs to become compliant will have a material impact on its
cost structure.

The
Company has $0.1 million of environmental capital improvements budgeted for the
fiscal year ending August 31, 2007.

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

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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.

MARKET
AND COMPETITION

After
experiencing strong and steady growth during the 1990s, U.S. demand for sugar
was relatively flat to down until FY year 2004. Current U.S. Government
statistics estimate total U.S. sugar deliveries for domestic food and beverage
consumption at 189.7 million cwt refined for the fiscal year beginning October
1, 2005 and ending September 30, 2006. For the same period ending in 2005,
total deliveries were 187.3 million cwt refined. Comparing the two years shows demand
increased 1.3% for U.S. sugar sellers. FY 2007 deliveries are estimated by the
U.S. Government to total 191.6 million cwt refined, or about 1% more than FY
2006. Determining total domestic deliveries has been complicated by the high
proportion of deliveries constituted by sugar imports to entities that are not
required to report to the USDA. These imports have totaled about 8.4 million
cwt. refined for the first ten months of FY 2006 (5.4% of reported deliveries
through that same time period). Unlike domestic deliveries from sugarbeet
processors and cane refiners, there is no way to track direct consumption
imports to end-users.

Given
the size of the domestic market, the Companys sugar production and sales
represent approximately 3% of the total domestic market for refined sugar in
2006. United Sugars Corporation, which sells the Companys production through a
sugar marketing pool, represents approximately 24% share of the FY2006 U.S.
sugar market.

The
U.S. refined sugar market has grown over the past twenty-five plus years,
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. Since 1996 more than one third of all U.S. sugarbeet and
sugarcane mills and refineries have closed, 33 plants in total. Also, sugar
companies have been consolidating or closing as a result of marketplace
conditions. Today there are seven sugar sellers, with approximately 90% of U.S.
sugar market share concentrated in the top five sellers, most of which are
fully 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 and now

---

The Farm Security and Rural Investment Act of 2002
(the Farm Bill), the price of sugar is required to be maintained above the
price at which producers could forfeit sugar to repay non-recourse loans
obtained through the Commodity Credit Corporation (CCC). The USDA maintains
sugar prices without cost to the U.S. Treasury by regulating the quantity of
sugar imports. The U.S. currently imports approximately 22% of its domestic
needs.

Farm
Security and Rural Investment Act of 2002

The
Farm Bill was enacted on May 13, 2002. 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
2002 through 2007 crop years. Generally, the Farm Bill restricts imports of
foreign sugar, maintains the previous 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.

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. 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. Unlimited additional quantities may be exported to
the United States upon payment of a tariff of 15.36 cents per pound prior to
shipment. To date, only immaterial quantities of sugar have been imported under
this higher tariff level.

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 2006-year crop.

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 USDA determines
the overall allotment quantity (OAQ) for the U.S. domestic sugar market for
each crop year by estimating sugar consumption, adding stocks expected to be
carried into the succeeding year, and then subtracting 1,532,000 short tons,
raw value of sugar (the maximum level of imports allowed before marketing
allotments are expected to be suspended), and subtracting carry-in stocks of
sugar, including CCC inventory. 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 2002 crop through the 2007 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.

North
American Free Trade Agreement

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

The
Company is concerned that low world sugar prices and a trade conflict between
the United States and Mexico over sweeteners could permit de facto acceleration
of the second tier

---

tariffs under the side letter agreement. Under the
NAFTA tariff schedule, second tier sugar tariffs were set at approximately 12
cents for 2000 and decline by approximately 1.5 cents per year until reaching
zero in 2008. Low world raw sugar prices and the current second tier tariff
make it economically viable for Mexican sugar to enter the United States this
year, if the Mexican interests so choose.

In
July 2006 the United States and Mexico announced an agreement that resolves
these disputes that relate to each nations interpretation of the sweetener
provisions in the NAFTA. Under the agreement, the United States provides for
duty-free access to 250,000 metric tons raw value (MTRV) of Mexican sugar for
fiscal year 2007, and duty-free access to between 175,000 and 250,000 MTRV of
Mexican sugar for the period of October 1, 2007 and December 31, 2007. In turn,
Mexico provides for duty-free access to equivalent amounts of United States
high fructose corn syrup (HFCS) corresponding to the same periods. Also, the
United States can ship 7,258 MTRV of sugar duty-free to Mexico for each of the
marketing years 2006, 2007 and 2008. Effective on January 1, 2008, under NAFTA,
there will be no duties or quantitative restraints between the two countries on
all sugar and HFCS trade.

It
is possible that the passage of this announced 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 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 o f 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. The latest deadline to complete the final phase of
the WTO Doha talks has been established as the end of calendar year 2006.
However talks have stalled and currently there appears to be little chance of
WTO countries meeting this latest deadline date. 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.

Dominican
Republic - Central American Free Trade Agreement

The
Dominican Republic - Central American Free Trade Agreement (DR-CAFTA) was
signed into law on August 2, 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 cannot be
fully assessed at this time. It is possible, however, 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 Andean 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.

EMPLOYEES

As
of November 3, 2006, the Company had 293 full-time employees, of whom 259 were
hourly and 34 were salaried. It also employs approximately 459 additional
hourly seasonal workers during the sugarbeet harvest and processing campaign.
In June 2005 the Company concluded the negotiations for 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 and harvest employees are not unionized. Full time
employees are provided with health, dental and vision insurance, a defined
benefit pension retirement plan, a 401(k) retirement savings plan, a short and
long-term disability plan, term life insurance, and vacation and holiday pay
plans. Seasonal workers are also provided some of these same employee benefits.
The Company considers its employee relations to be excellent.

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

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; Legislation

The
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 federal 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 Competition

Under
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 and is pursuing legal remedies 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
Bill

The
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 ability to maintain its marketing
allocation on an annual basis and to obtain access, if necessary, to additional
allocations at a reasonable price.

Weather
and Other Factors

The
sugarbeet, as with most other crops, is affected by weather conditions during
the growing season. 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 our 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 9,100 tons per day. The
2006-crop was the largest tonnage in the history of the Company, producing
approximately 3,019,000 tons of sugarbeets. If the Company encounters normal
weather patterns, which will in turn provide normal sugarbeet storage
conditions, then it does not anticipate having material difficulties in
processing the 2006-crop. As of the date of this report, the Company has set new
records for daily slice (12,596 tons) and weekly slice (87,779 tons) rates and
anticipates achieving above-average slice for the year. Achievement of the levels of slice and
sugar production in the factory is due mostly to the quality of the 2006 crop and the
Companys effort to maximize the daily slice rate in order to finish processing
of the crop in a timely fashion.

Minn-Dak
Yeast, of which the Company is a 100% owner, operates a single yeast
manufacturing factory at Wahpeton, North Dakota. Minn-Dak Yeast owns the
factory and the

---

land on which it is located. During fiscal 2006, fresh
yeast was produced and sold into the domestic yeast marketplace.

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

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

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

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

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

There
were no matters submitted to a vote of the Companys shareholders during the
quarter ended August 31, 2006.

---

PART II

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

SHAREHOLDER STOCK VALUE

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.

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.

---

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 and may only transfer with the consent
of the Board of Directors of the Company. The Companys shares are not listed
for trading on any exchange or quotation system. A number of stock transfers,
representing approximately 6% of available stock, were not arms length (estate
settlements, estate planning from one generation to the next, etc.) and an
accurate value for that stock was not available. Management believes that less
than 1% of the Companys available stock was traded at arms length during the
fiscal year ended August 31, 2006. Of the stock transferred at arms length, the
transfers were made during the first, second and third quarters of the
Companys fiscal year and ranged in price from $2,550 to $2,850 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.

---

|        |                          
|------- | -------------------------
|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                                                                                      |  | 2006                           |           | 2005 |   | 2004      |  | 2003 |           | 2002 |  
|(in
  thousands)                                                                                    |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|Revenues                                                                                            |  | $                              | 176,967   |      | $ | 189,681   |  | $    | 198,941   |      | $ | 193,817   |  | $ | 158,003   |  
|Distribution of net proceeds (1)                                                                    |  |                                | 76,096    |      |   | 88,088    |  |      | 107,909   |      |   | 109,663   |  |   | 84,224    |  
|Total assets                                                                                        |  |                                | 163,129   |      |   | 158,996   |  |      | 168,563   |      |   | 171,254   |  |   | 171,573   |  
|Long-term debt, including current Maturities                                                        |  |                                | 42,008    |      |   | 44,455    |  |      | 50,215    |      |   | 55,920    |  |   | 61,580    |  
|Members investment (2)                                                                             |  |                                | 83,951    |      |   | 83,410    |  |      | 82,150    |      |   | 81,647    |  |   | 76,912    |  
|Property and equipment additions,
  Net of retirements                                              |  |                                | 4,395     |      |   | 4,754     |  |      | 5,487     |      |   | 9,148     |  |   | 4,582     |  
|Working capital                                                                                     |  |                                | 14,025    |      |   | 12,433    |  |      | 14,578    |      |   | 17,798    |  |   | 11,647    |  
|                                                                                                    |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|RATIOS                                                                                              |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|Ratio of long-term debt to equity (3)                                                               |  |                                | .45       |      |   | .47       |  |      | .56       |      |   | .63       |  |   | .74       |  
|Ratio of net proceeds to fixed charges (4)                                                          |  |                                | 22.50     |      |   | 31.42     |  |      | 37.99     |      |   | 32.01     |  |   | 23.48     |  
|Current ratio                                                                                       |  |                                | 1.36      |      |   | 1.38      |  |      | 1.39      |      |   | 1.50      |  |   | 1.34      |  
|                                                                                                    |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|PRODUCTION DATA (5)                                                                                 |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|Acres harvested (members)                                                                           |  |                                | 102,121   |      |   | 98,819    |  |      | 112,849   |      |   | 112,346   |  |   | 92,395    |  
|PIK acres                                                                                           |  |                                | 0         |      |   | 0         |  |      | 0         |      |   | 0         |  |   | 9,881     |  
|Tons of sugarbeets purchased (members)                                                              |  |                                | 1,810,269 |      |   | 2,295,904 |  |      | 2,264,154 |      |   | 2,383,936 |  |   | 1,666,663 |  
|Tons purchased per acre harvested                                                                   |  |                                | 17.73     |      |   | 23.23     |  |      | 20.06     |      |   | 21.22     |  |   | 18.04     |  
|Payment to members per ton of sugarbeets delivered, plus allocated
  patronage and unit retains (6) |  | $                              | 41.89     |      | $ | 38.08     |  | $    | 47.35     |      | $ | 44.33     |  | $ | 46.17     |  
|                                                                                                    |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|Sugar (cwts):                                                                                       |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|Produced (from member and purchased
sugarbeets)                                                     |  |                                | 4,839,968 |      |   | 5,868,576 |  |      | 6,424,346 |      |   | 6,112,522 |  |   | 5,076,252 | *
|Sold (includes purchased sugar)                                                                     |  |                                | 4,954,040 |      |   | 6,092,025 |  |      | 6,602,252 |      |   | 5,580,872 |  |   | 5,192,482 |  
|                                                                                                    |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|Beet pulp pellets (tons):                                                                           |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|Produced                                                                                            |  |                                | 101,328   |      |   | 119,054   |  |      | 112,483   |      |   | 99,733    |  |   | 78,408    |  
|Sold                                                                                                |  |                                | 105,138   |      |   | 113,913   |  |      | 110,424   |      |   | 98,911    |  |   | 85,209    |  
|                                                                                                    |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|Beet molasses (tons):                                                                               |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|Produced                                                                                            |  |                                | 79,599    |      |   | 89,797    |  |      | 104,883   |      |   | 100,585   |  |   | 72,123    |  
|Sold                                                                                                |  |                                | 47,007    |      |   | 73,824    |  |      | 92,852    |      |   | 86,616    |  |   | 75,090    |  
|Used for yeast production                                                                           |  |                                | 25,537    |      |   | 23,045    |  |      | 20,095    |      |   | 19,270    |  |   | 15,164    |  
|                                                                                                    |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|Yeast (pounds, in thousands):                                                                       |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  
|Produced                                                                                            |  |                                | 34,787    |      |   | 32,043    |  |      | 29,253    |      |   | 28,458    |  |   | 22,254    |  
|Sold                                                                                                |  |                                | 34,670    |      |   | 31,984    |  |      | 29,436    |      |   | 28,394    |  |   | 22,327    |  
|* Includes PIK sugar                                                                                |  |                                |           |      |   |           |  |      |           |      |   |           |  |   |           |  

---

(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, 2006,
relates to the 2005 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 judgements that have to be made currently about matters that are inherently
uncertain, such as future economic conditions, operating results and valuations
as well as management intentions. As the difficulty increases, the level of
precision decreases, meaning that actual results can and probably will be
different from those currently estimated.

