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, 2004
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.

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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, 2004, 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, 2004. Of the stock transferred at arms length, the transfers were made during the first,
second and third quarters of the Companys fiscal year and ranged in price from $2,500 to $2,900 per unit. 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, 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.

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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, 2004.

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 sugarbeet 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 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.

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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
expect to harvest 2.4 million tons of sugarbeets from the 2004 crop, the largest crop ever delivered to the Company. Sugar content
of the 2004 crop at harvest was 6% below the average of the five most recent years because of crop growing conditions. The
Companys production of sugar from the 2004 crop sugarbeets is expected to be 5% higher than the average of the five most
recent years of sugar production, but 5% less than the previous year. This forward-looking material is based on the Companys
expectations regarding the processing of the 2004 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
$35.02 per ton or $.123388 per harvested/bonus pound of sugar, with the final beet payment determined in October of 2005. This
projected payment is less than the final 2003 crop payment per ton/pound, as well as less than the original projected 2003 crop
payment per ton/pound. The lower projected 2004 crop payment results from lower sugar production and sugar price versus the prior
year, and increased operating and fixed costs per ton/pound.

For a discussion of the 2003,
2002 and 2001 crops and results of operations for fiscal years 2004, 2003 and 2002, see MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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# 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. The Company owns United Sugars along with two other sugar-producing companies (American Crystal Sugar
Company and United States Sugar Corporation) and exists to market sugar produced by the three member owners.

As of this writing the
Company has an ownership interest in United Sugars (year to date contributed capital) totaling $1.2 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.

Southern Minnesota Beet Sugar
Cooperative officially terminated its membership in United Sugars Corporation as of August 31, 2004. 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 domestic 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, 2004, 95% of the Companys sugar was shipped in bulk form, mostly to industrial users, and 5% 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 in 2003; and (2) the Federal Governments establishment of the overall marketing
allotment quantity, which is provided for in the 2002 Farm Bill, has been set too high in the last two years, resulting in
excessive carryover inventories and 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.

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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,
2004, approximately 60% of Midwest Agris beet pulp production was exported to Japan, Korea, and Europe, and the remaining
40% 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 2004 due a
combination of several factors including: reduced competition in Japan and Korea due to the reduction in production of sugar beets
in China; the increasing strength of the European Euro against the U.S. dollar making U.S. exports more attractive; and drought
conditions in Europe resulting in a reduction of local feedstuffs. Beet molasses is marketed primarily to yeast manufacturers,
pharmaceutical companies, livestock feed mixers and livestock feeders. Beet molasses prices decreased in FY 2004 primarily due to
increasing supplies of domestically produced molasses and the increasing supply of competitive commodities from the growing
ethanol industry.

Co-product sales accounted
for approximately 10% of the Companys total consolidated net sales revenues during FY 2004. 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 2007.

# 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 2004 through 2006 (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

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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 2004 crop year the Companys Board of Directors
authorized members to plant 1.45 acres per unit. For the 2005 crop year, the Companys Board of Directors has not yet
authorized the number of acres per unit to be planted. The number of acres per unit that will be authorized for the 2005 crop will
most likely be influenced by the 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 and bonus
sugar. The price per pound of extractable and bonus sugar is determined by dividing the total grower distribution of net proceeds
(less the amount credited to members investment from member patronage and credited to retained earnings from non-member patronage)
by the total of members pounds of extractable and bonus sugar. Extractable pounds of sugar are obtained by the processing of
beet samples taken from members sugarbeets during harvest. Bonus sugar is a premium for early delivery of sugarbeets during
pre-harvest. Each members grower payment is obtained by multiplying that members total pounds of extractable and bonus
sugar times the price per pound of extractable and bonus sugar as determined above.

Under the Growers Agreement,
each member receives an initial installment of the payment for his or her sugarbeets on or about November 15, soon after delivery
of his or her crop to the Company. That initial installment is subject to adjustment by the Cooperatives Board of Directors
and management, but will not exceed 65% of the estimated price per pound of extractable sugar. A second installment is paid in
early February; that installment, in combination with the first installment, will not exceed 70% of the estimated price per pound
of extractable sugar. A third installment is paid in early April, with the aggregate of all installments paid to that date not to
exceed 80% of the estimated price per pound of extractable sugar. A fourth installment payment is paid in early July, with the
total of installment payments to that date not to exceed 95% of the estimated price per pound of extractable sugar. The final
payment is determined after the end of the Companys fiscal year, ending on August 31, and is in an amount necessary to bring
the total of all payments to the price to be paid per pound of extractable sugar to all growers during the applicable fiscal year.
In addition, the Companys annual patronage net income, which is equal to the Companys sales less all expenditures and
member beet payments, is distributed to the members on the basis of the 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. Due to the late delivery of 2004 crop beets, initial payment for
beets delivered after November 8, 2004 will be made in December 2004.

# 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

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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.

During the fiscal year ended
on August 31, 2004, the Company contributed approximately $93,000 to the North Dakota/Minnesota Research and Education Board to
fund that entitys research and development activities. $18,000 was given to the Beet Sugar Development Foundation in
connection with their research activities, and $86,000 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.

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# 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 not aware
of any areas of non-compliance.

The
Company has $2.1 million of environmental capital improvements budgeted for FY 2005.

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 for domestic food and beverage consumption at 181.6 million cwt. refined for the
fiscal year beginning October 1, 2003 and ending September 30, 2004. For the same period ending in 2003, total deliveries were
175.1 million cwt. refined. Comparing the two years shows demand increased 3.7% for U.S. sugar sellers. After experiencing strong
and steady growth during the 1990s, U.S. demand for sugar has been relatively flat since fiscal year 2000. While there is no
clear explanation for the lack of demand in sugar consumption, it may have 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 lack of demand include: (1) changes in dietary habits (such as the low carbohydrate high protein diets that have been popular
with consumers); (2) the effect of sugars contained in imported products, which have increased significantly since 1995; and (3)
increasing consumption of artificial sweeteners, most notably sucralose (trade name Splenda). Sugar in imported products has
continued its growth and has displaced domestic deliveries in the process. According to USDA statistics, sugar in imported
products grew 120,000 STRV, or 2.24 million cwt. refined, from FY 2002 to FY 2003 (ending September 30, 2003) for a growth
rate of 14.3%. For the first nine months of FY 2004, USDA reports indicated that sugar in imported products is estimated to be
84,000 STRV, or 1.57 million cwt. refined, higher than the same period in FY 2003, indicating growth of 12.2%. The largest
component of sugar in imported products is non-chocolate confectionary products. When compared on a calendar year basis, imports
of non-chocolate confectionary consumption have grown from 10.7% in 1995 to 31.2% in 2003. Imports as a percentage of chocolate
confectionary consumption have grown as well: from 5.9% in 1995 to 10.4% in 2003. Before 1998, imports as a percentage of all
confectionary consumption were less than 10%; in 2003 USDA estimates this percentage at 20.2%.

Given the size of the
domestic market, the Companys sugar production and sales represent approximately 3% of the total domestic market for refined
sugar in 2004. United Sugars, which sells the Companys production through a sugar marketing pool, represents approximately
32% share of the U.S. sugar market.

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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 and sucralose 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 seven 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 U.S. currently imports
approximately 16% of its domestic needs. 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.

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 or additional allocations become available. The Company
anticipates that it may well have to adjust its production of sugar each year to more closely match its anticipated allocation.
Such is the case with the production of sugar from the 2004 crop when planted acres of sugarbeets by grower-members were reduced
7.5%. 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.

10

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Under the General Agreement
on Tariffs and Trade Act of 1990 (GATT), tariff rate quotas were implemented for certain sugar producing countries,
that provided for a fixed quantity of sugar imports duty-free or subject to minimal duties. Unlimited additional quantities may be
imported upon payment of a tariff of 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.

