|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, 2003
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. [X]

Minn-Dak
Farmers Cooperative has previously registered securities for offer and sale pursuant to
the Securities Act of 1933, as amended (the Securities Act). As a result of
that previous registration under the Securities Act, under Sections 15(d) and 13 of the
Securities Exchange Act of 1934, as amended (the Exchange Act), the
Cooperative is obligated to file quarterly reports on form 10-Q, annual reports on Form
10-K and supplemental reports on Form 8-K. However, the Cooperative has not registered
any of its securities under Section 12(g) of the Exchange Act. The Cooperative is exempt
from any obligation to register its securities under the Exchange Act due to the
provisions of Section 12(g)(2)(E), which exempts from Exchange Act registration any
security of an issuer, such as the Cooperative, which is a cooperative association as
defined in the Agricultural Marketing Act of 1929.

1

---

As
a result, those provisions of the Exchange Act, which are applicable only to securities
registered under Section 12 of that act, do not apply to shares issued by the
Cooperative. The provisions, which do not apply to the Cooperatives shares, include
the regulation of proxies under Section 14 of the Exchange Act and the reporting and
other obligations of directors, officers and principal stockholders under Section 16 of
the Exchange Act.

As of November 13, 2003,
488 shares of the Companys Common Stock and 72,200 units of
the Registrants Preferred Stock, each consisting of 1 share of Class A
Preferred Stock, 1 share of Class B Preferred Stock and 1 share of Class C
Preferred Stock, were outstanding. There is only a limited, private market for
shares of the Companys Common or Preferred Stock, as such shares may be
held only by farmer-producers who are eligible for membership in the Company.
The Companys shares are not listed for trading on any exchange or
quotation system. A number of stock transfers, representing approximately 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 that less than 1% of the Companys available
stock was traded at arms length during the fiscal year ended August 31,
2003. 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 $2,300 to $2,400 per unit the first quarter, and $2,450 to $2,550
per unit the second and third quarters. The fourth quarter did not have any arms
length transactions.

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

DOCUMENTS INCORPORATED BY REFERENCE

None

# PART  I

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

2

---

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

The Company is engaged
primarily in the production and marketing of sugar from sugarbeets. The Company
also markets certain co-products of the sugar it produces, such as beet molasses
and beet pulp pellets. 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 4% of the Companys
gross revenues for the fiscal year ended August 31, 2003.

The Company processes
sugarbeets grown by its members at its sugarbeet processing facility located in
Wahpeton, North Dakota. The period during which the Companys plant is in
operation to process sugarbeets into sugar and co-products is referred to as the
campaign. The campaign is expected to begin in September of each
year and continues until the available supply of 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 sugarbeets 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 suarbeet receiving stations and, after delivery of the
beets to the Company, pays all freight and mileage charges for hauling the
sugarbeets from the piling stations to the factory for processing.

The Companys total
sugar production is influenced by the amount and quality of sugarbeets 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 sugarbeets 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.

Sugarbeets 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 as soon
as possible 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
plan of the Company is to finish processing unprotected beets prior to early
March, ventilated beets prior to early April, and storage shed beets as soon
thereafter as is possible.

Unprotected sugarbeet
piles 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 Fahrenheit. When a week or more
of sub zero temperatures are

3

---

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 May of each year. If a campaign is not expected to extend beyond
early April, all or some of the buildings storing beets may be cooled down to a
low thirty-degree temperature and maintained at that temperature until the beets
are processed. The decision to freeze or cool the beets in a storage building is
based upon the anticipated economic benefit that year of each of the options.

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

Once the sugarbeets
arrive in the factory, the basic steps in producing sugar from them include:
washing; slicing into thin strips called cossettes; extracting the
sugar from the cossettes in a diffuser; purifying the resulting raw
juice and boiling it, first in an evaporator to thicken it and then in
vacuum pans to crystallize the sugar; separating the sugar crystals in a
centrifuge; drying the sugar; and storing sugar in bulk form for bulk and bag
shipping.

The Companys
sugarbeet co-products include beet molasses, beet pulp pellets and pressed pulp.
After the extraction of raw juice from the cossettes, the remaining pulp is
dried, processed into pellets and sold as animal feed or not dried and sold as
wet animal feed to the local market. The 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
pellets are marketed through Midwest Agri-Commodities Company.

# RECENT CROPS

The Companys
members harvested 2.3 million tons of sugarbeets from the 2003 crop, the second
largest crop ever delivered to the Company. Sugar content of the 2003 crop at
harvest was 7% above the average of the five most recent years because of crop
growing conditions. Because of the near record size and above average quality of
the crop delivered, the Companys production of sugar from the 2003 crop
sugarbeets is expected to set a new record for sugar produced. This
forward-looking material is based on the Companys expectations regarding
the processing of the 2003 sugar beet crop; the actual production results
obtained by processing those sugarbeets 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
sugarbeets. The Companys initial beet payment estimate totals $40.83 per
ton or $.12606307 per harvested/bonus pound of sugar, with the final beet
payment determined in October of 2004. This projected payment is less than the
final 2002 crop payment per ton/pound, but higher than the original projected
2002 crop payment per ton/pound. The lower projected 2003 crop payment results
from what management believes is a conservative approach to forecasting sugar
production and sugar production costs from a commodity, while harvested, is
still at risk for adverse storage conditions.

4

---

For a discussion of the
2002, 2001 and 2000 crops and results of operations for fiscal years 2003, 2002
and 2001, see MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

# MARKETING, CUSTOMERS AND PRICING

Since January 1, 1994
United Sugars Corporation (United Sugars), a common marketing agency
operating on a cooperative basis, has marketed the Companys sugar. United
Sugars is owned by the Company and three other sugar producing companies
(American Crystal Sugar Company, Southern Minnesota Beet Sugar Cooperative and
United States Sugar Corporation) and exists to market sugar produced by the four
member owners.

As of this writing the
Company has an ownership interest in United Sugars (year to date contributed
capital) totaling $1.4 million, which represents approximately 12% of the total.

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

On November 15, 2002 one
of the members, Southern Minnesota Beet Sugar Cooperative, provided United
Sugars with a formal, written notice that it intends to leave the United Sugars
organization. The Uniform Member Marketing Agreement provides that when a member
serves notice of its intent to leave United Sugars it must provide a minimum of
fifteen months notice. In this case, the member has provided United Sugars
twenty-one months notice. The marketing or financial impact, if any, to United
Sugars or to the Company of the departure of this member is not believed to be
substantial.

United Sugars sells
industrial bulk sugar, industrial bagged sugar, and retail bagged sugar and
specialty sugars. It distributes both cane sugar and beet sugar, and distributes
sugar to customers over a large geographical area. United Sugars markets the
Companys sugar primarily to industrial users such as confectioners,
breakfast cereal manufacturers and bakeries. The customer base of United Sugars
includes most of the large 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, 2003, 94% of the Companys sugar was
shipped in bulk form, mostly to industrial users, and 6% in bagged powdered
sugar.

The
prices at which United Sugars sells the Companys sugar fluctuate periodically based
on changes in domestic sugar supply and demand. Bulk sugar, the largest portion of the
Companys sales, is contracted one or more quarters in advance, with the effect of
stabilizing fluctuations in revenue from quarter to quarter. Retail (grocery) products
are sold mostly on a spot or quarterly basis. Current net selling prices for sugar are
forecast to be lower than the prior two years because of: (1) record production of
domestic sugar from domestic sugarbeets and sugar cane; and (2) the Federal Governments
establishment of the overall marketing allotment quantity, which is provided for in the

5

---

2002 Farm Bill, was initially set
too high, resulting in excessive amounts of sugar available to the domestic sugar market
place.

The Company markets its
co-products, dried beet pulp and beet molasses, through Midwest Agri-Commodities
Company (Midwest Agri), a cooperative whose members are the Company,
American Crystal Sugar Company, Southern Minnesota Beet Sugar Cooperative and
Michigan Sugar Company. Midwest Agri 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.

A Uniform Member
Marketing Agreement evidences the sales and marketing arrangement with
Midwest Agri. 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.
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. Any net proceeds from the operation of Midwest Agri are
distributed to the various members on a patronage basis.

For the year ended August
31, 2003, approximately 55% of the Companys beet pulp production was
exported to Japan and Europe, and the remaining 45% was sold domestically. The
market for beet pulp is affected by the availability and quality of competitive
feedstuffs and by the strength of the U.S. dollar relative to local currencies
in export markets. Dried beet pulp prices increased in FY 2003 due to the impact
of the drought conditions in the western United States, which resulted in a
reduction in available feedstuffs, and therefore higher per ton prices. Beet
molasses is marketed primarily to yeast manufacturers, pharmaceutical houses,
livestock feed mixers and livestock feeders. Beet molasses prices increased in
FY 2003 due to shrinking supplies of domestically produced molasses and
improvement in worldwide prices for beet molasses and competitive commodities.

Co-product sales
accounted for approximately 9% of the Companys total consolidated net
sales revenues during FY 2003. 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 co-product, fresh
yeast and sugar revenues, because prices of these products fluctuate
independently of each other.

The Company is an eighty
percent (80%) equity owner of Minn-Dak Yeast Company, Inc. (Minn-Dak
Yeast). Minn-Dak Yeast manufactures bagged and cream fresh bakers
yeast in a plant located adjacent to the Companys sugar plant in Wahpeton,
North Dakota. The Company started the yeast business in 1989 in order to add
value to its co-product beet molasses. Beet molasses is the main ingredient
(growth medium) in the fermentation process used to grow fresh bakers
yeast to commercial volumes. A portion of the Companys beet molasses
production is used in Minn-Dak Yeasts process and is sold through a supply
agreement between the two companies. Sensient Technologies Corporation,
Milwaukee, Wisconsin, (Sensient) holds the remaining twenty percent
(20%) equity stake. Minn-Dak Yeast Company, Inc. also has a long-term marketing
agreement whereby Sensient will buy all production of yeast produced by Minn-Dak
Yeast Company, Inc. in return for certain guaranteed sales volumes. That
contract will expire in June 2004, but the Company has a unilateral right to
extend it another three years beyond the expiration of the current agreement.
The Company has not yet determined whether to exercise that unilateral right to
extend its marketing agreement with Sensient.

6

---

# JOINT VENTURE WITH PROGOLD LIMITED LIABILITY COMPANY

Prior to fiscal year
2003, Minn-Dak was 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). The
Company originally contributed approximately $5.2 million in exchange for its 5%
ownership position. In April 2003 Minn-Dak sold its ownership position in
ProGold for a gain, to American Crystal Sugar Company.

# GROWERS AGREEMENTS

The Company purchases
virtually all of its sugarbeets from members under contract with the Company.
All members have three-year contracts with the Company covering the growing
seasons of 2003 through 2005 (the Growers Agreements). At the
end of each year, the Growers Agreement automatically extends for an additional
year, so that such agreements always have a remaining term of three years,
unless the Company, prior to the automatic renewal, has given notice of
termination. In that situation, the agreement will not renew, but will continue
in effect for the two-year period then remaining under the agreement. Each Unit
of Preferred Stock currently entitles a member to grow 1.35 acres of sugarbeets
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 2003 crop year the Companys
Board of Directors authorized members to plant 1.55 acres per unit. For the 2004
crop year, the Companys Board of Directors has not yet authorized the
number of acres per unit to be planted. The authorized acres per unit will be a
direct result of the current farm bill sugar allocations. (For a discussion of
the current farm bill sugar allocations, see Managements Discussion on
Government Programs and Regulations.)

