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|                                                      
|------------------------------------------------------
|UNITED
 STATES                                        
|SECURITIES
 AND EXCHANGE COMMISSION                   
|WASHINGTON, D.C. 20549                                
|                                                      
|                                                      
|FORM 10-K                                             
|                                                      
|                                                      
|xAnnual Report Pursuant to Section 13
 or 15(d) of    
|The Securities Exchange
 Act of 1934                  
|For the fiscal year
 ended                            
|AUGUST 31, 2011                                       
|Or                                                    
|oTransition 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 if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Acto
YES x NO

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

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

Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months. o YES
o 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

Indicate
by check mark if the Registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES o NO x

---

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Minn-Dak
Farmers Cooperative is a cooperative. Its voting and non-voting common equity
can only be held by its members. No public market for voting and non-voting
common equity of Minn-Dak Farmers Cooperative is established and it is
unlikely, in the foreseeable future that a public market for its voting and
non-voting common equity will develop.

As
of November 1, 2011, 476 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.

DOCUMENTS INCORPORATED BY REFERENCE

None

PART
I

|         |         
|-------- | --------
|ITEM
 1. | BUSINESS

PUBLIC COMPANY
REPORTING

Minn-Dak
Farmers Cooperative (the Company or the Registrant) has previously
registered securities for offer and sale pursuant to the Securities Act of
1933, as amended (the Securities Act). As a result of that previous
registration under the Securities Act, under Sections 15(d) and 13 of the
Securities Exchange Act of 1934, as amended (the Exchange Act), the Company
is obligated to file quarterly reports on form 10-Q, annual reports on Form
10-K and supplemental reports on Form 8-K. However, the Company has not
registered any of its securities under Section 12(g) of the Exchange Act. The
Company is exempt from any obligation to register its securities under the
Exchange Act due to the provisions of Section 12(g)(2)(E), which exempts from
Exchange Act registration any security of an issuer, such as the Company, which
is a cooperative association as defined in the Agricultural Marketing Act of
1929. As a result, those provisions of the Exchange Act, which are applicable
only to securities registered under Section 12 of that act, do not apply to
shares issued by the Company. The provisions, which do not apply to the
Companys shares, include the regulation of proxies under Section 14 of the
Exchange Act and the reporting and other obligations of directors, officers and
principal stockholders under Section 16 of the Exchange Act.

WARNING REGARDING FORWARD-LOOKING
STATEMENTS

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

2

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GENERAL

The
Company is a North Dakota agricultural cooperative that was formed in 1972 and
currently has 476 members. Membership in the Company is limited to sugarbeet
growers located in those areas of North Dakota and Minnesota within an approximate
fifty (50) mile radius of the Companys offices and sugarbeet processing
facilities in Wahpeton, North Dakota. The Companys facilities allow the
members to process their sugarbeets into sugar and other products. The products
are pooled and then marketed through the services of marketing agents under
contract with the Company. The sugar-marketing agent, United Sugars
Corporation, is a cooperative association owned by its members, the Company,
American Crystal Sugar Company and United States Sugar Corporation. The
Companys sugarbeet molasses and sugarbeet pulp are also marketed through a
marketing agent, Midwest Agri-Commodities Company. Midwest Agri-Commodities
Company is a cooperative association owned by its members, the Company,
American Crystal Sugar Company, Southern Minnesota Beet Sugar Cooperative and
Michigan Sugar Company. The Company owns a 100 percent interest in Minn-Dak
Yeast Company, Inc. (Minn-Dak Yeast), which has facilities located adjacent
to the Companys sugar production facilities, and which produces and sells
fresh bakers yeast.

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

PRODUCTS AND
PRODUCTION

The
Company is engaged primarily in the production and marketing of sugar from
sugarbeets. The Company also produces and markets certain co-products,
sugarbeet molasses and sugarbeet pulp pellets. The Companys subsidiary
Minn-Dak Yeast uses a portion of the Companys sugarbeet molasses as the growth
medium in the production of fresh bakers yeast. Minn-Dak Yeast provided
revenues totaling approximately 4 percent of the Companys total revenues for
the fiscal year ended August 31, 2011.

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

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

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

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

3

---



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

RECENT CROPS

The
Companys members harvested 1.95 million tons of sugarbeets from the 2011-crop,
approximately 20 percent less than the most recent 5-year average. Sugar
content of the 2011-crop was 5.0 percent above the average of the five most
recent years. Due to the lower harvested tons and higher sugar content, the
Companys production of sugar from the 2011-crop sugarbeets is expected to be
20.0 percent less than the average of the five most recent years of sugar
production.

The
Companys initial sugarbeet payment estimate totals $64.72 per ton or
$0.2196174 per harvested /bonus extractible pound of sugar, with the final
sugarbeet payment determined in October of 2012. This projected payment is 11.4
percent more than the final 2010-crop payment per ton and 11.0 percent more per
pound of extractible sugar. The increased projected 2011-crop payment per ton
results from higher sugar content in the sugarbeets and improved sugar and
co-product prices. The increases were offset somewhat by increased operating
and fixed costs per ton and fewer total tons of beets to process versus the
prior year. The price per pound of extractible sugar was diluted by 0.74% due
to bonus sugar for the 2011-crop vs. 6.5% for the 2010-crop. Bonus sugar is an
incentive to growers to deliver sugarbeets prior to main harvest. Harvest for
the 2010-crop began on September 21, 2011 vs. August 18, 2010 for the
2010-crop.

For
a discussion of the calendar 2010, 2009 and 2008 crops and results of
operations for fiscal years 2011, 2010 and 2009, see MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

GROWERS AGREEMENTS

The
Company purchases virtually all of its sugarbeets from members under contract
with the Company. All members have automatically renewing contracts with the
Company covering each growing season (the Growers Agreements). At the end of
each year, the Growers Agreement automatically extends for an additional year,
so that such agreements always have a remaining term of one year, unless the
Company, prior to the automatic renewal, has given notice of termination or
amendment. In that situation, the agreement will not renew, but will continue
in effect for the then remaining year under the agreement. Each Unit of
Preferred Stock currently entitles a member to grow the maximum number of acres
per share authorized by the Board of Directors for each farming year. The Companys
Board of Directors has the discretion to adjust the acreage that may be planted
for each Unit of Preferred Stock held by the members.

| |                   |         |         | 
| | ----------------- | ------- | ------- | 
| | Crop Year         | Minimum | Maximum | 
| | 2010              | 1.40    | 1.60    | 
| | 2011              | 1.40    | 1.70    | 
| | 2012 
 Projected | 1.40    | 1.60    | 

The
Companys Board of Directors has authorized members a planting level for the
2012-crop; however, this authorization is subject to change by the board before
the planting of the 2012-crop for reductions and before the completion of the
planting of the 2012-crop for additions. The level of authorized acres for
planting reflects the desire to fully utilize the Companys plant capacity and
the anticipated sugar marketing allocations that will be available for the
2012-crop production. (For a discussion of the current farm bill sugar
provisions, see Managements Discussion on Government Programs and
Regulations.)

4

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

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

During
Fiscal 2011, the Company entered into a sub-compliance agreement with its
Growers to meet the United States Department of Agriculture (USDA) requirements
for planting Round-up ® ready sugarbeets. See Exhibit 10(a).

COMPANY DISTRICTS

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

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

5

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RESEARCH AND
DEVELOPMENT

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

During
the fiscal year ended on August 31, 2011, members through the Company
contributed approximately $0.1 million to the North Dakota/Minnesota Research
and Education Board to fund that entitys research and development activities
and the Company spent $0.2 million for research aimed at process improvements.

The
Company also has established a sugarbeet seed committee, whose membership
includes shareholders, directors and Company employees, 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 by the Board of Directors for use by the Companys
shareholders.

ENVIRONMENTAL MATTERS

The
Company is subject to a broad range of continuously 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; the Comprehensive Environmental Response, Compensation and
Liability Act and most recently
the Mandatory Reporting of Greenhouse Gases. Other than what is provided
herein, the Company is not aware of any areas of non-compliance.

The
Company has less than $0.1 million of environmental capital improvements
budgeted for the fiscal year ending August 31, 2012.

On
February 21, 2011 a new EPA rule was promulgated that set new standards for
hazardous air pollutants from industrial boilers. The National Emissions
Standards for Hazardous Air Pollutants for Industrial, Commercial, and
Institutional Boilers and Process Heaters (also known as The Boiler MACT Rule)
sets very stringent limits on various pollutants. At the same time this rule
was released the EPA also issued a Notice of Reconsideration of the final rule.
This indicates that it is EPAs intent to readdress certain aspects of the rule
and has effectively put the timelines for compliance on hold. Once the rule is
in its final form the company will no doubt be subject to capital expenditures
for the purchase and installation of new pollution control equipment to meet
the new standards.

Compliance
with these laws and related regulations is an ongoing process. Other than what
is mentioned above, 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
agriculture operations, including those conducted by the Company. There can be
no assurance that the cost of compliance with environmental laws and
regulations will not be material. Moreover, it is possible that future
developments, such as increasingly strict environmental laws and enforcement
policies there under, and further restrictions on the use of agriculture
chemicals, could result in increased compliance costs.