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

The 147 members of the WTO
reached an agreement July 31, 2004, on a framework for the final phase of the Doha Development Agenda of global trade talks. The
original deadline to complete talks by January 1, 2005, has been postponed, and the next WTO Ministerial Conference will be held
in Hong Kong in December 2005, at which point the talks could near their conclusion. The effect of any final WTO agreement on
United States farm programs and the sugar program in particular will depend largely on the details of the agreement, which have
not yet been negotiated.

The Company believes the
North American Free Trade Agreement (NAFTA) currently presents a serious public policy challenge to itself and the
domestic sugar industry. Under the terms of the original NAFTA text, Mexico would have been allowed to ship any excess production
of sugar into the United States if Mexico were to achieve net surplus producer status two years in a row. Concerned that
Mexicos productive capabilities and possible conversion to the use of high fructose corn sweeteners could quickly change
Mexico from a net sugar importer to a net sugar exporter, the U.S. sugar industry insisted that NAFTA be changed to delay
Mexicos access to the U.S. market. To embody these changes, a side agreement on sugar was reached prior to passage of NAFTA
to give Mexico incrementally larger but capped volumes of duty-free access, and an ability to send additional quantities if it
were to pay a gradually descending second tier tariff. The side agreement establishes a common market between the United States
and Mexico in sugar by 2008. The side agreement has been contested by Mexico as invalid, contending that the side agreement was
not signed by Mexico. To date, the United States has contended that the side agreement is valid and has dealt with sugar imports
from Mexico accordingly. The 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 6.04 cents in 2004 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

11

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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. Mexico is expected to remain a net importer in 2004/05.

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. 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 approve certain proposed regional or bi-lateral trade agreements that have been negotiated (such as
the Central America Free Trade Agreement [CAFTA]) or are currently being negotiated with several countries, that those trade
agreements also will present a serious public policy challenge to itself and the domestic sugar industry. Should CAFTA and other
proposed regional or bi-lateral trade agreements be approved by Congress with sugar access provisions similar to the access
provisions encompassed in CAFTA, the Company believes that there could be adverse financial consequences to itself and its
members.

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

# EMPLOYEES

As of October 30, 2004, the
Company had 284 full-time employees, of whom 248 were hourly and 36 were salaried. It also employs approximately 327 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 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, dental and vision
insurance, a defined benefit pension retirement plan, a 401(k) retirement savings plan, a short and long-term disability plan,
term life insurance, and vacation and holiday pay plans. Seasonal workers are also provided some of these same employee benefits.
The Company considers its employee relations to be excellent.

12

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# ITEM 2.    PROPERTIES

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

The properties are adequate
to process normal and above normal crop sizes, and for the last three years have averaged a slice rate of 9,250 tons per day. The
processing factory is anticipating processing the 2004 crop, which, while having record tons delivered, is expected to produce the
third largest amount of sugar. Unusually high levels of rainfall from September through October caused significant tonnage
increases, but the sugar content of harvested beets under these conditions is less concentrated at harvest than in sugarbeets
encountering normal precipitation patterns. If the Company encounters normal weather patterns, which will in turn provide normal
beet storage conditions, then it does not anticipate having difficulty in processing the 2004 crop.

Minn-Dak Yeast Company, Inc,
of which the Company is an 80% owner, operates a single yeast manufacturing factory at Wahpeton, North Dakota. Minn-Dak Yeast
Company, Inc. owns the factory and the land on which it is located. During fiscal 2004, 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

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# 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,
2004. Of the stock transferred at arms length, the transfers were made during the first, second and third quarters of the
Companys fiscal year and ranged in price from $2,500 to $2,900 per unit. The fourth quarter did not have any arms length
transactions.

14

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# ITEM 6.    SELECTED FINANCIAL DATA

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

|                                           | Fiscal Year Ended August 31,
|------------------------------------------ | ----------------------------
|
|FINANCIAL DATA(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                            |                             
|                                           |                             
|RATIOS                                     |                             
|Ratio of long-term debt to equity (3)      |                             
|Ratio of net proceeds to fixed charges (4) |                             
|Current ratio                              |                             
|                                           |                             
|PRODUCTION DATA (5)                        |                             
|Acres harvested                            |                             
|PIK acres                                  |                             
|Tons of sugarbeets purchased               |                             
|Tons purchased per acre harvested          |                             
|Payment to members per ton of              |                             
|sugarbeets delivered, plus allocated       |                             
|patronage and unit retains (6)             |                             
|                                           |                             
|Sugar (cwts):                              |                             
|Produced                                   |                             
|Sold (includes purchased sugar)            |                             
|                                           |                             
|Beet pulp pellets (tons):                  |                             
|Produced                                   |                             
|Sold                                       |                             
|                                           |                             
|Beet molasses (tons):                      |                             
|Produced                                   |                             
|Sold                                       |                             
|Used for yeast production                  |                             
|                                           |                             
|Yeast (pounds, in thousands):              |                             
|Produced                                   |                             
|Sold                                       |                             
|* Includes PIK sugar                       |                             

15

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

(2)    Members investment includes preferred and
common stock, unit retention capital, allocated patronage and retained earnings (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, 2004, relates to the
2003 crop).

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

16

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# 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 in turn, may cause a decreased sugar 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 business insurance coverage. The Company does not consider the resulting increased business
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 .56:1 to .80:1, which is the banks maximum ratio allowed under the agreements
covenants.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# LIQUIDITY AND CAPITAL RESOURCES

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

17

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one-year period ending May 31, 2005. The Company anticipates using the
USDA Sugar Loan Provisions contained in the 2002 Farm Bill to provide an additional source of seasonal financing for the 2004 and
future crops. The Company has available $1 million of its $45 million seasonal line of credit for a Letter of Credit if necessary.
In October, 2004, the Company, along with other beet sugar processors, won a lawsuit against the United States Department of
Agriculture (USDA) which will result in USDA lending costs to be reduced by 100 basis points for all future borrowings under the
2002 Farm Bill. However the USDA has not fully utilized all of its legal challenges in this lawsuit, so the Company does not know
if it will ultimately be successful in the lawsuit.

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, 2004.
|- |  | -----------------------------------------------------------------------------

| |  | 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, 2004 the
Company was in compliance with its loan agreement covenants with the Bank.

Working capital decreased
$3.2 million for fiscal year 2004. The Company acquired $1.3 million of long term sugar contracts to assist its allocation
needs, improved its piler facilities by $1.2 million and delayed the need for debt restructuring which had an $.8 million impact
on working capital. As of August 31, 2004, 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 150 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 2002
were $4.8 million, fiscal year 2003 were $9.4 million and Fiscal year 2004 were $6.0 million. Capital expenditures for fiscal year
2005 are currently estimated at $5.2 million.

|                                   | Payments Due by Period
|---------------------------------- | ----------------------
|
|
|Long-term debt                     |                       
|Capital lease obligations          |                       
|Operating leases                   |                       
|Unconditional purchase obligations |                       
|Other long-term Obligations        |                       
|Total contractual cash Obligations |                       

18

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As of August 31, 2004, $2.5
million of the restricted bond investments remained for future solid waste capital expenditure projects.

The Bond Proceeds of $14.0
million 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 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, 2004 AND 2003

Revenue for the year ended
August 31, 2004 increased 3% or $5.1 million from 2003. Revenue from total sugar sales increased $10.6 million or 6% reflecting an
8% increase in cwt. sold, and a 2% decrease in the average selling price per cwt. Revenue from co-products, excluding the newly
developed local wet/pressed pulp feed initiative, increased 20%, reflecting an increase of 21% in volume, offset by a 1% decrease
in the average selling price per ton. The increase in volume of sugar and co-products sold is directly attributable to the high
quality 2003 crop of beets delivered by shareholder-growers and the steam pulp dryer addition to the plant operations.

Revenues from yeast sales
remained relatively unchanged reflecting an increase in volume of 3.7%, and a decrease in price of 4.1%.

The value of finished product
inventories in fiscal year 2004 decreased $4.7 million, from fiscal year 2003, a result of lower sugar and molasses inventories at
fiscal year end.