Under the terms of the
Growers Agreement, each member receives payment for his or her sugarbeets based
on a price per pound of extractable 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 sugarbeets
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 sugarbeets on or about November 15, soon after delivery of his or her crop to the
Company. That initial installment is subject to adjustment by the 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

7

---

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 pounds of extractable sugar obtained from
each of the members sugarbeets; such amounts are distributed in either cash
payments or allocated in the form of patronage credits to the members patronage
account on the books of the Company.

# COMPANY DISTRICTS

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

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

# RESEARCH AND DEVELOPMENT

The Company is involved
in very little of 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.

8

---

During the fiscal year
ended on August 31, 2003, the Company contributed approximately $95,000 to the
North Dakota/Minnesota Research and Education Board to fund that entitys
research and development activities. $17,000 was given to the Beet Sugar
Development Foundation in connection with their research activities, and $92,000
to the Sugar Association for their research activities and membership dues

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

# ENVIRONMENTAL MATTERS

The
Company is subject to a broad range of evolving environmental laws and regulations. These
laws and regulations include the Food Quality Protection Act of 1996, the Clean Air Act,
the Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide,
Fungicide and Rodenticide Act and the Comprehensive Environmental Response, Compensation
and Liability Act. Currently, the Company is unaware of any areas of non-compliance.

The
Company has installed and begun using a $9.0 MM Steam Dryer project, which is intended to
reduce solid waste and air emissions. In addition to the Steam Dryer Project, the Company
has $1.0 MM of environmental capital improvements budgeted for FY 04.

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

# MARKET AND COMPETITION

Current
U.S. Government statistics estimate total U.S. sugar deliveries at 181.4 million cwt
refined for the fiscal year beginning October 1, 2002 and ending September 30, 2003. For
the same period ending in 2002, total deliveries were 188.5 million cwt. refined.
Comparing the two years shows demand reduction of 3.8% for U.S. sugar sellers. After
experiencing strong and steady growth during the 1990s, U.S. demand for sugar has
stagnated since fiscal year 2000. Deliveries for the period October 1, 2002 through August
31, 2003, the most recent period for delivery data provided by the U.S. Government, shows
that Bakery and Cereal, Confectionary, Retail Grocery and Chain Stores, and multiple food
use categories are down 3.8%. This group of categories represents 58% of the domestic
deliveries by use for this period. While there is no clear explanation for the decline in
sugar consumption, the decline coincided with a decline in U.S. economic activity,
suggesting that aggregate disposal income and sweetener consumption may be related. Other
factors that could have contributed to the decline include: (1) changes in dietary habits
(such as the low carbohydrate high protein diets that are now popular with consumers) and
(2) the effect of sugars contained in imported products, which have increased
significantly since 1995.

9

---

The
U.S. government forecasts growth between 2002 and 2003 to be approximately 2%, at 185.5
million cwt. refined, indicating deliveries to non-industrial end users will likely
increase along with population growth. Also, national economic recovery should help demand
for products that contain sugar. A continued problem will be the upward trend in imported
products that contain sugar. The Company has no reason to disagree with the U.S.
Governments estimate of sugar deliveries for fiscal year 2004, but it would mean
that a reversal of a few years of contracted consumption is occurring. Given the size of
the domestic market, the Companys sugar production and sales represent between 2 and
3% of the total domestic market for refined sugar in 2003. United Sugars, which sells the
Companys production through a sugar marketing pool, represents approximately 26%
share of the U.S. sugar market.

The
U.S. refined sugar market has grown 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. 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 U.S. market. Today there are eight sugar sellers, with 85% of U.S. sugar
market share concentrated in the top four sellers, most of which are fully integrated beet
and cane suppliers. The Companys main competitors in the domestic market are
Imperial Sugar Company, Domino, Amalgamated Sugar Company and California and Hawaii Sugar
Company. Competition in the U.S. sugar industry, because sugar is a fungible commodity, is
primarily based upon price, customer service and reliability as a supplier.

# GOVERNMENT PROGRAMS AND REGULATION

Domestic
sugar prices are supported under a program administered by the United States Department of
Agriculture (USDA). Under the current program, which was initiated in 1981 and
extended under the Food Security Act of 1985, the Food, Agriculture, Conservation and
Trade Act of 1990, the Federal Agriculture Improvement and Reform Act of 1996 and now The
Farm Security and Rural Investment Act of 2002 (the Farm Bill), the price of
sugar is required to be maintained above the price at which producers could forfeit sugar
to repay non-recourse loans obtained through the Commodity Credit Corporation
(CCC). The USDA maintains sugar prices without cost to the U.S. Treasury by
regulating the quantity of sugar imports. The Farm Bill 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 2002 through 2007. Price
support loans are made on a non-recourse basis, which means the sugar processor is able to
forfeit sugar to CCC if sugar prices the Company receives in the marketplace are below the
loan rate.

However,
the Farm Bill also provides that, to the maximum extent possible, the Secretary of
Agriculture of the USDA (the Secretary) shall operate the sugar program at no
cost to the Federal Government by avoiding the forfeiture of sugar to CCC. The Farm Bill
further provides for the imposition of marketing allotments each crop year for the
marketing by processors of sugar processed from sugarbeets and domestically produced
sugarcane at a level that the Secretary estimates will be needed to avoid forfeitures of
sugar to the CCC. The Secretary only suspends allotments whenever the Secretary estimates
or re-estimates, or has reason to believe, that imports of sugar for human consumption
will exceed 1,532,000 short tons raw value.

10

---

Each
domestic processor of sugar, which includes the Company, is provided an allocation
whenever allotments are in effect, based upon a formula. The Company believes that the
amount of allocation it can expect to receive from the Secretary in each year of the Farm
Bill may not be sufficient to allow it to sell all of its production of sugar in the
domestic market for human consumption. Any amount of sugar produced by the Company within
an allotment year that does not have a corresponding allocation will have to be marketed
into alternative markets or held until such time that allotments are lifted. The Company
anticipates that it may well have to adjust its production of sugar each year to more
closely match its anticipated allocation. To the extent that the Company has to market any
over-allocation sugar into alternative markets, or reduce production to more closely match
its anticipated allocation, it is not expected that those decisions would have a material
adverse effect on the operations of the Company.

Under
the General Agreement on Tariffs and Trade Act o f 1990 (GATT), tariff rate
quotas were implemented for certain sugar producing countries, that provided for a fixed
quantity of sugar imports duty-free or subject to minimal duties. Unlimited additional
quantities may be imported upon payment of a tariff of 16.21 cents per pound of refined
sugar prior to shipment (to date, very little sugar has been imported under this higher
tariff level). Further, imports of sugar under the tariff rate quota are based upon the
difference between domestic sugar consumption and domestic sugar production, with one
exception. Under the terms of the GATT the minimum imports of sugar are established at
1,257,000 short tons, raw value. Therefore, even if the difference between domestic sugar
consumption and production are less than 1,257,000 short tons, raw value, GATT will
require that 1,257,000 short tons be imported into the United States from the quota
holding foreign countries.

In
November 1999, the so-called Millennium Round of the World Trade Organization (WTO) began
in Seattle, Washington with the goal of continuing to move toward multilateral free trade
in all sectors. The WTO met again in November 2001 in Doha, Qatar where members launched
new multilateral trade negotiations aimed at improving market access, reducing and
eventually phasing out of all forms of export subsidies and substantial reductions in
trade-distorting domestic support. Any agreements reached at the Millennium Round could
represent a threat to the domestic sugar industry because sugar is one of the most highly
protected sectors within world agricultural trade and is thus a target for reform. The
trend toward liberalization will most likely focus on the minimum import requirement of
1,257,000 short tons. There will likely be a movement to raise the minimum import
requirement, and if successful, such a movement could cause additional supply/demand
pressure in the United States. To date, additional meetings have taken place to move the
process along of completing the Millennium Round of WTO, but without much success because
of major disagreements on agricultural trade and other issues between developed and third
world countries.

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

11

---

Mexico accordingly. The two
countries continue to negotiate over this issue and the Company cannot predict the
outcome of those negotiations. However, should Mexico prevail on this issue with the
United States, the Company believes that imports from Mexico could increase dramatically
and therefore have a material adverse affect on the domestic price of sugar.

The
Company is concerned that low world sugar prices and a trade conflict between the U.S. and
Mexico over high fructose corn sweeteners could permit de facto acceleration of the side
agreement under NAFTA. Under the NAFTA tariff schedule, second tier sugar tariffs are set
at approximately 7.78 cents in 2003 but decline by approximately 1.5 cents per year until
reaching zero in 2008. The Company believes that current low world raw sugar prices make
it feasible for Mexican second tier sugar to enter the United States marketplace. In
contrast to Mexicos duty free access to the United States sugar market, which is at
250,000 metric tons per year, NAFTA contains no restrictions on second tier imports. To
date Mexico has exported very little second-tier tariff sugar to the U.S. because their
sugar marketplace is in balance between supply and demand. This balance was created when
the Mexican government imposed a 20% soda tax on all beverages that contain
high fructose corn syrup. The tax was imposed in response to the NAFTA side agreement
issue between the U.S. and Mexico, and is meant to reduce the amount of high fructose corn
syrup imports to Mexico. The move has been successful in reducing the amount of high
fructose imports from the U.S., and as a side benefit has created a demand for excess
domestic sugar in Mexico.

Under
the current terms of NAFTA and the side agreement, the Company is concerned that imports
from Mexico could oversupply the U.S. market forcing sugar prices significantly lower. Any
fluctuation in the price of sugar has a direct impact on any sugarbeet payments that are
made to members. The Company, along with the domestic sugar industry, is seeking
improvements to NAFTA and is also pursuing legal remedies to address the matter. If the
sugar industry is unsuccessful in these or any other endeavors it pursues to prevent the
influx of Mexican sugar into the U.S. market, there could be adverse financial
consequences to the Company and its members.

The
Company also believes, that should the U.S. Congress pass certain proposed regional or
bi-lateral trade agreements that are currently being negotiated, that those trade
agreements also will represent a serious public policy challenge to itself and the
domestic sugar industry. These proposed agreements are being negotiated with Central
American Countries, Australia and Thailand. There could be other proposed agreements too
in the future as the current U.S. Government Administration has started an initiative to
pass any number of regional or bi-lateral trade agreements as an alternative to WTO should
that agreement stall out.

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

# EMPLOYEES

As
of October 30, 2003, the Company had 251 full-time employees, of whom 219 were hourly and
32 were salaried. It also employs approximately 329 additional hourly seasonal workers
during the sugar beet harvest and processing campaign. In August 2000 the Company
concluded the negotiations for a collective bargaining agreement with the American
Federation of Grain Millers (AFL-CIO) union

12

---

for its factory employee group. The
written contract is in effect from June 1, 2000 through May 31st of the year 2005.
Office, clerical, management and harvest employees are not unionized. Full time employees
are provided with health and dental insurance, a defined benefit pension retirement plan,
a 401(k) retirement savings plan, a short and long-term disability plan, term life
insurance, and vacation and holiday pay plans. Seasonal workers are also provided some of
these same employee benefits. The Company considers its employee relations to be
excellent.

# ITEM 2.     PROPERTIES

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

The
properties are adequate to process normal and above normal crop sizes with a three-year
post expansion average slice rate of 9,400 tons per day. The processing factory is
anticipating processing the 2003 crop, which, while having less tons delivered than the
2002 record size crop, is expected to produce a record amount of sugar. If the Company
encounters normal weather patterns, which will in turn provide normal beet storage
conditions, then it should have little difficulty successfully processing the high-quality
crop.