6

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MARKET AND COMPETITION

Current
U.S. Government statistics estimated total United States (U.S.) sugar
deliveries for domestic food and beverage consumption at 207.5 million cwt.
refined for its fiscal year beginning October 1, 2010 and ending September 30,
2011 (fiscal year 2011). For the same period ending in 2010 (fiscal year 2010),
total deliveries were 204.1 million cwt. refined. Comparing the two years shows
demand increased by 1.7 percent for U.S. sugar sellers. The U.S. Government
estimates that fiscal year 2012 deliveries will total 209.8 million cwt.
refined, a 1.1 percent increase versus fiscal year 2011.

Given
the size of the domestic market, the Companys sugar production and sales
represent approximately 3 percent of the total domestic market for refined
sugar in fiscal year 2011. United Sugars Corporation, which sells the Companys
production through a sugar marketing pool, represented approximately 25 percent
share of the fiscal year 2011 U.S. sugar market.

The
U.S. refined sugar market is a mature market and has grown over the past ten
years at a rate of slightly more than 1 percent per year. Its growth is
affected by the substitution of high fructose corn syrups, artificial and other
non-sucrose sweeteners for sugar in beverages and certain food products and
imported sugar-containing products. In the past, the substitution of non-sugar
sweeteners for sugar not only reduced demand for sugar in the United States,
but has also resulted in a high degree of sugar industry contraction. Also,
sugar companies in the past have consolidated or closed as a result of
marketplace conditions. More recently, there have been fewer consolidations and
closings. Since 1996, 13 of the 35 sugarbeet refineries owned by sugar
companies have closed. Results in that time period for cane sugar companies,
cane raw mills and cane refineries are even more dramatic. In more recent
years, however, sugar is being substituted for High Fructose Corn Syrup by some
food and beverage companies, thereby increasing the demand for sugar. Today
there are seven sugar sellers, with approximately 90 percent of U.S. sugar
market share concentrated in the top five sellers, most of which are integrated
sugarbeet and sugarcane suppliers. The Companys main competitors in the
domestic market are Imperial Sugar Company, American Sugar Refining Company,
Amalgamated Sugar Company and Cargill. Competition in the U.S. sugar industry,
because sugar is a fungible commodity, is primarily based upon price, customer
service and reliability as a supplier.

GOVERNMENT PROGRAMS
AND REGULATION

Domestic
sugar prices are supported under a program administered by the United States
Department of Agriculture (USDA). Under the current program, which was
initiated in 1981 and extended under the Food Security Act of 1985, the Food,
Agriculture, Conservation and Trade Act of 1990, the Federal Agriculture
Improvement and Reform Act of 1996, the Farm Security and Rural Investment Act
of 2002 and now the Food, Conservation, and Energy Act of 2008 (the Farm
Bill), the price of sugar is required to be maintained above the price at
which producers could forfeit sugar to repay non-recourse loans obtained
through the Commodity Credit Corporation (CCC). The USDA maintains sugar
prices without cost to the U.S. Treasury by regulating the quantity of sugar
imports and domestically produced sugar allowed to be marketed for human
consumption. The U.S. imports approximately 29 percent of its total domestic
needs.

Food, Conservation, and Energy Act of 2008

The
Farm Bill was enacted in June 2008. It contains several provisions related to
the domestic sugar industry, with the ultimate goal of such provisions to
achieve balance and stability in the U.S. sugar market while minimizing the
cost to the Federal government. The Farm Bill applies to the 2008 through
2012-crop years. Generally, the Farm Bill restricts imports of foreign sugar,
maintains a non-recourse loan program, and establishes a system of marketing
allocations for sugarbeet and sugarcane producers in an attempt to balance the
supply and demand for sugar in the U.S. domestic sugar market. The Farm Bill
also provides for a way to help control general sugar inventories in the U.S.
through the implementation of the Feedstock Flexibility program. This program
requires the Secretary of Agriculture to purchase sugar to produce bio-energy
as a means to avoid forfeitures of sugar loan collateral that may occur when
the U.S. domestic prices are lower than the floor created by the sugar loan
program.

7

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

The
USDA has historically maintained sugar prices above the forfeiture price level,
without cost to the U.S. Treasury, by regulating the supply of sugar in the
U.S. market through the regulation of the quantity of sugar imports and the
establishment of an overall allotment quantity for the domestic sugar
producers. Under the Tariff Rate Quota (TRQ) implemented October 1,
1990, preferential sugar-producing countries are allowed to export a fixed
quantity of sugar into the United States duty-free or subject to minimal
duties. The total amount of the TRQ sugar estimated by USDA to enter the U.S
for fiscal year 2011 is 1,693,000 short tons raw value (STRV), or the access
commitment level under the World Trade Organization (WTO). For fiscal
year 2012 the USDA TRQ sugar imports are estimated to be 1,636,000 STRV. In
addition, sugar is imported under free trade agreements with other countries,
including the North American Free Trade Agreement (NAFTA), which includes
trade with Canada and Mexico. Mexico is projected by the USDA to export
1,687,000 STRV of sugar to the U.S. in FY 2011 and 1,155,000 STRV in fiscal
year 2012. In total, imports from other countries are expected to total
3,339,000 STRV for FY 2011by the USDA.

The
Farm Bill incorporates gradual loan rate increases for raw and refined sugar.
For raw sugar, the loan rate will increase three-quarters of a cent per pound,
raw value, phased-in in quarter-cent increments over crop years 2009-2011. Raw
cane load rates will remain at 18.00 cents/lb. in 2008 then rise gradually to
18.75 cents by 2011, and they will remain at 18.75 cents/lb. for the 2012 crop
year. Refined beet sugar loan rates are set at 23.45 cents/lb. for the 2009
crop and thereafter are set at a rate equal to 128.5 percent of the loan rate
per pound for raw cane sugar for each of the 2010 through 2012 crop years.

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

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

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

8

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North American Free Trade Agreement

The
North American Free Trade Agreement (NAFTA) governs sweetener trade between
the U.S. and Mexico. Terms of the NAFTA agreement established a common market
between the United States and Mexico in sugar. Under NAFTA, there are no
duties or quantitative restraints between the two countries on all sugar and
HFCS trade. Sugar from Mexico may enter and be sold in the U.S. in any quantity
without the added cost of tariffs.

The
U.S. Government forecasts that Mexico will export 1,687,000 short tons raw
value to the U.S. in fiscal year 2011, which would represent approximately 15.2
percent of domestic sugar consumption for food and other; and 1,155,000 short
tons raw value in fiscal year 2012, representing approximately 10.3 percent of
domestic sugar consumption for food and other. Key variables that ultimately
will determine the amount of imports from Mexico include: (1) Mexican
production; (2) Mexican high fructose corn syrup use; (3) Mexican third-country
imports and possible substitution; (4) Mexican government policy decisions,
such as a proposed ethanol program and others that could mitigate or
increase exports to the U.S.; (5) domestic U.S. production of beet and cane
sugar; and (6) possible U.S. and Mexico government agreement on a rational
sugar trade policy, other than what currently exists in the NAFTA. Excessive
imports of Mexican sugar could cause material harm to the U.S. sugar market;
however, the Company is unable to determine what the level of imports would
need to be in order to trigger material harm.

The
Company believes the NAFTA may present a potential serious public policy
challenge to itself and the domestic sugar industry. Should there be low world
raw sugar prices it would be economically viable for Mexican sugar to enter the
United States in any year, if the Mexican interests so choose. Since January 1,
2008 there has not been a sugar market disruption due to NAFTA in the U.S. for
a variety of reasons; mostly those reasons have to do with the market
conditions that currently exist in the U.S. and Mexico, including supply /
demand reasons. Also, High Fructose Corn Syrup (HFCS) continues to make
inroads into the Mexican food and beverage manufacturing sector, displacing
sugar use as it does. A recent USDA study concluded that there is still a large
potential to expand HFCS use in Mexico. In their study, an implication is made
that this displaced sugar in Mexico could supply more sugar to the U.S. It is
possible that the NAFTA could, in the future, have a material adverse effect on
the Company through a reduction in acreage that can be planted by the Companys
shareholders, and/or a reduction in sugar selling prices, and a corresponding
reduction in the sugarbeet payment to the shareholders and to the Company
earnings. The magnitude of the impact cannot be determined at this time.

World Trade Organization

Under
the General Agreement on Tariffs and Trade Act of 1990 (GATT), tariff rate
quotas were implemented for certain sugar producing countries that provided for
a fixed quantity of sugar imports duty-free or subject to minimal duties.
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 U.S. from the quota holding foreign countries.

Unlimited
additional quantities may be imported upon payment of a tariff of 15.36 cents
per pound of raw sugar prior to shipment. In fiscal year 2010 the price spread
between imported and domestic sugar prices narrowed, resulting in greater high-tier
sugar imports. Such was not the case for fiscal year 2011. Through the end of
fiscal year 2011 high-tier sugar imports totaled only 18,000 STRV, compared to
188,000 STRV for the same period in the prior year.

9

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

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

Dominican Republic - Central American Free
Trade Agreement

The
Dominican Republic - Central American Free Trade Agreement (DR-CAFTA)
implementation has resulted in an increase in the amount of sugar that will be
imported into the United States. The impact of this trade agreement on the
Company will continue to be assessed by taking into consideration this and all
of the other agreements that require certain amounts of raw or refined sugar to
be imported to the U.S., and the resultant amount of sugar that becomes
available for sale in the domestic sugar marketplace. It is possible that the
trade agreement could have a material adverse effect on the Company through a
reduction in acreage that can be planted by the Companys shareholders, and/or
a reduction in sugar selling prices, and a corresponding reduction in the
sugarbeet payment to the shareholders and the Company earnings. The magnitude
of the impact cannot be determined at this time.

