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

                                    FORM 10-K
              [X] Annual Report Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934
                            For the fiscal year ended
                                 AUGUST 31, 1998
                                       Or
            [ ] Transition Report Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934
                            -------------------------
                                 Commission File
                                  No. 33-94644
                            -------------------------

                          MINN-DAK FARMERS COOPERATIVE
             (Exact name of registrant as specified in its charter)
                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 whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _X_  NO ___

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

            As of November 19, 1998, 480 shares of the Registrant's Common Stock
and 72,200 "units" of the Registrant's Preferred Stock, each consisting of 1
share of Class A Preferred Stock, 1 share of Class B Preferred Stock and 1 share
of Class C Preferred Stock, were outstanding. There is only a limited, private
market for shares of the Company's Common or Preferred Stock, as such shares may
be held only by farmer-producers who are eligible for membership in the Company.
The Company's shares are not listed for trading on any exchange or quotation
system. Although transfers of the Company's shares may occur only with the
consent of the Company's Board of Directors, the Company does not verify
information regarding the transfer price in connection with such transfers. A
number of stock transfers, representing approximately 2% of available stock,
were not arms length (estate settlements, estate planning from one generation to
the next, etc.) and an accurate value for that stock was not available.
Management believes less than 1% of the Company's available stock was traded at
arms length during the fiscal year ended 8-31-98. 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 range in price from $2,500 to $2,700 per unit.

<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

            Certain exhibits to this Report are incorporated by
            reference from the Company's Registration Statement on
            Form S-1 (File number 33-94644), declared effective on
            September 11, 1995 and from the Company's Annual Report
            on Form 10-K for the fiscal years ended August 31, 1996
            and 1997.


ITEM 1.     BUSINESS

            Minn-Dak Farmers Cooperative ("Minn-Dak" or the "Company") is a
North Dakota agricultural cooperative that was formed in 1972 and has 480
members. Membership in the Company is limited to sugar beet growers located in
those areas of North Dakota and Minnesota within an approximate fifty (50) mile
radius of the Company's offices and sugar beet processing facilities in
Wahpeton, North Dakota. The Company's facilities allow the members to process
their sugar beets 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,
Southern Minnesota Beet Sugar Cooperative and United States Sugar Corporation.
The Company's beet molasses and beet pulp are also marketed through a marketing
agent, Midwest Agri-Commodities Company. Midwest Agri-Commodities Company is a
cooperative owned by its members, the Company, American Crystal Sugar Company
and Southern Minnesota Beet Sugar Cooperative.

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

PRODUCTS AND PRODUCTION

            Minn-Dak is engaged primarily in the production and marketing of
sugar from sugar beets. Minn-Dak also markets certain by-products of the sugar
it produces, such as beet molasses and beet pulp. The Company also owns an 80%
interest in Minn-Dak Yeast Company, Inc., which has facilities located near the
Company's sugar production location. Minn-Dak Yeast Company, Inc. produces fresh
baker's yeast and provided revenues totaling approximately 5% of the Company's
gross revenues for the fiscal year ended August 31, 1998.

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

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

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

            Sugar beets deteriorate in storage due to the organic nature of
their existence. Beets harvested prior to obtaining a root temperature of fifty
degrees or less must be processed within seven days or sugar loss will occur and
they will deteriorate. The plant start up in the fall is timed to the
anticipated end of processing in the spring. The 

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plan of the Company is, after completion of the expenditures for plant expansion
described herein (see MINN-DAK FARMERS COOPERATIVE STOCK SALE AND EXPANSION
PLAN, in part I Item 1 of this section), to finish processing unprotected beets
prior to March 10, ventilated beets prior to March 31, and storage shed beets as
soon thereafter as is possible.

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

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

            Storage shed beets are handled in the same manner as the ventilated
beets. The difference between the processes is the building itself, which
insulates the beets from sun, wind, and warmer spring temperatures. With the
buildings, storage of the beets can run as late as mid to late May of each year.

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

            Once the sugar beets 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 sugar beet by-products include beet molasses and beet
pulp. After the extraction of raw juice from the cossettes, the remaining pulp
is dried and processed into and sold as animal feeds. The beet molasses is the
sugar juice left after all economical means have been taken to extract the sugar
from the sugar juice. The beet molasses is sold primarily to yeast and
pharmaceutical manufacturers and for use in animal feeds. The beet molasses and
beet pulp are marketed through Midwest Agri-Commodities Company.

RECENT CROPS

            The Company's members harvested 1,772,648 tons of sugar beets from
97,336 acres for the 1998 crop. The crop yield of 18.21 tons per acre for the
1998 crop was slightly below average versus the Company's five year average tons
per acre. Sugar content of the 1998 crop at harvest was 17.43%, as compared to
an average of 17.53% for the five most recent years. The Company's projected
production is 4.49 million hundredweight of sugar from the 1998 crop sugar
beets, well above the five year average of 4.2 million hundredweight. (A
"hundredweight" is equal to one hundred pounds and is hereinafter abbreviated as
cwt.) This forward-looking material is based on the Company's expectations
regarding the processing of the 1998 sugar beet crop; the actual production
results obtained by processing those sugar beets could differ materially from
the Company's current estimate as a result of factors such as changes in
production efficiencies and storage conditions for the Company's sugar beets.

            For a discussion of the 1997, 1996 and 1995 crops and results of
operations for fiscal years 1998, 1997 and 1996, see "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

MARKET AND COMPETITION

            The United States is the world's largest sugar and sweetener
complex. Current US Government statistics estimate total US sugar consumption at
183.4 million cwt for the year beginning 1 October 1997 and ending 30 September
1998. For the same period in 1997, total consumption was 182.6 million cwt.
Comparing the two years shows relatively marginal demand growth for US sugar
sellers. This slowdown in consumption growth rates is 

<PAGE>


primarily attributable to the decline in the low and non-fat food trend, which
used more sugar in product formulations. Continued substitution of corn
sweeteners for sugar and import leakages have also contributed to the overall
demand slowdown.

            Despite evidence of a sugar demand slowdown, the US government
forecasts growth between 1998 and 1999 to be slightly higher than 2%, which is
slightly above trendline and includes consumption increases due to population
growth. Although the Company believes that domestic consumption growth could
once again approach 2% annually over the longer term, recent trends have
pressured growth rates lower and slower growth may be more realistic to assume
at the current time. Given the size of the domestic market, the Company's sugar
production and sales represented slightly more than 2.5% of the total domestic
market for refined sugar in 1997. United Sugars, which sells the Company's
production through a sugar marketing pool, represents approximately 25% share of
the US sugar market.

            The US refined sugar market has continued to grow over the past
twenty years, despite the enormous amount of demand lost to the substitution of
high fructose corn syrups for sugar in beverages and certain food products.
Non-nutritive sweeteners such as aspartame have also been developed to
substitute for sugar. While corn and non-nutritive sweeteners constitute a large
portion of the overall sweetener market, the Company believes that the market
for sugar will continue to grow between 1 and 2% per year due to population
growth and increased use of sugar in processed foods.

            The substitution of corn sweeteners for sugar not only reduced
demand for sugar in the United States, but also resulted in a high degree of
sugar industry consolidation. For example, in 1978 there were 28 sugar producers
and sellers in the US market. Today there are eight sugar sellers, with over 75%
of US sugar market share concentrated in the top three sellers, all of which are
fully integrated beet and cane suppliers. The Company's main competitors in the
domestic market are Imperial-Holly-Savannah and Tate & Lyle North America, both
of which own and operate cane refineries and beet processing facilities.
Competition in the US sugar industry, because sugar is a fungible commodity, is
primarily based upon price, customer service and reliability as a supplier.

            According to United States government estimates, the United States
market for sugar during the year beginning on October 1, 1996 and ending on
September 30, 1997 will total approximately 183 million cwt. of sugar. That
estimate for 1997 suggests the continuation of a trend of growth in the market
in recent years at a compounded rate of approximately 2% per year. For example,
from a market of approximately 165 million cwt. in 1992, the total domestic
market grew to a total of approximately 183 million cwt. in 1997. Latest
government estimates indicate a projected domestic market for sugar of 185
million cwt in 1998, a 1.4% increase from 1997. Historical information indicates
that the domestic market growth from year to year has, at times, been above and
below the average growth rate of 2%. The Company continues to believe that
domestic market growth will average approximately the 2% long-term growth rate
trend because nothing in the marketplace dynamics currently would indicate a
change in domestic market usage long-term. Given the size of the domestic
market, the Company's sugar production and sales represented slightly more than
2.0% of the total domestic market for refined sugar in fiscal 1997.

            According to United States Department of Agriculture (USDA)
statistics, the Red River Valley is generally one of the most cost efficient
sugar beet producing areas in the nation. As a result, the Company's management
believes that it possesses the ability to compete successfully with other
American producers of sugar. In spite of this competitive advantage, substitute
sweetener products and sugar imports could have an adverse effect on the
Company's operations in the future.

GOVERNMENT PROGRAMS AND REGULATION

            Domestic sugar prices are supported under a program administered by
the USDA. The program is called the Federal Agriculture Improvement and Reform
Act of 1996 (the "FAIR Act"). The USDA maintains sugar prices without cost to
the U.S. Treasury by regulating the quantity of sugar imports. The FAIR Act
maintains the basic 18 cent per pound loan rate for raw sugar and puts in place
a 22.90 cent per pound loan rate for refined beet sugar. Both loan rates are
effective for crop years 1996 through 2002. Price support loans are made on a
non-recourse basis provided that United States sugar imports for domestic usage
exceed 1.5 million short tons raw value in a given fiscal (October through
September) year. Loans made on a non-recourse basis enable the sugar processor
to forfeit sugar to Commodity Credit Corporation ("CCC") if sugar prices are
below the loan rate.

<PAGE>


            If imports during a given year fall below the 1.5 million short tons
raw value, loans must be made on a recourse basis, meaning that processors will
not be able to forfeit sugar to CCC at its full loan value. In order to recover
the full value of a recourse loan, the CCC could require that cash or other
assets be provided in addition to the sugar used as collateral when the loan is
made.

            Another provision of the FAIR Act is a one cent per pound penalty
paid by processors if the processor defaults on sugar price support loans. Such
support prices for sugar are in effect as long as the "Tariff Rate Quota" for
imports of sugar is 1.5 million short tons, raw value or more.

            Under the tariff rate quota implemented October 1, 1990, certain
sugar producing countries are assigned a fixed quantity of imports duty-free or
subject to minimal duties. Unlimited additional quantities may be imported upon
payment of a tariff of 15.38 cents per pound prior to shipment (to date, very
little sugar has been imported under this higher tariff level). (Note: the
tariff schedule was established at 17 cents on July 1, 1995, 16 cents July 1,
1996 and will reduce by .31 cents each year for years 1997 through 2001, until
it reaches 14.45 cents per pound of sugar). 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 General Agreement on Tariffs and Trade (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 current sugar program will expire after the 2002 crop and the
nature and scope of future legislation and United States trade policy affecting
the sugar market cannot be accurately predicted and there can be no assurance
that price supports will continue in their present form beyond the 2002 crop
year, or that there will even be enacted a sugar program beyond the existing
program. As a result of uncertainty regarding the impact of the absence of price
supports if no sugar program existed, the Company cannot accurately predict if
any changes in legislation or trade policy would have an impact on the Company
and its members, if that impact would be adverse, or the magnitude of such
impact.

MARKETING, CUSTOMERS AND PRICES

            Since January 1, 1994 United Sugars Corporation, a cooperative owned
by the Company and three other sugar producing companies (American Crystal Sugar
Company, Southern Minnesota Beet Sugar Cooperative and United States Sugar
Corporation) to market sugar produced by the four member owners, has marketed
the Company's sugar.

            United Sugars Corporation was formed in late 1993, at which time the
Company contributed certain assets for the capitalization of it. That
contributed capital, along with an obligation to further contribute capital over
time, provided the Company with an initial ownership interest in United Sugars
Corporation of 13.5%. At August 31, 1998 the Company had an ownership interest
in United Sugars Corporation (year to date contributed capital) totaling
$1,182,000, which represented 11.8% of the total.

            Upon completion of the incorporation and capitalization of United
Sugars Corporation, the Company entered into a "Uniform Member Marketing
Agreement" with United Sugars Corporation. 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 Corporation. 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 Corporation. Any net proceeds from the operation of
United Sugars Corporation are distributed to the various members on a patronage
basis.

            The Company, American Crystal Sugar Company and Southern Minnesota
Beet Sugar Cooperative initially owned United Sugars Corporation. On December 1,
1997 United States Sugar Corporation ("USSC"), a grower of sugar cane and other
agricultural products, was admitted as a member owner of United Sugars
Corporation. As such 

<PAGE>


USSC entered into a Uniform Cane Sugar Marketing Agreement, which will provide
that USSC will market all of its refined sugar through United Sugars
Corporation. At the time of admission, existing members of United Sugars
Corporation, including the Company, were required to enter into amended
marketing agreements reflecting the admission of USSC. With the admission of
USSC, United Sugars Corporation will be able to distribute both cane sugar and
beet sugar, and distribute sugar to customers over a larger geographical area.