Minn-Dak
Yeast Company, Inc, of which the Company is an 80% owner, operates a single yeast
manufacturing factory at Wahpeton, North Dakota that 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 2003, fresh yeast was produced and sold into the domestic yeast marketplace.

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

# ITEM 3.     LEGAL PROCEEDINGS

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

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

# ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There
were no matters subjected to a vote of security holders in the fourth quarter of the
Companys fiscal year.

13

---

# PART  II

# ITEM 5.     MARKET FOR COMPANY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. 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 that less than 1% of the Companys available stock was traded at arms
length during the fiscal year ended August 31, 2003. 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 $2,300 to $2,400 per unit the first
quarter, and $2,450 to $2,550 per unit the second and third quarters. The fourth quarter
did not have any arms length transactions.

14

---

# 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,
|--------------------------------------- | ----------------------------
|
|FINANCIAL DATA(Numbers in Thousands)    |                             
|Revenues                                |                             
|Distribution of Net Proceeds (1)        |                             
|Total Assets                            |                             
|Long-term Debt, including current       |                             
|maturities                              |                             
|Members' Investment (2)                 |                             
|Property and Equipment Additions, net   |                             
|of Retirements                          |                             
|Working Capital                         |                             
|Ratio of Long-Term Debt to Equity (3)   |                             
|Ratio of Net Proceeds to Fixed Chgs (4) |                             
|Dividends Paid on Common Stock          |                             
|PRODUCTION DATA (5)                     |                             
|Acres harvested                         |                             
|PIK Acres                               |                             
|Tons purchased (members)                |                             
|Tons purchased (non-member)             |                             
|Tons purchased per acre harvested       |                             
|Payment to members per ton of           |                             
|sugarbeets delivered, plus allocated    |                             
|patronage and unit retains (6)          |                             
|Sugar hundredweight                     |                             
|Produced, including PIK sugar           |                             
|Sold, including purchased sugar         |                             
|Beet pulp pellet tons                   |                             
|Produced                                |                             
|Sold                                    |                             
|Beet molasses tons                      |                             
|Produced                                |                             
|Sold                                    |                             
|Used for Yeast Production               |                             
|Yeast pounds (in thousands)             |                             
|Produced                                |                             
|Sold                                    |                             

15

---

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

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

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

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

|(5) |  | Information for a fiscal year relates to the crop planted and harvested in the
preceding calendar year (e.g., information for the fiscal year ended August 31,
2002, relates to the 2001 crop).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

16

---

# 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.

External Risk Factors That May Affect
the Company.

| |  |  | Regulatory:
The Companys ability to become more efficient through growth can be adversely
affected by the amount of product it is allowed to market in the United States.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Imports
and Quota Circumvention: To the extent that sugar imports and quota circumvention cause
the supply to increase in the United States, available markets and pricing could be
adversely affected. See management discussion on Government Programs and Regulations.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Weather:
Weather conditions affect the Companys operations. Weather impacts the size and
quality of the crop, which impacts the Companys ability to lessen per unit fixed
costs. Weather impacts the storage conditions, which may cause a decreased sugar
production yield from sugarbeets as a result of poor storage conditions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Raw
Material Costs: The costs of raw materials may adversely impact the final net return to
the growers.
| | - |  | --------------------------------------------------------------------------------------------------------

| |  |  | During
the year ended August 31, 2003, the Company hired external consultants to study the
Companys insurance coverage adequacy. As a result of this study, the Company has
made material increases in certain segments of its insurance coverage. The Company does
not consider the resulting increased insurance costs to be material to its overall
profitability.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | FASB
has issued Statement 150 regarding the treatment of equity. The Company and its auditors
have both determined the Companys allocated patronage and unit retains meet the
standards to remain classified as equity. If the Company were to be required to treat
allocated patronage and unit retains as liabilities, the debt equity ratio would go from
..62:1 to 1.33:1, which would cause the Company to have to re-negotiate its debt equity
ratio covenant with its primary lender.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# LIQUIDITY AND CAPITAL RESOURCES

Because
the Company operates as a cooperative, payment for member-delivered sugarbeets, the
principal raw material used in producing the sugar and agri-products it sells, are
subordinated to all member business expenses. In addition, actual cash payments to
members are spread over a period of approximately one year following delivery of
sugarbeet crops to the Company and are net of unit retains and patronage allocated to
them, all three of which remain available to meet the Companys capital
requirements. This member financing arrangement may result in an additional source of
liquidity and reduced outside financing requirements in comparison to a similar business
operated on a non-cooperative basis. However, because sugar is sold throughout the year
(while sugarbeets are processed primarily between September and April) and because
substantial amounts of equipment are required for its operations, the Company has
utilized substantial outside financing on both a seasonal and long-term basis to fund
such operations. The short and long-term financing has been primarily provided by Co-Bank
(the Bank). The Company has a short-term line of credit with the Bank
totaling $45.0 million and successfully completed its annual renewal of this financing
arrangement in April 2003 covering a one-year period ending May 31, 2004. The Company
anticipates using the USDA Sugar Loan

17

---

Provisions contained in the 2002
Farm Bill to provide an additional source of seasonal financing for the 2003 and future
crops. The Company has available $1 million of its $45 million seasonal line of credit
for a Letter of Credit if necessary. The loan agreements between the Bank and the Company
obligate the company to maintain the following financial covenants, and in accordance
with GAAP:

| |  |  | Maintain
working capital of not less than $9.0 million as of August 31, 2003.
| | - |  | -----------------------------------------------------------------------------

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

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

As
of August 31, 2003 the Company was in compliance with its loan agreement covenants with
the Bank.

Working
capital increased $6.2 million for fiscal year 2003. The primary source of working capital
increase was the net result of the Companys sale of its interest in Pro-Gold, LLC
(See section titled Joint Venture With ProGold Limited Liability Company). As
of August 31, 2003, the Company achieved its targeted working capital position.

The
company has protected itself from interest rate fluctuations through a strategy of using
tax-exempt bond financing and a term debt portfolio that fixes rates and maturities into
the future on set amounts of debt. The current term debt portfolio is expected to provide
the company stable term debt interest rates over the next four years at approximately 180
basis points over current market rates for similar maturities. An increase or decrease in
the interest rate market of 100 basis points is expected to have little or no additional
impact on the profitability of the Company as a result of its interest rate strategy.
Capital expenditures for fiscal year 2001 were $3.1 million, fiscal year 2002 were $4.8
million and Fiscal year 2003 were $9.4 million, of which $6.9 million was associated with
the installation of the steam dryer for beet pulp. Capital expenditures for fiscal year
2004 are currently estimated at $6.5 million.

|                                   | Payments Due by Period
|---------------------------------- | ----------------------
|
|
|Long-Term Debt                     |                       
|Capital Lease Obligations          |                       
|Operating Leases                   |                       
|Unconditional Purchase Obligations |                       
|Other Long-Term Obligations        |                       
|Total Contractual Cash Obligations |                       

Company installed a steam dryer to dry its beet pulp at a cost of approximately $9.0 MM,
and was in operation at the beginning of the 2003-04 campaign. The funding for this
investment has been in the form of a capital lease supported by tax-exempt bonds. On
February 28, 2002, the Company completed a transaction whereby $14.0 MM of tax-exempt
bonds was secured. Of the $14.0 MM in bonds, $9.0 MM was estimated for the steam dryer
project and $5.0 MM for other solid waste projects. As of August 31, 2003, $3.4 MM of the
restricted bond investments remained, with approximately $.5

18

---

MM still targeted for the steam
dryer project and $2.9 MM remaining targeted for future solid waste projects.

The
Bond Proceeds of $14.0 MM were required to be sold in a single transaction. The proceeds
from these bonds are held in trust until the funds are spent on approved projects. The
bond transaction and restricted bond investments associated with the transaction are
subject to arbitrage compliance rules for solid waste tax-exempt bond projects.

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

The
Company hedged its Euro Contracts associated with the Steam Dryer Project during the year
ended August 31, 2003 with a gain of $.3 MM resulting from those hedging activities.

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

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

# COMPARISON OF THE YEARS ENDED AUGUST 31, 2003 AND 2002

Revenue
for the year ended August 31, 2003 increased 23% or $35.8 million from 2002. Revenue from
total sugar sales increased $27.3 million or 20% reflecting a 17% increase in cwt. sold,
and a 3% increase in the average selling price per cwt. Revenue from co-products increased
17%, reflecting an increase of 19% in volume, offset by a 3% decrease in the average
selling price per ton. The increase in volume of sugar and co-products sold is directly
attributable to the larger 2002 crop of beets delivered by shareholder-growers.

Revenues
from yeast sales increased $1.6 million or 28% reflecting an increase in volume of 27%,
and an increase in price of 1%. The increase in volume is directly related to volume
generated from cream yeast product sales. The installation of a cream yeast system, which
was done to supply a marketplace demanding high quality cream yeast product, was
accomplished at the end of fiscal year 2002 and was in full operation for fiscal year
2003.

The
value of finished product inventories in fiscal year 2003 increased $4.9 million, from
fiscal year 2002, a result of higher than expected sugar and molasses inventories at
fiscal year end.

Cost
of product produced, exclusive of grower payments for sugarbeets, increased $8.1 million.
The increase is primarily due to a 43% increase in beet crop size versus the prior year
and increased volume of yeast pounds sold. Sales and Distribution costs increased $5.0
million or 21%. Increases are mainly the result of a 17% and 19% increase in the volume of
sugar and co-products sold, respectively, for the year. General and Administrative
expenses increased $0.4 million or 7%. Employee, office, professional fees and strategic
planning costs were the primary reasons for the increase. Interest expense decreased $0.4
million or 11% due to reduced rates of interest and lower levels of debt. Overall, the
cost per cwt. of sugar produced decreased 8%, primarily due to the increased size of the
crop and the effect it had on the allocation of fixed costs on a per unit basis, offset
some by a 4% decrease in the sugar content of the delivered beets.

19

---

Other
business income increased $2.7 million in fiscal year 2003. The increase resulted
primarily from the gain (net of tax) on the sale of the Cooperatives 5% ownership
interest in ProGold, LLC, a high fructose corn syrup plant located in Wahpeton, North
Dakota.

Net
payments to members for sugarbeets delivered by the shareholder-growers, increased by
$20.7 million, or 26% in fiscal year 2003. This increase was primarily due to 43% more
tons of harvested sugarbeets, offset some by a 4% decrease in sugar content of delivered
beets.

# COMPARISON OF THE YEARS ENDED AUGUST 31, 2002 AND 2001

Revenue
for the year ended August 31, 2002 decreased 11.2% or $19.9 million from 2001. Revenue
from total sugar sales decreased $29.1 million or 18% reflecting a 23% decrease in cwt.
sold, partially offset by a 6% increase in the average selling price per cwt. Revenue from
co-products remained approximately the same reflecting an increase of 10% in the average
selling price per ton, offset by a 10% decrease in volume.

Revenues
from yeast sales decreased $0.22 million or 4% reflecting a price increase of 8%, offset
by a decrease in volume of 12%.

The
value of finished product inventories in fiscal year 2002 increased $.4 million, from
fiscal year 2001.