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

Inventory Valuation

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

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

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

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

Defined Benefit Pension Plan

The
Company maintains and administers a defined benefit pension plan. The annual
cost of this plan can be significantly affected by changes in assumptions and
differences between expected and actual experience. The Company utilizes
actuarial methods required by SFAS No. 87, Employers Accounting for
Pensions, (SFAS No 87) to account for it 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, we are required to consider current market conditions,
including changes in interest assumptions.

---

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

|                                      |  |      |      |      |  |      |   |  |      |  
|------------------------------------- |  | ---- | ---- | ---- |  | ---- | - |  | ---- | -
|                                      |  |      |      |      |  |      |  
|                                      |  | 2006 |      | 2005 |  | 2004 |  
|                                      |  |      |      |      |  |      |  
|Discount
  Rate                       |  |      | 6.50 | %    |  | 6.50 | % |  | 6.75 | %
|                                      |  |      |      |      |  |      |  
|Expected
  return on plan assets      |  |      | 8.0  | %    |  | 8.0  | % |  | 8.0  | %
|                                      |  |      |      |      |  |      |  
|Rate of
  total Compensation Increase |  |      | 4.3  | %    |  | 4.5  | % |  | 4.5  | %
|                                      |  |      |      |      |  |      |  

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

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

In
September of 2006, the FASB issued FAS No. 158 Employers Accounting for
Defined Benefit Pension Plans and other Post Retirement plans. This pronouncement
is anticipated by the Company to cause other comprehensive income/loss in
future years. The Company believes, had this pronouncement been effective for
this report, the Company would need to recognize $5.4 million in additional
unfunded liabilities, $0.3 million in additional recognition of the period May
31, 2006 through August 31, 2006, offset by a $2.3 million deferred tax benefit
for a net other comprehensive loss of $3.4 million. The Company expects to
adopt this requirement for its fiscal year ending August 31, 2007. The
additional requirement to measure plan assets and benefit obligations as of
the end of the fiscal year-end statement of financial position is expected to
be adopted by the Companys for its fiscal year ending August 31, 2009.

Income Taxes

Determining
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 we operate. This
involves estimating current tax exposures in each jurisdiction as well as
making judgements regarding the recoverability of deferred tax assets. Tax
exposures can involve complex issues and may require an extended period to
resolve.

LIQUIDITY AND CAPITAL RESOURCES

Because
the Company operates as a cooperative, payment for member-delivered sugarbeets,
the principal raw material used in producing the sugar and agri-products it
sells, are subordinated to all member business expenses. In addition, actual
cash payments to members are spread over a period of approximately one year
following delivery of sugarbeet crops to the Company and are net of unit
retains and patronage allocated to them, both of which remain available to meet
the Companys capital requirements. This member financing arrangement

---

may result in
an additional source of liquidity and reduced outside financing requirements in
comparison to a similar business operated on a non-cooperative basis. However,
because sugar is sold throughout the year (while sugarbeets are processed
primarily between September and April) and because substantial amounts of
equipment are required for its operations, the Company has utilized substantial
outside financing on both a seasonal and long-term basis to fund such
operations. The short and long-term financing has been primarily provided by
Co-Bank (the Bank). The Company has a short-term line of credit with the Bank
totaling $45.0 million, of which $30.6 million was available as of August 31, 2006.
In addition, a $15.0 million supplemental seasonal line was offered by the Bank
but was not activated by the Company due to a lack of need. The Company
anticipates using the USDA Sugar Loan Provisions contained in the 2002 Farm
Bill to provide an additional source of seasonal financing for the 2006 and
future crops.

Due
to the anticipated size of the 2006 crop payment, the Company believes that an
additional $30 million line of seasonal credit, or the use of USDA sugar loans
(for a total of $75 million short-term line of credit) will be necessary. The
Company believes its primary lender, will provide this additional line of
credit.

On
May 30th, 2006, the Company renewed, through May 31, 2007, the
seasonal and term-debt lines of credit with the Bank. Changes to the loan
agreements covering these lines of credit included the following:

|                                                                                                                                                          |                                                                                                                                                               
|--------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                         | $3.0 million of additional long-term debt was added to the loan
  agreement to fund investments of the Company;                                               
|                                                                                                                                                         | The working
  capital covenant in the loan agreement was eliminated and replaced by a
  current ratio covenant;                                               
|                                                                                                                                                         | The
  amortization schedule for the long-term debt was lengthened, which changed
  repayments to the Bank from $4.8 million per year to $3.3 million per year.
|                                                                                                                                                          |                                                                                                                                                               
|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, 2006 the Company was in compliance with its loan agreement
covenants with the Bank.

Working
capital increased $1.6 million for fiscal year 2006. The Company funds its
capital expenditure and debt retirement needs primarily from operating
activities. The Company has approximately 6-years of long-term debt remaining
with the Bank and it has two tax exempt bond issues, one with $5.9 million
remaining to be paid and one with $13.1 million remaining. The decision to restructure
the Companys long-term debt had been anticipated to be necessary if the
Company were to acquire the non-controlling interest in its 80% owned

---

subsidiary,
Minn-Dak Yeast. On April 30, 2006 the Company consummated the acquisition of
the 20% non-controlling interest in Minn-Dak Yeast, which in turn triggered the
restructuring of the Companys long-term debt. As of August 31, 2006, the
Company achieved its targeted working capital position.

The
company has protected itself from interest rate fluctuations through a strategy
of using tax-exempt bond financing and a term debt portfolio that fixes rates
and maturities into the future on set amounts of debt. The current term debt
portfolio is expected to provide the company stable term debt interest rates
over the next four years at approximately 90 basis points under current market
rates for similar maturities. An increase or decrease in the interest rate
market of approximately 100 basis points is expected to be immaterial on the
profitability of the Company as a result of its interest rate strategy. Capital
expenditures for fiscal year 2006 were $4.7 million, for fiscal year 2005, $4.9
million and for fiscal year 2004, $6.0 million. Capital expenditures for fiscal
year 2007 are currently estimated at $4.9 million.

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 |       
|                                     |  |                        |       
|Contractual
  Obligations            |  | Total                  |        | Less
  Than 1
  Year |   | 1 - 3
  Years |  | 4 5
  Years |        | After 5
  Years |  
|                                     |  |                        |        |                      |   |               |  |              |        |                 |  
|Long-term
  debt                     |  | $                      | 22.9MM |                      | $ | 2.6MM         |  | $            | 10.2MM |                 | $ | 6.8MM  |  | $ | 3.3MM  | 
|                                     |  |                        |        |                      |   |               |  |              |        |                 |  
|Bonds
  Payable                      |  | $                      | 19.1MM |                      | $ | 1.7MM         |  | $            | 6.0MM  |                 | $ | 3.2MM  |  | $ | 8.2MM  | 
|                                     |  |                        |        |                      |   |               |  |              |        |                 |  
|Operating
  leases                   |  | $                      | 3.6MM  |                      | $ | 1.2MM         |  | $            | 2.4MM  |                 |   | 0      |  |   | 0      | 
|                                     |  |                        |        |                      |   |               |  |              |        |                 |  
|Unconditional Purchase
  obligations |  |                        | 0      |                      |   | 0             |  |              | 0      |                 |   | 0      |  |   | 0      | 
|                                     |  |                        |        |                      |   |               |  |              |        |                 |  
|Other
  long-term Obligations        |  |                        | 0      |                      |   | 0             |  |              | 0      |                 |   | 0      |  |   | 0      | 
|                                     |  |                        |        |                      |   |               |  |              |        |                 |  
|Total
  contractual cash Obligations |  | $                      | 45.6MM |                      | $ | 5.5MM         |  | $            | 18.6MM |                 | $ | 10.0MM |  | $ | 11.5MM | 
|                                     |  |                        |        |                      |   |               |  |              |        |                 |  

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, 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 still outstanding versus the prior year of 7.6 years outstanding.

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

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% of all
sugarbeets purchased by the Company for the year.

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

Revenue
for the year ended August 31, 2006, decreased 7 percent or $12.7 million 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% 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 $.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.

---

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% price increase and
10% 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 $.4 million or 6 percent. Employee costs and trade
association dues were the primary reasons for the decrease. Interest expense
increased $.6 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 $.2 million in fiscal year 2006 due primarily to
transactions related to the acquisition of 100% ownership in Minn-Dak Yeast,
offset by less patronage dividends received from other cooperatives.

Comparison of the Years Ended August 31, 2005
and 2004

Net
payments to members for sugarbeets delivered by the shareholder/growers,
decreased by $19.5 million or 19 percent in fiscal year 2005 and totaled $82.6
million. As of August 31, 2005, the board of directors authorized the payment
of prior years member patronage and per unit retains (including equity
payments to estates of deceased shareholders) totaling $4.6 million to
shareholders compared to $4.5 million in the previous year. The payment of $4.6
million will leave approximately 7.6 years of prior years patronage and per
unit retains still outstanding versus the prior year of 7.9 years outstanding.

Revenues
for the year ended August 31, 2005 were comprised of Sugar 85%, Pulp 8%, Yeast
4% and Molasses 3%.

Revenue
for the year ended August 31, 2005, decreased 5 percent or $9.3 million from
2004. Revenue from total sugar sales decreased $11.4 million or 7 percent reflecting
an 8 percent decrease in cwt sold, and a 1 percent increase in the average net
selling price per cwt. Revenue from co-products increased 1 percent, reflecting
a decrease of 14 percent in volume, offset by a 15 percent increase in the
average selling price per ton. The decrease in volume of sugar and co-products
sold is attributable to the lower sugar content, less marc in the sugarbeets,
and high purity in the 2004 crop of sugarbeets delivered by
shareholder/growers.

---

Revenues
from yeast sales increased 2 percent reflecting an increase in volume of 9
percent, and a decrease in price of 7 percent.

The
value of finished product inventories in fiscal year 2005 decreased $2.9
million from fiscal year 2004, a result of lower sugar and molasses inventories
at fiscal year end.

Cost
of product sold, exclusive of grower payments for sugarbeets, increased $3.3
million or 6.3 percent. Of the $3.3 million, $3.2 is attributed to the
Companys operation and $0.1 million is attributed to the Minn-Dak Yeast
operation.

Of
the $3.2 million increase in the Companys cost of product sold, the cost of
operations and maintenance increased as a result of wet harvest conditions when
compared to a crop with normal harvest conditions. Excess mud reduced pile
storage effectiveness, total sugar available for extraction, and reduced the
daily factory throughput. As a result, less sugar was extracted, while the
Company encountered higher daily operating costs. Daily operating costs were negatively
impacted due to the use of more chemicals, coal, coke, and limerock, which, in
turn, were further compounded by a rise in energy costs associated with the
production and shipment of those operating materials.

Sales
and Distribution costs increased $7.1 million or 24 percent. Increases are
mainly the result of the cost of purchased sugar and the cost of marketing
allocations. General and Administrative expenses increased $.2 million or 3
percent. Employee costs and trade association dues were the primary reasons for
the increase. Interest expense decreased less than $.1 million reflecting a
lower level of debt and an increased rate of interest.

Overall,
the cost per cwt of sugar produced increased 16 percent versus the prior year
due to a 7 percent increase in costs and a 9 percent reduction in sugar
produced.

Other
business income increased $.4 million in fiscal year 2005 due primarily to
increased patronage dividends from other cooperatives.

Estimated Fiscal Year 2007 Information

This
discussion contains a summary of the Companys current estimates of the
financial results to be obtained from the Companys processing of the 2006
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 2006 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 3.0 million tons of sugarbeets from the 2006 crop,
the largest harvested crop in Company history. Sugar content of the 2006 crop
at harvest was 1% below the average of the five most recent years. The Company
is projecting the sugar production from the 2006-crop to be the largest in
Company history. From the revenues generated from the sale of products produced
from each ton of sugarbeets must be deducted the Companys operating and fixed
costs. Revenues for the crop-year 2006 are expected to be 49% above the 2005
crop-year due to increased sugar production, offset by lower prices. The
deduction of operating costs results in an estimated 2006 crop gross payment to
growers for sugarbeets of $121.4 million, which is $49.8 million more than that
of the 2006 crop year of $71.6 million. The 2006 crop sugarbeet payment
increased as a result of more harvested tons, more sugar per ton of sugarbeets
harvested and higher molasses prices; and was decreased by higher operating
costs and lower sugar and pulp prices. The Company does not expect to be able
to repeat the record crop results in the future unless it can experience the
same weather pattern and growing conditions as the 2006 crop.