Cost of products sold,
exclusive of grower payments for sugarbeets, increased $2.9 million or 5.7%. Of the $2.9 million increase, $2.7 million of the
increase resulted from the Minn-Dak Farmers Cooperative (MDFC) operation and $0.2 million from the Minn-Dak Yeast
operation. Of the $2.7 million increase in the MDFC operation, $1.5 million was due to fixed costs such as employee benefits
(health insurance & pension) and depreciation; The balance of cost increases, or $1.2 million, resulted from higher factory
maintenance costs and beet trucking and beet handling costs, offset somewhat by lower operating costs, mostly resulting from fewer
tons of beets sliced. The cost per cwt. of sugar produced only increased 1%, primarily due to the high sugar content and quality
of the beet delivered by shareholders. The cost per ton of beets sliced increased 10% due to the higher costs discussed above.

Sales and Distribution costs
increased $1.1 million or 4%. Increases are mainly the result of an 8% and 21% increase in the volume of sugar and co-products
sold, respectively, for the year. General and Administrative expenses increased $0.3 million or 6%. Employee salaries and wages,
association dues and profession fees were the primary reasons for the increase. Interest expense decreased $0.4 million or 12% due
to reduced rates of interest and lower levels of debt.

19

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Other business income
decreased $3.0 million in fiscal year 2004. The decrease resulted primarily from the fiscal year 2003 gain (net of tax) on the
sale of the Cooperatives 5% ownership interest in ProGold, LLC, located in Wahpeton, North Dakota vs. no comparable activity
in fiscal year 2004.

Net payments to members for
sugarbeets delivered by the shareholder-growers, increased by $1.2 million, or 1% in fiscal year 2004 and totaled $102.1 million.
As of August 31, 2004, the Board of Directors authorized the payment of prior years member patronage and per unit retains
(including equity payments to estates of deceased shareholders) totaling $4.5 million to shareholders of record, compared to $4.0
million in the prior year. The payment of $4.5 million will leave approximately 7.9 years of prior years patronage and per
unit retains still outstanding. In addition, the Board of Directors authorized the payment of $800,000 of crop year 2003 qualified
patronage dividends to shareholders of record.

# 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.

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.

20

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# ESTIMATED FISCAL YEAR 2005 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 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 2004 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 2004 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
expect to harvest 2.4 million tons of sugarbeets from the 2004 crop, the largest tonnage crop ever delivered to the Company. Sugar
content of the 2004 crop at harvest was 6% below the average of the five most recent years and lower than any individual year. The
Company is projecting the sugar production from the 2004 crop to be the third largest in company history. Unusually high levels of
rainfall from September through October caused significant tonnage increases, but the sugar content of harvested beets under these
conditions is less concentrated at harvest than in sugarbeets encountering normal precipitation patterns. This forward-looking
material is based on the Companys expectations regarding the processing of the 2004 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 $35.02 per ton or $.123388 per harvested/bonus pound of sugar, with the final beet payment
determined in October of 2005. This projected payment per pound is 11% less than the final 2003 crop payment per ton/pound, but 2%
less than the original projected 2003 crop payment per ton/pound. The lower projected 2004 crop payment results from what
management believes is a consistent 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 2004 are expected to be 6% below the 2003 crop year due to reduced sugar production and prices. The
deduction of operating costs results in an estimated 2004 crop gross payment to growers for sugarbeets of $84.0 million which is
less than that of the 2003 crop year of $102.1 million. The 2004 crop beet payment decrease results from more harvested tons,
lower sugar per ton, higher operating costs and a lower sugar price.

21

---

# 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
$25.0 million for 2004, $27.1 million for 2003 and $23.6 million for 2002. 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.

In October, 2004, the
Company, along with other beet sugar processors, won a lawsuit against the United States Department of Agriculture (USDA) which
will result in USDA lending costs to be reduced by 100 basis points for all future borrowings under the 2002 Farm Bill. However
the USDA has not fully utilized all of its legal challenges in this lawsuit, so the Company does not know if it will ultimately be
successful in the lawsuit.

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

22

---

# ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS REPORT

The Audit Committee
Minn Dak Farmers Cooperative

We have audited the accompanying consolidated balance sheets of Minn-Dak
Farmers Cooperative (a North Dakota cooperative association) as of August 31, 2004, 2003, and 2002, 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 the standards of the Public
Company Accounting Oversight Board (United States). 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, 2004,
2003, and 2002, 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
September 29, 2004

23

---

MINN DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2004, 2003, AND 2002

|                                                          | 2004 |  | 2003 |             | 2002
|--------------------------------------------------------- | ---- |  | ---- | ----------- | ----
|                                                          |      |  |      |             |     
|ASSETS                                                    |      |  |      |             |     
|                                                          |      | 
|CURRENT ASSETS                                            |      | 
|Cash                                                      |      |  | $    | 270,482     |     
|                                                          |      |  |      |             |     
|                                                          |      | 
|Receivables                                               |      | 
|Trade accounts                                            |      |  |      | 16,661,588  |     
|Growers                                                   |      |  |      | 3,958,717   |     
|Income tax                                                |      |  |      | 523,938     |     
|Other                                                     |      |  |      | 107,689     |     
|                                                          |      |  |      |             |     
|                                                          |      |  |      | 21,251,932  |     
|                                                          |      |  |      |             |     
|                                                          |      | 
|Advances to affiliates  Midwest Agri-Commodities        
|Co. and  United Sugars Corporation                        |      |  |      |            |     
|                                                          |      |  |      |             |     
|                                                          |      | 
|Inventories                                               |      | 
|Refined sugar, pulp and molasses                          |      | 
|to be sold on a pooled basis                              |      |  |      | 19,337,988  |     
|Nonmember refined sugar                                   |      |  |      | 3,930       |     
|Yeast                                                     |      |  |      | 93,516      |     
|Materials and supplies                                    |      |  |      | 6,625,424   |     
|                                                          |      |  |      |             |     
|                                                          |      |  |      | 26,060,858  |     
|                                                          |      |  |      |             |     
|                                                          |      | 
|Deferred charges                                          |      |  |      | 1,252,038   |     
|                                                          |      |  |      |             |     
|                                                          |      | 
|Prepaid expenses                                          |      |  |      | 2,332,936   |     
|                                                          |      |  |      |             |     
|                                                          |      | 
|Current deferred income tax asset                         |      |  |      | 502,000     |     
|                                                          |      |  |      |             |     
|                                                          |      | 
|Total current assets                                      |      |  |      | 51,670,246  |     
|                                                          |      |  |      |             |     
|                                                          |      | 
|PROPERTY, PLANT AND EQUIPMENT                             |      | 
|Land and land improvements                                |      |  |      | 22,768,791  |     
|Buildings                                                 |      |  |      | 37,114,568  |     
|Factory equipment                                         |      |  |      | 127,715,324 |     
|Other equipment                                           |      |  |      | 3,468,307   |     
|Construction in progress                                  |      |  |      | 1,095,974   |     
|                                                          |      |  |      |             |     
|                                                          |      |  |      | 192,162,964 |     
|Less accumulated depreciation                             |      |  |      | 89,882,430  |     
|                                                          |      |  |      |             |     
|                                                          |      |  |      | 102,280,534 |     
|                                                          |      |  |      |             |     
|                                                          |      | 
|OTHER ASSETS                                              |      | 
|Investment in stock of other corporations, unconsolidated
|marketing subsidiaries and other cooperatives             |      |  |      | 10,073,518  |     
|Investment restricted for capital lease projects          |      |  |      | 2,472,142   |     
|Other                                                     |      |  |      | 2,066,118   |     
|                                                          |      |  |      |             |     
|                                                          |      |  |      | 14,611,778  |     
|                                                          |      |  |      |             |     
|                                                          |      |  | $    | 168,562,558 |     
|                                                          |      |  |      |             |     

See Notes to Consolidated Financial Statements.