            United Sugars Corporation sells industrial bulk sugar, industrial
bagged sugar, retail bagged sugar, and specialty sugars. The Company's sugar is
marketed by United Sugars Corporation primarily to industrial users such as
confectioners, breakfast cereal manufacturers and bakeries. The customer base of
United Sugars Corporation includes most of the large industrial sugar users. The
customer base also includes retail grocery and wholesalers. The Company has no
single customer, which accounts for more than ten percent (10%) of its
consolidated revenues. For the fiscal year ended August 31, 1998, 96% of the
Company's sugar was shipped in bulk form, mostly to industrial users, and 4% in
bagged powdered sugar.

            The prices at which United Sugars Corporation sells the Company's
sugar fluctuate periodically based on changes in domestic sugar supply and
demand. The largest portion of the Company's sales are contracted one or more
quarters in advance, with the effect of stabilizing fluctuations in revenue from
quarter to quarter. Retail (grocery) products are sold on a spot basis. Current
net selling prices for sugar are forecast to be similar to the prior fiscal year
and less than two years ago because (1) the domestic market continues to be
oversupplied with foreign sugar (through USDA's incorrect estimate of domestic
production and consumption), (2) this year's domestic crop is estimated to be
marginally higher than last year's, thus creating even more supply and (3)
consumption is expected to increase less than the long-term US consumption rate
because of increased imports of sugar-containing products and the decline of the
low or non-fat food trend.

            A licensing agreement with Pillsbury Company will allow United
Sugars Corporation to sell sugar nationwide under the "Pillsbury" name. United
Sugars Corporation has indicated that it believes that the opportunity to
distribute sugar nationwide under the Pillsbury name will allow the expansion of
its presence in the consumer portion of the sugar market, with the goal of
expanding the portion of its members' sugar sold in that higher margin segment
of the sugar market. During fiscal year 1997, United Sugars Corporation
initiated phase I of the sales plan for Pillsbury brand sugar to select
geographical locations. FY 1998 continued the implementation of phase I of the
sales plan, as well as making plans to implement phase II of the sales plan.
Moving from one phase of the sales plan to the next will be dependent upon the
success of the phase currently being implemented. The sales plan that United
Sugars Corporation will follow to become a nationwide seller of sugar under the
Pillsbury name will require several phases of implementation.

            The Company markets its by-products, dried beet pulp and beet
molasses, through Midwest Agri-Commodities Company, a cooperative whose members
are the Company, American Crystal Sugar Company and Southern Minnesota Beet
Sugar Cooperative. Midwest Agri-Commodities Company markets beet pulp, beet
molasses and other liquid livestock feed for its member owners as well as
non-members. Beet pulp is marketed to livestock feed mixers and livestock
feeders in the United States and foreign markets. The sales and marketing
arrangement with Midwest Agri-Commodities Company is evidenced by a "Uniform
Member Marketing Agreement." Under that agreement, the beet pulp and beet
molasses produced by the Company is pooled with beet pulp and beet molasses
produced by the other producing member owners and is then sold through the
efforts of Midwest Agri-Commodities Company. The Company receives payment for
its beet pulp and beet molasses by receiving its pro rata share of the net
proceeds from the sale of the pooled beet pulp and beet molasses. The net
proceeds of such sales represent the gross proceeds of the sale of the beet pulp
and beet molasses, adjusted for the various costs and expenses of marketing the
pooled beet pulp and beet molasses, including the Company's pro rata share of
the marketing and sales expenses incurred by Midwest Agri-Commodities Company.
Any net proceeds from the operation of Midwest Agri-Commodities Company are
distributed to the various members on a patronage basis.

            For the year ended August 31, 1998, approximately 26% of the
Company's pulp production was exported to Japan, approximately 36% was exported
to Europe and the remaining 38% was sold domestically. The market for beet pulp
is affected by the availability and quality of competitive feedstuffs. Dried
beet pulp prices declined significantly in FY 1998 due the Asian economic
crisis, revisions in European grain policies and the worldwide surplus of feed
stuffs. Beet molasses is marketed primarily to yeast manufacturers,
pharmaceutical houses, livestock 

<PAGE>


feed mixers and livestock feeders. Beet molasses prices declined as well in FY
1998 due to competitive pressures brought about by excess available supplies
worldwide. By-product sales accounted for approximately 9% of the Company's
total consolidated net sales revenues during FY 1998. This relationship is
primarily a function of the average market prices for sugar, beet pulp, beet
molasses and fresh yeast and is not necessarily indicative of future
relationships between by-product, fresh yeast and sugar revenues, because prices
of these products fluctuate independently of each other.

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

MINN-DAK FARMERS COOPERATIVE STOCK SALE AND EXPANSION PLANS

            In 1995, the Company put in place a strategic plan calling for an
expansion of its processing capacity as well as its length of operating season.
This strategic plan was undertaken in order to increase its chances of
continuing to be a long-term viable, profitable business for its shareholders.
Expansion of the processing capabilities of the plant were to bring about
certain economies of scale. The Company believed the expansion program would
provide the Company with certain processing efficiencies and resulting financial
benefits. However, the Company could not say with certainty the Company's
financial performance following the expansion would exceed the Company's
historical performance. The Company's beliefs with regard to the benefits of the
expansion plan were based on the Company's expectations regarding the increased
processing efficiencies the Company expected to obtain. The actual production
results, processing efficiencies and resulting financial performance obtained as
a result of the expansion program could have differed materially from the
Company's expansion estimates as a result of factors such as changes in the
costs of production, differences in the price obtained upon sales of the
Company's products, changes in the regulatory and market environment in which
the Company operates and a variety of other factors beyond the Company's
control.

            The Company's original plans were to expend approximately $87
million over a three year period beginning with the fiscal year ended August 31,
1996 for improvements and additions to its facilities. Estimated capital
expenditures for factory improvements were $32 million, beet receiving and beet
storage capital expenditures were $40 million and environmental improvement
capital expenditures were $15 million. At August 31, 1998, three years after the
start of the Company's strategic expansion plan, the expansion is materially
complete.

            $37.4 million was raised through the sale of the Units subscribed
and sold via the Company's 1995 stock offering. The funds generated from the
stock offering have been used to assist in paying for the costs associated with
expansion. Shareholder subscribers paid for the units of stock sold by the
Company over a three-year period beginning in January 1996. The stock offering
provided for payments of 32 percent of the value of the stock purchased, or
$12.1 million in January 1996; 43 percent, or $15.6 million in January 1997; and
the balance of 26 percent, or $9.7 million in January 1998. The Company has
received all of the 1996, 1997 and 1998 annual installments from its shareholder
subscribers.

            Those costs not covered through the stock offering were primarily
funded through a long-term debt agreement with the St. Paul Bank for
Cooperatives (a cooperative lending institution that is the Company's
traditional long-term debt lender) who provided the construction financing and
is the principal lender.

            In addition to the funding provided by the St. Paul Bank for
Cooperatives, in fiscal year 1996 the Company was able to secure additional
funding for the expansion project through a lease from Richland County. Funding
was through low interest, fifteen-year tax exempt solid waste disposal bonds in
the amount of $12.0 million. The bonds were structured with zero principle
amortization for the first three years and increasing balance amortization for
the next 12 years, the first three years being $.7 million, $.8 million, and $.8
million. These bonds were required to be secured by a 

<PAGE>


Letter of Credit from a non-government agency bank (Norwest Bank North Dakota)
who in turn was secured by a Collateral Agreement from the St. Paul Bank for
Cooperatives, the Company's primary lender. Solid waste disposal bonds are
available under certain conditions where a by-product of manufacturing must be
further manufactured or refined to produce a salable product and/or reduce the
amount of solid waste produced by a manufacturing plant. In the Company's
primary case, the funds were used to fund further manufacturing of a by-product
to produce a salable product.

            The long-term debt created by this expansion will be repaid with
funds generated through depreciation, income tax savings, and reduced costs per
cwt. of production. (Depreciation expense is a non-cash expense that under the
Company's accounting procedures reduces the amounts available for payments to
the Company's members. The resources represented by such non-cash expenses are
available as a source of working capital for the Company, which may be used for
payment of long-term debt.)

            As of August 31, 1998, approximately $2.0 million remains to be
expended for expansion of the Company's facilities. Because the financing was
set up prior to August 31, 1998, working capital was $2.0 million higher than
anticipated, but will be reduced by the $2.0 million in the fiscal year ending
August 31, 1999 as a result of the remaining expansion expenditures.

            As of November 18, 1998 the projected final cost of the expansion
project appears to be 3% to 5% below the $87 million allowed in the expansion
plan. The expansion plan called for the 1998 crop to be processed at a slice
rate of 7,500 tons of beets per day. Plant operations for the 1998 crop through
November 18, 1998 indicate the processing efficiencies will exceed the expansion
benchmark of 7,500 tons of beets per day by 1% to 5%. The beet storage and
handling facilities are in place and meeting or exceeding the expansion goals.
The environmental goals have been met (see ENVIRONMENTAL MATTERS).


JOINT VENTURE WITH PROGOLD LIMITED LIABILITY COMPANY

            Minn-Dak is a five percent (5%) equity owner in ProGold Limited
Liability Company ("ProGold"). ProGold was formed in 1994 by three entities for
the purpose of building a plant to produce from corn and market high fructose
corn syrup; and to produce and market corn gluten feed, corn gluten meal and
corn germ, all co-products produced by the plant. The other two equity owners
are American Crystal Sugar Company, Moorhead, Minnesota (46% ownership share)
and Golden Growers Cooperative, Fargo, North Dakota (49% ownership share).
American Crystal Sugar Company is a cooperative that produces sugar from sugar
beets and has approximately 2,300 stockholder-growers that grow sugar beets on
approximately 460,000 acres of land. Golden Growers Cooperative is a cooperative
of corn growers that was formed in 1994 by approximately 2,000
shareholder-farmers (located in the three state area of North and South Dakota
and Minnesota). The Company has contributed approximately $5.2 million in
exchange for its 5% ownership position, American Crystal Sugar Company has
contributed approximately $48.0 million for its 46% ownership share and Golden
Growers Cooperative $51.0 million for its 49% ownership share.

            ProGold's plant became fully operational in late 1996 and the
products produced through operation of the corn wet-milling facility are being
sold through the efforts of Cargill, Inc.

            Because of unexpected market conditions, ProGold the business, as it
was structured as of August 31, 1997, was expected to suffer significant losses
for several years. To the extent that ProGold's operations would not result in a
profit, the Company would receive distributions from ProGold in an amount less
than the Company's cost to acquire corn delivered to ProGold for processing (the
Company, as part owner of ProGold, has a contractual obligation to deliver its
proportionate share of corn to ProGold's plant). To the extent that the
Company's reserves and working capital would not be able to satisfy the
Company's proportionate share of ProGold's expected losses, the Company would
have been required to withhold appropriate amounts from member beet payments or
borrow long-term debt.

            However, because of the continued expectation of significant losses
for several years for ProGold, on September 30, 1997 ProGold entered into a
letter of intent with Cargill, Inc. ("Cargill") for Cargill to lease ProGold's
corn wet-milling plant. On November 1, 1997 ProGold signed a 10 year lease
agreement with Cargill, 

<PAGE>


which expires on October 31, 2007, to lease ProGold's corn wet-milling plant.
Under the lease arrangement, the Company and the other ProGold members would
retain ownership of the plant, while Cargill will operate the plant and sell the
finished products. ProGold will receive rental payments in a base amount fixed
for each year during the term of the lease. ProGold would also receive
supplemental rent equal to fifty percent (50%) of the amount by which earnings
before taxes from operations of the facility exceeds a specified base. Cargill
will also enter into a corn supply agreement with ProGold, pursuant to which
ProGold will be obligated to deliver approximately 15 million bushels of corn
per fiscal year. The Company's obligation to deliver corn to ProGold will be
terminated as part of the transactions. Cargill will pay ProGold a market price
for any corn delivered to Cargill under the corn supply agreement.

            The arrangement between ProGold and Cargill also specifies a variety
of alternatives that may take effect upon expiration of the initial lease. These
alternatives include agreeing to enter into another long-term lease upon
mutually agreeable terms and conditions, or ProGold could offer to sell to
Cargill, at fair market value, a fifty percent (50%) or one hundred percent 100%
ownership interest in ProGold.

            As the terms of the lease with Cargill are to provide ProGold, as an
entity, with (i) rental payments of a fixed amount, with the opportunity to
receive supplemental rental payments in the event that the ProGold facility is
operated profitably and (ii) payment for corn delivered by ProGold for
processing at the facility at market prices, the lease arrangement is expected
to provide protection from the exposure of risks of participation in the corn
sweetener market, including the risk of future, material financial losses by
ProGold and the necessity of additional capital investment from the Company to
cover such future losses.