The
Companys initial sugarbeet payment estimate totals $40.21 per ton or $0.134844
per harvested/bonus pound of sugar, with the final sugarbeet payment determined
in October of 2007. This projected payment per pound is 5% less than the final
2005 crop payment per pound, but 4% more than the original projected 2005 crop
payment per pound. The projected 2006 crop payment per ton results from what
management believes is a consistent approach to forecasting sugar production
and sugar production costs. While the crop has been harvested, it is still at
risk for adverse storage conditions, which may mean that actual results may
differ from forecast.

The
Company anticipates challenges in the areas of refined sugar storage, and due
to the much larger record crop, will need to take extraordinary steps to preserve
the raw sugarbeet inventory for processing during the spring of 2007. The
Company began processing the 2006-crop on September 1, 2006 in anticipation of
a larger than normal crop and the need to process this crop prior to the
deterioration of unprotected sugarbeets in storage during the spring of 2007.
Business changes made to become more efficient in the re-hauling of the
sugarbeets appears to be working well and which should result in the piled
sugarbeets to be more timely processed, thereby reducing spoilage and
increasing sugar production. The factory, during the current campaign, has set
a number of new records for the most sugarbeets sliced in a day and week and
the most sugar produced in a day and a week.

Although
the Company does not anticipate any difficulty in obtaining the necessary
seasonal financing for this crop, the additional dollar volume will require the
Company to either increase on a temporary basis its line of credit with
Co-Bank, and/or utilize the USDA sugar loan program.

---

|         |                                                           
|-------- | ----------------------------------------------------------
|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 Co-Bank. 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 $19.1 million for 2006, $21.0 million for 2005 and
$22.0 million for 2004. The historic interest rates for these instruments have
been under 5% with an anticipated fluctuation of less than 1% per year.

The
Companys short-term debt will vary from year to year based on the short-term
interest rate market. Average short-term debt borrowing levels have been $24.7
million for 2006, $26.3 million for 2005 and $25.0 million for 2004. Because
each years short-term debt is closely associated with a crop year, the
interest fluctuations will have a direct impact on the final grower sugarbeet
payment.

The
Company will from time to time have a purchase obligation 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 expenditure.

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, 2006, 2005 and 2004 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.

---

|         |                        
|-------- | -----------------------
|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s intent
is to be in compliance with the rules and interpretations of these rules as
they are promulgated. As of this writing, compliance with all applicable
Sarbanes-Oxley rules for the Company has been deferred until August 31, 2008.
The below listed areas of activity are not to be considered an all inclusive
list, 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 Sarbanes-Oxley law,
that serves on the Audit Committee. 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 10-k report. As a result of these
reviews and discussions, the Audit Committee considers the financial statements
contained in this 10-k report 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 where-by 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.

Listed
below are two internal control material weaknesses discovered by the Companys
Accounting staff during the fiscal year ended August 31, 2006:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | During the
  review of the 2nd quarter 10-Q for FY 2006, it was discovered the
  finished goods inventory was not properly reconciled prior to the filing of
  the 10-q, and it was corrected and controls put in place to prevent future
  errors. At the same time, management also re-evaluated how it was valuing
  finished goods inventory and thick juice inventory. It was determined that
  thick juice inventory should be recorded at net realizable value (NRV),
  instead of cost, for the interim financial statements in order to be
  consistent with accounting principles that would be applied at fiscal year
  end if any thick juice were present. It was also determined that the NRV for
  products should

---

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | take into
  account year to date activity and the most current estimate of sales price to
  arrive at a calculated NRV for any inventory to be valued at NRV.                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 2. | During the
  fiscal year ended August 31, 2006, reliance was made upon an improper
  schedule to calculate the final 2005-crop grower payment. This payment was
  improperly calculated to be $320,000 more than the calculation using the
  correct schedule. Although the Company considers the dollar amount of the
  error to be immaterial, it has determined the lack of proper controls was a
  material matter. The company has put into place new preventive measures to correct
  this internal control deficiency.

The
Companys chief executive officer and chief financial officer have reviewed and
evaluated the effectiveness of the Companys disclosure controls and procedures
(as defined in Rules 240.13a-14(c) and 15d-14(c) promulgated under the
Securities Exchange Act of 1934) as of a date within ninety days before the
filing date of this annual report. Based on that review and evaluation, which
included inquiries made to certain other employees of the Company and based
solely upon the above two material weaknesses, the chief executive officer and
chief financial officer have concluded that the Companys current disclosure
controls and procedures, as designed and implemented, were ineffective as
regards to material weakness. The evaluation has not revealed any fraud,
intentional misconduct, or concealment on the part of Company personnel. These
weaknesses have been remediated and new internal control procedures instituted
whereby critical accounts are properly reconciled on a periodic and annual
basis. The Company does not anticipate further difficulties in these areas.

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

None.

|         |                                                                              
|-------- | -----------------------------------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY IDENTIFICATION OF
  DIRECTORS

The
table below lists the current directors of the Company. The board of directors
consists of one director from each district. 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      |  | 56  |  | District #7
   Lehman       |  | 2005           |  | 2008                     
|                                                             |  |     |  |                              |  |                |  |                          
|Dennis Butenhoff 
  12254 118th ST S 
  Baker, MN 56580      |  | 60  |  | District #9
   Peet         |  | 2004           |  | 2007                     
|                                                             |  |     |  |                              |  |                |  |                          
|Brent Davison 
  7950 770th AV 
  Tintah, MN 56583           |  | 55  |  | District #5
   Hawes        |  | 2003           |  | 2008                     
|                                                             |  |     |  |                              |  |                |  |                          
|Douglas Etten 
  3138 370th ST 
  Foxhome, MN 56543          |  | 55  |  | District #8
   Lyngaas      |  | 1997           |  | 2006(1)                  
|                                                             |  |     |  |                              |  |                |  |                          
|Michael Hasbargen 
  2553 360th ST 
  Breckenridge, MN 56520 |  | 61  |  | District #4
   Factory East |  | 1993           |  | 2008                     
|                                                             |  |     |  |                              |  |                |  |                          
|Dennis Klosterman 
  7942 CTY RD 1 
  Mooreton, ND 58061     |  | 46  |  | District #3
   Gorder       |  | 2004           |  | 2007                     
|                                                             |  |     |  |                              |  |                |  |                          
|Russell Mauch 
  16305 Hwy 13 
  Barney, ND 58008            |  | 51  |  | District #2
   Factory West |  | 1998           |  | 2007                     
|                                                             |  |     |  |                              |  |                |  |                          
|Charles Steiner 
  2851 310th AV 
  Foxhome, MN 56543-9312   |  | 56  |  | District #6
   Yaggie       |  | 2000           |  | 2006(2)                  
|                                                             |  |     |  |                              |  |                |  |                          
|Alton Theede 
  609 3rd AV SE 
  Hankinson, ND 58041         |  | 62  |  | District #1
   Tyler        |  | 2003           |  | 2006(3)                  

|   |                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------
|1) | Mr. Ettens
  term as a director of the Company from District #8-Lyngaas expires on
  December 5, 2006. 
|2) | Mr.
  Steiners term as a director of the Company from District #6-Yaggie expires
  on December 5, 2006.
|3) | Mr. Theedes
  term as director of the Company from District #1-Tyler expires on December 5,
  2006.    

Dale
Blumegraduated 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 the Companys original
stockholders. Mr. Blume is a member of the Grant County FSA Board, 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. He serves as the
ex-officio member on the board of directors for Minn-Dak Yeast.

---

Dennis
Butenhoff has been a director since 2004 and serves on
the board of directors of Minn-Dak Yeast. 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 is one of
Minn-Daks representatives to the American Sugarbeet Growers Association in
Washington, DC. 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.

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

Michael Hasbargen has been a director since
1993 and is currently serving as board chairman. He has also served as vice chairman.
Mr. Hasbargen has been farming near Breckenridge, MN since graduating from NDSU
in Ag Economics in 1967. Mr. Hasbargen also serves on the board of directors of
United Sugars Corporation, Midwest Agri-Commodities Company, and Minn-Dak
Yeast. Mr. Hasbargen is the brother-in-law of Mr. Steven Caspers, Executive
Vice President & Chief Financial Officer.

Dennis
Klosterman has 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 is a member and past chairman of the
Companys Political Action Committee. Mr. Klosterman is a member of various
farm and commodity organizations.

Russell Mauch has been a director since
1998 and currently serving 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.

Charles
Steiner has been a
director since 2000. 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. He also serves on the board of directors for
Midwest Agri-Commodities Company and Minn-Dak Yeast.

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 in 1966. 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 serves on the board of directors for Minn-Dak
Yeast.

The
Board of Directors meets monthly. The Company provides its directors with
minimal compensation, consisting of (i) a payment of $250.00 per meeting for
regular and special board meetings, (ii) the greater (a) $125.00 for any day in
which directors partake in activities on the Companys behalf that take less
than five hours or (b) $250.00 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.

Executive Officers

The
table below lists the senior management employees of the Company and Minn-Dak
Yeast, 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         |  | 59 |     | President
  and Chief Executive Officer               
|                        
|Steven M.
  Caspers      |  | 56 |     | Executive
  Vice President and Chief Financial Officer
|                        
|Allen E.
  Larson        |  | 51 |     | Controller
  and Chief Accounting Officer             
|                        
|Thomas D.
  Knudsen      |  | 52 |     | Vice
  President Agriculture                          
|                        
|Greg J.
  Schmalz        |  | 55 |     | Director
  Human Resources                            
|                        
|Dr. Jeffrey
  L. Carlson |  | 51 |     | Vice
  President Operations of Minn-Dak               
|                        
|Dr. Richard
  W. Ames    |  | 49 |     | Operations
  Manager of Minn-Dak Yeast                
|                        
|John S.
  Nyquist        |  | 51 |     | Purchasing
  Manager                                  
|                        
|Susan
  Johnson          |  | 59 |     | Communications
  Manager                              
|                        
|Kevin R.
  Shannon       |  | 52 |     | Safety
  Director                                     
|                        
|John Haugen              |  | 54 |     | Vice
  President Engineering                          

David H.
Roche is the Companys third president and CEO. He joined the
Wahpeton, ND based sugar cooperative on March 1, 2001. Mr. Roche began his
sugar industry career as a controller for Michigan Sugar Company in 1976. Mr.
Roche holds an MBA in Accounting from Michigan State University and became a
Certified Public Accountant in 1974. He serves on the boards of United Sugars
Corporation and Midwest Agri-Commodities. Mr. Roche is chairman of the board
for Minn-Dak Yeast. 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.

Steven M. Caspers, the Companys Executive
Vice President and Chief Financial Officer, has held that position since
January 1986. He has been employed with the Company

---

since May 5,
1974. Mr. Caspers is the President of Minn-Dak Yeast, and has held that
position since 1994. He is a 1972 graduate of the University of North Dakota
with a Bachelor of Science in Business Administration and a major in
Accounting. Mr. Caspers is the brother-in-law of Mr. Michael Hasbargen,
Director and Chairman.

Allen E. Larson has been serving as the
Companys Controller since 1990. His employment with the Company began on
October 26, 1981. Mr. Larson earned a Bachelor of Science degree in Business
Administration with a major in Accounting from Minnesota State University
Moorhead in 1977.

Thomas D. Knudsen the Companys Vice President
of Agriculture, has held that
position since January 1987. He began his employment with the Company on May
24, 1977. Mr. Knudsen graduated from the North Dakota State University with a
Bachelor of Science in Horticulture in 1977 and has attended the Beet Sugar Institute
at Fort Collins, Colorado.

Greg J. Schmalz is the Companys Director
of Human Resources. He has held that position since beginning his employment
with the Company on August 30, 2004. Prior to that date, Mr. Schmalz held the
position of Vice President of Human Resources at Bobcat Company. Mr. Schmalz is
a 1976 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. He
is a member of the Society of Human Resources Management and the Agassiz Valley
Human Resources Association.

Dr. Jeffrey
L. Carlson, the Companys
Vice President of Operations, has held that position since August 2002. Prior
to his current position, Mr. Carlson was the Companys Director of Technical
Services. He began his employment with the Company on June 4, 1990. Mr. 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.

Dr. 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.

John S. Nyquist became the Companys
Purchasing Manager in 1994. He began his employment
with the Company on September 15, 1975. Mr. Nyquist is active in, and is
a past president of, the National Association of Purchasing Managers.

Susan M.
Johnson has been serving as the Companys Communications Manager and
Administrative Assistant since December 2003. Prior to that position, Ms.
Johnson served as an Administrative Assistant. She began her employment with
the Company on June 26, 1978. She has attended, and graduated from, a two-year
leadership training program entitled MARL Minnesota Agricultural and Rural
Leadership.

Kevin R. Shannon has held the position of Safety
Director for the Company since September
of 1992. He began his employment with the Company on June 1, 1983.