Regional and Bilateral Free Trade Agreements

The
United States government is pursuing additional international trade agreements.
It is seeking to negotiate new free trade agreements with a number of countries
and regions that are major producers of sugar. The Company believes these
agreements, if they reach fruition, could negatively impact the Companys
profitability.

The
primary negotiated or currently being negotiated free trade agreements with
countries and regions that are major producers of sugar include, to the
Companys knowledge, the Columbia Free Trade Agreement; the Thailand Free Trade
Agreement; the Panama Free Trade Agreement; the Free Trade Area of the
Americas; the South African Customs Union Free Trade Agreement; the Korean Free
Trade Agreements, and others. The Columbia, Panama and Korean Free Trade
Agreements have been completed, signed and ratified by the U.S. Congress as of
October 2011. They are scheduled to be implemented by January 1, 2012.
Additional TRQ access for the three countries will be 62,800 STRV and
increasing by approximately 900 STRV each year going forward. The Company
believes these agreements (negotiated or currently being negotiated) could
negatively impact the Companys profitability. Many of the countries
included in these agreements are major sugar producers and exporters. If
increases in guaranteed access or reductions in sugar tariffs are included in
these agreements, excess sugar from these regions could enter the U.S. market
and put pressure on domestic sugar.

The
U.S. sugar industry and the Company recognize the potential negative impact
that could result if these agreements that are currently being negotiated were
entered into by the United States.

The
impact on the Company of the various trade agreements being negotiated cannot
be assessed at this time due to the uncertainty concerning the terms of the
agreements and whether they will ultimately be implemented. It is possible,
however, that the passage of various trade agreements could have a material
adverse effect on the Company through a reduction in acreage that can be
planted by the Companys shareholders, and/or a reduction in sugar selling
prices, and a corresponding reduction in the sugarbeet payment to the shareholders
and to the Company earnings. The magnitude of the impact cannot be determined
at this time.

10

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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 effects could impact the Companys continued viability and the
desirability of grower sugarbeets for delivery to the Company.

EMPLOYEES

As of November 1, 2011, the Company had 314
full time employees, of whom 277 were hourly and 37 were salaried. It also
employs approximately 384 additional hourly seasonal workers during the
sugarbeet harvest and processing campaign. The Company has a collective
bargaining agreement with the Bakery, Confectionery, Tobacco Workers and Grain
Millers International Union (AFL-CIO, CLC) for its factory group. The contract
became effective June 1, 2011 and continues through May 31, 2013. Office,
clerical, management, truck drivers and harvest employees are not unionized.
Full time employees are provided with health, dental and vision insurance, a
defined benefit or defined contribution retirement plan, a 401(k) retirement
savings plan, a long term disability plan, sick leave plan, term life
insurance, vacation plan and holiday pay. Seasonal workers are also provided
some of these same employee benefits. The Company considers its employee
relations to be excellent.

ABOUT THE COOPERATIVE

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

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

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

Regional and
Bilateral Trade Agreements

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

Government Programs and Regulations;
Legislation

The
nature and scope of future legislation and regulation affecting the sugar
market cannot be predicted and there can be no assurance that price supports
and market protections will continue in their present forms. If the price
support programs were eliminated in their entirety, or if certain protections
the United States government provides from foreign competitors were materially
reduced, the Company could be materially and adversely affected. In such a
situation, if the Company were not able to adopt strategies that would allow it
to compete effectively in a greatly changed domestic market for sugar, the
adverse effects could negatively impact the desirability of growing sugarbeets
for delivery to the Company, the Companys financial results, and the Companys
continued viability.

11

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Legislation
that would significantly increase energy costs, health care costs,
environmental costs or other employee benefit costs could have severe adverse
impacts on the financial returns of the Company.

Unregulated Foreign Competition

Under
the current terms of the NAFTA and other government regulations, imports of
sugar from Mexico may enter the U.S. market. These imports could oversupply the
U.S. market and negatively affect the price of sugar. The Company, along with
the domestic sugar industry, closely monitors the level of imported sugar
coming from Mexico and is consulting with the U.S. government to encourage
improved data reporting and continued consultation with the Mexican government
relating to sugar trade.

The Farm Bill

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

Operating Expenses and Sugar Prices

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

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

Inability to compete in the sweetener market,
could affect operating results.

Sugar
is a fungible commodity with competition for sales volume based primarily upon
price, customer service and reliability. The sweetener market, in addition to
sugar, includes corn-based sweeteners, such as regular and high fructose corn
syrups, and non-nutritive, high-intensity sweeteners such as Splenda®, Truvia®
and aspartame. Differences in functional properties and prices have tended to
define the use of these various sweeteners. Although the various sweeteners are
not interchangeable in all applications, the
substitution of other sweeteners for sugar has occurred in certain products,
such as soft drinks. The Company cannot predict the availability,
development or potential use of these and other alternative sweeteners and
their possible impact on it or its members.
The Company believes that it possesses the ability to compete successfully with
other producers of sugar in the United States. In spite of that,
substitute products could reduce the demand for sugar which could lower the
price of sugar, resulting in reduced profitability in the future.

12

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Interest Rate

The
Company finances its operations and capital requirements through a combination
of 30-day LIBOR based bank debt, Tax Exempt Bonds and USDA sugar based loans.
The Company has established a 30-day LIBOR swap program to mitigate its risks
associated with 30-day LIBOR debt instruments.

Beet Seed Availability

See
Item 3. Legal Proceedings.

Weather and Other Factors

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

Increased profitability of alternative crops
could adversely affect the desirability of growing sugarbeets.

The
prices growers receive from crops other than sugarbeets could impact their
decisions as to which crop to plant and how much to plant. Higher prices and
increased profitability for alternative crops could negatively impact the
desirability of growing sugarbeets for delivery to the Company for processing,
its financial results and its continued viability.

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

None.

|        |           
|------- | ----------
|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 Corporate office is located at the factory site at Wahpeton, ND.

The
properties are adequate to process normal and above normal crop sizes, and for
the last five years have averaged a slice rate of 9,654 tons per day. The
2010-crop was the largest tonnage in the history of the Company, amounting to
approximately 3,108,000 tons of sugarbeets. If the Company encounters normal
weather patterns, which will in turn provide normal long-term sugarbeet storage
conditions and if the beets harvested are of good quality, healthy and low in
tare, then it does not anticipate having material difficulties in processing crops
equal in size to the 2010-crop. Achievement of the levels of slice and sugar
production in the factory is due mostly to the quality of the crop and the
Companys effort to maximize the potential production from a crop.

Minn-Dak
Yeast Company (MDYC), of which the Company is a 100 percent owner, operates a
single factory yeast manufacturing business at Wahpeton, North Dakota. MDYC
owns the factory and the land on which it is located. During fiscal 2011, 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.

13

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

In
March 2005, the U.S. Department of Agriculture (the USDA) approved a petition
requesting a determination of non-regulated status for Roundup Ready®
sugarbeets. On January 23, 2008, a coalition group including the Center for
Food Safety, the Sierra Club and two organic seed groups filed a lawsuit
challenging the USDAs determination. On September 21, 2009, the U.S. District
Court for the Northern District of California (the District Court) ruled that
the USDA violated the National Environmental Policy Act by failing to prepare
an Environmental Impact Statement (EIS) before deregulating Roundup Ready®
sugarbeets. The District Court also ordered the USDA to complete an EIS before
making a determination on the regulated status of the Roundup Ready®
sugarbeets. The USDA has said that it expects to complete the EIS by May of
2012. A draft EIS was issued by USDA in October 2011.

On
February 4, 2011 the USDA issued an Environmental Assessment (EA) to address an
administrative action on its part to partially deregulate the use of Roundup
Ready® sugarbeet seed for sugarbeet crops in the U.S. Plaintiffs tried to stop
seed and root plantings for the 2011 crop by asking the Ninth District Court
for a Temporary Restraining Order and Temporary Injunction. That was denied.
The final result of all of the legal proceedings is that as it was legal for
the Companys shareholder/growers to plant Roundup Ready® sugarbeet seed in
2011. However, the Company believes that the Plaintiffs will continue to challenge
by legal means the USDAs partial deregulation of the Roundup Ready® sugarbeet
seed going forward. The ability of shareholder/growers to plant Roundup Ready®
sugarbeets in subsequent years will be based upon actions by the USDA, which
may be subject to further challenge in the future by the Plaintiffs or other
groups also.

If
the Plaintiffs are successful, through legal means, to prevent the planting in
2012 and later years of Roundup Ready® sugarbeet seed, conventional varieties
of sugarbeet seed would have to be planted instead. This may have a negative
impact on the sugarbeet producers crop yields. Chemical manufacturers have
significantly reduced the planned production of conventional herbicide
chemicals due to the rapid increase in planting of Roundup Ready® sugarbeet
seed. Weed control for conventional seed varieties could be difficult if there
is an inadequate supply of conventional herbicide chemicals. The Company has
taken steps to secure some conventional beet seed and conventional herbicide
chemicals necessary for a crop planted with conventional seed. In spite of the
various measures that the Company has taken, the risk of Roundup Ready®
sugarbeet seed restrictions, should it take place, could have a significant,
negative financial impact to the Company and its members.