Cost
of product produced, exclusive of grower payments for sugarbeets, decreased $2.9 million.
The decrease is primarily due to a 19% decrease in crop size. The decrease in the crop
size was due to a combination of crop growing conditions and the Federal Governments
Payment In Kind (PIK) program. Sales and Distribution costs decreased $4.17 million or
15%. Decreases are the result of a 23% decrease in the volume of sugar sold for the year
along with a 10% decrease in the volume of co-products sold for the year. However, unit
sales and distribution costs of sugar increased 9%, while co-products increased 2% for the
year General and Administrative expenses decreased $.1 million or 2%. Interest expense
decreased $1.18 million or 24% due to reduced rates of interest and lower levels of debt.
Overall, the cost per cwt of sugar produced increased 17%, primarily due to the reduced
size of the crop and the effect it had on the allocation of fixed costs on a per unit
basis.

Other
business income increased $1.16 million in fiscal year 2002. This change from expense to
income was primarily due to higher patronage dividends from other cooperatives, and lower
write-downs and losses on disposal of equipment.

Net
payments to members for sugarbeets, which include payments for payment-in-kind
certificates from the Commodity Credit Corporation, decreased by $9.5 million in fiscal
year 2002. This decrease was primarily due to 19% fewer tons of harvested beets, similar
payment-in-kind certificates coupled with a 9.7% increase per ton beet payment.

# ESTIMATED FISCAL YEAR 2004 INFORMATION

The
agreements between the Company and its members regarding the delivery of sugarbeets to
the Company require payment for members sugarbeets 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 sugarbeets 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

20

---

obtained from processing those
sugarbeets. 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 2003
sugarbeet crop. Given the nature of the estimates required in connection with the
payments to members for their sugarbeets, this discussion includes forward-looking
statements regarding the quantity of sugar to be produced from the 2003 sugarbeet crop,
the net selling price for the sugar and co-products produced by the Company and the
Companys operating costs. These forward-looking statements are based largely upon
the Companys expectations and estimates of future events; as a result, they are
subject to a variety of risks and uncertainties. Some of those estimates, such as the
selling price for the Companys products and the quantity of sugar produced from the
sugarbeet 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
Companys members harvested 2.3 million tons of sugarbeets from the 2003 crop, the
second largest crop ever delivered to the Company. Sugar content of the 2003 crop at
harvest was 7% above the average of the five most recent years because of crop growing
conditions. Because of the near record size and above average quality of the crop
delivered, the Companys production of sugar from the 2003 crop sugarbeets is
expected to set a new record for sugar produced. This forward-looking material is based on
the Companys expectations regarding the processing of the 2003 sugar beet crop; the
actual production results obtained by processing those sugarbeets 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 sugarbeets. The
Companys initial beet payment estimate totals $40.83 per ton or $.12606307 per
harvested/bonus pound of sugar, with the final beet payment determined in October of 2004.
This projected payment is less than the final 2002 crop payment per ton/pound, but higher
than the original projected 2002 crop payment per ton/pound. The lower projected 2003 crop
payment results from what management believes is a conservative approach to forecasting
sugar production and sugar production costs from a commodity, while harvested, is still at
risk for adverse storage conditions.

From
the revenues generated from the sale of products produced from each ton of sugarbeets must
be deducted the Companys operating and fixed costs. Revenues for the crop year 2003
are expected to be slightly below the 2002 crop year due to reduced sugar prices. The
deduction of operating costs results in a 2003 crop gross payment to growers for
sugarbeets of $92.5 MM which is estimated to be less than that of the 2002 crop year of
$100.9MM. The 2003 crop beet payment decrease results from slightly less harvested tons
and a lower sugar price.

# ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The Companys short-term debt
will vary from year to year based on the short-term interest rate market. Average
short-term debt borrowing levels have been $27.1MM for 2003, $23.6MM for 2002 and $22.5MM
for 2001. Because each years short-term debt is closely associated with a crop year,
the interest fluctuations will have a direct impact on the final grower beet payment.

The Company will from time to time
have a purchase obligation in foreign currency as a result of capital improvement
projects.

21

---

# 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
association) as of August 31, 2003, 2002, and 2001, and the related consolidated
statements of operations, change in members investments and cash flows for the years
then ended. These financial statements are the responsibility of the 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 auditing standards generally accepted in the United States of America. 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, 2003, 2002, and 2001,
and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of America.

Eide Bailly, LLP

Fargo, North Dakota
October 3, 2003

22

---

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2003, 2002, AND 2001

|                                                          | 2003 |  | 2002 |             | 2001 |  
|--------------------------------------------------------- | ---- |  | ---- | ----------- | ---- | -
|ASSETS                                                    |      |  |      |             |      |  
|CURRENT ASSETS                                            |      |  |      |             |      |  
|Cash                                                      |      |  | $    | 1,584,008   |      | $
|                                                          |      |  |      |             |      |  
|Receivables                                               |      | 
|Trade accounts                                            |      |  |      | 14,979,126  |      |  
|Growers                                                   |      |  |      | 4,287,050   |      |  
|Other                                                     |      |  |      | 6,158       |      |  
|                                                          |      |  |      |             |      |  
|                                                          |      |  |      | 19,272,334  |      |  
|                                                          |      |  |      |             |      |  
|Advances to affiliates  Midwest Agri-Commodities Co.     |      | 
|and United Sugars Corporation                             |      |  |      | 41,914      |      |  
|                                                          |      |  |      |             |      |  
|Inventories                                               |      | 
|Refined sugar, pulp and molasses                         
|to be sold on a pooled basis                              |      |  |      | 24,048,166  |      |  
|Nonmember refined sugar                                   |      |  |      | 4,228       |      |  
|Yeast                                                     |      |  |      | 125,995     |      |  
|Materials and supplies                                    |      |  |      | 6,188,047   |      |  
|                                                          |      |  |      |             |      |  
|                                                          |      |  |      | 30,366,436  |      |  
|                                                          |      |  |      |             |      |  
|Deferred charges                                          |      |  |      | 1,192,948   |      |  
|                                                          |      |  |      |             |      |  
|Prepaid expenses                                          |      |  |      | 232,451     |      |  
|                                                          |      |  |      |             |      |  
|Current deferred income tax asset                         |      |  |      | 507,000     |      |  
|                                                          |      |  |      |             |      |  
|Total current assets                                      |      |  |      | 53,197,091  |      |  
|                                                          |      |  |      |             |      |  
|PROPERTY, PLANT AND EQUIPMENT                             |      | 
|Land and land improvements                                |      |  |      | 22,076,854  |      |  
|Buildings                                                 |      |  |      | 36,199,579  |      |  
|Factory equipment                                         |      |  |      | 116,155,207 |      |  
|Other equipment                                           |      |  |      | 3,463,745   |      |  
|Construction in progress                                  |      |  |      | 8,780,695   |      |  
|                                                          |      |  |      |             |      |  
|                                                          |      |  |      | 186,676,080 |      |  
|Less accumulated depreciation                             |      |  |      | 83,020,262  |      |  
|                                                          |      |  |      |             |      |  
|                                                          |      |  |      | 103,655,818 |      |  
|                                                          |      |  |      |             |      |  
|OTHER ASSETS                                              |      | 
|Investment in stock of other corporations, unconsolidated |      | 
|marketing subsidiaries and other cooperatives             |      |  |      | 9,889,861   |      |  
|Long-term deferred income tax asset                       |      |  |      |            |      |  
|Investment restricted for capital lease projects          |      |  |      | 3,400,649   |      |  
|Other                                                     |      |  |      | 1,110,870   |      |  
|                                                          |      |  |      |             |      |  
|                                                          |      |  |      | 14,401,380  |      |  
|                                                          |      |  |      |             |      |  
|                                                          |      |  | $    | 171,254,289 |      | $
|                                                          |      |  |      |             |      |  

See Notes to Consolidated Financial Statements.

23

---

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2003, 2002, AND 2001

|                                                      | 2003 |  | 2002 |             | 2001 |  
|----------------------------------------------------- | ---- |  | ---- | ----------- | ---- | -
|LIABILITIES AND MEMBERS' INVESTMENT                   |      |  |      |             |      |  
|CURRENT LIABILITIES                                   |      | 
|Short-term notes payable                              |      |  | $    | 7,250,000   |      | $
|                                                      |      |  |      |             |      |  
|Current portion of long-term debt                     |      |  |      | 3,600,000   |      |  
|Current portion of capital lease                      |      |  |      | 905,000     |      |  
|                                                      |      |  |      |             |      |  
|                                                      |      |  |      | 4,505,000   |      |  
|                                                      |      |  |      |             |      |  
|Accounts payable                                      |      | 
|Trade                                                 |      |  |      | 4,667,618   |      |  
|Growers                                               |      |  |      | 14,126,175  |      |  
|                                                      |      |  |      |             |      |  
|                                                      |      |  |      | 18,793,793  |      |  
|                                                      |      |  |      |             |      |  
|Accrued liabilities                                   |      |  |      | 3,485,610   |      |  
|                                                      |      |  |      |             |      |  
|Current income tax payable (receivable)               |      |  |      | 1,364,262   |      |  
|                                                      |      |  |      |             |      |  
|Total current liabilities                             |      |  |      | 35,398,665  |      |  
|LONG-TERM DEBT, NET OF CURRENT PORTION                |      |  |      | 29,500,000  |      |  
|OBLIGATION UNDER CAPITAL LEASE                        |      |  |      | 21,915,000  |      |  
|LONG-TERM DEFERRED INCOME TAX LIABILITY               |      |  |      | 783,000     |      |  
|OTHER                                                 |      |  |      | 410,228     |      |  
|COMMITMENTS AND CONTINGENCIES (NOTE 11)               |      |  |      |            |      |  
|                                                      |      |  |      |             |      |  
|Total liabilities                                     |      |  |      | 88,006,893  |      |  
|                                                      |      |  |      |             |      |  
|MINORITY INTEREST IN EQUITY OF SUBSIDIARY             |      |  |      | 1,600,776   |      |  
|                                                      |      |  |      |             |      |  
|MEMBERS' INVESTMENT                                   |      | 
|Preferred stock                                       |      | 
|Class A  100,000 shares authorized,  $105 par value; |      | 
|72,200 shares issued and outstanding                  |      |  |      | 7,581,000   |      |  
|Class B  100,000 shares authorized  $75 par value;  
|72,200 shares issued and outstanding                  |      |  |      | 5,415,000   |      |  
|Class C  100,000 shares authorized,  $76 par value;  |      | 
|72,200 shares issued and outstanding                  |      |  |      | 5,487,200   |      |  
|                                                      |      |  |      |             |      |  
|                                                      |      |  |      | 18,483,200  |      |  
|Common stock, 600 shares authorized, $250 par value;  |      | 
|488, 488, and 497, shares issued and outstanding      |      | 
|in 2003, 2002, and 2001, respectively                 |      |  |      | 122,000     |      |  
|Paid in capital in excess of par                      |      |  |      | 32,094,407  |      |  
|Unit retention capital                                |      |  |      | 4,959,289   |      |  
|Qualified allocated patronage                         |      |  |      | 2,296,749   |      |  
|Nonqualified allocated patronage                      |      |  |      | 18,140,979  |      |  
|Retained earnings                                     |      |  |      | 5,549,997   |      |  
|                                                      |      |  |      |             |      |  
|                                                      |      |  |      | 81,646,620  |      |  
|                                                      |      |  |      |             |      |  
|                                                      |      |  | $    | 171,254,289 |      | $
|                                                      |      |  |      |             |      |  

See Notes to Consolidated Financial Statements.