John R.
Haugen was promoted to the position of Vice President of Engineering
on August 1, 2002. Prior to that date, he served as Director of Engineering.
Mr. Haugen began his employment with the Company in 1976. He earned a BS degree
in Mechanical Engineering from the University of North Dakota in 1976.

---

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

The
following table summarizes the amount of compensation paid for services
rendered to the Company during the fiscal year ended August 31, 2006 and the
two prior fiscal years to those persons serving as the Companys Chief
Executive Officer and to the other most highly compensated executive officers
of the Company whose cash compensation exceeded $100,000 per annum.

Summary Compensation Table

|                              |  |  |      |  |        |         |       |   |                           |  |                |        |                    |  |  |  |   |         | 
|----------------------------- |  |  | ---- |  | ------ | ------- | ----- | - | ------------------------- |  | -------------- | ------ | ------------------ |  |  |  | - | ------- | 
|Name and  
Principal Position |  |  | Year |  | Salary |         | Bonus |   | Other Annual
Compensation |  | All Other
Comp |        | Total
Compensation | 
|                              |  |  |      |  |        |         |       |   |                           |  |                |        |                    | 
|                              |  |  |      |  |        |         |       |   | (1)                       |  | (2)            |        |                    | 
|David H.
  Roche              |  |  | 2006 |  | $      | 323,107 |       | $ | 35,000                    |  | $              | 19,124 |                    |  |  |  | $ | 377,230 | 
|President & CEO               |  |  | 2005 |  | $      | 303,585 |       | $ | 80,000                    |  | $              | 16,791 |                    |  |  |  | $ | 400,376 | 
|                              |  |  | 2004 |  | $      | 294,616 |       | $ | 105,000                   |  | $              | 16,663 |                    |  |  |  | $ | 416,278 | 
|                              |  |  |      |  |        |         |       |   |                           |  |                |        |                    |  |  |  |   |         | 
|Steven M.
  Caspers           |  |  | 2006 |  | $      | 166,830 |       | $ | 15,000                    |  | $              | 9,243  |                    |  |  |  | $ | 191,073 | 
|Executive Vice                |  |  | 2005 |  | $      | 155,958 |       | $ | 40,500                    |  | $              | 8,945  |                    |  |  |  | $ | 205,403 | 
|President / CFO               |  |  | 2004 |  | $      | 151,002 |       | $ | 48,500                    |  | $              | 10,373 |                    |  |  |  | $ | 209,875 | 

1)       In
addition to the salary and bonus described above, Mr. Roche and Mr. Caspers are
provided with Other Annual Compensation, which includes the value of the
excess life insurance cost, individual LTD plan, sold vacation, and Company
match of the 401(k) plan. The company has a policy whereby Supervisory,
Professional and Management employees are required to maintain their vacation
and floating holiday hour combined carryover balance at two hundred and forty
(240) hours or less. While not encouraged, the cash optioning of vacation and
floating holiday accrued hours is allowable. Employees with account balances in
excess of 240 hours may elect to cash option up to fifty percent (50%) of the
number of hours exceeding 240. Employees at or below the 240 hour limit may
elect to cash option fifty percent (50%) of their combined vacation and
floating holiday annually accrued hours.

Management
employees are eligible for performance bonuses, which are partially based upon
on the performance of the Company and partially on achievement of certain
management performance objectives. The President/CEO determines those
performance objectives for officers and significant other management employees
of the Company and the Board of Directors determines performance objectives for
the President/CEO.

On
a periodic basis, the Company undertakes a compensation review study to
determine that its employees compensation is commensurate with
responsibilities of the various Company positions, and that the compensation is
equitable between jobs within the Company and externally competitive with other
comparable jobs and responsibilities within the Companys geographic region. A
national compensation consultant called Hay Management consultants performs the
compensation review study. This study is made of all management

---

employees,
including the president, and non-union employees. From time to time individual
employees have had a restudy based upon changes in their areas of
responsibilities.

2)       Mr.
Roche is eligible for payments into a supplemental executive retirement plan.
The Company recorded obligations of $37,461, $32,000 and $15,731 for the fiscal
years ended August 31 2006, 2005, and 2004, respectively. See the section below
on Retirement Plans for further details on the supplemental executive
retirement plan.

Retirement Plans

Management
employees are eligible to participate in the Companys defined benefit
retirement plan as well as its 401(k) retirement savings plan, each of which
are described below.

The
Company has established a noncontributory, defined benefit retirement plan,
which is available to all eligible employees of the Company. The benefits of
the 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 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. See Executive Compensation--Qualified
Benefits Table. 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.

Qualified Benefits Table

The
following table reflects the estimated annual benefits payable to a
fully-vested executive officer of the Company under the defined benefit
retirement plan upon retirement at age 65, after 15, 20, 25, 30, and 35 years
of annual service at the compensation levels set forth hereon:

|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 
|-------------------- | ------- | -- | - | ------ |  | -- | ------ | -- | - | ------ |  | - | ------- |  | - | ------- | 
|                    
|Years of Service    
|                    
|Pension Compensation |         | 15 |   | 20     |  | 25 |        | 30 |   | 35     | 
|                     |         |    |   |        |  |    |        |    |   |        | 
|$                    | 125,000 |    | $ | 27,094 |  | $  | 36,125 |    | $ | 45,156 |  | $ | 54,187  |  | $ | 63,218  | 
|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 
|$                    | 150,000 |    | $ | 33,281 |  | $  | 44,375 |    | $ | 55,469 |  | $ | 66,562  |  | $ | 77,656  | 
|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 
|$                    | 175,000 |    | $ | 39,469 |  | $  | 52,625 |    | $ | 65,781 |  | $ | 78,937  |  | $ | 92,093  | 
|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 
|$                    | 200,000 |    | $ | 45,656 |  | $  | 60,875 |    | $ | 76,094 |  | $ | 91,312  |  | $ | 106,531 | 
|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 
|$                    | 225,000 |    | $ | 50,606 |  | $  | 67,475 |    | $ | 84,344 |  | $ | 101,212 |  | $ | 118,081 | 
|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 
|$                    | 250,000 |    | $ | 50,606 |  | $  | 67,475 |    | $ | 84,344 |  | $ | 101,212 |  | $ | 118,081 | 
|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 
|$                    | 275,000 |    | $ | 50,606 |  | $  | 67,475 |    | $ | 84,344 |  | $ | 101,212 |  | $ | 118,081 | 
|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 
|$                    | 300,000 |    | $ | 50,606 |  | $  | 67,475 |    | $ | 84,344 |  | $ | 101,212 |  | $ | 118,081 | 
|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 
|$                    | 325,000 |    | $ | 50,606 |  | $  | 67,475 |    | $ | 84,344 |  | $ | 101,212 |  | $ | 118,081 | 
|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 
|$                    | 350,000 |    | $ | 50,606 |  | $  | 67,475 |    | $ | 84,344 |  | $ | 101,212 |  | $ | 118,081 | 
|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 
|$                    | 375,000 |    | $ | 50,606 |  | $  | 67,475 |    | $ | 84,344 |  | $ | 101,212 |  | $ | 118,081 | 
|                     |         |    |   |        |  |    |        |    |   |        |  |   |         |  |   |         | 

---

Mr.
Roche has 5 years of service under the plan.
          Mr. Caspers has 32
years of service under the plan.

The
Company maintains a Section 401(k) retirement savings plan that permits
employees to elect to set aside, on a pre-tax basis, a portion of their gross
compensation in trust to pay future retirement benefits. The Company provides a
matching contribution of 100% of each employees first 4% of compensation that
is set aside under the plan. The amounts set aside by each employee and the
Company vests immediately and are paid to each employee upon the happening of
certain events, all of which is more fully described in the master plan
document. Federal law limited employee pre-tax income contributions to $15,000
in calendar year 2006 ($15,500 for 2007) for each participating employee age 49
and under, and $20,000 for each participating employee age 50 and older
($20,500 for 2007). Benefits under the 401(k) plan begin to be paid to the
employee: (i) upon the attainment of normal retirement age (65), or if the
employee chooses, any time after attaining early retirement date (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).

Effective
September 1, 1996 certain executive employees of the Company became eligible to
participate in a Supplemental Executive Retirement Plan. The Companys Board
of Directors adopted that plan on January 21, 1997. Subject to the discretion
of the Board of Directors, the plan provides for the Company to credit 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.

|           |                                                                 
|---------- | ----------------------------------------------------------------
|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, 2006, no person owned beneficially
more than 5% 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 5.37% of the outstanding Preferred Stock.

---

|                  |  |                         |  |               |  |             
|----------------- |  | ----------------------- |  | ------------- |  | ------------
|Name              |  | Position
  with Company |  | No. of Shares |  | % of Shares 
|                  |  |                         |  |               |  |             
|Dale Blume        |  | Director                |  | 213           |  | less than 1%
|                 
|Dennis Butenhoff  |  | Director                |  | 250           |  | less than 1%
|                 
|Brent Davison     |  | Director                |  | 1,200         |  | 1.7%        
|                 
|Douglas Etten     |  | Director                |  | 450           |  | 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     |  |                         |  | 3,877.5       |  | 5.37%       

|           |                                                 
|---------- | ------------------------------------------------
|ITEM
  13. | CERTAIN
  RELATIONSHIPS AND RELATED TRANSACTIONS

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. Such
payments for sugarbeets often exceed $60,000. However, such payments are
received by the directors, or the entities they represent, on exactly the same
basis as payments are received by other members of the Company for the delivery
of their sugarbeets. Except for the sugarbeet sales described in the preceding
sentences, none of the directors or executive officers of the Company have engaged
in any other transactions with the Company involving amounts in excess of
$60,000.

|         |                                                                                                                                                                                                                                                                                                                                                     | 
|-------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|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, 2006 totaled $71,000 (including a $2,500 progress billing for the
  2006 audit) and $78,184 for the fiscal year ended August 31, 2005.
|         |                                                                                                                                                                                                                                                                                                                                                     | 
|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 $15,225 for fiscal year ended August 31, 2006 and
  $18,660 for the fiscal year ended August 31, 2005.                                                                                       
|         |                                                                                                                                                                                                                                                                                                                                                     | 
|4.       | All Other Fees  paid to the Companys principal
  accountant for services other                                                                                                                                                                                                                                                                   

---

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|   | than detailed in Items 1 thru 3 above total $12,550
  for the fiscal year ended August 31, 2006 and $13,200 for the fiscal year
  ended August 31, 2005.                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|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 Act.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 
|   | The audit committee approves 100% 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.                                                                                                                                                                                                                        

---

PART IV.

|           |                                                                   |                                                                                              |                                                                                                               
|---------- | ----------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------
|ITEM
  15. | EXHIBITS,
  FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
|           |                                                                  
|           | 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, 2006, 2005 and 2004                   
|           |                                                                   |                                                                                              | -Consolidated Balance
  Sheet as of August 31, 2006, 2005 and 2004                                            
|           |                                                                   |                                                                                              | -Consolidated Statements of Changes in Members Investments for
the years ended August 31, 2006, 2005 and 2004
|           |                                                                   |                                                                                              | -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 15d.