On
February 4, 2011 the Company, along with the rest of the sugarbeet industry,
(collectively the Plaintiffs) filed suit in U.S. District Court for
the District of Columbia against the USDA, the Center for Food Safety and the
Sierra Club (collectively the Defendants) challenging some of the more
onerous requirements set forth in the conditions for partial deregulation of
the Roundup Ready® sugarbeet seed and requesting that the judge render a declaratory
judgment that the partial deregulation complies with the National Environmental
Protection Act (NEPA) and the Plant Protection Act (PPA). The Center for Food
Safety and others filed a separate suit seeking to vacate the partial
deregulation. Both lawsuits have been consolidated in the District of Columbia
and the Court has set a briefing schedule on the merits of the dispute that
will conclude in early January 2012.

14

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According
to the USDA, Roundup Ready® varieties accounted for about 95 percent of the
planted acres in the 2010-crop year.

The
Companys Board of Directors authorized the following estimated levels of
planting for the following crop years:

| |      |      |      | 
| | ---- | ---- | ---- | 
| | 2008 |      | 50% 
| | 2009 | near | 100%
| | 2010 | near | 100%
| | 2011 | near | 100%

Environmental
law restrictions on the use of Roundup Ready® sugarbeet seeds or other
restrictions relating to sugarbeet seeds or herbicides could have a
significant, negative financial impact on the Company and its
shareholder/growers.

In
May 2011, the Company, along with others in the sugar industry (collectively
the Plaintiffs), filed a lawsuit in U.S. District Court, Central District of
California against the Corn Refiners Association and its member companies
(collectively the Defendants) and asked the Court to: (1) enjoin the
Defendants from continuing to make false and/or misleading representations of
fact about high fructose corn syrup (HFCS); (2) award Plaintiffs damages for
the harms they have suffered and continue to suffer as a result of the
Defendants false and/or misleading advertising, promotion and/or marketing of
HFCS, including a corrective advertising award and (3) award Plaintiffs their
costs and expenses of the lawsuit. The outcome of this lawsuit is unknown at
this time and the Company does not know what financial impact, if any, that
this lawsuit will have on the Company and its shareholder/growers.

|        |                       
|------- | ----------------------
|ITEM 4. | [REMOVED AND RESERVED]

PART
II

|        |                                                                                                              
|------- | -------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON
 EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

SHAREHOLDER STOCK VALUE

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

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

There
is no established public market for the Companys common equity and it is
unlikely that a public market for the Companys equity will develop in the
foreseeable future. Transfer of shares, if any, is subject to significant
restriction, including the approval of the Companys Board of Directors and the
requirement that preferred stock must be transferred together.

15

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The
value of stock is highly dependent upon an individual stockholders ability to
raise sugarbeets successfully both agronomically and financially. Prior to
purchasing stock, a potential stockholder is advised to properly research the
agronomic aspect of stock ownership.

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

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

As
of November 1, 2011, 476 shares of the Companys Common Stock and 72,200
units of the Companys Preferred Stock, each consisting of 1 share of Class A
Preferred Stock, 1 share of Class B Preferred Stock and 1 share of Class C
Preferred Stock, were outstanding.

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

16

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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.

|                                                                                                  |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | ---- | --------- | ---- | - | --------- |  | - | --------- | 
|FINANCIAL DATA                                                                                    |  | 2011 |           | 2010 |   | 2009      |  | 2008 |           | 2007 |  
|(in thousands)                                                                                    |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Revenues                                                                                          |  | $    | 345,510   |      | $ | 214,312   |  | $    | 225,034   |      | $ | 243,573   |  | $ | 278,571   | 
|Distribution
 of net proceeds                                                                     |  |      | 186,766   |      |   | 100,233   |  |      | 96,053    |      |   | 110,863   |  |   | 148,415   | 
|Total
 assets                                                                                     |  |      | 230,479   |      |   | 199,556   |  |      | 180,519   |      |   | 177,063   |  |   | 177,666   | 
|Long-term debt, including current 
 Maturities                                                    |  |      | 45,913    |      |   | 40,907    |  |      | 38,545    |      |   | 31,872    |  |   | 36,931    | 
|                                                                                                  |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Members
 investment                                                                              |  |      | 76,713    |      |   | 71,274    |  |      | 76,143    |      |   | 84,016    |  |   | 83,373    | 
|Property and equipment additions,
 net of retirements                                             |  |      | 17,228    |      |   | 8,283     |  |      | 9,246     |      |   | 8,560     |  |   | 4,947     | 
|Working
 capital                                                                                  |  |      | 15,478    |      |   | 13,688    |  |      | 13,387    |      |   | 10,163    |  |   | 13,265    | 
|                                                                                                  |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|RATIOS                                                                                            |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Ratio
 of long-term debt to equity                                                                |  |      | .56       |      |   | .53       |  |      | .44       |      |   | .32       |  |   | .39       | 
|Ratio
 of net proceeds to fixed charges                                                           |  |      | 76.01     |      |   | 51.82     |  |      | 48.64     |      |   | 35.36     |  |   | 35.56     | 
|Current
 ratio                                                                                    |  |      | 1.17      |      |   | 1.19      |  |      | 1.23      |      |   | 1.17      |  |   | 1.23      | 
|                                                                                                  |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|PRODUCTION
 DATA                                                                                  |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Acres
 harvested (members)                                                                        |  |      | 114,533   |      |   | 97,247    |  |      | 75,041    |      |   | 107,649   |  |   | 116,646   | 
|Tons
 of sugarbeets purchased (members)                                                           |  |      | 3,108,004 |      |   | 2,010,071 |  |      | 1,863,920 |      |   | 2,208,622 |  |   | 3,019,475 | 
|Tons
 purchased per acre harvested                                                                |  |      | 27.14     |      |   | 20.66     |  |      | 24.84     |      |   | 20.52     |  |   | 25.89     | 
|Payment to members per ton of 
 sugarbeets delivered, plus allocated 
 patronage per unit retains |  | $    | 60.10     |      | $ | 49.29     |  | $    | 51.35     |      | $ | 48.96     |  | $ | 49.06     | 
|                                                                                                  |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Sugar
 (cwts):                                                                                    |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Produced (from member and 
 purchased sugarbeets)                                                 |  |      | 7,332,854 |      |   | 5,232,852 |  |      | 5,423,610 |      |   | 6,923,801 |  |   | 7,822,687 | 
|Sold (includes purchased sugar)                                                                   |  |      | 7,077,223 |      |   | 5,032,891 |  |      | 5,834,662 |      |   | 7,060,619 |  |   | 7,301,360 | 
|                                                                                                  |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Beet pulp pellets (tons):                                                                         |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Produced                                                                                          |  |      | 120,761   |      |   | 112,048   |  |      | 102,073   |      |   | 107,600   |  |   | 147,888   | 
|Sold                                                                                              |  |      | 127,241   |      |   | 115,529   |  |      | 90,715    |      |   | 106,006   |  |   | 151,791   | 
|                                                                                                  |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Beet
 molasses (tons):                                                                            |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Produced                                                                                          |  |      | 123,955   |      |   | 95,572    |  |      | 87,647    |      |   | 99,349    |  |   | 130,878   | 
|Sold                                                                                              |  |      | 92,377    |      |   | 70,739    |  |      | 61,240    |      |   | 87,803    |  |   | 88,652    | 
|Sold for Yeast Subsidiary Production                                                              |  |      | 21,519    |      |   | 28,494    |  |      | 23,531    |      |   | 25,307    |  |   | 31,513    | 
|                                                                                                  |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Yeast
 (pounds, in thousands):                                                                    |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Produced                                                                                          |  |      | 31,709    |      |   | 38,774    |  |      | 35,975    |      |   | 37,436    |  |   | 39,248    | 
|Sold                                                                                              |  |      | 31,705    |      |   | 38,805    |  |      | 36,071    |      |   | 37,436    |  |   | 39,152    | 

17

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(1)     Net Proceeds are
 the Companys gross revenues, less the costs and expenses of producing,
 purchasing and marketing sugar, sugar co-products, and yeast, but before
 payments to members for sugarbeets. (For a more complete description of the
 calculation of Net Proceeds, see Description of Business-Growers
 Agreements.)                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|(2)     Members investment
 includes preferred and common stock, unit retention capital, allocated
 patronage and retained earnings.                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|(3)     Calculated by
 dividing the Companys long-term debt, exclusive of the current maturities of
 such debt, by equity.                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|(4)     Computed by
 dividing (i) the sum of Net Proceeds plus fixed charges, plus amortization of
 capitalized interest by (ii) the sum of interest expense and interest
 capitalized. The Company does lease certain items, such as some office
 equipment. Due to the proportionately small amounts involved, an interest
 factor on lease payments has not been included in the total of the Companys
 fixed charges or the calculation of this ratio. See Exhibit 12.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|(5)     Information for a
 fiscal year relates to the crop planted and harvested in the preceding
 calendar year (e.g., information for the fiscal year ended August 31, 2011,
 relates to the 2010 crop).                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|(6)     Reflects the total
 amount paid in cash and allocated to individual grower equity accounts for
 each ton of sugarbeets delivered.                                                                                                                                                                                                                                                                                                                                  

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Preparation
of the Companys consolidated financial statements requires estimates and
judgments to be made that affect the amounts of assets, liabilities, revenues
and expenses reported. Such decisions include the selection of the appropriate
accounting principles to be applied and the assumptions on which to base
accounting estimates. Management continually evaluates these estimates based on
historical experience and other assumptions it believes to be reasonable under the
circumstances.

The
difficulty in applying these policies arises from the assumptions, estimates
and judgments that have to be made currently about matters that are inherently
uncertain, such as future economic conditions, operating results and valuations
as well as management intentions. As the difficulty of the assumptions,
estimates and judgments increases, the level of precision decreases, meaning
that actual results could be different from those currently estimated.