24

---

MINN DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2004, 2003, AND 2002

|                                                      |  | 
|----------------------------------------------------- |  | 
|                                                      |  | 
|LIABILITIES AND MEMBERS INVESTMENT                   |  | 
|                                                      |  | 
|CURRENT LIABILITIES                                   |  | 
|Short-term notes payable                              |  | 
|                                                      |  | 
|                                                      |  | 
|Current portion of long-term debt                     |  | 
|Current portion of capital lease                      |  | 
|                                                      |  | 
|                                                      |  | 
|                                                      |  | 
|Accounts payable                                      |  | 
|Trade                                                 |  | 
|Growers                                               |  | 
|                                                      |  | 
|                                                      |  | 
|                                                      |  | 
|Payable to affiliates  Midwest Agri-Commodities      |  | 
|Co. and  United Sugars Corporation                    |  | 
|                                                      |  | 
|                                                      |  | 
|Accrued liabilities                                   |  | 
|                                                      |  | 
|                                                      |  | 
|Total current liabilities                             |  | 
|                                                      |  | 
|LONG-TERM DEBT, NET OF CURRENT PORTION                |  | 
|                                                      |  | 
|OBLIGATION UNDER CAPITAL LEASE                        |  | 
|                                                      |  | 
|LONG-TERM DEFERRED INCOME TAX LIABILITY               |  | 
|                                                      |  | 
|OTHER                                                 |  | 
|                                                      |  | 
|COMMITMENTS AND CONTINGENCIES (NOTE 11)               |  | 
|                                                      |  | 
|                                                      |  | 
|Total liabilities                                     |  | 
|                                                      |  | 
|                                                      |  | 
|MINORITY INTEREST IN EQUITY OF SUBSIDIARY             |  | 
|                                                      |  | 
|                                                      |  | 
|MEMBERS INVESTMENT                                   |  | 
|Preferred stock                                       |  | 
|Class A  100,000 shares authorized,  $105 par value; |  | 
|72,200 shares issued and outstanding                  |  | 
|Class B  100,000 shares authorized  $75 par value;  
|72,200 shares issued and outstanding                  |  | 
|Class C  100,000 shares authorized,  $76 par value;  |  | 
|72,200 shares issued and outstanding                  |  | 
|                                                      |  | 
|                                                      |  | 
|                                                      |  | 
|Common stock, 600 shares authorized, $250 par value;  |  | 
|488 shares issued and outstanding                     |  | 
|Paid in capital in excess of par                      |  | 
|Unit retention capital                                |  | 
|Qualified allocated patronage                         |  | 
|Nonqualified allocated patronage                      |  | 
|Retained earnings                                     |  | 
|                                                      |  | 
|                                                      |  | 
|                                                      |  | 
|                                                      |  | 
|                                                      |  | 
|                                                      |  | 

25

---

MINN DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 2004, 2003, AND 2002

|                                         |  | 
|---------------------------------------- |  | 
|                                         |  | 
|REVENUE                                  |  | 
|From sales of sugar, sugar co-products, 
|and yeast, net of discounts              |  | 
|                                         |  | 
|                                         |  | 
|EXPENSES                                 |  | 
|Production costs of sugar,               |  | 
|co-products, and yeast sold              |  | 
|Sales and distribution costs             |  | 
|General and administrative               |  | 
|Interest                                 |  | 
|                                         |  | 
|                                         |  | 
|                                         |  | 
|                                         |  | 
|OTHER INCOME (EXPENSE)                   |  | 
|                                         |  | 
|                                         |  | 
|NET PROCEEDS RESULTING FROM              |  | 
|MEMBER AND NON-MEMBER BUSINESS           |  | 
|                                         |  | 
|                                         |  | 
|DISTRIBUTION OF NET PROCEEDS             |  | 
|Credited to members investment          |  | 
|Components of net income                 |  | 
|Income from                             
|non-member business                      |  | 
|Patronage income                         |  | 
|                                         |  | 
|                                         |  | 
|Net income credited to                  
|members investment                      |  | 
|                                         |  | 
|Payments to members for sugarbeets,      |  | 
|net of unit retention capital            |  | 
|Payments to members for PIK certificates |  | 
|                                         |  | 
|Total payments to members                |  | 
|                                         |  | 
|NET PROCEEDS RESULTING FROM             
|MEMBER AND NONMEMBER BUSINESS            |  | 
|                                         |  | 

See Notes to Consolidated Financial Statements.

26

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MINN DAK FARMERS COOPERATIVE

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS INVESTMENTS
YEARS ENDED AUGUST 31, 2004, 2003, AND 2002

|                                      | PreferredStock |  | CommonStock |            | Paid in Capitalin Excess ofPar Value |   | UnitRetentionCapital |   | QualifiedAllocatedPatronage |            | Non-QualifiedAllocatedPatronage |   | RetainedEarnings(Deficit) |   | Total |          
|------------------------------------- | -------------- |  | ----------- | ---------- | ------------------------------------ | - | -------------------- | - | --------------------------- | ---------- | ------------------------------- | - | ------------------------- | - | ----- | ---------
|                                      |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       |          
|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                  | ) |       |          
|Revolvement 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 (11 shares)            |                |  |             |            |                                      |   | 2,750                |   |                             |            |                                 |   |                           |   |       |          
|Repurchases  common (11 shares)      |                |  |             |            |                                      |   | (2,750               | ) |                             |            |                                 |   |                           |   |       |          
|Revolvement of unit retention capital |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   | (908,517                  | ) |       |          
|Revolvement 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
|Stock                                 |                | 
|Sales  common (12 shares)            |                |  |             |            |                                      |   | 3,000                |   |                             |            |                                 |   |                           |   |       |          
|Repurchases  common (12 shares)      |                |  |             |            |                                      |   | (3,000               | ) |                             |            |                                 |   |                           |   |       |          
|Revolvement of unit retention capital |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   | (1,910,464                | ) |       |          
|Revolvement of prior                 
|years allocated patronage            |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       | (658,738 
|Net income for the                    |                | 
|year ended August 31, 2004            |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       | 800,000  
|Qualified dividends currently payable |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       | (800,000 
|                                      |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       |          
|                                      |                | 
|BALANCE, AUGUST 31, 2004              |                |  | $           | 18,483,200 |                                      | $ | 122,000              |   | $                           | 32,094,407 |                                 | $ | 3,048,825                 |   | $     | 1,638,011
|                                      |                |  |             |            |                                      |   |                      |   |                             |            |                                 |   |                           |   |       |          

27

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MINN DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 2004, 2003, AND 2002