---

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, 2006, 2005, and 2004, and the related consolidated statements of
operations, changes 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 consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion the consolidated
financial statements referred to above present fairly, in all material
respects, the financial position of Minn-Dak Farmers Cooperative as of August
31, 2006, 2005, and 2004, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

Eide Bailly

Fargo, North Dakota
October 9, 2006

---

MINN-DAK FARMERS COOPERATIVECONSOLIDATED BALANCE SHEETS
AUGUST 31, 2006, 2005, AND 2004

|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|--------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- |  | - | ----------- | 
|                                                                                                          |  | 2006 |             | 2005 |   | 2004        | 
|                                                                                                          |  |      |             |      |   |             | 
|ASSETS                                                                                                    |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|CURRENT ASSETS                                                                                            |  |      |             |      |   |             |  |   |             | 
|Cash                                                                                                      |  | $    | 223,593     |      | $ | 651,141     |  | $ | 270,482     | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|Receivables                                                                                               |  |      |             |      |   |             |  |   |             | 
|Trade accounts                                                                                            |  |      | 15,141,356  |      |   | 9,404,653   |  |   | 13,361,588  | 
|Growers                                                                                                   |  |      | 4,551,852   |      |   | 4,102,800   |  |   | 3,958,717   | 
|Income tax                                                                                                |  |      | 85,647      |      |   | 9,990       |  |   | 523,938     | 
|Other                                                                                                     |  |      | 24,169      |      |   | 27,430      |  |   | 107,689     | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      | 19,803,024  |      |   | 13,544,873  |  |   | 17,951,932  | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|Inventories                                                                                               |  |      |             |      |   |             |  |   |             | 
|Refined sugar, pulp and molasses to be sold on a
pooled basis                                             |  |      | 20,222,901  |      |   | 19,730,432  |  |   | 22,637,988  | 
|Sugarbeets                                                                                                |  |      | 2,017,662   |      |   |            |  |   |            | 
|Nonmember refined sugar                                                                                   |  |      | 34,955      |      |   | 200,633     |  |   | 3,930       | 
|Yeast                                                                                                     |  |      | 165,856     |      |   | 114,845     |  |   | 93,516      | 
|Materials and supplies                                                                                    |  |      | 7,116,506   |      |   | 7,037,784   |  |   | 6,625,424   | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      | 29,557,880  |      |   | 27,083,694  |  |   | 29,360,858  | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|Deferred charges                                                                                          |  |      | 1,506,495   |      |   | 1,444,959   |  |   | 1,252,038   | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|Prepaid expenses and other assets                                                                         |  |      | 1,010,569   |      |   | 1,632,888   |  |   | 2,332,936   | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|Current deferred income tax asset                                                                         |  |      | 607,000     |      |   | 541,000     |  |   | 502,000     | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|Total current assets                                                                                      |  |      | 52,708,561  |      |   | 44,898,555  |  |   | 51,670,246  | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|PROPERTY, PLANT AND EQUIPMENT                                                                             |  |      |             |      |   |             |  |   |             | 
|Land and land improvements                                                                                |  |      | 24,636,738  |      |   | 22,959,208  |  |   | 22,768,791  | 
|Buildings                                                                                                 |  |      | 37,474,147  |      |   | 37,263,990  |  |   | 37,114,568  | 
|Factory equipment                                                                                         |  |      | 134,313,021 |      |   | 130,803,415 |  |   | 127,715,324 | 
|Other equipment                                                                                           |  |      | 3,954,002   |      |   | 3,574,258   |  |   | 3,468,307   | 
|Construction in progress                                                                                  |  |      | 933,339     |      |   | 2,315,654   |  |   | 1,095,974   | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      | 201,311,247 |      |   | 196,916,525 |  |   | 192,162,964 | 
|Less accumulated depreciation                                                                             |  |      | 103,991,337 |      |   | 97,088,389  |  |   | 89,882,430  | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      | 97,319,910  |      |   | 99,828,136  |  |   | 102,280,534 | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|OTHER ASSETS                                                                                              |  |      |             |      |   |             |  |   |             | 
|Investment in stock of other corporations,
unconsolidated marketing
  subsidiaries and other cooperatives |  |      | 11,017,442  |      |   | 11,038,556  |  |   | 10,073,518  | 
|Investment restricted for capital bond
projects                                                           |  |      | 600         |      |   | 1,491,930   |  |   | 2,472,142   | 
|Other                                                                                                     |  |      | 2,082,765   |      |   | 1,738,881   |  |   | 2,066,118   | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      | 13,100,807  |      |   | 14,269,367  |  |   | 14,611,778  | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 
|                                                                                                          |  | $    | 163,129,278 |      | $ | 158,996,058 |  | $ | 168,562,558 | 
|                                                                                                          |  |      |             |      |   |             |  |   |             | 

See Notes to Consolidated Financial
Statements.

---

MINN-DAK
FARMERS COOPERATIVE 
CONSOLIDATED BALANCE SHEETS 
AUGUST 31, 2006, 2005, AND 2004

|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- |  | - | ----------- | 
|                                                                                                                                                                           |  | 2006 |             | 2005 |   | 2004        | 
|                                                                                                                                                                           |  |      |             |      |   |             | 
|LIABILITIES
  AND MEMBERS INVESTMENT                                                                                                                                      |  |      |             |      |   |             |  |   |             | 
|CURRENT LIABILITIES                                                                                                                                                        |  |      |             |      |   |             |  |   |             | 
|Short-term notes payable                                                                                                                                                   |  | $    | 14,445,000  |      | $ | 9,800,000   |  | $ | 10,145,000  | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|Current portion of long-term debt and capital
leases                                                                                                                       |  |      | 2,564,630   |      |   | 3,600,000   |  |   | 3,600,000   | 
|Current portion of bonds payable                                                                                                                                           |  |      | 1,665,000   |      |   | 1,725,000   |  |   | 960,000     | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|                                                                                                                                                                           |  |      | 4,229,630   |      |   | 5,325,000   |  |   | 4,560,000   | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|Accounts payable                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|Trade                                                                                                                                                                      |  |      | 2,069,323   |      |   | 2,219,896   |  |   | 3,542,222   | 
|Growers                                                                                                                                                                    |  |      | 14,482,531  |      |   | 9,966,465   |  |   | 14,904,425  | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|                                                                                                                                                                           |  |      | 16,551,854  |      |   | 12,186,361  |  |   | 18,446,647  | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|Payable to affiliates - Midwest Agri-Commodities
Co. and United
  Sugars Corporation                                                                                       |  |      | 532,661     |      |   | 1,472,747   |  |   | 259,466     | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|Accrued liabilities                                                                                                                                                        |  |      | 2,923,978   |      |   | 3,681,747   |  |   | 3,681,285   | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|Total current liabilities                                                                                                                                                  |  |      | 38,683,123  |      |   | 32,465,855  |  |   | 37,092,398  | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|LONG-TERM DEBT AND CAPITAL LEASES, NET OF CURRENT PORTION                                                                                                                  |  |      | 20,362,925  |      |   | 19,900,000  |  |   | 24,700,000  | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|BONDS PAYABLE                                                                                                                                                              |  |      | 17,415,000  |      |   | 19,230,000  |  |   | 20,955,000  | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|LONG-TERM DEFERRED INCOME TAX LIABILITY                                                                                                                                    |  |      | 1,840,000   |      |   | 1,300,000   |  |   | 1,242,000   | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|OTHER                                                                                                                                                                      |  |      | 877,294     |      |   | 671,756     |  |   | 612,471     | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|COMMITMENTS AND CONTINGENCIES (NOTE 11)                                                                                                                                    |  |      |            |      |   |            |  |   |            | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|Total liabilities                                                                                                                                                          |  |      | 79,178,342  |      |   | 73,567,611  |  |   | 84,601,869  | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|NON-CONTROLLING INTEREST IN EQUITY OF SUBSIDIARY                                                                                                                           |  |      |            |      |   | 2,018,551   |  |   | 1,810,234   | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|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; 480 shares issued and outstanding on 8-31-06, 477 shares outstanding on 8-31-05 and 488 shares outstanding on 8-31-04 |  |      | 120,000     |      |   | 119,250     |  |   | 122,000     | 
|Paid in capital in excess of par                                                                                                                                           |  |      | 32,094,407  |      |   | 32,094,407  |  |   | 32,094,407  | 
|Unit retention capital                                                                                                                                                     |  |      |            |      |   | 1,379,798   |  |   | 3,048,825   | 
|Qualified allocated patronage                                                                                                                                              |  |      |            |      |   | 722,691     |  |   | 1,638,011   | 
|Nonqualified allocated patronage                                                                                                                                           |  |      | 26,077,023  |      |   | 23,694,526  |  |   | 20,510,179  | 
|Retained earnings                                                                                                                                                          |  |      | 7,176,306   |      |   | 6,916,024   |  |   | 6,253,833   | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|                                                                                                                                                                           |  |      | 83,950,936  |      |   | 83,409,896  |  |   | 82,150,455  | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 
|                                                                                                                                                                           |  | $    | 163,129,278 |      | $ | 158,996,058 |  | $ | 168,562,558 | 
|                                                                                                                                                                           |  |      |             |      |   |             |  |   |             | 

---

MINN-DAK
FARMERS COOPERATIVE CONSOLIDATED STATEMENTS OF OPERATIONS 
YEARS ENDED AUGUST 31, 2006, 2005, AND 2004

|                                                                                             |  |      |             |      |   |             |   |   |             |  
|-------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | - | - | ----------- | -
|                                                                                             |  | 2006 |             | 2005 |   | 2004        |  
|                                                                                             |  |      |             |      |   |             |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|REVENUE                                                                                      |  |      |             |      |   |             |   |   |             |  
|From sales of sugar, sugar co-products, and yeast,
net of discounts                          |  | $    | 176,966,668 |      | $ | 189,681,378 |   | $ | 198,941,297 |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|EXPENSES                                                                                     |  |      |             |      |   |             |   |   |             |  
|Production costs of sugar, co-products, and yeast
sold                                       |  |      | 62,716,367  |      |   | 55,940,415  |   |   | 52,607,125  |  
|Sales and distribution costs                                                                 |  |      | 29,049,229  |      |   | 37,099,870  |   |   | 29,952,185  |  
|General and administrative                                                                   |  |      | 6,173,050   |      |   | 6,580,640   |   |   | 6,080,929   |  
|Interest                                                                                     |  |      | 3,544,118   |      |   | 2,899,283   |   |   | 2,919,624   |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                             |  |      | 101,482,764 |      |   | 102,520,208 |   |   | 91,559,863  |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|OTHER INCOME (EXPENSE)                                                                       |  |      | 709,750     |      |   | 1,135,475   |   |   | 737,488     |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS BEFORE
  NON-CONTROLLING INTEREST |  |      | 76,193,654  |      |   | 88,296,645  |   |   | 108,118,922 |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|NON-CONTROLLING INTEREST IN INCOME OF SUBSIDIARIES                                           |  |      | (97,233     | )    |   | (208,317    | ) |   | (209,458    | )
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS                                   |  | $    | 76,096,421  |      | $ | 88,088,328  |   | $ | 107,909,464 |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|DISTRIBUTION OF NET PROCEEDS                                                                 |  |      |             |      |   |             |   |   |             |  
|Credited to members investment Components of
net income                                     |  |      |             |      |   |             |   |   |             |  
|Income from
  non-member business                                                            |  | $    | 260,282     |      | $ | 662,191     |   | $ | 703,836     |  
|Patronage income                                                                             |  |      | 4,220,538   |      |   | 5,191,808   |   |   | 5,128,308   |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|Net income credited to members
investment                                                   |  |      | 4,480,820   |      |   | 5,853,999   |   |   | 5,832,144   |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|Payments to members for sugarbeets, net of unit
retention capital                            |  |      | 71,615,601  |      |   | 82,234,329  |   |   | 102,077,321 |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  
|NET PROCEEDS RESULTING FROM MEMBER AND NONMEMBER BUSINESS                                    |  | $    | 76,096,421  |      | $ | 88,088,328  |   | $ | 107,909,464 |  
|                                                                                             |  |      |             |      |   |             |   |   |             |  

See Notes to Consolidated Financial
Statements.

---

MINN-DAK
FARMERS COOPERATIVECONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS INVESTMENTS 
YEARS ENDED AUGUST 31, 2006, 2005, AND 2004