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

18

---



Subsidiaries

Subsidiaries
that are controlled by the Company, Minn-Dak Yeast Company (Minn-Dak Yeast)
and Link Acquisition Company LLC (Link) are consolidated in the Companys
financial statements.

Inventory Valuation

Inventories
of refined sugar, thick juice, pulp and molasses to be sold on a pooled basis
are valued at net realizable value, while third-party purchased refined sugar
to be sold on a pooled basis is valued at the lower of the cost or market.
Inventory of yeast is valued at the lower of average cost or market. Materials
and supplies are valued using the lower of cost (determined using the first in
first out method) or market. During the periods when sugarbeets are purchased
from growers, but not yet converted into bin sugar or thick juice, that
inventory is valued at grower payment cost. In valuing inventories at net
realizable value, the Company, in effect sells the remaining inventory to the
subsequent periods sugar and co-product pool. The Company derives its estimates from sales contracts, recent sales
and evaluations of market conditions and trends. Changes in market conditions
may cause estimates to differ from actual results.

Inventories
of conventional beet chemicals and conventional beet seed are valued at lower
of cost or market until the threat of legal action against the planting of
Round-up Ready® seed is substantially eliminated.

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

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

It
is the policy of the Company to provide depreciation based on methods designed
to amortize the cost of the properties over their estimated useful lives.
Property, plant and equipment are depreciated for financial reporting purposes,
principally using declining balance methods, with estimated useful lives
ranging from 3 to 40 years. Statutory lives and methods are used for income tax
reporting purposes. Capital lease equipment is depreciated in accordance with
FASB ASC 840, Accounting for Leases.

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

Defined Benefit Pension Plan

The
Company maintains and administers a non-contributory defined benefit pension
plan. The annual cost of this plan can be significantly affected by changes in
assumptions and differences between expected and actual experience. In accordance with FASB ASC 715, Accounting
for Defined Benefit Pension and Other Postretirement Plans, the
Company records the liability for its defined benefit retirement plan as the
benefit obligation in the financial statements. Three of the most significant
assumptions are the discount rates, expected long-term rate of return on assets
and rate of total compensation increase.

The
Company has determined that the future tax benefits associated with FASB ASC
715 are patronage sourced and, therefore, will flow directly to the
shareholder/growers. As a result, no future tax benefit to the Company is
recorded.

19

---



Income Taxes

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

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

The
Company has no outstanding uncertain income tax positions as of the date of
this filing.

Fair Value Measurements

Fair value is defined under FASB ASC
820, Accounting
for Fair Value Measurementsas
the price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the
measurement date. Quoted market prices are generally not available for the
Companys financial instruments. 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. These estimates involve uncertainties and matters of judgment, and
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o | Long-Term
 Debt, Inclusive of Current Maturities - Based upon discounted cash flows and
 current borrowing rates with similar maturities.                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | o | Proceeds
 for Bond Issuance Transferred to Restricted Investment Based upon discounted cash flows and
 current borrowing rates with similar maturities.                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | o | Investments
 in CoBank, Dakota Valley Electric and Investments in Marketing Cooperatives - The Company believes it is not practical
 to estimate the fair value of these investments without incurring excessive
 costs because there is no established market for these securities and equity
 interests, and it is inappropriate to estimate future cash flows which are
 largely dependent on future earnings of these organizations.

Derivative Instruments and Hedging Activities

The
Company recognizes all derivatives in its Consolidated Balance Sheet at fair
value. On the date the derivative instrument is entered into, the Company
designates the derivative as either (a) a hedge of the fair value of a
recognized asset or liability, or of an unrecognized firm commitment (fair value
hedge) or (2) a hedge of a forecasted transaction or of the variability of
cash flows to be received or paid related to a recognized asset or liability
(cash flow hedge). Changes in the fair value of a derivative designated as a
cash flow hedge are recorded in accumulated other comprehensive income (loss)
and are classified into earnings as the underlying hedged item affects
earnings.

Accumulated Other Comprehensive
Income (Loss)

The
Company accounts for Other Comprehensive Income (Loss) using activities from
the Company as well as its pro-rata share of activity from its marketing
subsidiaries.

20

---



Deferred Costs and Product Values

The
Company defers the economic costs and benefits to the following fiscal year if
they are associated with the crop accounted for in that fiscal year. This
matching principle is consistently applied from year to year.

LIQUIDITY
AND CAPITAL RESOURCES

Because
the Company operates as a cooperative, payment for shareholder/grower-delivered
sugarbeets, the principal raw material used in producing the sugar and
co-products it sells, are subordinated to all Company business expenses. In
addition, actual cash payments to shareholder/growers are spread over a period
of approximately one year following delivery of sugarbeet crops to the Company
and are net of per unit retains and patronage allocated to them, both of which
remain available to meet the Companys capital requirements. This shareholder
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-term financing has been
primarily provided by CoBank (the Bank). Long-term financing has been a
combination of conventional loans with the Bank and tax exempt bonds whose
required letters of credit have been provided by the Bank. The Company also has
the ability to borrow money on a short-term basis from the USDA Commodity
Credit Corporation CCC using the Companys sugar inventory as collateral.

On
November 15, 2010, the Company and its Bank agreed to a new seasonal line of
credit totaling $85.0 million through May 31, 2011, then reduced to $45.0 million
through December 31, 2011. The significant increase in the seasonal line of
credit was directly related to the increased anticipated grower payments for
the 2010-crop. On August 4, 2011, due to a business opportunity requiring cash
of short term nature, the Company and the Bank agreed to increase the seasonal
debt agreement by $5.0 million through December 31, 2011.

August 31, 2011 Seasonal
Debt Information

|        |  |                 |      |          |   |                |  |   |      | 
|------- |  | --------------- | ---- | -------- | - | -------------- |  | - | ---- | 
|Source  |  | Capacity        |      | Utilized |   | UnusedCapacity | 
|        |  | (In 
 Millions) |      |          |   |                |  |   |     
|Co-Bank |  | $               | 50.0 |          | $ | 37.1           |  | $ | 12.9 | 
|CCC     |  | $               | 3.5  |          | $ | 3.5            |  | $ | 0.0  | 
|Total   |  | $               | 53.5 |          | $ | 40.6           |  | $ | 12.9 | 

On
November 30, 2010, the Company sold $8.8 million of new tax exempt bonds made
available through the Federal Governments economic stimulus legislation. The
proceeds of these bonds are required to be placed in a trust account until the
Company makes qualifying capital investments that allow for the use of the
proceeds of these bonds. The Company intends to use all of the proceeds from
the bond issuance on qualifying capital expenditures within the time period
required in the bond indenture. The Company intends to make the final
qualifying expenditures by August 31, 2012.

During the
fiscal year ended August 31, 2011, the Company was reimbursed from the bond
trust for qualified capital expenditures in the amount of $12.1 million in
accordance with the sale of $7.0 million in tax exempt bonds during fiscal 2010
and $8.8 million in tax exempt bonds during fiscal 2011. In addition, the
Company is eligible to have an additional $1.6 million reimbursed from the bond
trust as of August 31, 2011 as an additional source of available cash.

21

---



The
loan agreements between the Bank and the Company obligate the Company to
maintain, In accordance with GAAP, the following financial covenants:

|  |                                                                                                                                                    
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | Maintain a current ratio of no less than 1.10 for
 the first quarter of a fiscal year and 1.15 for all other quarter and fiscal
 year ends;        
| | Maintain a long-term debt and capitalized leases to
 equity ratio of not greater than .8:1;                                                        
| | Maintain available cash flow to current long-term
 debt ratio as defined in the agreement of not less than 1.25:1, as measured
 at fiscal year-end.

As
of August 31, 2011 the Company was in compliance with its loan agreement
covenants with the Bank.

Net
Cash provided by operations totaled $12.8 million for the year ended August 31,
2011, compared to $8.2 million for the previous year. This increase of $4.6
million was primarily due to the following changes:

|                                       |  |   |      |        
|-------------------------------------- |  | - | ---- | -------
|Income allocated to member
 investment |  | $ | 1.0  | million
|Non-Qualified Unit Retains             |  |   | 3.1  |        
|Accumulated other
 comprehensive loss  |  |   | 8.4  |        
|Depreciation and Amortization          |  |   | 0.4  |        
|Non-cash portion of capital
 credits   |  |   | (0.5 | )      
|Accounts Receivable and
 Advances      |  |   | (9.8 | )      
|Inventory and Prepaid Expenses         |  |   | (8.2 | )      
|Deferred charges                       |  |   | 15.0 |        
|Accounts Payable                       |  |   | (4.7 | )      
|All other factors                      |  |   | (0.1 | )      
|                                      
|Total                                  |  | $ | 4.6  |        

The
net cash used in investing activities totaled $17.3 million for the year ended
August 31, 2011, compared to $7.7 million for the previous year. The increase
of $9.6 million was primarily due to a $9.8 million increase in capital expenditures.

The
net cash provided by financing activities totaled $4.4 million for the year
ended August 31, 2011 compared to $(0.4) used by financing activities the
previous year. This increase of $4.8 million was primarily due to a $4.5 million
increase in short term debt obligations.

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

The
Company and the Bank are preparing, if necessary, to initiate a new credit line
effective by November 15, 2011, to meet the cash flow needs of the 2011-crop.