24

---

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
AUGUST 31, 2003, 2002, AND 2001

|                                         | 2003 |  | 2002 |             | 2001 |  
|---------------------------------------- | ---- |  | ---- | ----------- | ---- | -
|REVENUE                                  |      |  |      |             |      |  
|From sales of sugar, sugar co-products, 
|and yeast, net of discounts              |      |  | $    | 193,816,618 |      | $
|                                         |      |  |      |             |      |  
|EXPENSES                                 |      | 
|Production costs of sugar,               |      | 
|co-products, and yeast sold              |      |  |      | 49,755,879  |      |  
|Sales and distribution costs             |      |  |      | 28,882,482  |      |  
|General and administrative               |      |  |      | 5,743,940   |      |  
|Interest                                 |      |  |      | 3,326,163   |      |  
|                                         |      |  |      |             |      |  
|                                         |      |  |      | 87,708,464  |      |  
|                                         |      |  |      |             |      |  
|OTHER INCOME (EXPENSE)                   |      |  |      | 3,554,852   |      |  
|                                         |      |  |      |             |      |  
|NET PROCEEDS RESULTING FROM              |      | 
|MEMBER AND NON-MEMBER BUSINESS           |      |  | $    | 109,663,006 |      | $
|                                         |      |  |      |             |      |  
|DISTRIBUTION OF NET PROCEEDS             |      | 
|Credited to members' investment          |      | 
|Components of net income                 |      | 
|Income from                             
|non-member business                      |      |  | $    | 3,974,143   |      | $
|Patronage income                         |      |  |      | 4,767,872   |      |  
|                                         |      |  |      |             |      |  
|Net income credited to                  
|member's investment                      |      |  |      | 8,742,015   |      |  
|Payments to members for sugarbeets,      |      | 
|net of unit retention capital            |      |  |      | 100,920,991 |      |  
|Payments to members for PIK certificates |      |  |      |            |      |  
|                                         |      |  |      |             |      |  
|Total payments to members                |      |  |      | 100,920,991 |      |  
|NET PROCEEDS RESULTING FROM             
|MEMBER AND NONMEMBER BUSINESS            |      |  | $    | 109,663,006 |      | $
|                                         |      |  |      |             |      |  

See Notes to Consolidated Financial Statements.

25

---

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS INVESTMENT
AUGUST 31, 2003, 2002, AND 2001

|                                               | PreferredStock |  | CommonStock |            | Paid in Capitalin Excess ofPar Value |   | UnitRetentionCapital |   | QualifiedAllocatedPatronage |            | Non-QualifiedAllocatedPatronage |   | RetainedEarnings(Deficit) |   | Total |          
|---------------------------------------------- | -------------- |  | ----------- | ---------- | ------------------------------------ | - | -------------------- | - | --------------------------- | ---------- | ------------------------------- | - | ------------------------- | - | ----- | ---------
|                                               |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       |          
|BALANCE, AUGUST 31, 2000                       |                |  | $           | 18,483,200 |                                      | $ | 121,000              |   | $                           | 32,094,407 |                                 | $ | 7,148,159                 |   | $     | 3,816,607
|Stock                                          |                | 
|Sales  common (26 shares)                     |                |  |             |            |                                      |   | 6,500                |   |                             |            |                                 |   |                           |   |       |          
|Repurchases  common (13 shares)               |                |  |             |            |                                      |   | (3,250               | ) |                             |            |                                 |   |                           |   |       |          
|Revolvement of unit retention capital          |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   | (671,799                  | ) |       |          
|Revolvment of prior years' allocated patronage |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       | (401,037 
|Net income for the year ended August 31, 2001  |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       |          
|                                               |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       |          
|BALANCE, AUGUST 31, 2001                       |                |  |             | 18,483,200 |                                      |   | 124,250              |   |                             | 32,094,407 |                                 |   | 6,476,360                 |   |       | 3,415,570
|Stock                                          |                | 
|Sales  common (7 shares)                      |                |  |             |            |                                      |   | 1,750                |   |                             |            |                                 |   |                           |   |       |          
|Repurchases  common (16 shares)               |                |  |             |            |                                      |   | (4,000               | ) |                             |            |                                 |   |                           |   |       |          
|Revolvement of unit retention capital          |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   | (608,554                  | ) |       |          
|Revolvment of prior years' allocated patronage |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       | (504,587 
|Net income for the year ended August 31, 2002  |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       |          
|                                               |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       |          
|BALANCE, AUGUST 31, 2002                       |                |  |             | 18,483,200 |                                      |   | 122,000              |   |                             | 32,094,407 |                                 |   | 5,867,806                 |   |       | 2,910,983
|Stock                                          |                | 
|Sales  common ( shares)                       |                |  |             |            |                                      |   | 2,750                |   |                             |            |                                 |   |                           |   |       |          
|Repurchases  common ( shares)                 |                |  |             |            |                                      |   | (2,750               | ) |                             |            |                                 |   |                           |   |       |          
|Revolvement of unit retention capital          |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   | (908,517                  | ) |       |          
|Revolvment of prior years' allocated patronage |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       | (614,234 
|Net income for the year ended August 31, 2003  |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       |          
|                                               |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       |          
|BALANCE, AUGUST 31, 2003                       |                |  | $           | 18,483,200 |                                      | $ | 122,000              |   | $                           | 32,094,407 |                                 | $ | 4,959,289                 |   | $     | 2,296,749
|                                               |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       |          

See Notes to Consolidated Financial Statements.

26

---

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
AUGUST 31, 2003, 2002, AND 2001

|                                                             | 2003 |  | 2002 |             | 2001 |  
|------------------------------------------------------------ | ---- |  | ---- | ----------- | ---- | -
|OPERATING ACTIVITIES                                         |      |  |      |             |      |  
|Income allocated to members' investment                      |      |  | $    | 8,742,015   |      | $
|Add (deduct) noncash items                                   |      | 
|Depreciation and amortization                                |      |  |      | 7,095,441   |      |  
|Equipment disposals  loss                                   |      |  |      | 66,922      |      |  
|(Gain) loss on sale of investments                           |      |  |      | (5,930,876  | )    |  
|Net income allocated from                                    |      | 
|unconsolidated marketing subsidiaries                        |      |  |      | (569,953    | )    |  
|Noncash portion of patronage capital credits                 |      |  |      | (852,014    | )    |  
|Deferred income taxes                                        |      |  |      | (198,000    | )    |  
|(Increase) decrease in cash surrender                        |      | 
|of officer life insurance                                    |      |  |      | (34,774     | )    |  
|Minority interest                                            |      |  |      | 212,131     |      |  
|Changes in operating assets and liabilities:                 |      | 
|Accounts receivable and advances                             |      |  |      | (1,934,115  | )    |  
|Inventory and prepaid expenses                               |      |  |      | (5,197,752  | )    |  
|Deferred charges and other                                   |      |  |      | 142,316     |      |  
|Accounts payable, accrued liabilities, and other liabilities |      |  |      | 5,656,345   |      |  
|                                                             |      |  |      |             |      |  
|NET CASH FROM OPERATING ACTIVITIES                           |      |  |      | 7,197,686   |      |  
|                                                             |      |  |      |             |      |  
|INVESTING ACTIVITIES                                         |      | 
|Investments restricted for capital lease projects            |      |  |      | 7,662,520   |      |  
|Proceeds from disposition of                                 |      | 
|property, plant and equipment                                |      |  |      | 8,500       |      |  
|Capital expenditures                                         |      |  |      | (9,429,070  | )    |  
|Proceeds from sale of investments                            |      |  |      | 10,300,000  |      |  
|Investment in stock of other corporations, unconsolidated   
|marketing subsidiaries and other cooperatives                |      |  |      | (448,753    | )    |  
|Capital adjustment of marketing subsidiary                   |      |  |      |            |      |  
|Net proceeds from patronage                                  |      | 
|refunds and equity revolvements                              |      |  |      | 186,120     |      |  
|                                                             |      |  |      |             |      |  
|NET CASH FROM (USED FOR) INVESTING ACTIVITIES                |      |  |      | 8,279,317   |      |  
|                                                             |      |  |      |             |      |  
|FINANCING ACTIVITIES                                         |      | 
|Sale and repurchase of common stock, net                     |      |  |      |            |      |  
|Net proceeds from issuance of short-term debt                |      |  |      | (4,545,000  | )    |  
|Proceeds from bond issuance                                  |      |  |      |            |      |  
|Dividends paid to minority shareholder                       |      |  |      | (100,000    | )    |  
|Payment of financing fees                                    |      |  |      | (337,145    | )    |  
|Payment of long-term debt                                    |      |  |      | (5,660,000  | )    |  
|Payment of unit retains and allocated patronage              |      |  |      | (4,007,469  | )    |  
|                                                             |      |  |      |             |      |  
|NET CASH (USED FOR) FROM FINANCING ACTIVITIES                |      |  |      | (14,649,614 | )    |  
|                                                             |      |  |      |             |      |  
|NET CHANGE IN CASH                                           |      |  |      | 827,389     |      |  
|CASH, BEGINNING OF YEAR                                      |      |  |      | 756,619     |      |  
|                                                             |      |  |      |             |      |  
|CASH, END OF YEAR                                            |      |  | $    | 1,584,008   |      | $
|                                                             |      |  |      |             |      |  
|SUPPLEMENTAL DISCLOSURES                                     |      | 
|OF CASH FLOW INFORMATION                                     |      | 
|Cash payments for                                            |      | 
|Interest                                                     |      |  | $    | 3,708,790   |      | $
|                                                             |      |  |      |             |      |  
|Income taxes                                                 |      |  | $    | 1,876,008   |      | $
|                                                             |      |  |      |             |      |  
|SUPPLEMENTAL DISCLOSURES                                     |      | 
|OF NON CASH FLOW INFORMATION                                 |      | 
|Reduction of short-term notes payable through                |      | 
|the forfeiture of sugar inventory                            |      |  |      |             |      |  
|                                                             |      |  |      |            

27

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

# NOTE 1  PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

Principal Business Activity

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

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

Principles of Consolidation

The financial statements include the
accounts of Minn-Dak and its subsidiary, Minn-Dak Yeast, which is 80% owned by the
cooperative.

Receivable and Credit Policy

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

Credit Risk

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

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. Inventory of yeast is valued at the lower of average cost or market.
Materials and supplies are valued at most recent purchase that approximates cost.

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

28

---

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
$336,990, $106,781, and $63,827 for the years ended August 31, 2003, 2002, and 2001. There
was construction-period interest capitalized of approximately $61,200 and $9,200 for the
years ended August 31, 2003 and 2002, respectively. There was no construction-period
interest capitalized for the year ended August 31, 2001.

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 non-qualified 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.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

---

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

|1. |  | 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 estimate

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

Uninsured Cash Balance

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

Reclassifications

Certain amounts have been
reclassified in the 2002 and 2001 financial statements to conform to the 2003
presentation. The reclassifications have no effect on the results of operations.

Recently Issued AccountingPronouncements

The Financial Accounting Standards
Board has recently issued Statement 150 regarding Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. The statement is not
expected to have a material impact on the financial statements.