GROWERS' AGREEMENTS

            The Company purchases virtually all of its sugar beets from members
under contract with the Company. All members have three-year contracts with the
Company covering the growing seasons of 1998 through 2000 (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 notice of termination has been given by the Company
prior to the automatic renewal. 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 1.35
acres of sugar beets for sale to the Company. The Company's Board of Directors
has the discretion to adjust the acreage, which may be planted for each Unit of
Preferred Stock held by the members. For the 1998 crop year the Company's Board
of Directors authorized members to plant 1.35 acres per unit. For the 1999 crop,
the Company's Board of Directors authorized members to plant 1.40 acres per
unit.

            Under the terms of the Growers Agreement, each member receives
payment for his or her sugar beets based on a price per pound of extractable
sugar. The price per pound of extractable 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 sugar.
Extractable pounds of sugar are obtained by the processing of beet samples taken
from members' sugar beets during harvest. Each member's grower payment is
obtained by multiplying that member's total pounds of extractable sugar times
the price per pound of extractable sugar as determined above.

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

<PAGE>


pounds of extractable sugar obtained from each of the members' sugar beets; such
amounts are distributed in either cash payments or in the form of patronage
credits to the member's patronage credit 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 sugar beets
for storage until the sugar beets 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 sugar beet 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 sugar beets 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 sugar beets and because shareholders own different numbers
of Units of Preferred Stock, each district includes a different number of acres
of sugar beet production and, therefore, a different quantity of sugar beets
delivered to the Company. However, none of the districts provides the Company
with a materially disproportionate quantity of the sugar beets produced by the
Company's members. While the allocation of members to the various districts has
a significant impact on the election of directors, the Company does not believe
that the districts represent a significant factor in the day-to-day business
operations of the Company.


RESEARCH AND DEVELOPMENT

            The Company is not involved in its own research and development
activities, but does participate in some sugar industry research and development
activities. Any research findings are then shared by the entire sugar industry.
Participatory research and development is accomplished through such
organizations as Beet Sugar Development Foundation, Sugar Association, and North
Dakota/Minnesota Research and Education Board. The Company participates in the
organizations listed above through the efforts of its representatives to the
boards of directors of those entities. The Company's representatives, either a
member of the Company's Board of Directors or a management employee of the
Company, allow the Company to participate in and help direct agricultural and
factory operations research and development activities carried out by the listed
organizations. Those organizations also have established various committees on
which the Company has placed certain of its employees. That practice is designed
to provide the company with direct access to any research and development
information available from the applicable committees. (Through its employees,
the Beet Sugar Development Foundation also provides some legislative and
lobbying efforts on a national level. Those efforts are directed at maintaining
funding for the various federal sugarbeet research facilities.) None of the
Company's employees or directors devotes a significant portion of their time and
energies to the activities described in this section; instead, such efforts are
a minor portion of their continuing duties on behalf of the Company.

            During the fiscal year ended on August 31, 1998, the Company
contributed approximately $60,000 to the North Dakota/Minnesota Research and
Education Board to fund that entity's research and development activities.
$11,000 was given to the Beet Sugar Development Foundation in connection with
their research activities, and $40,000 to the Sugar Association for their
research activities and membership dues.

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

<PAGE>


ENVIRONMENTAL MATTERS

            The Company is subject to many federal, state and local regulations
that govern air and water emissions, and solid and hazardous waste storage and
disposal.

            Currently, the Company is meeting all its obligations in water,
solid waste and hazardous waste. On June 2, 1998 the Company entered an AMENDED
CONSENT AGREEMENT AND JOINT MOTION TO AMEND Civil No. 97-164 with the State of
North Dakota. To resolve past air violations the Company agreed to pay a
$150,000 civil penalty for the violations. However, the agreement also specified
that if the Company took certain actions before specified dates up to $110,000
of the penalty would be dismissed. The company paid $40,000 of the penalty.

            There are four separate actions outlined in the consent agreement
that the Company must undertake in order to demonstrate compliance with the
consent agreement. As of this writing, the Company has met its obligation in two
of the actions, which should result in a reduction in the civil penalty of
$60,000. The remaining two conditions stipulate that, if the company maintains
compliance for the annual periods ending November 16, 1999 and November 16,
2000, $25,000 for each year shall be suspended and ultimately dismissed at the
end of each period. There is no reason at this time to think that company will
not be in compliance the following two years.

            The Company cannot accurately predict the extent to which future
changes in environmental laws or regulations will affect the cost of operating
its facilities and conducting its business. However, any changes could have
adverse financial consequences for the Company and its members.


EMPLOYEES

            As of August 31, 1998, the Company had 263 full-time employees, of
whom 231 were hourly and 32 were salaried. It also employs approximately 325
additional hourly seasonal workers during the sugar beet harvest and processing
campaign. In January 1995 the Company concluded the negotiations for a
collective bargaining agreement with the American Federation of Grain Millers
(AFL/CIO) union for its factory employee group. The written contract is in
effect from January 23, 1995 through May of the year 2000. Office, clerical,
management and harvest employees are not unionized. Full time employees are
provided with health and dental insurance, a defined benefit pension or
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 provided some of the above employee benefits. The Company
considers its employee relations to be excellent.


ITEM 2.     PROPERTIES

            The Company operates a single sugarbeet processing factory at
Wahpeton, North Dakota that is located in the Red River Valley. The Company owns
the factory, receiving sites, and the land on which they are located. The 1997
crop set new records for average daily slice rate (7,596 of beets tons per day),
total tons sliced (1,641,184 tons), and sugar production (4,789,000 cwt.).

            Minn-Dak Yeast Company, Inc. of which Minn-Dak is an 80% owner,
operates a single yeast processing factory at Wahpeton, North Dakota which is
located in the Red River Valley. Minn-Dak Yeast Company, Inc. owns the factory
and the land on which it is located. During fiscal 1998, 27.2 million pounds of
fresh yeast were produced.


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 which have arisen in the ordinary course of its business and the
Company is also unaware of certain other potential claims which could result 

<PAGE>


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.
Except 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, 1998.


                                     PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 
            MATTERS

            There is only a limited, private market for shares of the Company's
Common or Preferred Stock, as such shares may be held only by farmer-producers
who are eligible for membership in the Company. The Company's shares are not
listed for trading on any exchange or quotation system. Although transfers of
the Company's shares may occur only with the consent of the Company's Board of
Directors, the Company does not verify information regarding the transfer price
in connection with such transfers. A number of stock transfers, representing
approximately 2% of available stock, were not arms length (estate settlements,
estate planning from one generation to the next, etc.) and an accurate value for
that stock was not available. Management believes less than 1% of the Company's
available stock was traded at arms length during the fiscal year ended August
31, 1998. Of the stock transferred at arms length, the transfers were made
during the first, second and third quarters of the Company's fiscal year and
ranged in price from $2,500 to $2,700 per unit.

<PAGE>


ITEM 6.     SELECTED FINANCIAL DATA

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

                         Fiscal Year Ended August 31,(1)

<TABLE>
<CAPTION>

FINANCIAL DAT
(Numbers in Thousands)                                      1998           1997          1996          1995           1994

<S>                                                         <C>            <C>           <C>           <C>            <C>       
Revenues                                                    $  149,574     $  139,730    $  114,335    $  133,302     $   81,422
Net Proceeds Before Accounting Change                           72,084         74,239        56,872        75,422         33,643
Cumulative Effect of Accounting Change(1)                            0              0             0             0          1,350
Net Proceeds(2)                                                 72,084         74,239        56,872        75,422         34,993
Total Assets                                                   184,830        171,896       136,361        98,927         74,117
Long-term Debt, including current maturities, Net of bond
investments, 1998, 1997 & 1996                                  59,798         58,252        55,809        28,269         17,096
Members' Investment(3)                                          82,082         73,646        57,324        43,992         44,153
Property and Equipment Additions, net of
   Retirements                                                  10,893         24,547        34,457         9,202          2,041
Working Capital                                                 11,170         10,163        11,845         9,295          8,034
Ratio of Long-Term Debt to Members'
   Investment(4)                                                   .66            .76           .93           .59           0.33
Ratio of Net Proceeds to Fixed Charges(5)                        13.92          14.92         16.76         26.38          22.62

PRODUCTION DATA(6)

Acres harvested                                                 91,374         82,575        74,915        75,878         67,086
Tons purchased (members)                                     1,721,240      1,506,646     1,458,918     1,636,094        834,545
 ons purchased (non-member)                                     40,000                                                    73,963
Tons purchased per acre harvested                                18.84          18.25         19.47         21.56          12.44

Net beet payment paid to member per ton of sugar beets
delivered, plus allocated patronage and unit retains(7)          41.68          49.97         38.34         46.41          40.17

Sugar hundredweight
            Produced                                         4,789,081      4,168,620     3,363,250     4,384,485      2,499,307
            Sold, including purchased sugar                  4,672,631      3,794,313     3,841,443     3,988,284      3,027,614

Pulp tons
            Produced                                            89,263         76,307        77,352        92,139         50,536
            Sold                                               105,270         82,705        74,743        93,284         49,212

Molasses tons
            Produced                                            77,939         64,377        61,194        62,516         37,170
            Sold                                                51,939         45,182        43,882        46,768         14,821

Yeast pounds (in thousands)
            Produced                                            27,191         23,127        25,556        17,511         21,853
            Sold                                                27,227         23,193        25,495        17,436         21,853
</TABLE>


(1) On September 1, 1993, the Company adopted Statement of Financial Accounting
Standards Statement #109 (SFAS 109), "Accounting for Income Taxes". The
cumulative effect of application of the new standard resulted in a 

<PAGE>


benefit from income taxes. See Note 6 to the financial statements for a more
detailed description of the accounting change.

(2) Net Proceeds are the Company's gross revenues, less the costs and expenses
of producing, purchasing and marketing sugar, sugar by-products, yeast, dietary
fiber and resale commodities, but before payments to members for sugar beets.
(For a more complete description of the calculation of Net Proceeds, see
"Description of Business-Growers' Agreements".)

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

(4) Calculated by dividing the Company's long-term debt, exclusive of the
current maturities of such debt, by members' investments.

(5) 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.

(6) 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, 1996, relates to the 1995 crop).

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

<PAGE>


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.

LIQUIDITY AND CAPITAL RESOURCES

            Because the Company operates as a cooperative, payments for
member-delivered sugar beets, 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 sugar beet crops to the Company
and are net of unit retains and patronage allocated to them, all three of which
remain available to meet the Company's capital requirements. This member
financing arrangement may result in an additional source of liquidity and
reduced outside financing requirements in comparison to a similar business
operated on a non-cooperative basis. However, because sugar is sold throughout
the year (while sugar beets 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 majority of such financing has been
provided by the St. Paul Bank for Cooperatives (the "Bank"). The Company has a
short-term line of credit with the Bank in 1998 of $55,000,000.

            The various loan agreements between the Bank and the Company
obligate the Company to the following significant loan conditions; invest in
Class C or other stock of the bank, as may be designated, in such amounts as may
be prescribed by the board of directors of the bank; maintain working capital of
not less than $7.0 million; maintain a current ratio of not less than 1.2:1.0;
maintain long-term debt to equity ratio of no greater than 1:1; obtain prior
consent from the bank to pay cash patronage dividends in excess of 35% of
qualified patronage income as required by the Internal Revenue Service to
qualify the entire patronage dividend as an income tax deduction. As of August
31, 1998, the Company was in compliance with its loan agreements.

            Working capital increased $1.0 million for fiscal year 1998. This
increase was the result of funding the entire expansion project (see MINN-DAK
FARMERS COOPERATIVE STOCK SALE AND EXPANSION PLANS) while at August 31, 1998
approximately $2.0 million still remained to be expended on the expansion
project. The expansion project is anticipated to expend approximately 3% to 5%
less than the original estimate causing a positive impact on the working capital
and Ratio of Long-Term Debt to Members' Equity. As of August 31, 1998, the
targeted working capital position was approximately $7.0 million.

            Management's estimated working capital target for August 31, 1999
approximates $7.5 million. Discussions with the Company's primary lender have
indicated a desire on the part of the lender to have the Company increase it's
working capital to a level approximating $10 - $12 million. If the Company were
to agree to the lender's suggestions, working capital would be increased by
shifting to long-term debt in place of short-term or seasonal debt. Such a move
would increase working capital as well as the Long-term Debt to Members' Equity
Ratio.

            On October 22, 1998, The Company's primary lender, St Paul Bank,
entered into a letter of intent with CoBank, ACB, to merge operations effective
July 1, 1999. A definitive merger agreement and plan is anticipated to be
completed during the fourth quarter of 1998 and is subject to approval by the
lender's regulator and stockholders. The lender's stockholders are expected to
vote on the plan during the first part of 1999. The merger with CoBank is not
expected to negatively impact the Company's borrowing abilities.

            Capital expenditures for fiscal year 1996 were $34.6 million, fiscal
year 1997 were $26.0 million, and fiscal year 1998 were $10.9 million. Capital
expenditures for fiscal year 1999 are currently estimated at $6.3 million, $2.0
million resulting from the Company's strategy of expanding capacity and
improving operating efficiencies.