|                                                |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   |            |  
|----------------------------------------------- |  | --------------- | ---------- | ------------ | - | -------------------------------------- | - | ---------------------- | ---------- | ----------------------------- | - | --------------------------------- | - | --------------------------- | --------- | ----- | - | ---------- | - | - | --------- |  | - | ---------- | -
|                                                |  | Preferred
Stock |            | Common
Stock |   | Paid in Capital
in Excess of
Par Value |   | Unit
Retention
Capital |            | Qualified
Allocated
Patronage |   | Non-Qualified
Allocated
Patronage |   | Retained
Earnings
(Deficit) |           | Total |  
|                                                |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             |          
|                                               
|BALANCE, AUGUST 31, 2003                        |  | $               | 18,483,200 |              | $ | 122,000                                |   | $                      | 32,094,407 |                               | $ | 4,959,289                         |   | $                           | 2,296,749 |       | $ | 18,140,978 |   | $ | 5,549,997 |  | $ | 81,646,620 |  
|Stock -                                         |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   |            |  
|Sales - common (12 shares)                      |  |                 |            |              |   | 3,000                                  |   |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   | 3,000      |  
|Repurchases - common (12 shares)                |  |                 |            |              |   | (3,000                                 | ) |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   | (3,000     | )
|Revolvement of unit retention capital           |  |                 |            |              |   |                                        |   |                        |            |                               |   | (1,910,464                        | ) |                             |           |       |   |            |   |   |           |  |   | (1,910,464 | )
|Revolvement of prior years allocated
patronage |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             | (658,738  | )     |   | (1,959,107 | ) |   |           |  |   | (2,617,845 | )
|Net income for the year ended August 31,
2004   |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             | 800,000   |       |   | 4,328,308  |   |   | 703,836   |  |   | 5,832,144  |  
|Qualified dividends currently payable           |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             | (800,000  | )     |   |            |   |   |           |  |   | (800,000   | )
|                                                |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   |            |  
|                                               
|BALANCE, AUGUST 31, 2004                        |  |                 | 18,483,200 |              |   | 122,000                                |   |                        | 32,094,407 |                               |   | 3,048,825                         |   |                             | 1,638,011 |       |   | 20,510,179 |   |   | 6,253,833 |  |   | 82,150,455 |  
|Stock -                                         |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   |            |  
|Sales - common (4 shares)                       |  |                 |            |              |   | 1,000                                  |   |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   | 1,000      |  
|Repurchases - common (15 shares)                |  |                 |            |              |   | (3,750                                 | ) |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   | (3,750     | )
|Revolvement of unit retention capital           |  |                 |            |              |   |                                        |   |                        |            |                               |   | (1,669,027                        | ) |                             |           |       |   |            |   |   |           |  |   | (1,669,027 | )
|Revolvement of prior years allocated
patronage |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             | (915,320  | )     |   | (2,007,461 | ) |   |           |  |   | (2,922,781 | )
|Net income for the year ended August 31,
2005   |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             |           |       |   | 5,191,808  |   |   | 662,191   |  |   | 5,853,999  |  
|                                                |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   |            |  
|                                               
|BALANCE, AUGUST 31, 2005                        |  |                 | 18,483,200 |              |   | 119,250                                |   |                        | 32,094,407 |                               |   | 1,379,798                         |   |                             | 722,691   |       |   | 23,694,526 |   |   | 6,916,024 |  |   | 83,409,896 |  
|Stock -                                         |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   |            |  
|Sales - common (14 shares)                      |  |                 |            |              |   | 3,500                                  |   |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   | 3,500      |  
|Repurchases - common (11 shares)                |  |                 |            |              |   | (2,750                                 | ) |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   | (2,750     | )
|Revolvement of unit retention capital           |  |                 |            |              |   |                                        |   |                        |            |                               |   | (1,379,798                        | ) |                             |           |       |   |            |   |   |           |  |   | (1,379,798 | )
|Revolvement of prior years allocated
patronage |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             | (722,691  | )     |   | (1,838,041 | ) |   |           |  |   | (2,560,732 | )
|Net income for the year ended August 31, 2006   |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             |           |       |   | 4,220,538  |   |   | 260,282   |  |   | 4,480,820  |  
|                                                |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   |            |  
|                                               
|BALANCE, AUGUST 31, 2006                        |  | $               | 18,483,200 |              | $ | 120,000                                |   | $                      | 32,094,407 |                               | $ |                                  |   | $                           |          |       | $ | 26,077,023 |   | $ | 7,176,306 |  | $ | 83,950,936 |  
|                                                |  |                 |            |              |   |                                        |   |                        |            |                               |   |                                   |   |                             |           |       |   |            |   |   |           |  |   |            |  

---

MINN-DAK
FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 2006, 2005, AND 2004

|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|--------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ----------- | - | - | ---------- | -
|                                                                                                          |  | 2006 |            | 2005 |   | 2004        |  
|                                                                                                          |  |      |            |      |   |             |  
|OPERATING ACTIVITIES                                                                                      |  |      |            |      |   |             |   |   |            |  
|Income allocated to members
investment                                                                   |  | $    | 4,480,820  |      | $ | 5,853,999   |   | $ | 5,832,144  |  
|Add (deduct) noncash items                                                                                |  |      |            |      |   |             |   |   |            |  
|Depreciation and amortization                                                                             |  |      | 8,086,383  |      |   | 7,723,754   |   |   | 7,657,731  |  
|(Gain) Loss on disposal of equipment                                                                      |  |      | (27,330    | )    |   | 3,655       |   |   | (53,766    | )
|Contributed asset                                                                                         |  |      | (620,000   | )    |   |            |   |   |           |  
|Net (income) loss allocated from unconsolidated
marketing
  subsidiaries                                  |  |      | 54,971     |      |   | 30,299      |   |   | 164,171    |  
|Noncash portion of patronage capital
credits                                                              |  |      | (415,113   | )    |   | (964,916    | ) |   | (755,523   | )
|Deferred income taxes                                                                                     |  |      | 474,000    |      |   | 19,000      |   |   | 464,000    |  
|Increase in cash surrender of officer life
insurance                                                      |  |      | (27,308    | )    |   | (38,958     | ) |   | (13,131    | )
|Minority interest                                                                                         |  |      | 97,233     |      |   | 208,317     |   |   | 209,458    |  
|Changes in assets and liabilities:                                                                        |  |      |            |      |   |             |   |   |            |  
|Accounts receivable and advances                                                                          |  |      | (7,122,580 | )    |   | 5,106,392   |   |   | (1,154,281 | )
|Inventory and prepaid expenses                                                                            |  |      | (1,677,147 | )    |   | 2,977,212   |   |   | 2,205,094  |  
|Deferred charges and other                                                                                |  |      | 73,402     |      |   | 131,178     |   |   | (1,043,006 | )
|Accounts payable, accrued liabilities, and other
liabilities                                              |  |      | 5,029,349  |      |   | (4,950,090  | ) |   | (3,158,268 | )
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|NET CASH FROM OPERATING ACTIVITIES                                                                        |  |      | 8,406,680  |      |   | 16,099,842  |   |   | 10,354,623 |  
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|INVESTING ACTIVITIES                                                                                      |  |      |            |      |   |             |   |   |            |  
|Investments restricted for capital lease
projects                                                         |  |      | 1,491,330  |      |   | 980,212     |   |   | 928,507    |  
|Proceeds from disposition of property, plant and
equipment                                                |  |      | 111,156    |      |   | 1,571       |   |   | 175,000    |  
|Capital expenditures                                                                                      |  |      | (4,720,891 | )    |   | (4,921,390  | ) |   | (6,036,406 | )
|Acquisition of Minn Dak Yeast non-controlling
interest                                                    |  |      | (2,768,383 | )    |   |            |   |   |           |  
|Investment in stock of other corporations,
unconsolidated marketing
  subsidiaries and other cooperatives |  |      |            |      |   |            |   |   |           |  
|Capital adjustment of marketing
subsidiary                                                                |  |      | 95,766     |      |   | (248,239    | ) |   | 37,667     |  
|Net proceeds from patronage refunds and equity
revolvements                                               |  |      | 209,205    |      |   | 217,819     |   |   | 370,028    |  
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|NET CASH FROM (USED FOR) INVESTING ACTIVITIES                                                             |  |      | (5,581,817 | )    |   | (3,970,027  | ) |   | (4,525,204 | )
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|FINANCING ACTIVITIES                                                                                      |  |      |            |      |   |             |   |   |            |  
|Sale (repurchase) of common stock, net                                                                    |  |      | 750        |      |   | (2,750      | ) |   |           |  
|Net proceeds from issuance of (payments on)
short-term debt                                               |  |      | 4,645,000  |      |   | (345,000    | ) |   | 2,895,000  |  
|Proceeds from long term debt                                                                              |  |      | 3,523,633  |      |   |            |   |   |           |  
|Dividends paid to non-controlling
shareholder                                                             |  |      | (250,000   | )    |   |            |   |   |           |  
|Payment of financing fees                                                                                 |  |      | (288,664   | )    |   | (313,097    | ) |   | (325,476   | )
|Payment of long-term debt                                                                                 |  |      | (5,971,078 | )    |   | (5,760,000  | ) |   | (5,705,000 | )
|Payment of unit retains and allocated
patronage                                                           |  |      | (4,912,052 | )    |   | (5,328,309  | ) |   | (4,007,469 | )
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|NET CASH USED FOR FINANCING ACTIVITIES                                                                    |  |      | (3,252,411 | )    |   | (11,749,156 | ) |   | (7,142,945 | )
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|NET CHANGE IN CASH                                                                                        |  |      | (427,548   | )    |   | 380,659     |   |   | (1,313,526 | )
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|CASH, BEGINNING OF YEAR                                                                                   |  |      | 651,141    |      |   | 270,482     |   |   | 1,584,008  |  
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|                                                                                                          |  |      |            |      |   |             |   |   |            |  
|CASH, END OF YEAR                                                                                         |  | $    | 223,593    |      | $ | 651,141     |   | $ | 270,482    |  
|                                                                                                          |  |      |            |      |   |             |   |   |            |  

---

MINN-DAK
FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASHFLOWS
YEARS ENDED AUGUST 31, 2006, 2005, AND 2004

|                                                          |  |      |           |      |   |           |   |   |           | 
|--------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | - | - | --------- | 
|                                                          |  | 2006 |           | 2005 |   | 2004      |  
|                                                          |  |      |           |      |   |           |  
|                                                         
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION         |  |      |           |      |   |           |   |   |           | 
|Cash payments for (refunds from)                          |  |      |           |      |   |           |   |   |           | 
|Interest                                                  |  | $    | 3,570,574 |      | $ | 3,070,845 |   | $ | 2,878,314 | 
|                                                          |  |      |           |      |   |           |   |   |           | 
|                                                         
|Income taxes                                              |  | $    | 293,525   |      | $ | (450,463  | ) | $ | 1,711,643 | 
|                                                          |  |      |           |      |   |           |   |   |           | 
|                                                         
|SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES |  |      |           |      |   |           |   |   |           | 
|Contributed asset                                         |  | $    | 620,000   |      | $ |          |   | $ |          | 
|                                                          |  |      |           |      |   |           |   |   |           | 

See Notes to Consolidated Financial
Statements.

---

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, whereas Minn-Dak
Yeast is considered non-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% owned by the Company.

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 and limited Canadian provinces. In addition, the Company grants credit
to members 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.

Deferred Charges

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

Property, Plant, Equipment and Depreciation

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

It is the
policy of the 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, 2006, 2005, and 2004 were $152,751, $112,067, and $67,824,
respectively. There was no construction-period interest capitalized for the
years end ended August 31, 2006, 2005 and 2004.

Goodwill and Other Intangible Assets

In accordance
with SFAS 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 Other Corporations,
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.

Revenue Recognition

During the
2005 fiscal year, the Company modified its accounting policy from recognizing
revenue at the point of shipment to recognizing revenue at the point of
customer receipt. This change in accounting policy was immaterial to the
Statements of Operations.

Accounting Estimate

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

Uninsured Cash Balance

The Company
maintains cash balances at various financial institutions. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. At times during the year, the Companys balances exceeded this limit.
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 Statement of Financial Accounting Standards (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.

---

Shipping and Handling Costs

Shipping and
handling costs are included in cost of product sold upon receipt of the
Companys product to 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.

Reclassifications

Certain
amounts have been reclassified in the fiscal 2005 financial statements to
conform to the 2006 presentation. The reclassification has no effect on the
results of operations for fiscal 2006.

Recently Issued Accounting Pronouncements

FAS 157 Fair
Value Measurements - This statement defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles (GAAP),
and expands disclosures about fair value measurements. This statement does not
require any new fair value measurements. However the application of this
statement may change the accounting practice regarding future mergers and
acquisitions at the Company.

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

The Company
has a defined benefit pension plan for its employees. This accounting
pronouncement may cause the Company to report other comprehensive income in
future years. The impact of this pronouncement may be material in nature for
the Company.

Concentration and Sources of Labor

The Companys
total regular rated and vacation rated hourly and salaried workforce consists
of 442 employees, of which 60% 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 set 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.

NOTE 2  BUSINESS COMBINATIONS

The Company
acquired the 20% non-controlling interest in Minn-Dak Yeast from Sensient
Technologies Corp. (Sensient). The Company now owns 100% 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 15 years. The amortization of these intangible assets for the year ended
August 31, 2006 was $12,800. There was no amortization expense for these assets
for the years ended August 31, 2005 and 2004.