30

---

# NOTE 2  INVESTMENTS

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

|                                   | 2003 |  | 2002 |           | 2001 |  
|---------------------------------- | ---- |  | ---- | --------- | ---- | -
|United Sugars Corporation          |      |  | $    | 1,611,590 |      | $
|Midwest Agri-Commodities           |      |  |      | 81,762    |      |  
|ProGold, LLC                       |      |  |      |          |      |  
|CoBank                             |      |  |      | 3,986,021 |      |  
|Dakota Valley Electric Cooperative |      |  |      | 4,161,196 |      |  
|Other                              |      |  |      | 49,292    |      |  
|                                   |      |  |      |           |      |  
|                                   |      |  | $    | 9,889,861 |      | $
|                                   |      |  |      |           |      |  

# NOTE 3  SHORT-TERM DEBT

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

|                             | 2003 |  | 2002 |           | 2001 |  
|---------------------------- | ---- |  | ---- | --------- | ---- | -
|Seasonal loan with CoBank,   |      |  |      |           |      |  
|due June 30, 2004, interest  |      | 
|variable, currently at 2.42% |      |  | $    | 7,250,000 |      | $
|                             |      |  |      |           |      |  

The cooperative has a
$45,000,000 seasonal line of credit with CoBank. The line is secured with a
first lien on substantially all property and equipment and current assets of
Minn-Dak. The cooperative also utilizes the USDA Sugar Loan Provisions to
provide an additional source of seasonal financing.

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

|                         | 2003 |  | 2002 |            | 2001 |  
|------------------------ | ---- |  | ---- | ---------- | ---- | -
|Maximum borrowings       |      |  | $    | 55,299,422 |      | $
|                         |      |  |      |            |      |  
|Average borrowing levels |      |  | $    | 27,142,339 |      | $
|                         |      |  |      |            |      |  
|Average interest rates   |      |  |      | 2.56       | %    |  
|                         |      |  |      |            |      |  

31

---

# NOTE 4  LONG-TERM DEBT

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

|                                           | 2003 |  | 2002 |            | 2001 |  
|------------------------------------------ | ---- |  | ---- | ---------- | ---- | -
|Term loan with CoBank, due in varying      |      |  |      |            |      |  
|principal repayments through               |      | 
|November 20, 2010, interest rate variable, |      | 
|currently at 2.42%, with a first lien on   |      | 
|substantially all property and equipment   |      | 
|and current assets of Minn-Dak located in  |      | 
|Wahpeton, North Dakota                     |      |  | $    | 33,100,000 |      | $
|Long-term interest free note with          |      | 
|Dakota Valley Electric Cooperative         |      |  |      | --         |      |  
|                                           |      |  |      |            |      |  
|                                           |      |  |      | 33,100,000 |      |  
|Less current maturities                    |      |  |      | (3,600,000 | )    |  
|                                           |      |  |      |            |      |  
|                                           |      |  | $    | 29,500,000 |      | $
|                                           |      |  |      |            |      |  

Minn-Dak has complied with
the terms of its loan agreement for the years ended August 31, 2003, 2002, and
2001.

In addition, Minn-Dak can
make special advance payments on its term loans with CoBank after its seasonal
loans have been paid in full, with the understanding that the special advance
payments will be 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 totaled
$3,326,163, $3,741,759, and $4,959,743 for 2003, 2002 and 2001, respectively.

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

|Years ending August 31, | 
|----------------------- | 
|2004                    | 
|2005                    | 
|2006                    | 
|2007                    | 
|2008                    | 
|Thereafter              | 
|                        | 
|                        | 
|                        | 

32

---

# NOTE 5  OBLIGATIONS UNDER CAPITAL LEASE

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 has structured the
cooperatives lease payments to correspond with the bond issues interest and
principal requirements. The Company has letter of credit arrangements with a bank that
provide security for obligations under capital lease totaling approximately $23,450,000 at
August 31, 2003. There were no outstanding advances under these letter of credit
arrangements at August 31, 2003. Details relative to the cooperatives obligations under
the lease agreement are as follows:

|                                  | 2003 | 
|--------------------------------- | ---- | 
|
|
|Richland County,                  |      | 
|North Dakota                      |      | 
|Richland County,                  |      | 
|North Dakota                      |      | 
|Less amount representing interest |      | 
|                                  |      | 
|                                  |      | 
|                                  |      | 

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

|Years ending August 31, | 
|----------------------- | 
|2004                    | 
|2005                    | 
|2006                    | 
|2007                    | 
|2008                    | 
|Thereafter              | 
|                        | 
|                        | 
|                        | 

33

---

# NOTE 6  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 1.35 planted acres of sugar beet crops grown under a
growers contract with Minn-Dak. The cooperative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 2003 and 2002, the cooperatives board of directors authorized the
members to plant 1.55 acres per unit. 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.

Minn-Daks net income,
determined in accordance with generally accepted accounting principles consistently
applied, shall be distributed annually on the basis of delivered pounds of sugar, in cash
or in the form of credits to each member-producers patronage credit account as
established on the books of the 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 CoBank, the working capital position of the cooperative is
insufficient, Minn-Dak shall retain from the price to be paid per pound of extractable
sugar such amounts as are deemed by the bank to be necessary for operations, the
deductions to be made at such time as the bank shall require. The amount so retained shall
be evidenced in the records of 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, 2003,
Minn-Dak allocated patronage of $4,767,872 to the members. For the year ended August 31,
2002, Minn-Dak allocated patronage of $3,611,367 to the members. For the year ended August
31, 2001, Minn-Dak allocated patronage of $4,624,324 to the members.

During the year ended August 31,
2003, Minn-Dak revolved the remaining 20% of the unit retains and allocated patronage for
the fiscal year ended August 31, 1993 and 75% of the unit retains and allocated patronage
for the fiscal year ended August 31, 1994, totaling $1,280,562 and $2,514,889, in each
respective year, for a total of $3,795,451. In addition, unit retains and allocated
patronage owned by certain estates were redeemed at a discount. The discount represented
the difference between the book value of these items, totaling $212,018, and the present
value of the estimated future redemptions.

During the year ended August 31,
2002, Minn-Dak revolved 45% of the unit retains and allocated patronage for the fiscal
year ended August 31, 1993, totaling $3,333,326.

During the year ended August 31,
2001, Minn-Dak revolved the remaining 30% of the unit retains and allocated patronage for
the fiscal year ended August 31, 1992 and 35% of the unit retains and allocated patronage
for the fiscal year ended August 31, 1993, totaling $1,475,742 and $2,647,922, in each
respective year, for a total of $4,123,664. In addition, unit retains and allocated
patronage owned by certain estates were redeemed at a discount. The discount represented
the difference between the book value of these items, totaling $1,482, and the present
value of the estimated future redemptions.

34

---

# NOTE 7  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, 2003, 2002, and 2001, Minn-Dak had
advanced $21,241,933, $19,454,420, and $22,204,411, respectively. Minn-Dak had outstanding
advances due from United Sugars of $88,582, $190,306, and $128,764, for the years ended
August 31, 2003, 2002, and 2001, respectively. During 2001, a distribution of capital of
$68,078 was received.

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 are 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 $1,887,774, $1,281,325, and $1,974,466,
respectively, during the years ended August 31, 2003, 2002, and 2001. Minn-Dak had
outstanding advances due from (to) Midwest of $(46,668), $(55,366), and $285,282, as of
August 31, 2003, 2002, and 2001, respectively. The owners are guarantors of the short-term
line of credit Midwest has with CoBank.

# NOTE 8  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, that 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.

35

---

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

|                                   | 2003 |  | 2002 |            | 2001 |  
|---------------------------------- | ---- |  | ---- | ---------- | ---- | -
|Deferred tax assets                |      |  |      |            |      |  
|Non-qualified unit retains and     |      | 
|allocated patronage due to members |      |  | $    | 9,240,000  |      | $
|Net operating loss carryforwards   |      |  |      | 3,696,000  |      |  
|Other                              |      |  |      | 1,035,000  |      |  
|                                   |      |  |      |            |      |  
|Gross deferred tax assets          |      |  |      | 13,971,000 |      |  
|Less valuation allowance           |      |  |      | (325,000   | )    |  
|                                   |      |  |      |            |      |  
|Total deferred tax assets          |      |  |      | 13,646,000 |      |  
|                                   |      |  |      |            |      |  
|Deferred tax liabilities           |      | 
|Depreciation                       |      |  |      | 12,257,000 |      |  
|Other                              |      |  |      | 1,665,000  |      |  
|                                   |      |  |      |            |      |  
|Total deferred tax liabilities     |      |  |      | 13,922,000 |      |  
|                                   |      |  |      |            |      |  
|Net deferred tax asset (liability) |      |  | $    | (276,000   | )    | $
|                                   |      |  |      |            |      |  
|Classified as follows              |      | 
|Current asset                      |      |  | $    | 507,000    |      | $
|Long-term asset (liability)        |      |  |      | (783,000   | )    |  
|                                   |      |  |      |            |      |  
|Net deferred tax asset (liability) |      |  | $    | (276,000   | )    | $
|                                   |      |  |      |            |      |  

The deferred tax asset
valuation allowance reduces the estimated amount of the net operating loss
carryforwards that will be ultimately realized. The operating loss carryforwards
will expire in 2018 through 2023.

The provision for income
taxes is as follows:

|                                    | 2003 |  | 2002 |           | 2001 |  
|----------------------------------- | ---- |  | ---- | --------- | ---- | -
|Current expense (benefit)           |      |  | $    | 3,265,000 |      | $
|Net change in temporary differences |      |  |      | (198,000  | )    |  
|                                    |      |  |      |           |      |  
|Provision for income taxes          |      |  | $    | 3,067,000 |      | $
|                                    |      |  |      |           |      |  

36

---

# NOTE 9  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 10  COMMITMENTS AND CONTINGENCIES

During 2000, the cooperative sold
certain notes receivable with recourse. The cooperatives contingent liability
related to these notes totaled $630,328 as of August 31, 2003.

# NOTE 11  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:

|Years ending August 31, | 
|----------------------- | 
|2004                    | 
|2005                    | 
|2006                    | 
|2007                    | 
|2008                    | 

Operating lease and contract expenses
for the years ended August 31, 2003, 2002, and 2001, totaled approximately $919,000,
$1,171,000, and $1,105,000, respectively.

# NOTE 12  EMPLOYEE BENEFIT PLANS

401(k) Plan

The cooperative has a qualified
401(k) employee benefit plan that covers all employees meeting eligibility requirements.
The cooperatives contribution to the plan is at a level of 75 percent of employee
contributions, up to 4 percent of compensation. Contributions to the plan totaled
$320,724, $299,234, and $297,914 for the years ended August 31, 2003, 2002, and 2001,
respectively.