<PAGE>


            In fiscal 1996, the Company was able to secure a lease from Richland
County, North Dakota funded by low interest, fifteen year tax exempt solid waste
disposal bonds in the amount of $12.0 million with zero principal amortization
for the first three years and increasing balance amortization for the next 12
years, the first three years being $.7 million, $.8 million, and $.8 million.
These bonds were required to be secured by a Letter of Credit from a
non-government agency bank (Norwest Bank North Dakota) who in turn was secured
by a Collateral Agreement with the St. Paul Bank for Cooperatives, the Company's
primary lender. Solid waste disposal bonds are available under certain
conditions where a by-product of manufacturing must be further manufactured or
refined to produce a salable product and/or reduce the amount of solid waste
produced by a manufacturing plant. In the Company's primary case, the funds were
used to fund further manufacturing of a by-product to produce a salable product.
(See Part I, Item 1 "MINN-DAK FARMERS COOPERATIVE STOCK SALE AND EXPANSION
PLANS".)


COMPARISON OF THE YEARS ENDED AUGUST 31, 1998, AND 1997

            Revenue for the year ended August 31, 1998 increased 7.0% or $9.8
million from 1997. Revenue from total sugar sales increased 16.1% reflecting a
(4.7%) decrease in the average selling price per cwt and a 20.8% increase in
cwt. sold. Revenue from pulp sales decreased 7.8% reflecting an decrease of
(31.9%) in the average selling price per ton and 24.1% increase in volume.
Revenue from molasses sales decreased (0.1%) reflecting a decrease of (15.1%) in
the average selling price per ton and a 15.0% increase in volume.

            Revenues from yeast sales increased 11.1% reflecting a price
decrease of (6.3%) and an increase in volume of 17.4%.

            Finished product inventories increased $6.2 million in 1998
primarily due higher volumes of ending sugar inventory.

            Cost of product produced, exclusive of payments for sugar beets and
grower trucking, increased $5.7 million. The increase is primarily due to a 17%
increase in sugar beets purchased and an increase in non-allocated costs such as
plant depreciation, taxes and insurance of 27%. Sales and Distribution costs
increased $2.9 million or 13.2%. General and Administrative expenses increased
$0.3 million or 7.4%. Interest expense increased $1.1 million or 24.4%. The cost
per cwt produced increased 3.7%.

            Non-member business income increased $1.4 million in fiscal year
1998. This decrease was primarily due to the reduction in losses associated with
the Company's investment in Pro-Gold, and to increased net income from the
Minn-Dak Yeast Company, Inc. subsidiary operations.

            Net payments to members for sugar beets increased by $.9 million in
1998. This increase was primarily due to a higher volume but lower quality of
the beets delivered by members in 1998 versus 1997, and because of lower selling
prices for sugar, pulp and molasses.


COMPARISON OF THE YEARS ENDED AUGUST 31, 1997, AND 1996

            Revenue for the year ended August 31, 1997 increased 22% or $25.4
million from 1996. Revenue from total sugar sales increased 4.2% reflecting a
5.8% increase in the average selling price per cwt and a 1.6% decrease in cwt.
sold. Revenue from pulp sales decreased 2.8% reflecting an increase of 10.7% in
volume and 12.2% decrease in the average selling price per ton. Revenue from
molasses sales increased 4.3% reflecting a 3.0% increase in volume and an
increase of 1.3% in the average selling price per ton.

            Revenues from yeast sales decreased 7.6% reflecting a decrease in
volume of 9.0% and an increase of 1.6% in the average selling price per pound.
Finished product inventories increased $13.8 million in 1997 primarily due
higher volumes of ending sugar inventory.

            Cost of product sold, exclusive of payments for sugar beets,
increased $2.6 million. The increase is primarily due to the increased
non-allocated costs such as plant depreciation, taxes and insurance. Sales and

<PAGE>


Distribution costs increased $1.9 million. General and Administrative expenses
increased $0.4 million. Interest expense increased $1.4 million.

            Non-member business income decreased $2.0 million in fiscal year
1997. This decrease was primarily due to the recording of losses generated from
the Company's investment in ProGold, and to decreased net income from the
Minn-Dak Yeast Company, Inc. subsidiary operations.

            Net payments to members for sugar beets increased by $17.0 million
in 1997. This increase was primarily due to a higher volume and higher quality
of the beets delivered by members in 1997 versus 1996, and because of higher
selling prices for sugar.


ESTIMATED FISCAL YEAR 1999 INFORMATION

            The agreements between the Company and its members regarding the
delivery of sugar beets to the Company require payment for members' sugar beets
in several installments throughout the year. As only the final payment is made
after the close of the fiscal year in question, the first payments to members
for their sugar beets are based upon the Company's then-current estimates of the
financial results to be obtained from processing the crop in question and the
subsequent sale of the products obtained from processing those sugar beets. 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 1998 sugar
beet crop. Given the nature of the estimates required in connection with the
payments to members for their sugar beets, this discussion includes
forward-looking statements regarding the quantity of sugar to be produced from
the 1998 sugar beet crop, the net selling price for the sugar and by-products
produced by the Company and the Company's operating costs. These forward-looking
statements are based largely upon the Company's expectations and estimates of
future events; as a result, they are subject to a variety of risks and
uncertainties. Some of those estimates, such as the selling price for the
Company's products and the quantity of sugar produced from the sugar beet crop,
are beyond the Company's control. The actual results experienced by the Company
could differ materially from the forward-looking statements contained herein.

            The recently completed harvest of the sugar beet crop grown during
1998 produced a total of 1,772,648 tons of sugar beets. The sugar content on the
1998 crop is 17.43%. The Company expects to produce a total of approximately
4,488,000 hundredweight of sugar from the 1998 sugar beet crop.

            Based on marketing information developed by United Sugars
Corporation, the Company's current estimate is that the average net selling
price of the Company's sugar will be approximately $23.00 per hundredweight.

            From the revenues generated from the sale of products produced from
each ton of sugar beets must be deducted the Company's operating and fixed
costs, which are currently estimated to be $27.80 per ton. The deduction of
those operating costs results in an estimated gross beet payment of $35.80 per
ton of sugar beets


YEAR 2000

            The Company has developed preliminary plans to address the possible
exposures related to the impact on its computer systems of the Year 2000.

            Key customers and suppliers have been contacted with no significant
concerns being brought to the Company's attention.

            The Company has upgraded its accounting system and anticipates it
operations systems to be ready for the Year 2000.

            The financial impact of making the required systems changes is not
expected to be material to the Company's consolidated financial position,
results of operations or cash flows.

<PAGE>


ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITOR'S REPORT

The Board of Directors
Minn-Dak Farmers Cooperative
Wahpeton, North Dakota

We have audited the accompanying consolidated balance sheets of Minn-Dak Farmers
Cooperative (a North Dakota cooperative) as of August 31, 1998, 1997, and 1996,
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 cooperative's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Minn-Dak Farmers
Cooperative as of August 31, 1998, 1997, and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

<PAGE>


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                                       1998            1997            1996
                                                                   ------------    ------------    ------------
<S>                                                                <C>             <C>             <C>         
ASSETS

CURRENT ASSETS:
      Cash                                                         $  1,849,003    $  1,234,541    $    853,102
                                                                   ------------    ------------    ------------

      Current portion of long-term note receivable                      288,093         216,475              --
                                                                   ------------    ------------    ------------

      Receivables:
           Trade accounts                                            13,586,827      12,648,938      10,293,751
           Growers                                                    3,539,710       2,818,976       2,840,447
           Other                                                        458,400         987,579         323,231
                                                                   ------------    ------------    ------------
                                                                     17,584,937      16,455,493      13,457,429
                                                                   ------------    ------------    ------------

      Advances to affiliate                                           2,897,718         887,640         160,585
                                                                   ------------    ------------    ------------

      Inventories:
           Refined sugar, pulp and molasses to be sold
              on a pooled basis                                      27,803,954      21,576,181       7,748,715
           Nonmember refined sugar                                      326,289         112,301         468,322
           Yeast                                                         78,994          88,711         108,704
           Materials and supplies                                     5,210,663       4,698,784       4,026,951
           Other                                                         71,950          81,630          97,626
                                                                   ------------    ------------    ------------
                                                                     33,491,850      26,557,607      12,450,318
                                                                   ------------    ------------    ------------

      Deferred charges                                                1,273,039       1,249,154       1,119,274
                                                                   ------------    ------------    ------------

      Prepaid expenses                                                  246,112         191,663         176,526
                                                                   ------------    ------------    ------------

      Property and equipment available for sale                         587,550         616,050         789,350
                                                                   ------------    ------------    ------------

                Total current assets                                 58,218,302      47,408,623      29,006,584
                                                                   ------------    ------------    ------------

PROPERTY, PLANT AND EQUIPMENT:
      Land and land improvements                                     20,133,021      16,545,767      11,956,354
      Buildings                                                      34,735,639      30,258,910      22,254,129
      Factory equipment                                             103,921,887      82,001,703      72,462,793
      Other equipment                                                 3,699,820       2,810,128       2,200,809
      Construction in progress                                        4,176,148      24,156,551      22,352,000
                                                                   ------------    ------------    ------------
                                                                    166,666,515     155,773,059     131,226,085
           Less accumulated depreciation                             56,097,673      51,523,574      48,551,028
                                                                   ------------    ------------    ------------
                                                                    110,568,842     104,249,485      82,675,057
                                                                   ------------    ------------    ------------
LONG-TERM NOTES RECEIVABLE, NET OF
   CURRENT PORTION                                                    2,944,020       2,381,228              --
                                                                   ------------    ------------    ------------

OTHER ASSETS:
      Investments restricted for capital lease projects                               4,058,048       7,514,242
      Investment in stock of other corporations, unconsolidated
         marketing subsidiaries and other cooperatives                9,601,940       9,425,112      12,663,265
      Deferred income taxes                                           2,652,000       3,450,000       3,450,000
      Other                                                             845,140         923,383       1,051,761
                                                                   ------------    ------------    ------------
                                                                     13,099,080      17,856,543      24,679,268
                                                                   ------------    ------------    ------------

                                                                   $184,830,244    $171,895,879    $136,360,909
                                                                   ============    ============    ============
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                                                                               1998              1997               1996
                                                                           -------------     -------------     -------------
<S>                                                                        <C>               <C>               <C>          
LIABILITIES AND MEMBERS' INVESTMENT

CURRENT LIABILITIES:
      Short-term notes payable                                             $  26,855,000     $  19,890,000     $          --
                                                                           -------------     -------------     -------------

      Current portion of long-term debt                                        5,612,500         2,512,500         2,512,500
                                                                           -------------     -------------     -------------

      Accounts payable:
           Trade                                                               5,123,520         3,532,551         5,915,793
           Growers                                                             5,970,930         8,334,605         6,063,827
                                                                           -------------     -------------     -------------
                                                                              11,094,450        11,867,156        11,979,620
                                                                           -------------     -------------     -------------

      Accrued liabilities                                                      3,485,909         2,975,558         2,669,019
                                                                           -------------     -------------     -------------

                Total current liabilities                                     47,047,859        37,245,214        17,161,139

LONG-TERM DEBT, NET OF CURRENT PORTION                                        42,185,417        47,797,917        48,810,417

OBLIGATION UNDER CAPITAL LEASE                                                12,000,000        12,000,000        12,000,000

OTHER                                                                            747,766           688,608           728,296

COMMITMENTS AND CONTINGENCIES (NOTE 12)                                               --                --                --
                                                                           -------------     -------------     -------------

                Total liabilities                                            101,981,042        97,731,739        78,699,852
                                                                           -------------     -------------     -------------

MINORITY INTEREST IN EQUITY OF SUBSIDIARY                                        767,481           517,727           337,439
                                                                           -------------     -------------     -------------

MEMBERS' INVESTMENT:
      Preferred stock:
           Class A - 100,000 shares authorized in 1998, 1997, and 1996,
             $105 par value; 72,200, 66,967, and 58,525 shares issued
             and outstanding in 1998, 1997, and 1996, respectively             7,581,000         7,031,535         6,145,125

           Class B - 100,000 shares authorized in 1998, 1997, and 1996,
             $75 par value; 72,200, 66,967, and 58,525 shares issued
             and outstanding in 1998, 1997, and 1996, respectively             5,415,000         5,022,525         4,389,375

           Class C - 100,000 shares authorized in 1998, 1997, and 1996,
             $76 par value; 72,200, 66,967, and 58,525 shares issued
             and outstanding in 1998, 1997, and 1996, respectively             5,487,200         5,089,492         4,447,900
                                                                           -------------     -------------     -------------
                                                                              18,483,200        17,143,552        14,982,400

      Common stock, 600 shares authorized in 1998, 1997 and 1996,
        $250 par value; issued and outstanding 484, 481, and 481,
        shares in 1998, 1997, and 1996 respectively                              121,000           120,250           120,250
      Paid in capital in excess of par                                        32,094,407        23,753,005        10,296,457
      Unit retention capital                                                   7,584,237         6,739,547         6,262,469
      Qualified allocated patronage                                            3,981,031         4,081,381         3,720,385
      Nonqualified allocated patronage                                        20,071,517        22,497,263        21,575,006
      Retained earnings (deficit)                                               (253,671)         (688,585)          366,651
                                                                           -------------     -------------     -------------
                                                                              82,081,721        73,646,413        57,323,618
                                                                           -------------     -------------     -------------