Working
capital increased $1.8 million for fiscal year 2011. The Company funds its
capital expenditure and debt retirement needs primarily from operating
activities. The Company used proceeds from Tax Exempt Bond Financing and Unit
Retains as an additional source of funding for its 2011 capital expenditures.

As
of August 31, 2011 the Company had approximately 5 years of long-term debt
remaining with the Bank and it has three tax exempt bond issues with single
payment requirements, one for $12.2 million due February 1, 2023 and one for
$7.0 million due February 1, 2025 and one for $8.8 million due November 1,
2028. The Bonds are secured by a letter of
Credit from the Bank. The letter of credit is ultimately secured by the plant
and property of the Companys facility at Wahpeton, ND.

22

---



Capital
expenditures for the years ended August 31, 2011, 2010 and 2009 totaled $17.8
million, $8.0 million and $8.8 million, respectively. The Companys purchase of
equipment by issuance of capital lease debt for the years ended August 31,
2011, 2010, and 2009 totaled $0.0 million, $0.4 million and $2.4 million,
respectively.

Capital
expenditures for fiscal year 2012 have been approved at $8.9 million.

Payments Due by
Period

|                                       |  |       |      |                   |   |             |  |            |      |                |   |      |  |   |      | 
|-------------------------------------- |  | ----- | ---- | ----------------- | - | ----------- |  | ---------- | ---- | -------------- | - | ---- |  | - | ---- | 
|Contractual
 Obligations (in millions) |  | Total |      | Less Than
 1 Year |   | 1  3 Years |  | 4 5 Years |      | After 5
 Years |  
|Long-Term Debt                         |  | $     | 15.8 |                   | $ | 2.5         |  | $          | 6.6  |                | $ | 6.7  |  | $ | 0.0  | 
|Bonds Payable                          |  |       | 28.1 |                   |   | 0.0         |  |            | 0.0  |                |   | 0.0  |  |   | 28.1 | 
|Capital Leases                         |  |       | 2.1  |                   |   | 0.6         |  |            | 1.1  |                |   | 0.4  |  |   | 0.0  | 
|Unconditional Purchase Obligations     |  |       | 8.6  |                   |   | 4.3         |  |            | 4.3  |                |   | 0.0  |  |   | 0.0  | 
|Other Long-Term Obligations - Pension  |  |       | 17.1 |                   |   | 2.2         |  |            | 4.4  |                |   | 4.4  |  |   | 6.1  | 
|Total
 Long Term Obligations           |  | $     | 71.7 |                   | $ | 9.6         |  | $          | 16.4 |                | $ | 11.5 |  | $ | 34.2 | 
|Interest on Long Term Debt & Bond      |  |       | 17.8 |                   |   | 1.1         |  |            | 3.1  |                |   | 2.9  |  |   | 10.7 | 
|Operating Leases                       |  |       | 0.1  |                   |   | 0.1         |  |            | 0.0  |                |   | 0.0  |  |   | 0.0  | 
|Total Contractual Obligations          |  | $     | 89.6 |                   | $ | 10.8        |  | $          | 19.5 |                | $ | 14.4 |  | $ | 44.9 | 

Recent LIBOR Swap Agreements

The Company entered into the following effective
30-day LIBOR swap agreements on September 15, 2011.

|           |          |                   |           
|---------- | -------- | ----------------- | ----------
|Start Date | End Date | Notational Amount | LIBOR Rate
|12-1-11    | 5-1-12   | $15,000,000       | 0.4525%   
|12-3-12    | 5-1-13   | $15,000,000       | 0.5550%   
|12-2-13    | 5-1-14   | $15,000,000       | 0.9250%   

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

RESULTS
OF OPERATIONS

Comparison
of the years ended August 31, 2011 and 2010

Net
payments to members for sugarbeets delivered by the shareholder/growers,
increased by $85.5 million or 90 percent in fiscal year 2011 and totaled $180.6
million. As of August 31, 2011, the Board of Directors authorized the payment
of prior years member patronage and per unit retains (including equity
payments to estates of deceased shareholders) totaling $6.2 million to
shareholders compared to $4.0 million in the previous year. The payment of $6.2
million will leave approximately 4.4 years of prior years patronage and per
unit retains withheld, versus the prior year of 4.7 years withheld.

Revenues
for the year ended August 31, 2011 were comprised of Sugar 86 percent, Pulp 6
percent, Molasses 4 percent and Yeast 4 percent.

23

---



Consolidated
revenue for the year ended August 31, 2011, increased $131.2 million or 61.2
percent from 2010. The table below reflects the percentage changes in product
revenues, prices and volumes for the year ended August 31, 2011.

|               |  |                    |       |                  |   |                           |   |                                 |       |                        |  |      |   |  |       |  
|-------------- |  | ------------------ | ----- | ---------------- | - | ------------------------- | - | ------------------------------- | ----- | ---------------------- |  | ---- | - |  | ----- | -
|               |  | Revenue
 $ Million |       | Change vs.
 2010 |   | Revenue %
 Percent Change |   | Selling Price %
 Percent Change |       | Volume
 Percent Change | 
|Sugar          |  | $                  | 280.4 |                  | $ | 104.8                     |   |                                 | 59.6  | %                      |  | 19.0 | % |  | 40.6  | %
|Pulp           |  |                    | 19.9  |                  |   | 2.2                       |   |                                 | 12.7  |                        |  | (0.7 | ) |  | 13.4  |  
|Molasses       |  |                    | 14.6  |                  |   | 2.5                       |   |                                 | 20.9  |                        |  | (9.7 | ) |  | 30.6  |  
|Yeast          |  |                    | 12.3  |                  |   | (3.1                      | ) |                                 | (20.3 | )                      |  | (2.0 | ) |  | (18.3 | )
|Finished Goods |  |                    | 18.3  |                  |   | 24.8                      |   |                                 |       |                        |  |      |   |  |       |  
|              
|Total          |  | $                  | 345.5 |                  | $ | 131.2                     |   |                                 | 61.2  | %                      |  |      |   |  |       |  

The
increase in volume of sugar sold is attributable to a record 2010-crop, offset
by no tolling of sugarbeets from another processor, when compared to the 2009
crop of sugarbeets delivered by shareholder/growers. The increase in volume of
co-products sold is attributable to the larger 2010-crop. Higher sugar selling
prices are reflective of the overall strong demand in the United States sugar
market.

Revenues
from yeast sales decreased due to existing customers decreased demand for
yeast. Selling prices decreased due to general market conditions.

The
value of finished product inventories in fiscal year 2011 increased $18.3
million from fiscal year 2010. Sugar inventories accounted for $18.0 million of
the change and were a combination of more sugar being carried forward and an
increase in the price per cwt. of sugar. The higher sugar inventory was
necessary because the smaller 2011-crop delayed the start-up of processing and
increased the amount of carry-over inventory necessary to supply customers
until new crop sugar was available.

Consolidated
expenses increased $38.1 million; $18.4 million due to increased production
costs of sugarbeets, $18.6 million due to increased Sales and Distribution
Costs, $1.1 million due to general costs, and $0.5 million for interest costs,
offset by $0.5 million for the purchase of non-member beets. Higher than normal
agricultural operating costs, after adjusting for harvest volume, was the
result of $3.8 million in costs resulting from the disposal and clean-up costs
of deteriorated, unprocessable beets.

The
production cost per cwt. of sugar produced decreased 9.0 percent versus the
prior year due to a combination of a 41 percent increase in sugar produced with
less than a 32 percent increase in total costs.

Sales
and Distribution costs increased $18.6 million or 32 percent. Increases are
mainly the result of the increase in the production. General and Administrative
expenses increased $1.1 million due primarily to higher wage and benefit costs,
and costs associated with the conversion to a new ERP software system. Interest
expense increased $0.5 million or 26 percent, reflecting a higher seasonal loan
balance due to the larger crop, lower long-term debt, and increased bond debt.
Interest rates remained very similar to fiscal year 2010.

Other
business income decreased $7.0 million in fiscal year 2011 due primarily to
having no revenue generated from tolling another sugar processors sugarbeets.

Comparison
of the years ended August 31, 2010 and 2009

Net payments to
members for sugarbeets delivered by the shareholder/growers,
increased by $3.1 million or 3 percent in fiscal year 2010 and totaled $95.1
million. As of August 31, 2010, 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 $4.0 million to
shareholders compared to $3.7 million in the previous year. The payment of $4.0
million will leave approximately 4.7 years of prior years patronage and per
unit retains withheld, the same as the prior year.

24

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Revenues for the year ended August 31, 2010 were comprised of Sugar 81 percent,
Pulp 7 percent, Yeast 7 percent and Molasses 5 percent.