37

---

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

|                                               | 2003 |  | 2002 |            | 2001 |  
|---------------------------------------------- | ---- |  | ---- | ---------- | ---- | -
|Change in benefit obligation                   |      |  |      |            |      |  
|Benefit obligation at beginning of year        |      |  | $    | 15,287,673 |      | $
|Service cost                                   |      |  |      | 635,996    |      |  
|Interest cost                                  |      |  |      | 1,070,542  |      |  
|Experience (gain)/loss                         |      | 
|due to participant changes                     |      |  |      | 156,855    |      |  
|Benefits paid                                  |      |  |      | (572,480   | )    |  
|                                               |      |  |      |            |      |  
|Benefit obligation at end of year              |      |  |      | 16,578,586 |      |  
|                                               |      |  |      |            |      |  
|Change in plan assets                          |      | 
|Fair value of plan assets at beginning of year |      |  |      | 11,294,046 |      |  
|Actual return on plan assets                   |      |  |      | (311,093   | )    |  
|Employer contribution                          |      |  |      | 994,380    |      |  
|Benefits paid                                  |      |  |      | (572,480   | )    |  
|                                               |      |  |      |            |      |  
|Fair value of plan assets at end of year       |      |  |      | 11,404,853 |      |  
|                                               |      |  |      |            |      |  
|Funded status                                  |      |  |      | (5,173,733 | )    |  
|Unrecognized net actuarial loss                |      |  |      | 4,086,628  |      |  
|Unrecognized prior service cost                |      |  |      | 519,452    |      |  
|Unrecognized transition asset                  |      |  |      | (8,417     | )    |  
|                                               |      |  |      |            |      |  
|Accrued benefit cost liability                 |      |  | $    | (576,070   | )    | $
|                                               |      |  |      |            |      |  

|                                             | 2003 |  | 2002 |      | 2001 | 
|-------------------------------------------- | ---- |  | ---- | ---- | ---- | 
|Weighted-average assumptions as of August 31 |      |  |      |      |      | 
|Discount rate                                |      |  |      | 6.75 | %    | 
|Expected return on plan assets               |      |  |      | 8.0  | %    | 
|Rate of compensation increase                |      |  |      | 4.5  | %    | 

38

---

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

|                                        | 2003 |  | 2002 |           | 2001 |  
|--------------------------------------- | ---- |  | ---- | --------- | ---- | -
|Components on net periodic benefit cost |      |  |      |           |      |  
|Service cost                            |      |  | $    | 635,996   |      | $
|Interest cost                           |      |  |      | 1,070,542 |      |  
|Expected return on plan assets          |      |  |      | (904,180  | )    |  
|Amortization of prior service cost      |      |  |      | 126,530   |      |  
|Amortization of transition amount       |      |  |      | (18,266   | )    |  
|                                        |      |  |      |           |      |  
|Net periodic benefit cost               |      |  | $    | 910,622   |      | $
|                                        |      |  |      |           |      |  

# NOTE 13  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 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 14  FAIR VALUE OF FINANCIAL INSTRUMENTS

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

The following methods and assumptions
were used by the company to estimate fair value of the financial instruments, and the
estimated fair values of the companys financial instruments as of August 31, 2003,
2002, and 2001, are as follows:

| | Investments  The investments in CoBank, Dakota Valley Electric Cooperative, Inc. and all
other cooperatives are stated at cost, plus the cooperatives share of allocated
patronage and capital credits. The investments in United Sugars Corporation and Midwest
Agri-Commodities are accounted for using the equity method, wherein the investments are
recorded at the amount of the underlying equity in the net assets of the investments and
adjusted to recognize the cooperatives share of the undistributed earnings or
losses. 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

39

---

| | 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 lease  The fair value of obligations under
capital lease was based on present value models using current financing rates available to
the cooperative. At August 31, 2003, the carrying value of obligations under capital
leases was $23,535,000 and the estimated fair value was $22,300,000. At August 31, 2002,
the carrying value of obligations under capital leases was $23,680,000 and the estimated
fair value was $23,300,000. At August 31, 2001, the carrying value of obligations under
capital leases was $10,495,000 and the estimated fair value was $8,200,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 9.     CHANGES IN OR DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

# ITEM 9A.     CONTROLS AND PROCEDURES

Sarbanes-Oxley Act:   The
newly enacted Sarbanes-Oxley Act has a number of provisions that are currently in the rule
making process or if finalized, the interpretation of those rules continues to be an
ongoing process. The Company is making every reasonable effort to be in compliance with
the new rules and is taking the steps it feels appropriate to be in a position to be in
compliance with proposed rules. The below listed areas of activity are not to be
considered an all inclusive list, rather an indication of how the Companys Board of
Directors and Management are approaching future compliance requirements.

Audit Committee:   The
audit committee re-organized following the December 2002 annual meeting. The
audit committee, as directed in its new charter (see Exhibit 99.1), has become
even more active in the oversight of the Companys accounting, auditing,
and key risk management areas. The Companys bylaws require any board
member to be actively engaged in the production of sugarbeets, therefore, the
financial expert requirement for the audit committee is restricted to the pool
of available directors who are eligible to serve on the audit committee. The
Audit Committee has formulated a confidential and anonymous employee system to
allow employees to report concerns regarding questionable accounting or auditing
matters. The Audit Committee has adopted a code of ethics policy for top
management.

The Audit Committee has reviewed and
discussed separately with management, the independent auditors, and within the Audit
Committee the financial statements and the quality of accounting principles and
significant judgments affecting the financial statements contained in this 10-k report.
As a result of these reviews and discussions, the

40

---

Audit Committee considers the
financial statements contained in this 10-k report to be fairly presented.

Internal Controls:   The
Companys payments to growers are derived from crop pools with each
years harvest creating a Crop Pool. It is the Companys
practice to make every reasonable effort to allocate revenues and costs in such
a manner the revenues and expenses associated with each pool are materially
correct and accounting methods are consistently applied on a year-to-year and a
pool-to-pool basis. During fiscal year 2003, the Company formalized a process
where-by the material risks associated with the Company were determined, and
documented how those risks are to be managed and, where appropriate, reviewed by
the Audit Committee.

The Companys chief executive
officer and chief financial officer have reviewed and evaluated the effectiveness of the
Companys disclosure controls and procedures (as defined in Rules 240.13a-14(c) and
15d-14(c) promulgated under the Securities Exchange Act of 1934) as of a date within
ninety days before the filing date of this annual report. Based on that review and
evaluation, which included inquiries made to certain other employees of the Company, the
chief executive officer and chief financial officer have concluded that the Companys
current disclosure controls and procedures, as designed and implemented, are reasonably
adequate to ensure that they are provided with material information relating to the
Company required to be disclosed in the reports the Company files or submits under the
Securities Exchange Act of 1934.

# ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

# 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.

41

---

|Name and Address       | Age |  | District |    | Director Since |                            | Term Expiresin December
|---------------------- | --- |  | -------- | -- | -------------- | -------------------------- | -----------------------
|
|Douglas Etten          |     |  |          | 52 |                | District #8  Lyngaas      |                        
|3138 370th ST          |     | 
|Foxhome, MN 56543      |     |  |          |    |               
|                       |     | 
|Michael Hasbargen      |     |  |          | 58 |                | District #4  Factory East |                        
|2553 360th ST          |     | 
|Breckenridge, MN 56520 |     |  |          |    |               
|                       |     | 
|Victor Krabbenhoft     |     |  |          | 54 |                | District #9  Peet         |                        
|416 44th AV S          |     | 
|Moorhead, MN 56560     |     | 
|                       |     | 
|Jack Lacey             |     |  |          | 61 |                | District #5  Hawes        |                        
|32936 320th AV         |     | 
|Wendell, MN 56590-9750 |     |  |          |    |               
|                       |     | 
|Russell Mauch          |     |  |          | 48 |                | District #2  Factory West |                        
|16305 Hwy 13           |     | 
|Barney, ND 58008       |     | 
|                       |     | 
|Jerry Meyer            |     |  |          | 65 |                | District #1  Tyler        |                        
|1433 15th Street North |     | 
|Wahpeton, ND 58075     |     |  |          |    |               
|                       |     | 
|Edward Moen            |     |  |          | 76 |                | District #3  Gorder       |                        
|17060 County Road 8    |     | 
|Colfax, ND 58018       |     | 
|                       |     | 
|Charles Steiner        |     |  |          | 53 |                | District #6  Yaggie       |                        
|2851 310th AV          |     | 
|Foxhome, MN 56543-9312 |     |  |          |    |               
|                       |     | 
|Paul Summer            |     |  |          | 61 |                | District #7  Lehman       |                        
|1509 Lakeside Drive    |     | 
|Alexandria, MN 56308   |     | 

|1) |  | Mr. Ettens term as a director of the Company from District #8-Lyngaas
expires on December 9, 2003.
|-- |  | ---------------------------------------------------------------------------------------------------

|2) |  | Mr. Laceys term as a director of the Company from District #5-Hawes
expires on December 6, 2005; however, he has resigned from the board of
directors effective, December 8, 2003.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3) |  | Mr. Meyers term as director of the Company from District #1-Tyler expires
on December 9, 2003. Mr. Meyer has decided not to run for reelection to the
board of directors.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4) |  | Mr. Steiners term as director of the Company from District #6-Yaggie
expires on December 9, 2003.
|-- |  | --------------------------------------------------------------------------------------------------

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. Etten also
serves on the board of directors for United Sugars Corporation. He is also one
of Minn-Daks representatives to the American Sugarbeet Growers Association
in Washington, DC.

42

---

Michael Hasbargen has been a director since 1993 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. Mr. Hasbargen is the brother-in-law of Mr. Steven Caspers,
Executive Vice President & Chief Financial Officer.

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s
representatives to the American Sugarbeet Growers Association in Washington, DC.

Russell Mauch
has been a director since 1998. Mr. Mauch graduated from North Dakota State
University in 1977 with a B.S. in agriculture. From 1979 to 1981 Mr. Mauch was a
commercial and agriculture loan officer for First Bank Corporation in Valley
City, ND. Mr. Mauch has been farming near Barney, ND since 1981. Mr. Mauch also
serves on the board of directors for Minn-Dak Yeast Company and on the board of
directors for Midwest Agri-Commodities Company.

Jerry Meyer
has been a director since 1994 and is currently serving as board treasurer. Mr.
Meyer has been farming near Fairmount, ND since 1958. He also serves on the
board of directors for Minn-Dak Yeast Company.

Ed Moen
has been a director since 1989. Mr. Moen has been farming near Galchutt, ND
since 1945.

Charles Steiner
has been a director since 2000. Mr. Steiner has been farming near Foxhome, MN
since 1969. Mr. Steiner graduated from the Northwest School of Agriculture,
University of Minnesota at Crookston, MN. He also serves on the board of
directors for Minn-Dak Yeast 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.

The
Board of Directors meets 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 that take less than five hours or (b) $225.00 for
any day in which directors partake in activities on the Companys behalf that take
five hours or more. The Chairman of the Board of Directors also receives a flat $400.00
per month to compensate for the extra duties associated with that position.

43

---

# Executive Officers

The
table below lists the principal officers of the Company, none of whom owns any common or
preferred shares. The president/chief executive officer is appointed 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 | 
|------------------------- | --- |  | -------- | 
|David H. Roche            |     |  | 56       | 
|                          |     |  |          | 
|Steven M. Caspers         |     |  | 53       | 
|                          |     |  |          | 
|Allen E. Larson           |     |  | 48       | 
|                          |     |  |          | 
|Thomas D. Knudsen         |     |  | 49       | 
|                          |     |  |          | 
|Jerald W. Pierson         |     |  | 64       | 
|                          |     |  |          | 
|Jeffrey L. Carlson        |     |  | 48       | 
|                          |     |  |          | 
|John S. Nyquist           |     |  | 48       | 
|                          |     |  |          | 
|Patricia J. Keough-Wilson |     |  | 63       | 
|                          |     |  |          | 
|Kevin R. Shannon          |     |  | 49       | 
|                          |     |  |          | 
|John Haugen               |     |  | 51       | 

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

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

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

44

---

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.

Jerald W. Pierson
is a graduate of Black Hills State University with 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 the Company on June 4, 1990.

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 the Company on September 15, 1975.

Patricia J. Keough-Wilson
is a graduate of Moorhead State University with a Bachelor of Science in Mass
Communications and Master of Arts in Liberal Arts. Mrs. Keough-Wilson is active
in local civic organizations and began her publication-communications experience
in 1973. Mrs. Keough-Wilson 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 the Companys tare lab supervisor.