                                                                           $ 184,830,244     $ 171,895,879     $ 136,360,909
                                                                           =============     =============     =============
</TABLE>

See Notes to Consolidated Financial Statements

<PAGE>


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                1998              1997               1996
                                                            -------------     -------------     -------------
<S>                                                         <C>               <C>               <C>          
REVENUE:
      From sales of sugar, sugar by-products, and yeast,
       net of discounts                                     $ 149,573,584     $ 139,729,701     $ 114,334,522
                                                            -------------     -------------     -------------

EXPENSES:
      Production costs of sugar, by-products, and yeast        41,854,177        33,446,952        30,872,535
      Sales and distribution costs                             24,697,769        21,822,495        19,955,374
      General and administrative                                4,906,549         4,567,869         4,213,379
      Interest                                                  5,372,221         4,315,823         2,898,338
                                                            -------------     -------------     -------------
                                                               76,830,716        64,153,139        57,939,626
                                                            -------------     -------------     -------------

OTHER INCOME (EXPENSE)                                           (659,048)       (1,337,294)          476,775
                                                            -------------     -------------     -------------

NET PROCEEDS RESULTING FROM MEMBER AND
   NON-MEMBER BUSINESS                                      $  72,083,820     $  74,239,268     $  56,871,671
                                                            =============     =============     =============

DISTRIBUTION OF NET PROCEEDS:
      Credited to members' investment:
           Components of net income:
                Income (loss) from non-member business      $     335,688     $  (1,055,236)    $     929,738
                Patronage income                                       --         4,382,934         1,620,262
                                                            -------------     -------------     -------------
                     Net income                                   335,688         3,327,698         2,550,000

           Unit retention capital                                 884,562           948,246         1,389,899
                                                            -------------     -------------     -------------
                Net credit to members' investment               1,220,250         4,275,944         3,939,899

      Payments to members for sugarbeets, net of unit
         retention capital                                     70,863,570        69,963,324        52,931,772
                                                            -------------     -------------     -------------

NET PROCEEDS RESULTING FROM MEMBER AND
   NONMEMBER BUSINESS                                       $  72,083,820     $  74,239,268     $  56,871,671
                                                            =============     =============     =============
</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' INVESTMENT
FOR THE YEARS ENDED AUGUST 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                            PAID IN CAPITAL   UNIT      
                                                  PREFERRED      COMMON      IN EXCESS OF   RETENTION   
                                                    STOCK         STOCK       PAR VALUE      CAPITAL    
                                                 -----------   -----------   -----------   -----------  
<S>                                              <C>           <C>           <C>                        
BALANCE, AUGUST 31, 1995                         $13,312,000   $    86,500   $             $ 5,421,441  

STOCK:
      Sales - common (10 shares)                                     2,500                              
      Repurchases - common (12 shares)                              (3,000)                             
      Stock offering (137 common shares,
        6525 preferred shares)                     1,670,400        34,250    10,400,850                
      Stock issue costs                                                         (104,393)               

UNIT RETENTION CAPITAL:
      Revolvement                                                                             (548,871) 
      Proceeds                                                                               1,389,899  

REVOLVEMENT OF PRIOR YEARS' ALLOCATED PATRONAGE                                                         

ECONOMIC DEVELOPMENT GRANT RECEIVED BY INVESTEE                                                         

NET INCOME FOR THE YEAR ENDED AUGUST 31, 1996                                                           

ACCRUED PAYMENT OF CURRENT YEAR'S QUALIFIED
   ALLOCATED PATRONAGE                                                                                  
                                                 -----------   -----------   -----------   -----------  

BALANCE, AUGUST 31, 1996                          14,982,400       120,250    10,296,457     6,262,469  

STOCK:
      Sales - common (8 shares)                                      2,000                              
      Repurchases - common (8 shares)                               (2,000)                             
      Sales - preferred (8,442 shares)             2,161,152                  13,456,548

UNIT RETENTION CAPITAL:
      Revolvement                                                                             (471,168) 
      Proceeds                                                                                 948,246  

REVOLVEMENT OF PRIOR YEARS' ALLOCATED PATRONAGE                                                         

NET INCOME FOR THE YEAR ENDED AUGUST 31, 1997                                                           

ACCRUED PAYMENT OF CURRENT YEAR'S QUALIFIED
   ALLOCATED PATRONAGE                                                                                  
                                                 -----------   -----------   -----------   -----------  

BALANCE, AUGUST 31, 1997                          17,143,552       120,250    23,753,005     6,739,547  

STOCK:
      Sales - common (10 shares)                                     2,500                              
      Repurchases - common (8 shares)                               (1,750)                             
      Sales - preferred (5,233 shares)             1,339,648                   8,341,402                

UNIT RETENTION CAPITAL:
      Revolvement                                                                              (39,872) 
      Proceeds                                                                                 884,562  

REVOLVEMENT OF PRIOR YEARS' ALLOCATED PATRONAGE                                                         

ECONOMIC DEVELOPMENT GRANT RECEIVED BY INVESTEE                                                         

NET INCOME FOR THE YEAR ENDED AUGUST 31, 1998                                                           
                                                 -----------   -----------   -----------   -----------  

BALANCE, AUGUST 31, 1998                         $18,483,200   $   121,000   $32,094,407   $ 7,584,237  
                                                 ===========   ===========   ===========   ===========  
</TABLE>

<PAGE>


                   [WIDE TABLE CONTINUED FROM PREVIOUS PAGE]

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------- 
                                                  QUALIFIED  NON-QUALIFIED  RETAINED                 
                                                  ALLOCATED    ALLOCATED    EARNINGS                 
                                                  PATRONAGE    PATRONAGE    (DEFICIT)       TOTAL    
                                                 -----------  -----------  -----------   ----------- 
<S>                                              <C>          <C>          <C>           <C>         
BALANCE, AUGUST 31, 1995                         $ 4,646,400  $21,157,010  $  (630,917)  $43,992,434 
                                                                                                     
STOCK:                                                                                               
      Sales - common (10 shares)                                                               2,500 
      Repurchases - common (12 shares)                                                        (3,000)
      Stock offering (137 common shares,                                                             
        6525 preferred shares)                                                            12,105,500 
      Stock issue costs                                                                     (104,393)
                                                                                                     
UNIT RETENTION CAPITAL:                                                                              
      Revolvement                                                                           (548,871)
      Proceeds                                                                             1,389,899 
                                                                                                     
REVOLVEMENT OF PRIOR YEARS' ALLOCATED PATRONAGE   (1,239,315)    (720,266)                (1,959,581)
                                                                                                     
ECONOMIC DEVELOPMENT GRANT RECEIVED BY INVESTEE                                 67,830        67,830 
                                                                                                     
NET INCOME FOR THE YEAR ENDED AUGUST 31, 1996        482,000    1,138,262      929,738     2,550,000 
                                                                                                     
ACCRUED PAYMENT OF CURRENT YEAR'S QUALIFIED                                                          
   ALLOCATED PATRONAGE                              (168,700)                               (168,700)
                                                 -----------  -----------  -----------   ----------- 
                                                                                                     
BALANCE, AUGUST 31, 1996                           3,720,385   21,575,006      366,651    57,323,618 
                                                                                                     
STOCK:                                                                                               
      Sales - common (8 shares)                                                                2,000 
      Repurchases - common (8 shares)                                                         (2,000)
      Sales - preferred (8,442 shares)                                                    15,617,700 
                                                                                                     
UNIT RETENTION CAPITAL:                                                                              
      Revolvement                                                                           (471,168)
      Proceeds                                                                               948,246 
                                                                                                     
REVOLVEMENT OF PRIOR YEARS' ALLOCATED PATRONAGE   (1,027,404)  (1,324,677)                (2,352,081)
                                                                                                     
NET INCOME FOR THE YEAR ENDED AUGUST 31, 1997      2,136,000    2,246,934   (1,055,236)    3,327,698 
                                                                                                     
ACCRUED PAYMENT OF CURRENT YEAR'S QUALIFIED                                                          
   ALLOCATED PATRONAGE                              (747,600)                               (747,600)
                                                 -----------  -----------  -----------   ----------- 
                                                                                                     
BALANCE, AUGUST 31, 1997                           4,081,381   22,497,263     (688,585)   73,646,413 
                                                                                                     
STOCK:                                                                                               
      Sales - common (10 shares)                                                               2,500 
      Repurchases - common (8 shares)                                                         (1,750)
      Sales - preferred (5,233 shares)                                                     9,681,050 
                                                                                                     
UNIT RETENTION CAPITAL:                                                                              
      Revolvement                                                                            (39,872)
      Proceeds                                                                               884,562 
                                                                                                     
REVOLVEMENT OF PRIOR YEARS' ALLOCATED PATRONAGE     (100,350)  (2,425,746)                (2,526,096)
                                                                                                     
ECONOMIC DEVELOPMENT GRANT RECEIVED BY INVESTEE                                 99,226        99,226 
                                                                                                     
NET INCOME FOR THE YEAR ENDED AUGUST 31, 1998                                  335,688       335,688 
                                                 -----------  -----------  -----------   ----------- 
                                                                                                     
BALANCE, AUGUST 31, 1998                         $ 3,981,031  $20,071,517  $  (253,671)  $82,081,721 
                                                 ===========  ===========  ===========   =========== 
</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                                1998             1997              1996
                                                                            ------------     ------------     ------------
<S>                                                                         <C>              <C>              <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
      Income allocated to members' investment                               $    335,688     $  3,327,698     $  2,550,000
      Add (deduct) noncash items:
      Depreciation and amortization                                            5,980,837        4,458,900        3,061,758
      Equipment disposals - loss                                                 220,932          301,851           51,765
      Discount on redemption of estate payout                                    (63,610)         (55,407)
      Noncash investment in Progold                                              185,527         (185,527)
      Net loss allocated from unconsolidated marketing subsidiaries              521,060        1,630,249           91,083
      Noncash portion of patronage capital credits                              (736,751)        (652,922)        (562,047)
      Retention of nonqualified unit retains                                     884,562          948,246        1,389,899
      Deferred income taxes                                                      728,000
      Decrease (increase) in cash surrender of officer life insurance             10,709          (36,170)           9,904
      Changes in operating assets and liabilities:
           Accounts receivable and advances                                   (3,139,522)      (3,110,306)        (107,706)
           Inventory and prepaid expenses                                     (6,988,692)     (14,122,426)       9,671,057
           Deferred charges                                                       46,115         (129,880)        (212,795)
           Other assets                                                           28,500                           (20,719)
           Accounts payable, advances, and accrued liabilities                   733,016         (903,623)       2,057,694
                                                                            ------------     ------------     ------------
                     Net cash provided by (used in) operating activities      (1,253,629)      (8,529,317)      17,979,893
                                                                            ------------     ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Proceeds from disposition of property, plant and equipment                  40,676            5,474            4,055
      Capital expenditures                                                    (8,293,687)     (22,249,794)     (30,066,812)
      Proceeds from sale of investments                                                            29,710
      Investment in stock of other corporations, unconsolidated
         marketing subsidiaries and other cooperatives                          (139,941)        (583,117)      (5,915,938)
      Issuance of note receivable                                               (757,114)
      Proceeds on note receivable                                                225,000
      Net proceeds from patronage refunds and equity revolvements                 92,503           32,762           30,601
      Minority interest in equity of subsidiaries                                249,754          180,289          255,910
                                                                            ------------     ------------     ------------
                     Net cash used by investing activities                    (8,582,809)     (22,584,676)     (35,692,184)
                                                                            ------------     ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Sale and repurchase of common stock, net                                       750                              (500)
      Net proceeds from issuance of short-term debt                            6,965,000       19,890,000      (13,877,000)
      Proceeds from issuance of long-term debt                                                                  29,000,000
      Proceeds from sale of stock                                              9,681,050       15,617,700       12,001,107
      Payment of financing fees                                                 (185,671)        (185,671)        (406,111)
      Payment of long-term debt                                               (2,512,500)      (1,012,500)      (5,945,914)
      Payment of unit retains and allocated patronage                         (3,497,729)      (2,814,097)      (2,493,196)
                                                                            ------------     ------------     ------------
                     Net cash provided by financing activities                10,450,900       31,495,432       18,278,386
                                                                            ------------     ------------     ------------

NET CHANGE IN CASH                                                               614,462          381,439          566,095

CASH, BEGINNING OF YEAR                                                        1,234,541          853,102          287,007
                                                                            ------------     ------------     ------------

CASH, END OF YEAR                                                           $  1,849,003     $  1,234,541     $    853,102
                                                                            ============     ============     ============
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                                                                                1998             1997             1996
                                                                            ------------     ------------     ------------
<S>                                                                         <C>              <C>              <C>         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Cash payments for:
           Interest                                                         $  4,244,771     $  3,683,034     $  2,472,853
                                                                            ============     ============     ============

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
   AND FINANCING ACTIVITIES:
      Board approval of unit retention capital and allocated patronage
         revolvement                                                        $  2,383,126     $  2,658,897     $  2,508,452
                                                                            ============     ============     ============

      Transfer of property and equipment available for sale to property
         and equipment                                                                       $     22,850
                                                                                             ============

      Acquisition of property                                                                $    267,000
      Issuance of notes receivable                                                              2,597,703
      Issuance of long-term advances                                                              102,295
                                                                                             ============
      Reduction of investment                                                                $  2,966,998
                                                                                             ============

      Board approval of distribution of cash portion of qualified
         allocated patronage                                                                 $    719,600     $    168,700
                                                                                             ============     ============

      Increase in note receivable by reduction of advances                  $    102,296
                                                                            ============

      Increase in investment from receipt of Economic Development Grant     $     99,226                      $     67,830
                                                                            ============                      ============

      Acquisition of equipment under capital lease                          $  4,058,048     $  3,456,194        4,485,758
      Acquisition of investment restricted for capital lease projects                                            7,514,242
      Reduction in investment restricted for capital lease projects           (4,058,048)      (3,456,194)
                                                                            ------------     ------------     ------------

      Proceeds from issuance of obligation under capital lease              $         --     $         --     $ 12,000,000
                                                                            ============     ============     ============
</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1998, 1997, and 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CONCENTRATIONS OF RISK

Principles of Consolidation - The financial statements include the accounts of
Minn-Dak and its subsidiary, Minn-Dak Yeast Company, Inc. (Minn-Dak Yeast) which
is 80% owned by the cooperative.