Consolidated revenue for the year ended August 31, 2010, decreased $10.7
million or 4.8 percent from 2009. The table below reflects the percentage
changes in product revenues, prices and volumes for the year ended August 31,
2010.

|               |  |                    |       |                  |   |                           |   |                                 |       |                        |  |       |   |  |       |  
|-------------- |  | ------------------ | ----- | ---------------- | - | ------------------------- | - | ------------------------------- | ----- | ---------------------- |  | ----- | - |  | ----- | -
|               |  | Revenue
 $ Million |       | Change vs.
 2009 |   | Revenue %
 Percent Change |   | Selling Price %
 Percent Change |       | Volume
 Percent Change | 
|Sugar          |  | $                  | 175.6 |                  | $ | (7.3                      | ) |                                 | (4.0  | )%                     |  | 9.9   |   |  | (13.9 | )
|Pulp           |  |                    | 17.7  |                  |   | (2.1                      | ) |                                 | (10.6 | )                      |  | (36.5 | ) |  | 25.9  |  
|Molasses       |  |                    | 12.1  |                  |   | 2.2                       |   |                                 | 21.8  |                        |  | 6.3   |   |  | 15.5  |  
|Yeast          |  |                    | 15.4  |                  |   | 1.6                       |   |                                 | 11.4  |                        |  | 3.8   |   |  | 7.6   |  
|Finished Goods |  |                    | (6.5  | )                |   | (5.1                      | ) |                                 |       |                        |  |       |   |  |       |  
|              
|Total          |  | $                  | 214.3 |                  | $ | (10.7                     | ) |                                 | (4.8  | )%                     |  |       |   |  |       |  

The
decrease in volume of sugar sold is attributable a slightly larger 2009 crop,
offset by fewer outside purchased sugarbeets and the addition of tolling of
sugarbeets (rather than purchase) for another processor, when compared to the
2008 crop of sugarbeets delivered by shareholder/growers. The increase in
volume of co-products sold is attributable to a slightly larger 2009 crop and
the addition of tolling of sugarbeets for another processor (co-products were
included in the pricing structure of the transaction), offset some by fewer outside
purchased sugarbeets.

Yeast
sales volume increased due to existing customers increased demand for yeast.
Selling prices increased due to general market conditions.

The
value of finished product inventories in fiscal year 2010 decreased $6.5
million from fiscal year 2009, $5.1 million more than the prior year decrease,
mostly the result of a decrease in the volume of ending sugar inventory. Sugar
inventory was lower due to a high demand of available sugar in the domestic
marketplace.

Expenses
decreased $10.6 million; $10.2 million due to a decrease in the cost of
purchased sugarbeets, $2.9 million due to reduced Sales and Distribution Costs,
offset by $2.5 million in increased costs of operations. Higher than normal
harvest tare (mostly dirt) was a significant contributor to the higher costs of
operations. Overall consolidated expenses, exclusive of grower payments for
sugarbeets and cost of non-member purchased sugarbeets, decreased $0.3 million
or less than one percent. Minn-Dak Farmers Cooperative (MDFC) expenses
decreased $0.4 million, while Minn-Dak Yeast Company (MDYC) expenses, after
eliminations, increased $0.1 million.

The
production cost per cwt. of sugar produced increased 8 percent versus the prior
year due to a combination of a 4 percent decrease in sugar produced with less
than a 1 percent decrease in total costs.

Sales
and Distribution costs decreased $2.9 million or 7 percent. Decreases are
mainly the result of the reduction in the production and sale of finished goods
from purchased and tolled sugarbeets. General and Administrative expenses
increased less than $0.1 million or less than 1 percent. Interest expense
decreased less than $0.1 million or 2 percent, reflecting a decreased rate of
interest and a lower level of term bank debt; offset some by higher levels of
seasonal debt and tax exempt bond debt financing.

Other
business income before income taxes increased $5.3 million in fiscal year 2010
due primarily to revenue generated for tolling another sugar processors
sugarbeets. Income taxes in fiscal year 2010 were a direct result of the
tolling business activity.

25

---



Comparison
of the years ended August 31, 2009 and 2008

Net
payments to members for sugarbeets delivered by the shareholder/growers,
decreased by $11.0 million or 11 percent in fiscal year 2009 and totaled $92.0
million. As of August 31, 2009, the Board of Directors authorized the payment
of prior years member patronage and per unit retains (including equity
payments to estates of deceased shareholders) totaling $3.7 million to
shareholders compared to $4.4 million in the previous year. The payment of $3.7
million will leave approximately 4.7 years of prior years patronage and per
unit retains withheld versus the prior year of 4.5 years withheld.

Revenues
for the year ended August 31, 2009 were comprised of Sugar 79 percent, Pulp 10
percent, Yeast 6 percent and Molasses 5 percent.

Consolidated
revenue for the year ended August 31, 2009, decreased $18.5 million or 7.6
percent from 2008. The table below reflects the percentage changes in
product revenues, prices and volumes for the year ended August 31, 2008.

|               |  |                    |       |                 |   |                           |   |                                |       |                        |  |      |   |  |       |  
|-------------- |  | ------------------ | ----- | --------------- | - | ------------------------- | - | ------------------------------ | ----- | ---------------------- |  | ---- | - |  | ----- | -
|               |  | Revenue
 $ Million |       | Change vs
 2008 |   | Revenue %
 Percent Change |   | Selling Price%
 Percent Change |       | Volume
 Percent Change | 
|Sugar          |  | $                  | 183.0 |                 | $ | (23.0                     | ) |                                | (11.1 | )%                     |  | 6.5  | % |  | (17.6 | )
|Pulp           |  |                    | 19.7  |                 |   | 2.5                       |   |                                | 14.5  |                        |  | 38.1 |   |  | (23.6 | )
|Molasses       |  |                    | 9.9   |                 |   | (1.6                      | ) |                                | (13.9 | )                      |  | 16.3 |   |  | (30.2 | )
|Yeast          |  |                    | 13.8  |                 |   | 0.5                       |   |                                | 4.0   |                        |  | 7.6  |   |  | (3.6  | )
|Finished Goods |  |                    | (1.4  | )               |   | 3.1                       |   |                                |       |                        |  |      |   |  |       |  
|              
|Total          |  | $                  | 225.0 |                 | $ | (18.5                     | ) |                                | (7.6  | )%                     |  |      |   |  |       |  

The
decrease in volume of sugar and co-products sold from the 2008-crop is
attributable to the smaller crop size, including purchased beets from a
neighboring sugarbeet cooperative, and quality when compared to the 2007 crop
of beets delivered by shareholder/growers.

Yeast
selling prices increased due to a reflection of higher costs in the industry,
which was passed on to the customers.

The
value of finished product inventories in fiscal year 2009 decreased $1.4
million from fiscal year 2008, mostly the result of a decrease in the volume of
ending sugar inventory. Sugar inventory was lower due to a high demand
of available sugar in the domestic marketplace.

Of
the $5.4 million decrease in the MDFC expenses, the cost of operations
increased $1.2 million, or 2 percent due to a smaller volume of sugarbeets
processed in a higher cost environment vs. the 2007-crop.

Expenses,
exclusive of grower payments for sugarbeets and cost of non-member purchased
beets, decreased $5.4 million or 2 percent. Minn-Dak Farmers Cooperative (MDFC)
expenses decreased $5.5 million, while Minn-Dak Yeast Company expenses, after
eliminations, increased $0.1 million.

The
production cost per cwt. of sugar produced increased 30 percent versus the
prior year due to a combination of a 22 percent decrease in sugar produced with
only a corresponding 4 percent decrease in total costs.

Sales and
Distribution costs decreased $5.4 million or 11 percent. Decreases are mainly
the result of the reduction in the production and sale of finished goods from
the smaller sugarbeet crop. General and Administrative expenses decreased $0.2
million or 3 percent. Employee costs were the primary reasons for the decrease.
Interest expense decreased $1.2 million or 37 percent, reflecting a lower level
of seasonal debt and a decreased rate of interest, offset some by a higher
level of term debt.

26

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Other
business income before income taxes increased $1.1 million in fiscal year 2009
due primarily to a combination of the settlement of a lawsuit and the gain on
sale of equipment. Income taxes decreased by $1.7 million in fiscal year 2009
vs. fiscal year 2008. Income taxes in fiscal year 2008 were a direct result of
the purchase of non-member sugarbeets from a neighboring sugarbeet processor.

Estimated Fiscal Year 2012 Information

This
discussion contains a summary of the Companys current estimates of the
financial results to be obtained from the Companys processing of the 2011
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 2011
sugarbeet crop, the net selling price for the sugar and co-products produced by
the Company and the Companys operating costs. These forward-looking statements
are based largely upon the Companys expectations and estimates of future
events; as a result, they are subject to a variety of risks and uncertainties.
Some of those estimates, such as the selling price for the Companys products,
the quantity of sugar produced from the sugarbeet crop, changes in plant
production efficiencies and sugarbeet storage conditions are beyond the
Companys control. The actual results experienced by the Company could differ
materially from the forward-looking statements contained herein.

The
Companys members harvested 1.95 million tons of sugarbeets from the 2011-crop,
approximately 20 percent less than the most recent 5-year average. Sugar
content of the 2011-crop was 5.0 percent above the average of the five most
recent years. Due to the lower harvested tons and higher sugar content, the
Companys production of sugar from the 2011-crop sugarbeets is expected to be
20.0 percent less than the average of the five most recent years of sugar
production.

The
Companys initial sugarbeet payment estimate totals $64.72 per ton or
$0.2196174 per harvested /bonus extractible pound of sugar, with the final
sugarbeet payment determined in October of 2012. This projected payment is 11.4
percent more than the final 2010-crop payment per ton and 11.0 percent more per
pound of extractible sugar. The increased projected 2011-crop payment per ton
results from higher sugar content in the sugarbeets and improved sugar and
co-product prices. The increases were offset somewhat by increased operating and
fixed costs per ton and fewer total tons of beets to process versus the prior
year. The price per pound of extractible sugar was diluted by 0.74% due to
bonus sugar for the 2011-crop vs. 6.5% for the 2010-crop. Bonus sugar is an
incentive to growers to deliver sugarbeets prior to main harvest. Harvest for
the 2010-crop began on September 21, 2011 vs. August 18, 2010 for the
2010-crop.