|                                                          | 2004 |  | 2003 |            | 2002 |  
|--------------------------------------------------------- | ---- |  | ---- | ---------- | ---- | -
|                                                          |      |  |      |            |      |  
|OPERATING ACTIVITIES                                      |      |  |      |            |      |  
|Income allocated to members investment                   |      |  | $    | 5,832,144  |      | $
|Add (deduct) noncash items                                |      | 
|Depreciation and amortization                             |      |  |      | 7,657,731  |      |  
|Equipment disposals  loss (gain)                         |      |  |      | (53,766    | )    |  
|(Gain) loss on sale of investments                        |      |  |      |           |      |  
|Net (income) loss allocated from                         
|unconsolidated marketing subsidiaries                     |      |  |      | 164,171    |      |  
|Noncash portion of patronage capital credits              |      |  |      | (755,523   | )    |  
|Deferred income taxes                                     |      |  |      | 464,000    |      |  
|(Increase) decrease in cash surrender                     |      | 
|of officer life insurance                                 |      |  |      | (13,131    | )    |  
|Minority interest                                         |      |  |      | 209,458    |      |  
|Changes in operating assets and liabilities:              |      | 
|Accounts receivable and advances                          |      |  |      | (1,154,281 | )    |  
|Inventory and prepaid expenses                            |      |  |      | 2,205,094  |      |  
|Deferred charges and other                                |      |  |      | (1,043,006 | )    |  
|Accounts payable, accrued                                
|liabilities, and other liabilities                        |      |  |      | (1,837,428 | )    |  
|                                                          |      |  |      |            |      |  
|NET CASH FROM OPERATING ACTIVITIES                        |      |  |      | 11,675,463 |      |  
|                                                          |      |  |      |            |      |  
|INVESTING ACTIVITIES                                      |      | 
|Investments restricted for capital lease projects         |      |  |      | 928,507    |      |  
|Proceeds from disposition of                              |      | 
|property, plant and equipment                             |      |  |      | 175,000    |      |  
|Capital expenditures                                      |      |  |      | (6,036,406 | )    |  
|Proceeds from sale of investments                         |      |  |      |           |      |  
|Investment in stock of other corporations, unconsolidated
|marketing subsidiaries and other cooperatives             |      |  |      |            |      |  
|Capital adjustment of marketing subsidiary                |      |  |      | 37,667     |      |  
|Net proceeds from patronage                              
|refunds and equity revolvements                           |      |  |      | 370,028    |      |  
|                                                          |      |  |      |            |      |  
|NET CASH FROM (USED FOR) INVESTING ACTIVITIES             |      |  |      | (4,525,204 | )    |  
|                                                          |      |  |      |            |      |  
|FINANCING ACTIVITIES                                      |      | 
|Sale and repurchase of common stock, net                  |      |  |      |           |      |  
|Net proceeds from issuance of short-term debt             |      |  |      | 2,895,000  |      |  
|Proceeds from bond issuance                               |      |  |      |           |      |  
|Dividends paid to minority shareholder                    |      |  |      |           |      |  
|Payment of financing fees                                 |      |  |      | (325,476   | )    |  
|Payment of long-term debt                                 |      |  |      | (5,705,000 | )    |  
|Payment of unit retains and allocated patronage           |      |  |      | (5,328,309 | )    |  
|                                                          |      |  |      |            |      |  
|NET CASH (USED FOR) FROM FINANCING ACTIVITIES             |      |  |      | (8,463,785 | )    |  
|                                                          |      |  |      |            |      |  
|NET CHANGE IN CASH                                        |      |  |      | (1,313,526 | )    |  
|CASH, BEGINNING OF YEAR                                   |      |  |      | 1,584,008  |      |  
|                                                          |      |  |      |            |      |  
|CASH, END OF YEAR                                         |      |  | $    | 270,482    |      | $
|                                                          |      |  |      |            |      |  
|SUPPLEMENTAL DISCLOSURES                                  |      | 
|OF CASH FLOW INFORMATION                                  |      | 
|Cash payments for                                         |      | 
|Interest                                                  |      |  | $    | 2,878,314  |      | $
|                                                          |      |  |      |            |      |  
|Income taxes                                              |      |  | $    | 1,711,643  |      | $
|                                                          |      |  |      |            |      |  

28

---

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.

29

---

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 $67,824, $336,990, and $106,781 for the years
ended August 31, 2004, 2003, and 2002. There was no construction-period interest capitalized for the year ended August 31, 2004
and $61,200, and $9,200 for the years ended August 31, 2003, and 2002 respectively.

Equity Value Investments

The investments in United Sugars Corporation and Midwest Agri-Commodities
Company are accounted for using the equity method, wherein the investment is recorded at the amount of the underlying equity in
the net assets of the investments and adjusted to recognize the 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.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

---

| | 3. |  | Non-qualified patronage credits from investments in other
cooperatives  For financial statement purposes, the companies recognize income when the patronage credit notification is
received while, for income tax purposes, the companies recognize income when the patronage is received in cash.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. |  | Inventory capitalization  For income tax reporting purposes,
certain overhead costs are included as a part of inventory costs in accordance with inventory capitalization rules. These costs
are charged to expense as incurred for financial reporting purposes.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. |  | Recognition of vacation pay  For financial reporting
purposes, vacation pay is charged to expense as accrued, whereas, for income tax purposes, vacation pay is deducted when paid.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue Recognition

Revenue from the sale of sugar, agri-products and seed is recorded when the
product is shipped to the customer.

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 2003 and 2002 financial
statements to conform to the 2004 presentation. The reclassifications have no effect on the results of operations.

Recently Issued Accounting Pronouncements

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.

31

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# NOTE 2  INVESTMENTS

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

|                                   | 2004 |  | 2003 |            | 2002
|---------------------------------- | ---- |  | ---- | ---------- | ----
|                                   |      |  |      |            |     
|United Sugars Corporation          |      |  | $    | 1,234,411  |     
|Midwest Agri-Commodities           |      |  |      | 45,904     |     
|ProGold, LLC                       |      |  |      |           |     
|CoBank                             |      |  |      | 4,298,150  |     
|Dakota Valley Electric Cooperative |      |  |      | 4,444,871  |     
|Other                              |      |  |      | 50,145     |     
|                                   |      |  |      |            |     
|                                   |      |  | $    | 10,073,481 |     
|                                   |      |  |      |            |     

# NOTE 3  SHORT-TERM DEBT

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

|                             | 2004 |  | 2003 |            | 2002
|---------------------------- | ---- |  | ---- | ---------- | ----
|                             |      |  |      |            |     
|Seasonal loan with CoBank,   |      |  |      |            |     
|due June 30, 2005, interest  |      | 
|variable, currently at 2.91% |      |  | $    | 10,145,000 |     
|                             |      |  |      |            |     

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:

|                         | 2004 |  | 2003 |            | 2002
|------------------------ | ---- |  | ---- | ---------- | ----
|                         |      |  |      |            |     
|Maximum borrowings       |      |  | $    | 48,013,000 |     
|                         |      |  |      |            |     
|                         |      | 
|Average borrowing levels |      |  | $    | 25,027,077 |     
|                         |      |  |      |            |     
|                         |      | 
|Average interest rates   |      |  |      | 2.40       | %   
|                         |      |  |      |            |     

32

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# NOTE 4  LONG-TERM DEBT

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

|                                           | 2004 |  | 2003 |            | 2002
|------------------------------------------ | ---- |  | ---- | ---------- | ----
|                                           |      |  |      |            |     
|Term loan with CoBank, due in varying      |      |  |      |            |     
|principal repayments through               |      | 
|November 20, 2010, interest rate variable, |      | 
|currently at 2.96%, with a first lien on   |      | 
|substantially all property and equipment   |      | 
|and current assets of Minn-Dak located in  |      | 
|Wahpeton, North Dakota                     |      |  | $    | 28,300,000 |     
|                                           |      | 
|Less current maturities                    |      |  |      | (3,600,000 | )   
|                                           |      |  |      |            |     
|                                           |      |  | $    | 24,700,000 |     
|                                           |      |  |      |            |     

Minn-Dak has complied with the terms of its loan agreement for the years
ended August 31, 2004, 2003, and 2002.

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 $2,919,624, $3,326,163, and $3,741,759 for 2004,
2003 and 2002, respectively.

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

|Years ending August 31,
|-----------------------
|2005                   
|2006                   
|2007                   
|2008                   
|2009                   
|Thereafter             
|                       
|                       
|                       
|                       

33

---

# 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 $22,579,000 at August 31, 2004. There were no outstanding advances under these letter of credit arrangements at
August 31, 2004. Details relative to the cooperatives obligations under the lease agreement are as follows:

|                                  | 2004 | 
|--------------------------------- | ---- | 
|
|
|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, | 
|----------------------- | 
|2005                    | 
|2006                    | 
|2007                    | 
|2008                    | 
|2009                    | 
|Thereafter              | 
|                        | 
|                        | 
|                        | 
|                        | 

34

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# 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 the fiscal years 2004, 2003 and 2002, the cooperatives board of directors authorized the members to plant 1.57 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. The board of directors must approve all transfers and sales of stock.

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, 2004, Minn-Dak allocated patronage of
$5,128,308 to the members. 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.

During the year ended August 31, 2004, Minn-Dak revolved the remaining 25% of
the unit retains and allocated patronage for the fiscal year ended August 31, 1994, 100% of the unit retains and allocated
patronage for the fiscal year ended August 31, 1995, and 8% of the unit retains and allocated patronage for the fiscal year ended
August 31, 1996, totaling $828,628, $3,475,806, and $213,271 in each respective year, for a total of $4,517,705. In addition, unit
retains and allocated patronage owned by certain estates were redeemed at a discount. The discount represented the difference
between the book value of these items, totaling $10,605, and the present value of the estimated future redemptions.