Inventories - Inventories of refined sugar, pulp and molasses to be sold on a
pooled basis are valued at net realizable value, while third-party purchased
refined sugar to be sold on a pooled basis is valued at the lower of cost or
market. Inventories of dietary pulp fiber, yeast, and materials and supplies are
valued at the lower of average cost or market.

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

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

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

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

Indirect costs capitalized were $588,605, $449,149, and $435,686 for the years
ended August 31, 1998, 1997, and 1996. Construction-period-interest capitalized
for the years ended August 31, 1998, 1997, and 1996, were $199,417, $953,944,
and $669,347, respectively.

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

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

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

1. When nonqualified unit retention capital and allocated patronage are elected
by the board of directors, the cooperative 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.

<PAGE>


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. Deferred compensation - For financial reporting purposes, deferred
compensation is charged to expense as amounts are accrued. For income tax
purposes, deferred compensation is deductible when paid.

6. 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 when paid.

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

Uninsured Cash Balance - The company maintains cash balances at various
financial institutions throughout the United States. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. At times during the year, the company's balances exceeded this limit.

Reclassifications - Certain amounts have been reclassified in the 1997 and 1996
financial statements. The reclassifications have no effect on the results of
operations.


NOTE 2 - NATURE OF OPERATIONS AND CONCENTRATION OF CREDIT RISK

Nature of Operations - Minn-Dak is a North Dakota cooperative corporation owned
by its member-growers for the purpose of processing sugarbeets and marketing
sugar and by-products. Minn-Dak Yeast is a North Dakota corporation engaged
primarily in the production and marketing of bakers yeast.

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

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


NOTE 3 - NOTES RECEIVABLE

The cooperative's notes receivable total $3,232,113 and $2,597,703 as of August
31, 1998 and 1997, respectively. They are due from United Sugars member
processors. The notes receivable are unsecured, with a variable interest rate,
currently 8.5%. The notes will be received in equal annual installments through
August 31, 2011. The notes are subordinated to St. Paul Bank for Cooperatives.
The current portion of the notes are $288,093, and $216,475 as of August 31,
1998 and 1997, respectively.

<PAGE>


NOTE 4 - INVESTMENTSThe investment in stock of other corporations,
unconsolidated marketing subsidiaries and other cooperatives consists of the
following: 
                                     1998          1997          1996

United Sugars Corporation        $   864,903   $   820,641   $ 3,292,816
Midwest Agri-Commodities              21,947        11,748        40,835
ProGold, LLC                       3,398,894     3,920,776     5,246,666
St. Paul Bank for Cooperatives     2,956,944     2,505,512     2,151,143
R.S.R. Electric Cooperative        2,321,556     2,134,431     1,870,859
Other                                 37,696        32,004        60,946
                                 -----------   -----------   -----------
Total                            $ 9,601,940   $ 9,425,112   $12,663,265

NOTE 5 - SHORT-TERM DEBT

Information regarding short-term debt at August 31, 1998, 1997, and 1996, is as
follows:

                                               1998        1997         1996
 Seasonal loan with St. Paul Bank for
  Cooperatives, due January 31, 1999,
  interest variable, currently at 6.51%    $26,855,000  $19,890,000  $       --

The cooperative has a $70,000,000 seasonal line of credit with the St. Paul Bank
for Cooperatives. The line is secured with a first lien on substantially all
property and equipment and current assets of Minn-Dak. Maximum borrowings,
average borrowing levels and average interest rates for short-term debt for the
years ended August 31, 1998, 1997, and 1996, are as follows:

                                    August 31

                               1998           1997           1996   
Maximum borrowings         $96,570,000    $82,580,000    $59,566,800
Average borrowing levels   $81,260,846    $70,785,583    $50,578,800
Average interest rates         6.48%          6.43%          6.25%


NOTE 6 - LONG-TERM DEBT

Information regarding long-term debt at August 31, 1998, 1997, and 1996, is as
follows:

<TABLE>
<CAPTION>
                                                       1998         1997         1996
<S>                                                    <C>          <C>          <C>      
 Term loan with the St. Paul Bank for Cooperatives,
   due in varying principal repayments through
   February 29, 2008, interest of 8.5%, with a first
   lien on substantially all property and equipment
   and current assets of Minn-Dak                      $47,750,000  $50,250,000  $51,250,000

 Term loan with R.S.R. Electric Cooperative, Inc.,
   due October 12, 2002, interest free, unsecured           47,917       60,417       72,917
                                                        ----------  -----------  -----------
                                                        47,797,917   50,310,417   51,322,917
                           Less current maturities      (5,612,500)  (2,512,500)  (2,512,500)
                                                       -----------  -----------  -----------

                                                       $42,185,417  $47,797,917  $48,810,417
</TABLE>

<PAGE>


As to the loan with the St. Paul Bank for Cooperatives, the cooperative has
agreed to the following significant loan conditions:

1. Invest in Class C or other stock of the bank, as may be designated, in such
amounts as may be prescribed by the board of directors of the bank.

2. Maintain working capital of not less than $7 million, maintain a current
ratio of not less than 1.2:1.0, and maintain a long-term debt to equity ratio of
no greater than 1:1.

3. Obtain prior consent from the bank to pay cash patronage dividends in excess
of 35% of qualified patronage income as required by the Internal Revenue Service
to qualify the entire patronage dividend as an income tax deduction.

Minn-Dak has complied with the terms of its loan agreement for the years ended
August 31, 1998, 1997, and 1996. In addition, Minn-Dak can make special advance
payments on its term loans with the St. Paul Bank for Cooperatives after its
seasonal loans have been paid in full, with the understanding that the special
advance payments will be readvanced 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 unadvanced commitment.

Interest expense, net of amount capitalized, totaled $5,372,221, $4,315,823, and
$2,898,338, for 1998, 1997, and 1996, respectively. Interest capitalized totaled
$199,417, $953,944, and $669,347 for 1998, 1997, and 1996, respectively.

Principal amounts due on all the cooperative's long-term debt are as follows:

            Years Ending August 31:

            1999              $  5,612,500
            2000                 5,612,500
            2001                 5,612,500
            2002                 5,610,417
            2003                 5,600,000
            Thereafter          19,750,000
                              ------------
                              $ 47,797,917


NOTE 7 - OBLIGATIONS UNDER CAPITAL LEASES

The cooperative has a capital lease with Richland County, North Dakota for
equipment relating to solid waste disposal. The county has financed the leased
assets with a bond issue and accordingly have structured the cooperative's lease
payments to correspond with the bond issue's interest and principal
requirements. Details relative to the cooperatives obligations under the lease
agreement are as follows:
<TABLE>
<CAPTION>

                                              1998
                                              Final   Current                       1997           1996
Payee                             Interest  Maturity  Portion       Total           Total          Total

<S>                                 <C>      <C>      <C>        <C>             <C>           <C>        
Richland County, North Dakota       4.85%    1/11     $582,000   $16,345,935     $16,927,935   $17,509,844

Less amount representing
              interest                                 582,000     4,345,935       4,927,935     5,509,844
                                                      --------   -----------     -----------   -----------

                                                      $     --   $12,000,000     $12,000,000   $12,000,000
</TABLE>

Minimum future principal payments required on the obligations under capital
leases are as follows:

<PAGE>


Years Ending August 31:

            2000             $    730,000
            2001                  775,000
            2002                  815,000
            2003                  860,000
            Thereafter          8,820,000
                             ------------
                             $ 12,000,000


NOTE 8 - MEMBERS' INVESTMENT AND GROWER PAYMENTS

The ownership of nondividend bearing common stock is restricted to a
"member-producer," as defined in the bylaws of Minn-Dak. 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 required to purchase one unit of
preferred stock for each base acre of sugar beet crops grown under a grower's
contract with Minn-Dak. A unit consists of one share each of Class A, Class B
and Class C preferred stock. The preferred shares are nonvoting and nondividend
bearing. All transfers and sales of stock must be approved by the board of
directors. During the fiscal year 1995, the board of directors voted and
approved to offer additional common stock at $250 per share and 20,200 units of
its preferred stock at $1,850 per unit. 137 common shares were sold in January
1996. The cooperative called for the payment of preferred stock units of 5,233
in January 1998; 8,442 in January 1997 and 6,525 in January 1996.

Minn-Dak's net income, determined in accordance with generally accepted
accounting principles consistently applied, shall be distributed annually on the
basis of dollar volume of patronage, in cash or in the form of credits to each
member-producer's patronage credit account as established on the books of the
cooperative. In the event of a loss in any one year, the cooperative 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 Minn-Dak's beet growing contracts with each of its
member-producers, Minn-Dak is obligated to pay the member-producers for beets
delivered at a price per pound of extractable sugar. However, if, in the opinion
of the St. Paul Bank for Cooperatives, the working capital position of the
cooperative is insufficient, Minn-Dak shall retain from the price to be paid per
ton for beets 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 Minn-Dak 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, 1998, Minn-Dak had retained $860,729 and $23,833,
respectively for facilities expansion and frozen beet storage. For the year
ended August 31, 1997, Minn-Dak had retained $753,329 and $194,917, respectively
for sugar silo storage and frozen beet storage. For the year ended August 31,
1996, Minn-Dak had retained $1,389,899 for sugar silo storage and frozen beet
storage. For 1998, 1997, and 1996, the retainage is based on $.50 per ton of
beets delivered for facilities expansion and sugar silo storage, and the lesser
of the maximum obligation required or $.50 per ton of beets delivered for frozen
beet storage.

During the year ended August 31, 1996, Minn-Dak revolved the remaining 30% of
the unit retains and allocated patronage for the fiscal year ended August 31,
1989, and 35% for the fiscal year ended August 31, 1990, totaling $2,508,452.

During the year ended August 31, 1997, Minn-Dak revolved the remaining 65% of
the unit retains and allocated patronage for the fiscal year ended August 31,
1990, totaling $2,658,897. In addition, unit retains and allocated patronage
owned by an estate were redeemed at a discount. The discount represented the
difference between the book value of these items, totaling $164,352, and the
present value of the estimated future redemptions.

During the year ended August 31, 1998, Minn-Dak revolved 35% of the allocated
patronage for the fiscal year ended August 31, 1991, totaling $2,383,126. In
addition, unit retains and allocated patronage owned by an estate

<PAGE>


were redeemed at a discount. The discount represented the difference between the
book value of these items, totaling $183,924, and the present value of the
estimated future redemptions.


NOTE 9 - INCOME TAXES

Minn-Dak Farmers Cooperative 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 cooperative. To the extent that net margins are not allocated and paid as
stated above or arise from business done with non-members, the cooperative 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, 1998, 1997, and 1996, are as follows:

<TABLE>
<CAPTION>
                                                               1998             1997             1996
<S>                                                        <C>              <C>              <C>         
Deferred tax assets:
            Non-qualified unit retains and allocated
               patronage due to members                    $ 11,060,000     $ 11,700,000     $ 10,600,000
            Other                                             1,898,000        1,000,000        1,300,000
                                                           ------------     ------------     ------------
            Gross deferred tax assets                        12,958,000       12,700,000       11,900,000
            Less valuation allowance                         (1,441,000)      (1,120,000)      (1,200,000)
                                                           ------------     ------------     ------------
                        Total deferred tax assets            11,517,000       11,580,000       10,700,000
                                                           ------------     ------------     ------------

Deferred tax liabilities:
            Depreciation                                      7,560,000        6,860,000        6,200,000
            Other                                               935,000          970,000          750,000
                                                           ------------     ------------     ------------

                        Total deferred tax liabilities        8,495,000        7,830,000        6,950,000
                                                           ------------     ------------     ------------

                                                           $  3,022,000     $  3,750,000     $  3,750,000

Classified as follows:
            Current asset                                  $    370,000     $    300,000     $    300,000
            Long-term asset                                   2,652,000        3,450,000        3,450,000
                                                           ------------     ------------     ------------

                                 Net deferred tax asset    $  3,022,000     $  3,750,000     $  3,750,000
</TABLE>

A provision for income taxes related to non-member income from Minn-Dak Yeast
Company, totaling $278,000, for the year ended August 31, 1998 is included in
other expense. The cooperative has had non-member losses in prior years. These
losses have been used to offset member income for income tax reporting.
Accordingly, there is no benefit from income taxes recorded for the years ended
August 31, 1997 and 1996.