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 other corporations, unconsolidated marketing subsidiaries and other
cooperatives consists of the following:

---

|                                   |  |      |            |      |   |            |  |   |            | 
|---------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | 
|                                   |  | 2006 |            | 2005 |   | 2004       | 
|                                   |  |      |            |      |   |            | 
|                                   |  |      |            |      |   |            |  |   |            | 
|United Sugars Corporation          |  | $    | 1,287,943  |      | $ | 1,457,058  |  | $ | 1,234,411  | 
|Midwest Agri-Commodities           |  |      | 59,576     |      |   | 41,198     |  |   | 45,904     | 
|CoBank                             |  |      | 4,575,738  |      |   | 4,488,197  |  |   | 4,298,150  | 
|Dakota Valley Electric Cooperative |  |      | 5,036,016  |      |   | 4,998,379  |  |   | 4,444,871  | 
|Other                              |  |      | 58,169     |      |   | 53,724     |  |   | 50,182     | 
|                                   |  |      |            |      |   |            |  |   |            | 
|                                   |  | $    | 11,017,442 |      | $ | 11,038,556 |  | $ | 10,073,518 | 
|                                   |  |      |            |      |   |            |  |   |            | 

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:

|                                                                                     |  |      |            |      |   |           |  |   |            | 
|------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | --------- |  | - | ---------- | 
|                                                                                     |  | 2006 |            | 2005 |   | 2004      | 
|                                                                                     |  |      |            |      |   |           | 
|                                                                                     |  |      |            |      |   |           |  |   |            | 
|Seasonal loan with CoBank, due June 1,
  2007, interest variable, currently at 6.31% |  | $    | 14,445,000 |      | $ | 9,800,000 |  | $ | 10,145,000 | 
|                                                                                     |  |      |            |      |   |           |  |   |            | 

The Company
has a $45,000,000 seasonal line of credit with CoBank, with $30,555,000
available on August 31, 2006. The line is 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:

|                         |  |      |            |      |   |            |   |   |            |  
|------------------------ |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                         |  | 2006 |            | 2005 |   | 2004       |  
|                         |  |      |            |      |   |            |  
|                         |  |      |            |      |   |            |   |   |            |  
|Maximum borrowings       |  | $    | 43,225,000 |      | $ | 46,975,000 |   | $ | 48,013,000 |  
|                         |  |      |            |      |   |            |   |   |            |  
|                         |  |      |            |      |   |            |   |   |            |  
|Average borrowing levels |  | $    | 24,655,769 |      | $ | 26,325,769 |   | $ | 25,027,077 |  
|                         |  |      |            |      |   |            |   |   |            |  
|                         |  |      |            |      |   |            |   |   |            |  
|Average interest rates   |  |      | 5.70       | %    |   | 3.22       | % |   | 2.40       | %
|                         |  |      |            |      |   |            |   |   |            |  

Long-Term Debt

On May 30,
2006, the Company renewed the seasonal and term-debt lines of credit with
CoBank.

---

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

|                                                                                                                                                                                                                                                                                               |  |      |            |      |   |            |   |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                                                                                                                                                                                                                                               |  | 2006 |            | 2005 |   | 2004       |  
|                                                                                                                                                                                                                                                                                               |  |      |            |      |   |            |  
|                                                                                                                                                                                                                                                                                               |  |      |            |      |   |            |   |   |            |  
|CoBank term loan, with fixed and variable rates,
due in varying
  principal repayments through August 20, 2013, interest rate variable,
  variable currently at 6.31%, with a first lien on substantially all property,
  equipment, and current assets of the Company located in Wahpeton, ND |  | $    | 22,437,931 |      | $ | 23,500,000 |   | $ | 28,300,000 |  
|                                                                                                                                                                                                                                                                                               |  |      |            |      |   |            |   |   |            |  
|Less current maturities                                                                                                                                                                                                                                                                        |  |      | (2,493,103 | )    |   | (3,600,000 | ) |   | (3,600,000 | )
|                                                                                                                                                                                                                                                                                               |  |      |            |      |   |            |   |   |            |  
|                                                                                                                                                                                                                                                                                               |  |      |            |      |   |            |   |   |            |  
|                                                                                                                                                                                                                                                                                               |  | $    | 19,944,828 |      | $ | 19,900,000 |   | $ | 24,700,000 |  
|                                                                                                                                                                                                                                                                                               |  |      |            |      |   |            |   |   |            |  

The Company
has complied with the terms of its loan agreement covenants for the years ended
August 31, 2006, 2005, and 2004.

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% of the daily un-advanced
commitment.

Interest
expense totaled $3,544,118, $2,899,283, and $2,919,624 for 2006, 2005 and 2004,
respectively.

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

|                        |            |  |   |            | 
|----------------------- | ---------- |  | - | ---------- | 
|Years
ending August 31, |            |  |   |           
|                        |            |  |   |           
|                        |            |  |   |           
|                        | 2007       |  | $ | 2,493,103  | 
|                        | 2008       |  |   | 3,324,138  | 
|                        | 2009       |  |   | 3,324,138  | 
|                        | 2010       |  |   | 3,324,138  | 
|                        | 2011       |  |   | 3,324,138  | 
|                        | Thereafter |  |   | 6,648,276  | 
|                        |            |  |   |            | 
|                        |            |  | $ | 22,437,931 | 
|                        |            |  |   |            | 

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.
This equipment is being depreciated over its estimated useful life.
Depreciation of assets under these capital leases is included in depreciation
expense for 2006.

Minimum future
lease payments under capital leases are as follows:

---

|                                             |  |   |         |  | 
|-------------------------------------------- |  | - | ------- |  | 
|Years ending
August 31,                      |  |   |         |  | 
|                                             |  |   |         |  | 
|                                             |  |   |         |  | 
|2007                                         |  | $ | 97,626  | 
|2008                                         |  |   | 134,927 | 
|2009                                         |  |   | 67,149  | 
|2010                                         |  |   | 67,149  | 
|2011                                         |  |   | 67,149  | 
|Thereafter                                   |  |   | 139,483 | 
|                                             |  |   |         | 
|                                             |  |   |         | 
|Total
  minimum lease payments               |  | $ | 573,483 | 
|                                             |  |   |         | 
|Less: Amount
  representing interest         |  |   | 83,859  | 
|                                             |  |   |         | 
|                                             |  |   |         | 
|Present
  value of net minimum lease payment |  | $ | 489,624 | 
|                                             |  |   |         | 

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 $19,810,000 at August 31, 2006. There
were no outstanding advances under these letter of credit arrangements at
August 31, 2006. Details relative to the Companys obligations under the lease
agreement are as follows:

---

|                                |  |                            |       |                  |  |                   |  |       |           |            |   |              |  |   |            |  |   |            | 
|------------------------------- |  | -------------------------- | ----- | ---------------- |  | ----------------- |  | ----- | --------- | ---------- | - | ------------ |  | - | ---------- |  | - | ---------- | 
|                                |  | 2006                       |       |                  |  |                   | 
|                                |  |                            |       |                  |  |                   | 
|Payee                           |  | Variable
  Interest
  Rate |       | Final
  Maturity |  | Current
  Portion |  | Total |           | 2005
Total |   | 2004
  Total | 
|                                |  |                            |       |                  |  |                   |  |       |           |            |   |              | 
|                                |  |                            |       |                  |  |                   |  |       |           |            |   |              | 
|Richland County,
  North Dakota |  |                            | 3.59% |                  |  | Jan
  2011        |  | $     | 1,065,000 |            | $ | 5,945,000    |  | $ | 6,955,000  |  | $ | 7,955,000  | 
|                                |  |                            |       |                  |  |                   |  |       |           |            |   |              |  |   |            |  |   |            | 
|Richland County,
  North Dakota |  |                            | 3.49% |                  |  | Jan
  2019        |  | $     | 600,000   |            |   | 13,135,000   |  |   | 14,000,000 |  |   | 14,000,000 | 
|                                |  |                            |       |                  |  |                   |  |       |           |            |   |              |  |   |            |  |   |            | 
|                                |  |                            |       |                  |  |                   |  |       |           |            |   |              |  |   |            |  |   |            | 
|                                |  |                            |       |                  |  |                   |  | $     | 1,665,000 |            | $ | 19,080,000   |  | $ | 20,955,000 |  | $ | 21,955,000 | 
|                                |  |                            |       |                  |  |                   |  |       |           |            |   |              |  |   |            |  |   |            | 

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

|                        |  |   |            |  | 
|----------------------- |  | - | ---------- |  | 
|Years ending
August 31, |  |   |            |  | 
|                        |  |   |            |  | 
|                        |  |   |            |  | 
|2007                    |  | $ | 1,665,000  | 
|2008                    |  |   | 1,915,000  | 
|2009                    |  |   | 2,010,000  | 
|2010                    |  |   | 2,120,000  | 
|2011                    |  |   | 2,230,000  | 
|Thereafter              |  |   | 9,140,000  | 
|                        |  |   |            | 
|                        |  |   |            | 
|                        |  | $ | 19,080,000 | 
|                        |  |   |            | 

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 was $36,938 for each of the years ended August 31, 2006,
2005 and 2004.

NOTE 6 - MEMBERS INVESTMENT AND GROWER
PAYMENTS

The ownership
of non-dividend 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, 1.45 and 1.57 acres per unit
of preferred stock for the fiscal years 2006, 2005 and 2004 respectively. A
unit consists of one share each of Class A, Class B and Class C preferred
stock. The

---

preferred
shares are nonvoting and non-dividend 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 primary lender, CoBank, the working capital position of the Company
is insufficient, the Company shall retain from the price to be paid per pound
of extractable sugar such amounts as are deemed by the bank to be necessary for
operations, the deductions to be made at such time as the bank shall require.
The amount so retained shall be evidenced in the records of the Company by
equity credits in favor of the growers. The board of directors has the power to
determine whether such retains shall be qualified or nonqualified for
income tax purposes.

For the year
ended August 31, 2006, the Company allocated patronage of $4,220,538 to the
members. For the year ended August 31, 2005, the Company allocated patronage of
$5,191,808 to the members. For the year ended August 31, 2004, the Company
allocated patronage of $5,128,308 to the members.

During the
year ended August 31, 2006, the Company revolved the remaining 55% of the unit
retains and allocated patronage for the fiscal year ended August 31, 1997,
totaling $2,490,804 and 100% of the unit retains and allocated patronage for
the fiscal years ended August 31 1998 and 1999 totaling $870,090, and 6% 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.

During the
year ended August 31, 2005, the Company revolved the remaining 92% of the unit
retains and allocated patronage for the fiscal year ended August 31, 1996 and
40% of the unit retains and allocated patronage for the fiscal year ended
August 31, 1997, totaling $2,533,592 and $2,008,115 in each respective year,
for a total of $4,541,707. In addition, unit retains and allocated patronage
owned by certain estates were redeemed at a discount. The discount represented
the difference between the book value of these items, totaling $50,102, and the
present value of the estimated future redemptions.

During the
year ended August 31, 2004, the Company revolved the remaining 25% of the unit
retains and allocated patronage for the fiscal year ended August 31, 1994, 100%
of the unit

---

retains and
allocated patronage for the fiscal year ended August 31, 1995, and 8% of the
unit retains and allocated patronage for the fiscal year ended August 31, 1996,
totaling $828,628, $3,475,806, and $213,271 in each respective year, for a
total of $4,517,705. In addition, unit retains and allocated patronage owned by
certain estates were redeemed at a discount. The discount represented the
difference between the book value of these items, totaling $10,605, and the
present value of the estimated future redemptions.

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.

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, 2006, 2005, and 2004, the
Company had advanced $19,719,946, $23,769,970 and $19,899,596, respectively.
The Company had outstanding advances due from United Sugars of $353,465 for the
year ended August 31, 2006, $1,104,338 for the year ended August 31, 2005, and
outstanding advances due to United Sugars of $364,698, for the year ended
August 31, 2004.

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 $962,334, 1,060,826 and $1,887,774,
respectively, during the years ended August 31, 2006, 2005, and 2004. The
Company had outstanding advances due to Midwest of $179,196, $368,409 and
$624,164, as of August 31, 2006, 2005, and 2004, respectively. The owners of
Midwest are guarantors of the short-term line of credit Midwest has with
CoBank.