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.

35

---

# 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, 2004, 2003, and 2002, Minn-Dak had advanced
$19,899,596, $21,241,933, and $19,454,420, respectively. Minn-Dak had outstanding advances due from United Sugars of $364,698,
$88,582, and $190,306, for the years ended August 31, 2004, 2003, and 2002, respectively.

Minn-Dak has a one-fourth ownership interest in Midwest. The amount of the
investment is accounted for using the equity method. All beet pulp and a portion of the molasses produced is sold by Midwest as an
agent for Minn-Dak. The amount of sales and related costs to be recognized by each owner is allocated based on their pro-rata
share of production for the year. The owners provide Midwest with cash advances on an ongoing basis for operating and marketing
expenses incurred by Midwest. Minn-Dak advanced Midwest $1,060,826, $1,887,774, and $1,281,325, respectively, during the years
ended August 31, 2004, 2003, and 2002. Minn-Dak had outstanding advances due to Midwest of $624,164, $46,668, and $55,366, as of
August 31, 2004, 2003, and 2002, 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, which
are allocated and paid as prescribed in Section 1382 of the Code, will be taxable to the members and not to the cooperative. To
the extent that net margins are not allocated and paid as stated above or arise from business done with non-members, the
cooperative shall have taxable income subject to corporate income tax rates.

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

36

---

|                                   | 2004 |  | 2003 |            | 2002
|---------------------------------- | ---- |  | ---- | ---------- | ----
|                                   |      |  |      |            |     
|Deferred tax assets                |      |  |      |            |     
|Non-qualified unit retains and     |      | 
|allocated patronage due to members |      |  | $    | 9,394,000  |     
|Net operating loss carryforwards   |      |  |      | 3,600,000  |     
|Other                              |      |  |      | 828,000    |     
|                                   |      |  |      |            |     
|Total deferred tax assets          |      |  |      | 13,822,000 |     
|                                   |      |  |      |            |     
|Deferred tax liabilities           |      | 
|Depreciation                       |      |  |      | 12,801,000 |     
|Other                              |      |  |      | 1,761,000  |     
|                                   |      |  |      |            |     
|Total deferred tax liabilities     |      |  |      | 14,562,000 |     
|                                   |      |  |      |            |     
|Net deferred tax liability         |      |  | $    | (740,000   | )   
|                                   |      |  |      |            |     
|Classified as follows              |      | 
|Current asset                      |      |  | $    | 502,000    |     
|Long-term liability                |      |  |      | (1,242,000 | )   
|                                   |      |  |      |            |     
|Net deferred tax liability         |      |  | $    | (740,000   | )   
|                                   |      |  |      |            |     

The operating loss carryforwards will expire in 2018 through 2024.

The provision for income taxes is as follows:

|                                    | 2004 |  | 2003 |          | 2002
|----------------------------------- | ---- |  | ---- | -------- | ----
|                                    |      |  |      |          |     
|Current expense (benefit)           |      |  | $    | (173,000 | )   
|Net change in temporary differences |      |  |      | 464,000  |     
|                                    |      |  |      |          |     
|Provision for income taxes          |      |  | $    | 291,000  |     
|                                    |      |  |      |          |     

# 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.

37

---

# 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 $543,651 as of August 31, 2004.

# 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,
|-----------------------
|2005                   
|2006                   
|2007                   
|2008                   
|2009                   

Operating lease and contract expenses for the years ended August 31, 2004,
2003, and 2002, totaled approximately $972,504, $919,000, and $1,171,000, 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 was at a level of 100 percent of
employee contributions, up to 4 percent of compensation for the year ended August 31, 2004 and 75 percent of employee
contributions, up to 4 percent of compensation for the years ended August 31, 2003 and 2002. Employer contributions to the plan
totaled $466,114, $320,724, and $299,234 for the years ended August 31, 2004, 2003, and 2002, respectively.

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:

38

---

|                                              
|----------------------------------------------
|Change in benefit obligation                  
|Benefit obligation at beginning of year       
|Service cost                                  
|Interest cost                                 
|Experience (gain)/loss                        
|due to participant changes                    
|Benefits paid                                 
|                                              
|Benefit obligation at end of year             
|                                              
|Change in plan assets                         
|Fair value of plan assets at beginning of year
|Actual return on plan assets                  
|Employer contribution                         
|Benefits paid                                 
|                                              
|Fair value of plan assets at end of year      
|                                              
|Funded status                                 
|Unrecognized net actuarial loss               
|Unrecognized prior service cost               
|Unrecognized transition (asset) obligation    
|                                              
|Accrued benefit cost liability                
|                                              
|Weighted-average assumptions as of August 31  
|Discount rate                                 
|Expected return on plan assets                
|Rate of compensation increase                 

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

|Components on net periodic benefit cost         |  |  |   |           |   |   |           |   |   |           |  
|----------------------------------------------- |  |  | - | --------- | - | - | --------- | - | - | --------- | -
|Service cost                                    |  |  | $ | 733,795   |   | $ | 635,996   |   | $ | 597,884   |  
|Interest cost                                   |  |  |   | 1,152,990 |   |   | 1,070,542 |   |   | 1,041,385 |  
|Expected return on plan assets                  |  |  |   | (931,309  | ) |   | (906,752  | ) |   | (904,338  | )
|Amortization of prior service cost              |  |  |   | 86,905    |   |   | 126,530   |   |   | 95,989    |  
|Amortization of transition amount               |  |  |   | (8,827    | ) |   | (18,266   | ) |   | (18,266   | )
|Amortization of unrecognized net actuarial loss |  |  |   | 227,279   |   |   | 2,572     |   |   |          |  
|                                                |  |  |   |           |   |  
|Net periodic benefit cost                       |  |  | $ | 1,260,833 |   | $ | 910,622   |   | $ | 812,654   |  
|                                                |  |  |   |           |   |  

39

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The cooperatives pension plan weighted-average asset allocation at
August 31, 2004, by asset category is as follows:

|Equity securities |  |  |  | 66.8 | %
|----------------- |  |  |  | ---- | -
|Debt securities   |  |  |  | 32.5 | %
|Other             |  |  |  | 0.7  | %
|                  |  | 
|Total             |  |  |  | 100  | %
|                  |  | 

Contributions

The cooperative expects to contribute $1,000,000 to its pension plan in 2005.

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

|                         | 
|------------------------ | 
|2005                     | 
|2006                     | 
|2007                     | 
|2008                     | 
|2009                     | 
|Thereafter, through 2014 | 

# 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.

40

---

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, 2004, 2003, and 2002, 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2004, the carrying value of obligations under capital leases was $21,915,000 and the estimated fair value was
$21,400,000. At August 31, 2003, the carrying value of obligations under capital leases was $22,820,000 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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

41

---

the Companys Board of Directors and Management are
approaching future compliance requirements.

Audit Committee:   The audit committee is active in the
oversight of the Companys accounting, auditing, and key risk management areas. The Companys bylaws require any board
member to be actively engaged in the production of sugarbeets, therefore, the financial expert requirement for the audit committee
is restricted to the pool of available directors who are eligible to serve on the audit committee. Therefore there is no financial
expert, as defined within the provisions contained in the Sarbanes-Oxley law, that serves on the Audit Committee. The Audit
Committee has formulated a confidential and anonymous employee system to allow employees to report concerns regarding questionable
accounting or auditing matters. The Audit Committee has adopted a code of ethics policy for top management.

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

Internal Controls:   The Companys payments to
growers are derived from crop pools with each years harvest creating a Crop Pool. It is the Companys
practice to 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.