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

# 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, 2003 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.

45

---

# Summary Compensation Table

|Name andPrincipal Position | Year |  | Salary |      | Bonus |   | Other AnnualCompensation (1) |  | All OtherCompensation (2) |         | TotalCompensation |  
|-------------------------- | ---- |  | ------ | ---- | ----- | - | ---------------------------- |  | ------------------------- | ------- | ----------------- | -
|
|David Roche                |      |  |        | 2003 |       | $ | 284,232                      |  | $                         | 100,000 |                   | $
|President & CEO            |      |  |        | 2002 |       | $ | 265,000                      |  | $                         | 45,000  |                   | $
|                           |      |  |        | 2001 |       | $ | 128,346                      |  | $                         | 0       |                   | $
|                          
|Steven Caspers             |      |  |        | 2003 |       | $ | 145,255                      |  | $                         | 45,000  |                   | $
|Executive Vice             |      |  |        | 2002 |       | $ | 140,231                      |  | $                         | 30,000  |                   | $
|President/CFO              |      |  |        | 2001 |       | $ | 180,787                      |  | $                         | 30,000  |                   | $
|                          
|Thomas Knudsen             |      |  |        | 2003 |       | $ | 105,412                      |  | $                         | 25,000  |                   | $
|VP Agriculture             |      |  |        | 2002 |       | $ | 101,352                      |  | $                         | 15,000  |                   | $
|                           |      |  |        | 2001 |       | $ | 97,557                       |  | $                         | 14,500  |                   | $
|                          
|Allen Larson               |      |  |        | 2003 |       | $ | 101,595                      |  | $                         | 19,000  |                   | $
|Controller and             |      |  |        | 2002 |       | $ | 98,253                       |  | $                         | 14,000  |                   | $
|Chief Acctg Officer        |      |  |        | 2001 |       | $ | 100,747                      |  | $                         | 12,000  |                   | $
|                          
|Jeffrey Carlson            |      |  |        | 2003 |       | $ | 109,273                      |  | $                         | 25,000  |                   | $
|Vice President             |      |  |        | 2002 |       | $ | 86,034                       |  | $                         | 11,500  |                   | $
|Of Operations              |      |  |        | 2001 |       | $ | 83,527                       |  | $                         | 11,000  |                   | $

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

Management
employees are eligible for performance bonuses, which are partially based upon on the
performance of the Company and partially on achievement of certain management performance
objectives. The President/CEO determines those performance objectives for officers and
significant other management employees of the Company and the Board of Directors
determines performance objectives for the President/CEO. If minimum Company performance is
not achieved in any given year (that performance based upon returns to the Companys
shareholders), performance bonuses are not paid to employees.

On
a periodic basis, the Company undertakes a compensation review study to determine that
its employees compensation is commensurate with responsibilities of the various
Company positions, and that the compensation is equitable between jobs within

46

---

the Company and externally
competitive with other comparable jobs and responsibilities within the Companys
geographic region. A national compensation consultant called Hay Management consultants
performs the compensation review study. This study is made of all management employees,
including the president, and non-union employees. In June of 2002 the company instituted
a salary range shift. From time to time individual employees have had a restudy based
upon changes in their areas of responsibilities. As of August 31, 2002 all employees wages
had been adjusted to levels consistent with the Hay Management Consultants findings and
recommendations.

2)    
Mr. Roche became eligible for payments into a supplemental executive retirement
plan upon his completion of one year of service. For the fiscal year ended
August 31, 2003, the Company recorded on their books an obligation of $16,278 to
Mr. Roche. No obligation was recorded in his first year of eligibility, which
was the fiscal year ended August 31, 2002. See the section below on Retirement
Plans for further details on the supplemental executive retirement plan.

# 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. The Company provides a matching contribution of 75% of
each employees first 4% of compensation that is set aside under the plan. Effective
1-1-04, the company will match 100% of the employees first 4% of compensation that
is set aside under the plan. The amounts set aside by each employee and the Company vests
immediately and are paid to each employee upon the happening of certain events, all as
more fully described in the master plan document. Federal law limited employee pre-tax
income contributions to $12,000 in calendar year 2003 ($13,000 for 2004) for each
participating employee age 49 and under, and $14,000 for each participating employee age
50 and older ($16,000 for 2004). 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

47

---

(iii) a pre-retirement distribution
equal to the value of the employees 401(k) account, provided the employee has attained
age 59 1/2 and provided a written consent of the spouse (if married).

Effective
September 1, 1996 certain executive employees of the Company became eligible to
participate in a Supplemental Executive Retirement Plan. The Companys
Board of Directors adopted that plan on January 21, 1997. Subject to the discretion of the
Board of Directors, the plan provides for the Company to credit to the account of each
executive eligible to participate in the Supplemental Plan amounts equal to the difference
between the benefits actually payable to the executive under the provisions of the defined
benefit retirement plan and the amounts which would have been payable under the defined
benefit retirement plan if certain provisions of the Internal Revenue Code did not
prohibit the payment of such benefits.

# 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:

|Years of Service
|----------------
|
|
|$               
|$               
|$               
|$               
|$               
|$               
|$               
|$               
|$               
|$               
|$               

Mr. Roche has 2 years of service under the plan.
    Mr. Caspers has 29 years of service under the plan.
    Mr. Knudsen has 26 years of service under the plan.
    Mr. Larson has 21 years of service under the plan.
    Mr. Carlson has 13 years of service under the plan.

48

---

# 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 13, 2002, 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 13, 2002, 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               | Positionwith Company |  | No. of Shares |  | % of Shares | 
|------------------ | -------------------- |  | ------------- |  | ----------- | 
|
|Douglas Etten      |                      |  | Director      |  |             | 
|                  
|Michael Hasbargen  |                      |  | Director      |  |             | 
|                  
|Victor Krabbenhoft |                      |  | Director      |  |             | 
|                  
|Jack Lacey (1)     |                      |  | Director      |  |             | 
|                  
|Russell Mauch (2)  |                      |  | Director      |  |             | 
|                  
|Jerry Meyer        |                      |  | Director      |  |             | 
|                  
|Ed Moen            |                      |  | Director      |  |             | 
|                  
|Paul Summer (3)    |                      |  | Director      |  |             | 
|                  
|Charles Steiner(4) |                      |  | Director      |  |             | 
|                  
|All Directors      |                      |  |               |  |             | 

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

|(2) |  | Mr. Mauchs shares are held and grown under the name of RCM Limited
Partnership.
|--- |  | --------------------------------------------------------------------------------

|(3) |  | Mr. Summers shares are grown under the name of P V Unlimited Corp.
|--- |  | -------------------------------------------------------------------

|(4) |  | Mr. Steiners share are held and grown under the name of Steiner and Sons
Limited Partnership.
|--- |  | ----------------------------------------------------------------------------------------------

49

---

# ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Each
of the Companys directors is also a sugarbeet grower or a shareholder member or
representative of a shareholder member. By virtue of their status as such members of the
Company, each director or the member he represents sells sugarbeets to the Company and
receives payments for those sugarbeets. Such payments for sugarbeets often exceed $60,000.
However, such payments are received by the directors, or the entities they represent, on
exactly the same basis as payments are received by other members of the Company for the
delivery of their sugarbeets. Except for the sugarbeet sales described in the preceding
sentences, none of the directors or executive officers of the Company have engaged in any
other transactions with the Company involving amounts in excess of $60,000.

# ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES

| | 1.   Audit Fees  paid to the Companys principal accountant for the audit of annual
financial statements and review of financial statements included in Forms 10-Q during the
fiscal year ended August 31, 2003 totaled $70,650 and $65,100 for the fiscal year ended
August 31, 2002.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2.   Audit Related Fees  none
| | ------------------------------

| | 3.   Tax Fees  paid to the Companys principal accountant for professional services
rendered for tax compliance, tax advice, and tax planning totaled $15,650 for fiscal year
ended August 31, 2003 and $14,200 for the fiscal year ended August 31, 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.   All Other Fees  paid to the Companys principal accountant for services other
than detailed in Items 1 thru 3 above total $11,050 for the fiscal year ended August 31,
2003 and $10,325 for the fiscal year ended August 31, 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5.   (i) It is part of the audit committees duties to appoint, compensate, and oversee
the engagement of, retention or replacement of the independent auditors who audit the
financial statements of the Cooperative and its subsidiaries. The audit committee
approves all audit services to be performed by the independent auditor. The committee
ensures that the independent auditor is not engaged to perform any non-audit services
that are considered prohibited activities by the Sarbanes-Oxley Act.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) The audit committee approves 100% of the services described in items 1 thru 4 above.
| | -----------------------------------------------------------------------------------------

| | 6.   The percentage of hours expended on the principal accountants engagement to audit
the Companys financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal accountants
full-time, permanent employees is zero.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50

---

# PART  IV.

# ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

# ITEM 15(a)     FINANCIAL STATEMENT SCHEDULES

None

# ITEM 15(b)     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, 2003.

51

---

# ITEM 15(c)     EXHIBITS

|Index     | 
|--------- | 
|**3(i)    | 
|         
|*3(ii)    | 
|         
|***3(iii) | 
|         
|10(a)     | 
|         
|****10(b) | 
|         
|*10(d)    | 
|         
|*10(e)    | 
|         
|*10(f)    | 
|         
|*10(g)    | 
|         
|*10(i)    | 
|         
|*10(j)    | 
|         
|*10(k)    | 
|         
|**10(l)   | 
|         
|*10(m)    | 
|         
|*10(o)    | 
|         
|***10(p)  | 
|         
|****10(q) | 
|         
|****10(r) | 
|         
|****10(s) | 
|         
|12        | 
|         
|*21       | 
|         
|31.1      | 
|         
|31.2      | 
|         
|31.3      | 
|         

52

---

|     | 
|---- | 
|32.1 | 
|    
|99.1 | 

_________________
*        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.

****  Incorporated by reference from
the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 1998 as
filed on November 24, 1998.

*****Incorporated by reference from
the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 2001 as
filed on November 29, 2001.

53

---

# SIGNATURES

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

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

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

|SIGNATURE                | TITLE | REPORT DATE                 
|------------------------ | ----- | ----------------------------
|                        
|/s/  David H. Roche      |       | President and               
|                         |       | Chief Executive Officer     
|David H. Roche           |      
|                        
|/s/   Steven M. Caspers  |       | Executive Vice President and
|                         |       | Chief Financial Officer     
|Steven M. Caspers        |      
|                        
|/s/   Allen E. Larson    |       | Controller and              
|                         |       | Chief Accounting Officer    
|Allen E. Larson          |      
|                        
|/s/   Victor Krabbenhoft |       | Director                    
|                         |       |                             
|Victor Krabbenhoft       |      
|                        
|/s/   Douglas Etten      |       | Director                    
|                         |       |                             
|Douglas Etten            |      
|                        
|/s/   Edward Moen, Jr    |       | Director                    
|                         |       |                             
|Edward Moen, Jr          |      
|                        
|/s/   Mike Hasbargen     |       | Director                    
|                         |       |                             
|Mike Hasbargen           |      
|                        
|/s/   Charles Steiner    |       | Director                    
|                         |       |                             
|Charles Steiner          |      
|                        
|/s/   Jack Lacey         |       | Director                    
|                         |       |                             
|Jack Lacey               |      
|                        
|/s/   Russell Mauch      |       | Director                    
|                         |       |                             
|Russell Mauch            |      
|                        
|/s/   Jerry Meyer        |       | Director                    
|                         |       |                             
|Jerry Meyer              |      
|                        
|/s/   Paul Summer        |       | Director                    
|                         |       |                             
|Paul Summer              |      

54

---