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, is as follows:

---

|                                                                  |  |      |            |      |   |            |   |   |            |  
|----------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                  |  | 2006 |            | 2005 |   | 2004       |  
|                                                                  |  |      |            |      |   |            |  
|                                                                  |  |      |            |      |   |            |   |   |            |  
|Deferred tax assets                                               |  |      |            |      |   |            |   |   |            |  
|Non-qualified unit retains and allocated patronage
due to members |  | $    | 10,431,000 |      | $ | 10,030,000 |   | $ | 9,394,000  |  
|Net operating loss carryforwards                                  |  |      | 4,543,000  |      |   | 4,543,000  |   |   | 3,600,000  |  
|Other                                                             |  |      | 1,013,000  |      |   | 945,000    |   |   | 828,000    |  
|                                                                  |  |      |            |      |   |            |   |   |            |  
|                                                                  |  |      |            |      |   |            |   |   |            |  
|Total deferred tax assets                                         |  |      | 15,987,000 |      |   | 15,518,000 |   |   | 13,822,000 |  
|                                                                  |  |      |            |      |   |            |   |   |            |  
|                                                                  |  |      |            |      |   |            |   |   |            |  
|Deferred tax liabilities                                          |  |      |            |      |   |            |   |   |            |  
|Depreciation                                                      |  |      | 15,152,000 |      |   | 14,234,000 |   |   | 12,801,000 |  
|Other                                                             |  |      | 2,068,000  |      |   | 2,043,000  |   |   | 1,761,000  |  
|                                                                  |  |      |            |      |   |            |   |   |            |  
|                                                                  |  |      |            |      |   |            |   |   |            |  
|Total deferred tax liabilities                                    |  |      | 17,220,000 |      |   | 16,277,000 |   |   | 14,562,000 |  
|                                                                  |  |      |            |      |   |            |   |   |            |  
|                                                                  |  |      |            |      |   |            |   |   |            |  
|Net deferred tax liability                                        |  | $    | (1,233,000 | )    | $ | (759,000   | ) | $ | (740,000   | )
|                                                                  |  |      |            |      |   |            |   |   |            |  
|                                                                  |  |      |            |      |   |            |   |   |            |  
|Classified as follows                                             |  |      |            |      |   |            |   |   |            |  
|Current asset                                                     |  | $    | 607,000    |      | $ | 541,000    |   | $ | 502,000    |  
|Long-term liability                                               |  |      | (1,840,000 | )    |   | (1,300,000 | ) |   | (1,242,000 | )
|                                                                  |  |      |            |      |   |            |   |   |            |  
|                                                                  |  |      |            |      |   |            |   |   |            |  
|Net deferred tax liability                                        |  | $    | (1,233,000 | )    | $ | (759,000   | ) | $ | (740,000   | )
|                                                                  |  |      |            |      |   |            |   |   |            |  
|                                                                  |  |      |            |      |   |            |   |   |            |  

The state and
federal operating loss carryforwards totaling approximately $19,700,000 will
expire in 2019 through 2025.

|                                              |  |      |         |      |   |        |  |   |          |  
|--------------------------------------------- |  | ---- | ------- | ---- | - | ------ |  | - | -------- | -
|The provision for income taxes is as follows: |  |      |         |      |   |        |  |   |          |  
|                                              |  | 2006 |         | 2005 |   | 2004   | 
|                                              |  |      |         |      |   |        | 
|                                              |  |      |         |      |   |        | 
|Current expense (benefit)                     |  | $    | 200,000 |      | $ | 56,000 |  | $ | (173,000 | )
|Net change in temporary differences           |  |      | 472,000 |      |   | 19,000 |  |   | 464,000  |  
|                                              |  |      |         |      |   |        |  |   |          |  
|                                              |  |      |         |      |   |        |  |   |          |  
|Provision for income taxes                    |  | $    | 672,000 |      | $ | 75,000 |  | $ | 291,000  |  
|                                              |  |      |         |      |   |        |  |   |          |  

---

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. | As of August
  31, 2006, the Company has $1,654,000 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 will be
  classified as member activity. The Company will amortize the $1,654,000
  long-term liability over the approximate remaining book life of the Minn-Dak
  Yeast assets.

NOTE 9 - DEPRECIATION

The Companys
depreciation expense for the years ended August 31, 2006, 2005 and 2004 was
$7,750,601, $7,368,561 and $7,290,456, respectively.

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 issues, 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 2000,
the Company sold certain notes receivable with recourse. The Companys
contingent liability related to these notes totaled $370,295 as of August 31,
2006.

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, |  |   |           |  | 
|                        |  |   |           |  | 
|2007                    |  | $ | 1,157,020 | 
|2008                    |  |   | 1,037,932 | 
|2009                    |  |   | 740,892   | 
|2010                    |  |   | 670,800   | 
|2011                    |  |   |          | 
|                        |  |   |           | 
|                        |  | $ | 3,606,644 | 
|                        |  |   |           | 

Operating
lease and contract expenses for the years ended August 31, 2006, 2005, and
2004, totaled $869,310, $1,005,937 and $972,504, 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, 2006, 2005, and 2004. Employer
contributions to the plan totaled $511,936, $499,862 and $466,114 for the years
ended August 31, 2006, 2005, and 2004, respectively.

Pension Plan

The Company has a
non-contributory defined benefit plan, which covers substantially all employees
who meet certain requirements of age, length of service and hours worked per
year.

---

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

|                                                  |  |      |            |      |   |            |   |   |            |  
|------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                  |  | 2006 |            | 2005 |   | 2004       |  
|                                                  |  |      |            |      |   |            |  
|                                                  |  |      |            |      |   |            |  
|Change in benefit obligation                      |  |      |            |      |   |            |   |   |            |  
|Benefit obligation at beginning of year           |  | $    | 21,732,459 |      | $ | 18,713,083 |   | $ | 16,578,586 |  
|Service cost                                      |  |      | 858,210    |      |   | 810,489    |   |   | 733,795    |  
|Interest cost                                     |  |      | 1,401,578  |      |   | 1,316,496  |   |   | 1,152,990  |  
|Experience (gain)/loss due to participant
changes |  |      | 537,767    |      |   | 1,498,023  |   |   | 865,585    |  
|Benefits paid                                     |  |      | (1,004,751 | )    |   | (605,632   | ) |   | (617,873   | )
|                                                  |  |      |            |      |   |            |   |   |            |  
|                                                  |  |      |            |      |   |            |   |   |            |  
|Benefit obligation at end of year                 |  |      | 23,525,263 |      |   | 21,732,459 |   |   | 18,713,083 |  
|                                                  |  |      |            |      |   |            |   |   |            |  
|                                                  |  |      |            |      |   |            |   |   |            |  
|Change in plan assets                             |  |      |            |      |   |            |   |   |            |  
|Fair value of plan assets at beginning of
year    |  |      | 15,469,222 |      |   | 13,632,176 |   |   | 11,404,853 |  
|Actual return on plan assets                      |  |      | 1,377,080  |      |   | 1,232,678  |   |   | 1,821,766  |  
|Employer contribution                             |  |      | 1,120,000  |      |   | 1,210,000  |   |   | 1,023,431  |  
|Benefits paid                                     |  |      | (1,004,751 | )    |   | (605,632   | ) |   | (617,873   | )
|                                                  |  |      |            |      |   |            |   |   |            |  
|                                                  |  |      |            |      |   |            |   |   |            |  
|Fair value of plan assets at end of year          |  |      | 16,961,551 |      |   | 15,469,222 |   |   | 13,632,177 |  
|                                                  |  |      |            |      |   |            |   |   |            |  
|                                                  |  |      |            |      |   |            |   |   |            |  
|Funded status                                     |  |      | (6,563,712 | )    |   | (6,263,237 | ) |   | (5,080,906 | )
|Unrecognized net actuarial loss                   |  |      | 5,165,493  |      |   | 4,977,404  |   |   | 3,832,424  |  
|Unrecognized prior service cost                   |  |      | 258,737    |      |   | 345,642    |   |   | 432,547    |  
|Unrecognized transition (asset)
obligation        |  |      |           |      |   | 175        |   |   | 410        |  
|                                                  |  |      |            |      |   |            |   |   |            |  
|                                                  |  |      |            |      |   |            |   |   |            |  
|Accrued benefit cost liability                    |  | $    | (1,139,482 | )    | $ | (940,016   | ) | $ | (815,525   | )
|                                                  |  |      |            |      |   |            |   |   |            |  

|                                             |  |      |      |      |  |      |   |  |      |  
|-------------------------------------------- |  | ---- | ---- | ---- |  | ---- | - |  | ---- | -
|                                             |  | 2006 |      | 2005 |  | 2004 |  
|                                             |  |      |      |      |  |      |  
|                                            
|Weighted-average
assumptions as of August 31 |  |      |      |      |  |      |   |  |      |  
|Discount
rate                                |  |      | 6.50 | %    |  | 6.50 | % |  | 6.75 | %
|Expected
  return on plan assets             |  |      | 8.0  | %    |  | 8.0  | % |  | 8.0  | %
|Rate of total
  compensation increase        |  |      | 4.3  | %    |  | 4.5  | % |  | 4.5  | %
|                                             |  |      |      |      |  |      |   |  |      |  

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

|                                                |  |      |            |      |   |            |   |   |           |  
|----------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | --------- | -
|                                                |  | 2006 |            | 2005 |   | 2004       |  
|                                                |  |      |            |      |   |            |  
|                                               
|Components on net periodic benefit
cost         |  |      |            |      |   |            |   |   |           |  
|Service cost                                    |  | $    | 858,210    |      | $ | 810,489    |   | $ | 733,795   |  
|Interest cost                                   |  |      | 1,401,578  |      |   | 1,316,496  |   |   | 1,152,990 |  
|Expected return on plan assets                  |  |      | (1,244,528 | )    |   | (1,096,679 | ) |   | (931,309  | )
|Amortization of prior service cost              |  |      | 86,905     |      |   | 86,905     |   |   | 86,905    |  
|Amortization of transition amount               |  |      | 175        |      |   | 235        |   |   | (8,827    | )
|Amortization of unrecognized net actuarial
loss |  |      | 217,126    |      |   | 219,096    |   |   | 227,279   |  
|                                                |  |      |            |      |   |            |   |   |           |  
|                                                |  |      |            |      |   |            |   |   |           |  
|Net
  periodic benefit cost                     |  | $    | 1,319,466  |      | $ | 1,336,542  |   | $ | 1,260,833 |  
|                                                |  |      |            |      |   |            |   |   |           |  

---

The
Companys pension plan weighted-average asset allocation at August 31, 2006, by
asset category is as follows:

|                  |  |  |      |  
|----------------- |  |  | ---- | -
|Equity securities |  |  | 66.8 | %
|Debt securities   |  |  | 28.8 | %
|Other             |  |  | 4.4  | %
|                  |  |  |      |  
|                  |  |  |      |  
|Total             |  |  | 100  | %
|                  |  |  |      |  

Contributions

The Company
expects to contribute $1,120,000 to its pension plan in 2007.

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

| |                          |  |   |           | 
| | ------------------------ |  | - | --------- | 
| | 2007                     |  | $ | 585,662   | 
| | 2008                     |  |   | 614,920   | 
| | 2009                     |  |   | 662,544   | 
| | 2010                     |  |   | 685,057   | 
| | 2011                     |  |   | 766,772   | 
| | Thereafter, through 2016 |  |   | 5,005,403 | 

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, 2006, 2005, and 2004, 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.

|          |         
|--------- | --------
|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. 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(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, 2003 as filed on
  November 26, 2003.                                                                                                                     
|10(b)  |  | Uniform Member
  Marketing Agreement by and between United Sugars Corporation and Minn-Dak
  Farmers Cooperative and related Amendments numbered 2, 3 and 5 (the Company
  is not a party to Amendment numbers 1, 4, and 6). Schedule A is incorporated
  by reference from the Companys Annual Report on 10-K for the fiscal year
  ended August 31, 1998 as filed on November 24, 1998.
|10(e)  |  | Memorandum of
  Understanding and Uniform Member Agreement by and between Midwest Agri-Commodities
  Company and Minn-Dak Farmers Cooperative.                                                                                                                                                                                                                                            
|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).                                                                                                                                                                                                                                  
|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 22, 2006.                                                                                                                                                  

---

|     |  |                                                                                                                                                                                  
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.

---

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                  |  | 11-28-06
|                      |           | Chief Executive Officer        |  |         
|David H. Roche        |           |                                |  |         
|                      |           |                                |  |         
|/s/ Steven M. Caspers |           | Executive Vice
  President and |  | 11-28-06
|                      |           | Chief Financial Officer        |  |         
|Steven M. Caspers     |           |                                |  |         
|                      |           |                                |  |         
|/s/ Allen E. Larson   |           | Controller and                 |  | 11-28-06
|                      |           | Chief Accounting
  Officer     |  |         
|Allen E. Larson       |           |                                |  |         
|                      |           |                                |  |         
|/s/ Dale Blume        |           |                                |  | 11-28-06
|                      |           |                                |  |         
|Dale Blume            |           | Director                       |  |         
|                      |           |                                |  |         
|/s/ Dennis Butenhoff  |           |                                |  | 11-28-06
|                      |           |                                |  |         
|Dennis Butenhoff      |           | Director                       |  |         
|                      |           |                                |  |         
|/s/ Brent Davison     |           |                                |  | 11-28-06
|                      |           |                                |  |         
|Brent Davison         |           | Director                       |  |         
|                      |           |                                |  |         
|/s/ Doug Etten        |           |                                |  | 11-28-06
|                      |           |                                |  |         
|Doug Etten            |           | Director                       |  |         
|                      |           |                                |  |         
|/s/ Michael Hasbargen |           |                                |  | 11-28-06
|                      |           |                                |  |         
|Michael Hasbargen     |           | Director                       |  |         
|                      |           |                                |  |         
|/s/ Dennis Klosterman |           |                                |  | 11-28-06
|                      |           |                                |  |         
|Dennis Klosterman     |           | Director                       |  |         
|                      |           |                                |  |         
|/s/ Russell Mauch     |           | Director                       |  | 11-28-06
|                      |           |                                |  |         
|Russell Mauch         |           |                                |  |         
|                      |           |                                |  |         
|/s/ Charles Steiner   |           |                                |  | 11-28-06
|                      |           |                                |  |         
|Charles Steiner       |           | Director                       |  |         
|                      |           |                                |  |         
|/s/ Alton Theede      |           |                                |  | 11-28-06
|                      |           |                                |  |         
|Alton Theede          |           | Director                       |  |         

---