42

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# 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 are included after the table.

|Name and Address       |  | Age |  | District                   |  | Director Since |  | Term Expiresin December
|---------------------- |  | --- |  | -------------------------- |  | -------------- |  | -----------------------
|Brent Davison          |  | 50  |  | District #5  Hawes        |  | 2003           |  | 2006                   
|7950 770th AV          |  |     |  |                            |  |                |  |                        
|Tintah, MN 56583       | 
|                      
|Douglas Etten          |  | 53  |  | District #8  Lyngaas      |  | 1997           |  | 2006                   
|3138 370th ST          | 
|Foxhome, MN 56543      |  |     |  |                            |  |                |  |                        
|                      
|Michael Hasbargen      |  | 59  |  | District #4  Factory East |  | 1993           |  | 2005                   
|2553 360th ST          |  |     |  |                            |  |                |  |                        
|Breckenridge, MN 56520 |  |     |  |                            |  |                |  |                        
|                      
|Victor Krabbenhoft     |  | 54  |  | District #9  Peet         |  | 1989           |  | 2004(1)                
|416 44th AV S          | 
|Moorhead, MN 56560     | 
|                      
|Russell Mauch          |  | 49  |  | District #2  Factory West |  | 1998           |  | 2004(2)                
|16305 Hwy 13           |  |     |  |                            |  |                |  |                        
|Barney, ND 58008       | 
|                      
|Edward Moen, Jr.       |  | 76  |  | District #3  Gorder       |  | 1989           |  | 2004(3)                
|17060 County Road 8    | 
|Colfax, ND 58018       | 
|                      
|Charles Steiner        |  | 54  |  | District #6  Yaggie       |  | 2000           |  | 2006                   
|2851 310th AV          | 
|Foxhome, MN 56543-9312 |  |     |  |                            |  |                |  |                        

43

---

|Name and Address     |  | Age |  | District             |  | Director Since |  | Term Expiresin December
|-------------------- |  | --- |  | -------------------- |  | -------------- |  | -----------------------
|Paul Summer          |  | 62  |  | District #7  Lehman |  | 1993           |  | 2005                   
|1509 Lakeside Drive  | 
|Alexandria, MN 56308 | 
|                    
|Alton Theede         |  | 60  |  | District #1  Tyler  |  | 2003           |  | 2006                   
|609 3rd AV SE        | 
|Hankinson, ND 58041  | 

|1) |  | Mr. Krabbenhofts term as a director of the Company from
District #9-Peet expires on December 7, 2004. Mr. Krabbenhoft is not eligible for re-election due to director term limits.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2) |  | Mr. Mauchs term as a director of the Company from
     District #2-Factory West expires on December 7, 2004.
|-- |  | -------------------------------------------------------------------------------------------------------------

|3) |  | Mr. Moens term as director of the Company from District
#3-Gorder expires on December 7, 2004. Mr. Moen is not eligible for re-election due to director term limits.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

Brent Davison has been
a director since 2003. Mr. Davison earned his B.S. degree in Education at Concordia University, Moorhead, MN, graduating in 1972.
Mr. Davison taught school in Warren, MN from 1972 until coming home to farm near Tintah, Minnesota area in 1974. He is currently
serving on the Tintah Township Board and is a former volunteer fireman and first responder.

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

Michael Hasbargen has
been a director since 1993 and is currently serving as board 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.

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.

44

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

Charles Steinerhas
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.

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

# 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. Brief biographies for each of the officers are included after the table.

|Name               | Age |    | Position
|------------------ | --- | -- | --------
|David H. Roche     |     | 57 |         
|                  
|Steven M. Caspers  |     | 54 |         
|                  
|Allen E. Larson    |     | 49 |         
|                  
|Thomas D. Knudsen  |     | 50 |         
|                  
|Greg J. Schmalz    |     | 53 |         
|                  
|Jeffrey L. Carlson |     | 49 |         
|                  
|John S. Nyquist    |     | 49 |         
|                  
|Susan Johnson      |     | 57 |         
|                  
|Kevin R. Shannon   |     | 50 |         
|                  
|John Haugen        |     | 52 |         

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. and a

45

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director of The Sugar Association, Washington, D.C. Mr. Roche began his sugar
industry career as a controller for Michigan Sugar Company in 1976. He progressed through the ranks until he was named president
in 1994. In 1996 he became president of Savannah Foods Industrial and was appointed senior vice president of Savannah Foods &
Industries. 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.

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.

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

Jeffrey L. Carlson is
a graduate of the University of Minnesota-Morris with a Bachelor of Arts in Chemistry, University of North Dakota with a Ph.D. in
Physical Chemistry, and North Dakota State University with an MBA. Dr. Carlson is a member of the American Society of Sugar Beet
Technologists and the American Chemical Society. He began his career as a research chemist and an assistant professor in 1986. Dr.
Carlson began his employment with the Company on June 4, 1990.

John S. Nyquist Mr.
Nyquist began his purchasing and inventory control experience on September 15, 1975 in the Company storeroom. Mr. Nyquist is an
officer of the National Association of Purchasing Managers and is currently chairman of the Richland County Economic Development
Commission.

Susan M. Johnson Ms.
Johnson began her employment with the Company on June 26, 1978 in the accounting department as receptionist and payroll clerk. She
has also held positions in the human resources department, the executive offices, and is currently in the position of
communications manager/executive administrative assistant (as of December 2003).

Kevin R. Shannon is a
graduate of Taylor Institute and Vanguard Vo-Tech, majoring in Instrumentation. He is active in local civic organizations. Mr.
Shannon began

46

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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 is a
graduate of the University of North Dakota with a BS in Mechanical Engineering. Mr. Haugen serves as the Companys Vice
President of Engineering. 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 and Director of 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, 2004 and
the two prior fiscal years to those persons serving as the Companys Chief Executive Officer and to the other most highly
compensated executive officers of the Company whose cash compensation exceeded $100,000 per annum.

# Summary Compensation Table

|Name andPrincipal Position |  |  | Year |  | Salary |   | Bonus   |  | Other AnnualCompensation(1) |         | All OtherCompensation(2) |   | TotalCompensation
|-------------------------- |  |  | ---- |  | ------ | - | ------- |  | --------------------------- | ------- | ------------------------ | - | -----------------
|David Roche                |  |  | 2004 |  |        | $ | 294,616 |  | $                           | 105,000 |                          | $ | 16,663           
|President & CEO            |  |  | 2003 |  |        | $ | 284,232 |  | $                           | 100,000 |                          | $ | 14,531           
|                           |  |  | 2002 |  |        | $ | 265,000 |  | $                           | 45,000  |                          | $ | 13,270           
|                           |  | 
|Steven Caspers             |  |  | 2004 |  |        | $ | 151,002 |  | $                           | 48,500  |                          | $ | 10,373           
|Executive Vice             |  |  | 2003 |  |        | $ | 145,255 |  | $                           | 45,000  |                          | $ | 9,210            
|President / CFO            |  |  | 2002 |  |        | $ | 140,231 |  | $                           | 30,000  |                          | $ | 11,629           
|                           |  | 
|Tom Knudsen                |  |  | 2004 |  |        | $ | 110,184 |  | $                           | 26,900  |                          | $ | 6,015            
|Vice President             |  |  | 2003 |  |        | $ | 105,412 |  | $                           | 25,000  |                          | $ | 9,280            
|Agriculture                |  |  | 2002 |  |        | $ | 101,352 |  | $                           | 15,000  |                          | $ | 12,239           
|                           |  | 
|Allen Larson               |  |  | 2004 |  |        | $ | 106,193 |  | $                           | 25,000  |                          | $ | 7,825            
|Controller and             |  |  | 2003 |  |        | $ | 101,595 |  | $                           | 19,000  |                          | $ | 4,364            
|Chief Accounting Officer   |  |  | 2002 |  |        | $ | 98,253  |  | $                           | 14,000  |                          | $ | 4,579            
|                           |  | 
|Jeffrey Carlson            |  |  | 2004 |  |        | $ | 114,001 |  | $                           | 26,900  |                          | $ | 6,068            
|Vice President             |  |  | 2003 |  |        | $ | 109,273 |  | $                           | 25,000  |                          | $ | 4,371            
|Operations                 |  |  | 2002 |  |        | $ | 86,034  |  | $                           | 11,500  |                          | $ | 3,857            
|                           |  | 
|John Haugen                |  |  | 2004 |  |        | $ | 105,000 |  | $                           | 26,900  |                          | $ | 5,090            
|Vice President             |  |  | 2003 |  |        | $ | 88,720  |  | $                           | 25,000  |                          | $ | 3,702            
|Engineering                |  |  | 2002 |  |        | $ | 77,361  |  | $                           | 11,500  |                          | $ | 3,686            

47

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1)    In addition to the salary and bonus described
above, Mr. Roche, Mr. Caspers, Mr. Knudsen, Mr. Larson, Mr. Carlson, and Mr. Haugen 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 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 2004 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.