NOTE 10 - EMPLOYEES' PENSION PLAN

The cooperative 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 benefits provided are based upon the
employee's average monthly compensation during the previous three highest
consecutive years multiplied by a formula and the participant's service ratio.
It is the cooperative's funding policy to contribute to the plan at least the
minimum amount required by ERISA as determined by the actuarial firm. The 1998
assumed discount rate was 7.5%. The assumed discount rate for 1997 and 1996 was
8%. The expected long-term rate of return on plan assets was estimated to be 8%
per year and future salary increases were estimated to be 5.0% per year in 1998,
and 5.5% per year in 1997 and 1996.

<PAGE>


The assets of the cooperative plan are maintained via insurance contracts with
Lincoln National Life Insurance Company of Fort Wayne, Indiana, and mutual funds
with Strong Funds of Milwaukee, Wisconsin.

The following table sets forth the plan's funded status at August 31, 1998,
1997, and 1996:

<TABLE>
<CAPTION>
                                                  1998             1997            1996
<S>                                          <C>              <C>              <C>          
Actuarial present value of benefit obligations:
Vested benefit obligation                    $ (6,430,093)    $ (5,177,415)    $ (4,130,135)

Accumulated benefit obligation               $ (6,476,120)    $ (5,219,255)    $ (4,314,938)
Projected benefit obligation                 $(10,125,507)    $ (8,638,721)    $ (7,096,231)
Plan assets at fair value                       8,051,707        6,414,126        5,514,202
                                             ------------     ------------     ------------
Projected benefit obligation in excess of
  plan assets                                  (2,073,800)      (2,224,595)      (1,582,029)
Unrecognized net (gain)/loss                      977,175        1,179,157          523,555
Unrecognized prior service cost                   464,816          519,689          574,562
Unrecognized net asset at adoption date
  (September 1, 1987)                             (99,747)        (118,013)        (136,279)
                                             ------------     ------------     ------------
Pension liability                                (731,556)        (643,762)        (620,191)
            Less current portion                  291,095          194,929          144,213
                                             ------------     ------------     ------------

Long-term pension liability                  $   (440,461)    $   (448,833)    $   (475,978)
</TABLE>

The net periodic pension cost for the years ended August 31, 1998, 1997, and
1996, includes the following components:

<TABLE>
<CAPTION>
                                                      1998            1997             1996
<S>                                               <C>             <C>             <C>        
Service cost-benefits earned during the period    $   487,480     $   394,073     $   313,069
Interest cost on projected benefit obligation         698,420         549,957         442,520
Actual return on plan assets                       (1,283,388)       (645,048)       (753,673)
Net amortization and deferral                         811,386         225,476         421,406
                                                  -----------     -----------     -----------

            Net periodic pension cost             $   713,898     $   524,458     $   423,322
</TABLE>


NOTE 11 - ENVIRONMENTAL MATTERS

Minn-Dak 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. Minn-Dak conducts an ongoing and expanding control program
designed to meet these environmental laws and regulations. While Minn-Dak will
continue to have ongoing environmental compliance issues, currently there are no
pending regulatory enforcement actions and Minn-Dak believes that it is in
substantial compliance with applicable environmental laws and regulations.

Minn-Dak 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 Minn-Dak
and its members.


NOTE 12 - COMMITMENTS AND CONTINGENCIES

Minn-Dak is subject to various lawsuits and claims which arise in the ordinary
course of its business. While the results of such litigation and claims cannot
be predicted with certainty, management believes the disposition of all

<PAGE>


such proceedings, individually or in aggregate, should not have a material
adverse effect on the company's financial position, results of operations or
cash flows.

Minn-Dak participates in a multi-employer, self-funded employee medical
insurance plan with Minn-Dak Yeast Company. The terms of the plan call for the
reimbursements to the plan administrator for all claims paid, up to a maximum
amount of $30,000 per employee per year and an aggregate maximum of $1,400,000
per year.

NOTE 13 - INVESTMENT IN MARKETING COOPERATIVES

Minn-Dak 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.

Minn-Dak'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. Minn-Dak provided United
Sugars with cash advances on an ongoing basis for operating and marketing
expenses incurred. During the years ended August 31, 1998, 1997, and 1996,
Minn-Dak had advanced $20,263,037, $16,327,321, and $14,948,115, respectively.
Minn-Dak had outstanding advances due from (to) United Sugars of $1,970,529,
($279,011), and ($958,905), for the years ended August 31, 1998, 1997, and 1996,
respectively.

In December, 1997, United States Sugar Corporation (USSC) became an equity
member of United Sugars. United Sugars will market all of the sugar refined by
USSC under the same terms as other members. USSC began shipping sugar in
September, 1998. They are expected to have annual capacity of approximately 10
million hundredweight.

Minn-Dak has a one-third ownership interest in Midwest. The amount of the
investment is accounted for using the equity method. All beet pulp and a portion
of the molasses produced is sold by Midwest as an agent for Minn-Dak. 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. Minn-Dak advanced Midwest $1,545,691, $1,627,978, $2,157,891,
respectively, during the years ended August 31, 1998, 1997, and 1996. Minn-Dak
had outstanding advances due from Midwest of $927,189, $1,166,651, and
$1,119,490, as of August 31, 1998, 1997, and 1996, respectively. The owners are
guarantors of the short-term line of credit Midwest has with the St. Paul Bank
for Cooperatives (bank).


NOTE 14 - OPERATING LEASES

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

            1999             1,342,000
            2000             1,028,000
            2001               917,000
            2002               903,000
            2003               342,000
            Thereafter         635,000

Operating lease and contract expenses for the years ended August 31, 1998, 1997,
and 1996, totaled approximately $1,386,000, $662,000, and $713,000,
respectively.


NOTE 15 - STOCK TRANSFER RESTRICTION

The cooperative has entered into an agreement with Minn-Dak Yeast's minority
shareholder, whereby neither party shall sell, option or transfer its interest
in Minn-Dak Yeast to any person, firm or corporation (third party) without

<PAGE>


first offering, in writing, the other party the right to acquire such interest
on the same terms. If the offer is not accepted by the offeree within 30 days,
the offeror may sell, option or transfer its interest to the third party within
120 days after expiration of the 30-day period.


NOTE 16 - 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, 1998, 1997, and 1996, are as
follows:

Investments - The investment in St. Paul Bank for Cooperatives, R.S.R. Electric
Cooperative, Inc. and all other cooperatives are stated at cost, plus the
cooperative's share of allocated patronage and capital credits. The investment
in United Sugars Corporation, Midwest Agri-Commodities and ProGold Limited
Liability Company are accounted for using the equity method, wherein the
investment is recorded at the amount of the underlying equity in the net assets
of the investments and adjusted to recognize the cooperative's share of the
undistributed earnings or losses. Minn-Dak Farmers Cooperative 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 - The fair value of obligations under long-term debt 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.

Obligations under capital leases - The fair value of obligations under capital
leases, was based on present value models using current financing rates
available to the cooperative. At August 31, 1998, 1997, and 1996, the carrying
value of obligations under capital leases was $12,000,000 and the estimated fair
value was $9,800,000.


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

            None

<PAGE>


                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

IDENTIFICATION OF DIRECTORS

      The table below lists the current directors of Minn-Dak Farmers
Cooperative. 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 and directors-elected are included after the table.

<TABLE>
<CAPTION>
                                                                                                               Term Expires
Name and Address                            Age        District                          Director Since        in December
----------------                            ---        --------                          --------------        -----------
<S>                                         <C>        <C>                               <C>                   <C>    
Robert Breuer
            302 Mooreton Avenue North
            Mooreton, ND  58061             66         District #2 - Factory West        1984                  1998(1)

Douglas Etten
            RR #2, Box 65
            Foxhome, MN  56543              47         District #8 - Lyngaas             1997                  2000

Michael Hasbargen
            RR #2, Box 71
            Breckenridge, MN  56520         53         District #4 - Factory East        1993                  1999

John Hought
            RR #2, Box 9
            Foxhome, MN  56543              57         District #6 - Yaggie              1985                  2000

Victor Krabbenhoft
            RR #2, Box 45
            Glyndon, MN 56547               49         District #9 - Peet                1989                  1998(2)

Jack Lacey
            RR #1, Box 66
            Wendell, MN  56590              57         District #5 - Hawes               1993                  1999

Jerry Meyer
            1433 15th Street North
            Wahpeton, ND  58075             60         District #1 - Tyler               1994                  2000

Edward Moen
            17060 County Road 8
            Colfax, ND 58018                72         District #3 - Gorder              1989                  1998(3)

Paul Summer
            RR #2, Box 84
            Herman, MN  56248               56         District #7 - Lehman              1993                  1999
</TABLE>

<PAGE>


------------

(1) Mr. Breuer's term as a director of the Company from District #2-Factory West
    expires on December 8, 1998.

(2) Mr. Krabbenhoft's term as a director of the Company from District #9-Peet
    expires on December 8, 1998.

(3) Mr. Moen's term as director of the Company from District #3-Gorder expires
    on December 8, 1998.


            ROBERT BREUER has been a director since 1984 and is a former
chairman. Mr. Breuer has been farming since 1958 near Mooreton, ND. He serves on
the board of directors for Minn-Dak Yeast Company and on the Mooreton City
Council, Mooreton, ND.

            DOUGLAS ETTEN has been a director since 1997. Mr. Etten has been
farming near Foxhome, MN since graduating from Concordia College in Business and
Math in 1974.

            MICHAEL HASBARGEN has been a director since 1992 and is currently
serving as board 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 and
Midwest Agri-Commodities Company.

            JOHN HOUGHT has been a director since 1985. Mr. Hought has been
farming near Foxhome, MN since 1959. He also serves on the board of directors
for Minn-Dak Yeast Company.

            VICTOR KRABBENHOFT has been a director since 1989, currently serves
as board chairman, and is a former vice chairman. Mr. Krabbenhoft has been
farming near Glyndon, MN since 1971. He also serves on the board of directors
for Midwest Agri-Commodities Company, United Sugars Corporation, and Minn-Dak
Yeast Company; and is one of Minn-Dak's representatives to the American
Sugarbeet Growers Association in Washington, DC.

            JACK LACEY has been a director since 1993. Mr. Lacey has been
farming with his wife, Sharon, near Wendell, MN since 1963. He serves as one of
Minn-Dak representatives to the American Sugarbeet Growers Association in
Washington, DC.

            JERRY MEYER has been a director since 1994. Mr. Meyer has been
farming near Fairmount, ND since 1958. He also services on the board of
directors for Minn-Dak Yeast Company.

            ED MOEN has been a director since 1989 and is currently serving as
board treasurer. Mr. Moen has been farming near Galchutt, ND since 1945. He also
serves on the board of directors for Midwest Agri-Commodities Company.

            PAUL SUMMER has been a director since 1993 and is currently serving
as board secretary. Mr. Summer has been farming near Herman, MN since 1963. He
also serves on the board for Midwest Agri-Commodities Company.

            The Board of Directors meet monthly. The Company provides its
directors with minimal compensation, consisting of (i) a payment of $225.00 per
meeting for regular and special board meetings, (ii) the greater (a) $112.50 for
any day in which directors partake in activities on the Company's behalf for
under five hours or (b) $225.00 for any day in which directors partake in
activities on the Company's behalf for five hours or more. The Chairman of the
Board of Directors also receives a flat $200.00 per month.

<PAGE>


EXECUTIVE OFFICERS
            The table below lists the principal officers of the Company, none of
whom owns any common or preferred shares. The president and chief executive
officer, executive vice president and chief financial officer, vice president
agriculture, vice president engineering, and vice president operations are
elected annually by the Board of Directors to serve on the board. Brief
biographies for each of the officers are included after the table.

Name                  Age   Position
----                  ---   --------
Larry D. Steward      60    President and Chief Executive Officer
Steven M. Caspers     48    Executive Vice President and Chief Financial Officer
Thomas D. Knudsen     44    Vice President, Agriculture
John E. Groneman      62    Vice President, Engineering
Richard K. Richter    58    Vice President, Operations
Jerald W. Pierson     59    Director of Human Resources
Jeffrey L. Carlson    43    Director of Technical Services
John S. Nyquist       43    Purchasing Manager
Patricia J. Estes     58    Director of Communications
Kevin R. Shannon      43    Safety Director

            LARRY D. STEWARD joined Minn-Dak Farmers Cooperative in December,
1990 as president and chief executive officer. Mr. Steward serves on the boards
of United Sugars Corporation, and Midwest Agri-Commodities. He is chairman of
the board of Minn-Dak Yeast Company, Inc. Mr. Steward is a trustee of United
States Beet Sugar Association and a director on the board of the National
Council of Farmer Cooperatives based in Washington, DC. Prior to joining
Minn-Dak, Mr. Steward was midwest sales manager for Harborlite Corporation. From
1963 to 1988 Mr. Steward was employed by Great Western Sugar Company, Denver,
Colorado and from 1984 to 1988 he served as its vice president. Mr. Steward
holds a degree in chemistry and math from the University of Nebraska, Kearney,
Nebraska.

            STEVEN M. CASPERS is a graduate of the University of North Dakota
with a bachelor of science in business administration and a major in accounting.
He has been employed at Minn-Dak Farmers Cooperative since May 5, 1974 and is
active in numerous local civic and fraternal organizations, and national,
industry related boards and committees. He is president of Minn-Dak Yeast
Company and services on the boards of directors of Midwest Agri-Commodities,
United Sugars Corporation and ProGold, LLC.

            JOHN E. GRONEMAN is a graduate of Colorado State University with a
bachelor of science in engineering. He began his experience in the sugar
industry in 1960, this includes five years as a factory manager. Mr. Groneman
began employment with Minn-Dak Farmers Cooperative on March 1, 1974.

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

            RICHARD R. RICHTER has completed both the beet and sugar end
coursework of the Beet Sugar Institute of Fort Collins, Colorado. He began his
sugar industry experience in 1958 with employment at Minn-Dak Farmers
Cooperative beginning in August of 1976.

            JERALD W. PIERSON is a graduate of Black Hills State University with
29 years human resources experience beginning in 1968. He is active in numerous
local civic and fraternal organizations including North Dakota Workers
Compensation and the North Dakota Job Service Employer Committee. He began his
employment with the Company on March 15, 1982.

            JEFFREY L. CARLSON is a graduate of the University of
Minnesota-Morris with a bachelor of arts in chemistry and the University of
North Dakota with a Ph.D in physical chemistry. He began his career as a
research chemist and an assistant professor in 1986. Mr. Carlson began his
employment with Minn-Dak Farmers Cooperative on June 4, 1990.

<PAGE>


            JOHN S. NYQUIST attended the North Dakota State College of Science,
majoring in accounting and computer programs. Mr. Nyquist began his purchasing
and inventory control experience in 1975 in the Company storeroom. Mr. Nyquist
is active in local civic and fraternal organizations and the National
Association of Purchasing Managers. Mr. Nyquist began employment with Minn-Dak
Farmers Cooperative on September 15, 1975.

            PATRICIA J. ESTES is a graduate of Moorhead State University with a
bachelor of science in mass communications and master of arts in liberal arts.
Ms. Estes is active in local civic organizations and began her
publication-communications experience in 1973. Ms. Estes began full-time
employment with the Company on December 26, 1989.

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


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, 1998
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

<TABLE>
<CAPTION>
Name and                                            Other Annual    All Other       Total
Principal Position       Year   Salary      Bonus   Compensation  Compensation  Compensation
------------------       ----   ------      -----   ------------  ------------  ------------
                                                         (1)           (2)
<S>                      <C>    <C>        <C>         <C>           <C>           <C>     
Larry Steward            1998   $199,385   $ 58,012    $19,709       $29,046       $306,152
President & CEO          1997   $192,562   $ 50,500    $17,304       $19,364       $279,730
                         1996   $178,017   $ 48,900    $15,111                     $242,028

Steven Caspers           1998   $120,854   $ 30,000    $16,936                     $167,790
EVP & CFO                1997   $116,276   $ 25,500    $19,582                     $161,358
                         1996   $111,365   $ 24,000    $19,562                     $154,927

Thomas D Knudsen         1998   $ 88,779   $ 14,500    $15,670                     $118,949
VP Agriculture           1997   $ 86,077   $ 13,500    $16,453                     $116,030
                         1996   $ 82,348   $ 13,000    $ 2,677                     $ 98,025

Richard K Richter        1998   $ 88,579   $ 14,500    $ 4,648                     $107,727
VP Operations            1997   $ 85,210   $ 13,500    $ 4,138                     $102,848
                         1996   $ 82,414   $ 13,000    $ 3,400                     $ 95,414

John E Groneman          1998   $ 84,068   $ 13,500    $ 5,454                     $103,022
VP Engineering           1997   $ 80,897   $ 12,500    $16,989                     $110,386
                         1996   $ 78,055   $ 12,000    $10,692                     $100,747
</TABLE>

-----------------------------

1) In addition to the salary and bonus described above, Mr. Steward, Mr.
Caspers, Mr. Knudsen, Mr. Richter, and Mr. Groneman 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.
In fiscal 1996, the

<PAGE>


company adopted a new policy whereby Supervisory, Professional and Management
employees are required on or before their anniversary date in 1999, to attain
and maintain their vacation and floating holiday hour combined 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 and CEO
determine those performance objectives for officers and significant other
management employees of the Company and by the Board of Directors for the
President and CEO.

            The Company has entered into an employment agreement with Mr.
Steward, which establishes his salary and benefits as an employee of the
Company. The agreement may terminate on sixty days written notice by either
party for any reason. Mr. Steward has been employed by the Company for eight
years and, therefore, would be affected by the table limits on the qualified
benefits table below.

            In 1992, the Company undertook a compensation review study to
determine that its employees' compensation was commensurate with
responsibilities of the various Company positions, and that the compensation was
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 performed the
compensation review study. This study was made of all management employees,
including Mr. Steward, and non-union employees. As of August 31, 1998 all
employees' wages had been adjusted to levels consistent with the Hay Management
Consultants findings and recommendations. The Company continues to consult with
Hay Management Consultants in order to maintain fair and equitable compensation
for its employees.

2) Beginning in fiscal year 1997, supplemental executive retirement plan
contributions are being made on behalf of Mr. Steward. The amount contributed
for fiscal year 1998 was $29,046.

RETIREMENT PLANS

            Management employees are also 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.

            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. Effective on
April 1, 1995, the Company began providing a matching contribution of 25% of
each employee's first 4% of compensation that is set aside under the plan. The
match increases over time until it reaches 75% of the first 4% in the year 1999.
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 as more fully
described in the master plan document. During 1998, Federal law limited employee
pre-tax income contributions to $10,000 for each participating employee.
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).

<PAGE>


            Effective September 1, 1996 certain executive employees of the
Company became eligible to participate in a "Supplemental Executive Retirement
Plan." That plan was adopted by the Company's Board of Directors 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.


QUALIFIED BENEFITS TABLE

            The following table reflects the estimated annual benefits payable
to a fully-vested executive officer of the Cooperative 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:

Pension
Compensation                      Years of Service
                   15          20         25         30          35
 $125,000      $ 27,666    $ 36,888   $ 46,111   $ 55,333    $ 64,555
 $150,000      $ 33,666    $ 44,888   $ 56,111   $ 67,333    $ 78,555
 $175,000      $ 36,066    $ 48,088   $ 60,111   $ 72,133    $ 84,155
 $200,000      $ 36,066    $ 48,088   $ 60,111   $ 72,133    $ 84,155
 $225,000      $ 36,066    $ 48,088   $ 60,111   $ 72,133    $ 84,155
 $250,000      $ 36,066    $ 48,088   $ 60,111   $ 72,133    $ 84,155
 $275,000      $ 36,066    $ 48,088   $ 60,111   $ 72,133    $ 84,155
 $300,000      $ 36,066    $ 48,088   $ 60,111   $ 72,133    $ 84,155
 $325,000      $ 36,066    $ 48,088   $ 60,111   $ 72,133    $ 84,155
 $350,000      $ 36,066    $ 48,088   $ 60,111   $ 72,133    $ 84,155
 $375,000      $ 36,066    $ 48,088   $ 60,111   $ 72,133    $ 84,155

            The two executive officers named in the Summary Compensation Table
have years of service under the plan as follows: Mr. Steward has served for 8
years; Mr. Caspers has served for 24 years.

<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

            The following table presents certain information with respect to the
ownership of shares of preferred stock as of November 19, 1998, by each
director. Each shareholder has direct ownership with respect to the share shown
as beneficially owned, except as otherwise indicated in a footnote. To the
Company's knowledge, as of November 19, 1998, 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.


Name             Position with Company     No. of Shares      % of Shares
----             ---------------------     -------------      -----------

Robert Breuer           Director           160                less than 1%

Douglas Etten           Director           450                less than 1%

Michael Hasbargen       Director           375                less than 1%

John Hought             Director           270                less than 1%

Victor Krabbenhoft      Director           245                less than 1%

Jack Lacey (1)          Director           250                less than 1%

Jerry Meyer             Director           460                less than 1%

Ed Moen                 Director           180                less than 1%

Paul Summer (2)         Director           222                less than 1%

All Directors                             2612                3.62%

(1) Mr. Lacey's shares are held and grown under the name of Jack Lacey Company.

(2) Mr. Summer's shares are grown under the name of P V Unlimited Corp.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            Each of the Company's directors is also a sugar beet 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 sugar beets to the Company and receives payments for those sugar beets.
Such payments for sugar beets 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 sugar beets. Except for the sugar beet 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.

<PAGE>


                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

FINANCIAL STATEMENT SCHEDULES

            None

REPORTS ON FORM 8-K

            The Company was not required to and did not file any reports on Form
8-K during the three months ended August 31, 1998.

EXHIBITS

Index
-----
  **  3(i)  Articles of Amendment to the Articles of Incorporation of Minn-Dak
            Farmers Cooperative

   *  3(ii) Articles of Incorporation of Minn-Dak Farmers Cooperative

 ***  3(iii) Amended Bylaws of Minn-Dak Farmers Cooperative

  **  10(a) Growers' Agreement (three-year Agreement) (example of agreement
            which each Shareholder is required to sign)

      10(b) Uniform Member Marketing Agreement by and between United Sugars
            Corporation and Minn-Dak Farmers Cooperative

   *  10(d) Capitalization Agreement by and among Southern Minnesota Beet Sugar
            Cooperative, Minn-Dak Farmers Cooperative, American Crystal Sugar
            Company, and United Sugars Corporation

   *  10(e) Memorandum of Understanding and Uniform Member Agreement by and
            between Midwest Agri-Commodities Company and Minn-Dak Farmers
            Cooperative

   *  10(f) Molasses Purchase Contract by and between Minn-Dak Farmers
            Cooperative and Universal Foods Corporation (Confidential Treatment
            for certain sections)

   *  10(g) Yeast Purchase Contract by and between Universal Foods Corporation
            and Minn-Dak Yeast Company, Inc. (Confidential Treatment for certain
            sections)

   *  10(i) Operating Agreement of ProGold Limited Liability Company

   *  10(j) ProGold Limited Liability Company Member Control Agreement

   *  10(k) Agreement for Electrical Service

  **  10(l) Agreements for Coal Supply, Transportation, and Oiling Service
            (Confidential Treatment Requested as to certain provisions)

   *  10(m) Minn-Dak Farmers Cooperative Pension Plan

   *  10(n) Larry D. Steward Employment Agreement

   *  10(o) Management Consulting Agreement between Minn-Dak Yeast Company and
            Universal Foods Corporation, (Confidential Treatment for certain
            sections)

 ***  10(p) Amendment to Minn-Dak Farmers Cooperative Pension Plan

      12    Statement re Computation of Ratio of Net Proceeds to Fixed Charges

   *  21    Subsidiaries of the Registrant

      23    Consent of Independent Auditors

      27    Financial Data Schedule

-------------------

*     Incorporated by reference from the Company's Registration Statement on
      Form S-1 (File No. 33-94644), declared effective September 11, 1995.

**    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.

***   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.

<PAGE>



                                   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/ Larry D. Steward
                                  -----------------------------------
                                      LARRY D. STEWARD, 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/   Larry D. Steward              President and                    11-24-98
---------------------------         Chief Executive Officer
Larry D. Steward

/s/   Steven M. Caspers             Vice President - Finance         11-24-98
---------------------------
Steven M. Caspers

/s/    Allen E. Larson              Controller                       11-24-98
---------------------------
Allen E. Larson

/s/    Robert Breuer                Director                         11-24-98
---------------------------
Robert Breuer

/s/    Victor Krabbenhoft           Director                         11-24-98
---------------------------
Victor Krabbenhoft

/s/     Douglas Etten               Director                         11-24-98
---------------------------
Douglas Etten

/s/    Edward Moen, Jr.             Director                         11-24-98
---------------------------
Edward Moen, Jr.

/s/    Mike Hasbargen               Director                         11-24-98
---------------------------
Mike Hasbargen

/s/    John Hought                  Director                         11-24-98
---------------------------
John Hought

/s/     Jack Lacey                  Director                         11-24-98
---------------------------
Jack Lacey

/s/    Jerry Meyer                  Director                         11-24-98
---------------------------
Jerry Meyer

/s/    Paul Summer                  Director                         11-24-98
---------------------------
Paul Summer