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, 2004, the
Company recorded on their books an obligation of $15,731 to Mr. Roche. For the fiscal year ended August 31, 2003, an obligation of
$16,278 was recorded and 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.

48

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# 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 100% of each
employees first 4% of compensation that is set aside under the plan. The amounts set aside by each employee and the Company
vests immediately and are paid to each employee upon the happening of certain events, all as more fully described in the master
plan document. Federal law limited employee pre-tax income contributions to $13,000 in calendar year 2004 ($14,000 for 2005) for
each participating employee age 49 and under, and $16,000 for each participating employee age 50 and older ($18,000 for 2005).
Benefits under the 401(k) plan begin to be paid to the employee: (i) upon the attainment of normal retirement age (65), or if the
employee chooses, any time after attaining early retirement date (age 55); (ii) the date the employee terminates employment with
the Company; or (iii) a pre-retirement distribution equal to the value of the employees 401(k) account, provided the employee has
attained age 59 1/2 and provided a written consent of the spouse (if married). Effective September 1, 1996 certain executive
employees of the Company became eligible to participate in a Supplemental Executive Retirement Plan. The
Companys Board of Directors adopted that plan on January 21, 1997. Subject to the discretion of the Board of Directors, the
plan provides for the Company to credit to the account of each executive eligible to participate in the Supplemental Plan amounts
equal to the difference between the benefits actually payable to the executive under the provisions of the defined benefit
retirement plan and the amounts which would have been payable under the defined benefit retirement plan if certain provisions of
the Internal Revenue Code did not prohibit the payment of such benefits.

49

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# 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:

|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|

| | Mr. Roche has 3 years of service under the plan.
Mr. Caspers has 30 years of service under the plan.
Mr. Knudsen has 27 years of service under the plan.
Mr. Larson has 22 years of service under the plan.
Mr. Carlson has 14 years of service under the plan.
Mr. Haugen has 28 years of service under the plan.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# 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 26, 2004, 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 26, 2004, no person owned beneficially more than 5% of the
Companys outstanding shares and none of the principal officers listed above owned any such shares.

|Name                |  | Position with Company |  | No. of Shares |  | % of Shares 
|------------------- |  | --------------------- |  | ------------- |  | ------------
|Brent Davison (4)   |  | Director              |  | 1,200         |  | 1.7%        
|Douglas Etten       |  | Director              |  | 450           |  | less than 1%
|Michael Hasbargen   |  | Director              |  | 375           |  | less than 1%
|Victor Krabbenhoft  |  | Director              |  | 245           |  | less than 1%
|Russell Mauch (1)   |  | Director              |  | 474           |  | less than 1%
|Ed Moen             |  | Director              |  | 180           |  | less than 1%
|Charles Steiner (3) |  | Director              |  | 380.5         |  | less than 1%
|Paul Summer (2)     |  | Director              |  | 222           |  | less than 1%
|Alton Theede        |  | Director              |  | 325           |  | less than 1%
|All Directors       |  |                       |  | 3,851.5       |  | 5.33%       

|1) |  | Mr. Mauchs shares are held and grown under the name of RCM
Limited Partnership.
|-- |  | --------------------------------------------------------------------------------

|2) |  | Mr. Summers shares are grown under the name of P V Unlimited
Corp.
|-- |  | -------------------------------------------------------------------

|3) |  | Mr. Steiners shares are held and grown under the name of
Steiner and Sons Limited Partnership.
|-- |  | -----------------------------------------------------------------------------------------------

|4) |  | Mr. Davisons shares are held and grown under the name of
Agassiz Sugarbeet Limited Partnership.
|-- |  | ------------------------------------------------------------------------------------------------

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# 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, 2004 totaled $70,875 and $70,650 for the fiscal year ended August 31, 2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
$12,850 for fiscal year ended August 31, 2004 and $15,650 for the fiscal year ended August 31, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.    All Other Fees  paid to the
Companys principal accountant for services other than detailed in Items 1 thru 3 above total $11,150 for the fiscal year
ended August 31, 2004 and $11,050 for the fiscal year ended August 31, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5.    It is part of the audit committees
duties to appoint, compensate, and oversee the engagement of, retention or replacement of the independent auditors who audit the
financial statements of the 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

52

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# 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 filed the following reports on form 8-K:

June 22, 2004:   Minn-Dak Farmers Cooperative has announced
that the board of directors, following the review and approval of the updated 2003-crop business plan, has determined that the
beet payment estimate for the 2003 crop will be increased from $40.83 per ton to $43.00 per ton. This increase was primarily due
to improved revenues over the original 2003 crop business plan, which resulted from an overall increase in both prices and volume.

October 15, 2004:   Minn-Dak Farmers Cooperative has announced
that the board of directors, following the completion of the 2004 fiscal year audit, has approved the final payment for the 2003
crop of $45.08 per ton of beets harvested (13.918882 cents per pound of sugar). The Board of Directors has also declared and
allocated to shareholders of record, for the 2003 crop, non-qualified allocated patronage totaling $5,128,308 or $2.26 per ton of
beets harvested.

October 28, 2004:   Minn-Dak Farmers Cooperative has announced
that the board of directors, following the review and approval of the 2004-crop business plan, has determined that the beet
payment estimate for the 2004-crop will be $35.02 per ton of harvested beets (12.338768 cents per pound of sugar).

53

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# 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       

54

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|Index    
|---------
|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, 2003 as filed on November 26, 2003.

55

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# 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                |  | 11-26-04   
|                         |  | Chief Executive Officer      |  |            
|David H. Roche           | 
|                        
|/s/   Steven M. Caspers  |  | Executive Vice President and |  | 11-26-04   
|                         |  | Chief Financial Officer      |  |            
|Steven M. Caspers        | 
|                        
|/s/   Allen E. Larson    |  | Controller and               |  | 11-26-04   
|                         |  | Chief Accounting Officer     |  |            
|Allen E. Larson          | 
|                        
|/s/   Brent Davison      |  | Director                     |  | 11-26-04   
|                         |  |                              |  |            
|Brent Davison            | 
|                        
|/s/   Douglas Etten      |  | Director                     |  | 11-26-04   
|                         |  |                              |  |            
|Douglas Etten            | 
|                        
|/s/   Mike Hasbargen     |  | Director                     |  | 11-26-04   
|                         |  |                              |  |            
|Mike Hasbargen           | 
|                        
|/s/   Victor Krabbenhoft |  | Director                     |  | 11-26-04   
|                         |  |                              |  |            
|Victor Krabbenhoft       | 
|                        
|/s/   Russell Mauch      |  | Director                     |  | 11-26-04   
|                         |  |                              |  |            
|Russell Mauch            | 
|                        
|/s/   Edward Moen, Jr.   |  | Director                     |  | 11-26-04   
|                         |  |                              |  |            
|Edward Moen, Jr.         | 
|                        
|/s/   Charles Steiner    |  | Director                     |  | 11-26-04   
|                         |  |                              |  |            
|Charles Steiner          | 
|                        
|/s/   Paul Summer        |  | Director                     |  | 11-26-04   
|                         |  |                              |  |            
|Paul Summer              | 
|                        
|/s/   Alton Theede       |  | Director                     |  | 11-26-04   
|                         |  |                              |  |            
|Alton Theede             | 

56

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