For
a discussion of the calendar 2010, 2009 and 2008 crops and results of
operations for fiscal years 2011, 2010 and 2009, see MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

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

The
Company has entered into interest swap agreements to mitigate a portion of its
risk associated with interest rate changes.

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

27

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

The
consolidated financial statements of the Company for the fiscal years ended
August 31, 2011, 2010 and 2009 have been audited by Eide Bailly LLP,
independent registered public accounting firm. Such consolidated financial
statements have been included herein in reliance upon the report of Eide Bailly
LLP. The consolidated financial statements of the Company are included in
Appendix A to this annual report.

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

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

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

Evaluation of Disclosure Controls and
Procedures

The
Companys Chief Executive Officer, David H. Roche, and the Companys Chief
Financial Officer, Steven M. Caspers, have evaluated the Companys disclosure
controls and procedures as of August 31, 2011. Based upon such evaluation, they
have concluded that these disclosure controls and procedures are effective. The
Companys Chief Executive Officer and Chief Financial Officer used the
definition of disclosure controls and procedures as set forth in Rule
15d-15(e) under the Exchange Act in making their conclusion as to the
effectiveness of such controls and procedures.

Managements Annual Report on Internal
Control over Financial Reporting.

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Managements Annual Report on Internal
 Control over Financial Reporting.The Companys
 management is responsible for establishing and maintaining adequate internal
 control over financial reporting; as such term is defined in Rules 13a-15(f)
 and 15d  15(f) of the Exchange Act. The Companys internal control over
 financial reporting is a process designed to provide reasonable assurance
 regarding the reliability of financial reporting and the preparation of
 financial statements for external purposes in accordance with generally
 accepted accounting principles and includes those policies and procedures
 that:
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Pertain to
 the maintenance of records that in reasonable detail accurately and fairly
 reflect the transactions and dispositions of our assets;                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Provide
 reasonable assurance that transactions are recorded as necessary to permit
 preparation of financial statements in accordance with generally accepted
 accounting principles, and that its receipts and expenditures are being made
 only in accordance with authorizations of Management and the Companys
 directors; and
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Provide
 reasonable assurance regarding prevention and timely detection of
 unauthorized acquisition, use or disposition of the Companys assets that
 could have a material effect on its financial statements.                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                     
| |     | Internal
 control systems, no matter how well designed, have inherent limitations. Therefore,
 even those systems that are deemed to be effective provide only reasonable
 assurance with respect to financial statement preparation and presentation.
 Also, projections of any evaluation of effectiveness to future periods are
 subject to the risk that controls may become inadequate because of changes in
 conditions, or that the degree of compliance with the policies or procedures
 may deteriorate.                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Under the
 supervision and with the participation of its Management, including the Chief
 Executive Officer and Chief Financial Officer, the Company conducted an
 evaluation of the effectiveness of our internal control over financial
 reporting based upon the framework in Internal
 Control  Integrated Framework issued by the Committee of
 Sponsoring Organizations of the Treadway Commission. Based on that
 evaluation, the Companys management concluded that its internal control over
 financial reporting is effective as of August 31, 2011.                                                                           

28

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| |     |                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Attestation.Managements
 report is not subject to attestation by the Companys registered public
 accounting firm pursuant to rules of the Securities and Exchange Commission
 that permit the Company to provide only Managements report in this annual
 report.
| |     |                                                                                                                                                                                                                                                                    

Changes in Internal Control over Financial
Reporting.

There
was no change in the Companys internal control over financial reporting during
the fiscal quarter ended August 31, 2011 that has materially affected, or is
reasonably likely to materially affect, its internal control over financial reporting.

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

None

PART III

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

BOARD 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. Each persons experience,
qualifications, attributes or skills to serve as a director are evaluated by
the Nominating Committee for each district. The Nominating Committee members
are selected by the shareholders of each district. Minn-Dak provides each
Nominating Committee with written guidelines relating to the legal requirements
relating to service on the Board, but does not evaluate or otherwise consider
the experience, qualifications, attributes or skills of any nominee and does
not otherwise have a role in the Nominating Committees processes for selecting
nominees.

|                   |  |     |  |                             |  |                 |  |                           
|------------------ |  | --- |  | --------------------------- |  | --------------- |  | --------------------------
|Name               |  | Age |  | District                    |  | Director
 Since |  | Term
 Expires
 in December
|Dale Blume         |  | 61  |  | District #7
  Lehman       |  | 2005            |  | 2011 (1)                  
|                   |  |     |  |                             |  |                 |  |                           
|Dennis
 Butenhoff  |  | 65  |  | District #9
  Peet         |  | 2004            |  | 2013                      
|                   |  |     |  |                             |  |                 |  |                           
|Brent
 Davison     |  | 60  |  | District #5
  Hawes        |  | 2003            |  | 2011 (2)                  
|                   |  |     |  |                             |  |                 |  |                           
|Douglas
 Etten     |  | 60  |  | District #8
  Lyngaas      |  | 1997            |  | 2012                      
|                   |  |     |  |                             |  |                 |  |                           
|Patrick
 Freese    |  | 52  |  | District #4
  Factory East |  | 2008            |  | 2011 (3)                  
|                   |  |     |  |                             |  |                 |  |                           
|Dennis
 Klosterman |  | 51  |  | District #3
  Gorder       |  | 2004            |  | 2013                      
|                   |  |     |  |                             |  |                 |  |                           
|Kevin Kutzer       |  | 58  |  | District #1
  Tyler        |  | 2009            |  | 2012                      
|                   |  |     |  |                             |  |                 |  |                           
|Russell
 Mauch     |  | 56  |  | District #2
  Factory West |  | 1998            |  | 2013                      
|                   |  |     |  |                             |  |                 |  |                           
|Chuck
 Steiner     |  | 61  |  | District #6
  Yaggie       |  | 2000            |  | 2012                      

29

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|   |                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------
|1) | Mr. Blumes
 term as a director of the Company from District #7-Lehman expires on December
 6, 2011.       
|2) | Mr.
 Davisons term as a director of the Company from District #5-Hawes expires on
 December 6, 2011.      
|3) | Mr. Freeses
 term as a director of the Company from District #4-Factory East expires on
 December 6, 2011.

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

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

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

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

30

---



Patrick
Freese has been a director since 2008. He graduated
from Breckenridge High School in 1977 and North Dakota College of Science in
1979. From 1979 to 1985 Mr. Freese worked as a sales coordinator for Chief
Industries in Grand Island, NE. Mr. Freese has been farming near Kent, MN since
1985. Mr. Freese has, and continues to serve his community and church in
several areas. He was a member and chairman of the Minn-Dak Farmers Cooperative
Political Action Committee. Mr. Freese is a member of various farm and
commodity organizations.

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

Kevin
Kutzerhas been a director since 2009. He grew up in a
family farming operation and continues that tradition in a family joint venture
operation with his brother Kyle and son Corey raising wheat, soybeans,
sugarbeets, and corn near Fairmount, ND. Mr. Kutzer received an Associate
Degree in Pre Engineering at the North Dakota State College of Science in
Wahpeton, ND and a Bachelor of Science in Mechanized Agriculture at North
Dakota State University in Fargo, ND. Mr. Kutzer has served on the boards of
the Lamars Co-op Elevator and AgCountry Farm Credit Services. He has served on
the St. Anthonys Church Council and Cemetery Board.

Russell Mauch has been a director since
1998. Mr. Mauch graduated from North Dakota State University in 1977 with a
Bachelor of Science 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 as one of Minn-Daks representatives to the American Sugarbeet Growers
Association in Washington, DC. Mr. Mauch serves as the ex-officio member on the
board of directors for United Sugars Company.

Charles Steinerhas been a director since
2000 and currently serves as the board secretary. Mr. Steiner has been farming
near Foxhome, MN since 1969. Mr. Steiner graduated from the Northwest School of
Agriculture, University of Minnesota at Crookston, MN. Mr. Steiner serves on
the board of directors for United Sugars Company and serves as one of
Minn-Daks representatives to the American Sugarbeet Growers Association in
Washington, DC.

The Board
of Directors meets monthly. The Company provides its directors with minimal
compensation, consisting of (i) a payment of $300 per meeting for regular and
special board meetings, or for any meetings in which directors partake in
activities on the Companys behalf. The Chairman of the Board of Directors also
receives a flat $750 per month to compensate for the extra duties associated
with that position. Effective January 1, 2012, the directors monthly per diem
rate will be increase to $325/day and $162.50 for conference calls. Effective
January 1, 2013 and each year thereafter, the directors monthly per diem will
increase by $25 and the conference call rate will continue to be paid at half
of the daily per diem amount.

Information about Committees of the Board of
Directors

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

Compensation Committee.The
Compensation Committee operates under a written charter and helps discharge
with the Board its responsibilities relating to the fair and competitive
compensation for the Chief Executive Officer, including reviewing and approving
goals and objectives relating to the compensation of the Chief Executive
Officer and the performance of the Chief Executive Officer. Based on its
review, the Compensation Committee makes recommendations to the Board of
Directors regarding the elements of the Chief Executive Officers compensation
and the Compensation Committee, along with the Board of Directors, approves the
compensation and other benefits of the Chief Executive Officer. A copy of the
current charter of the Compensation Committee is available by following the
link to Corporate Governance on the Companys website at www.mdf.coop During
2011, the members of the Compensation Committee are Messrs. Dale Blume (Chair),
Charles Steiner, Dennis Klosterman, Brent Davison and Dennis Butenhoff.

31

---



Nominating Committee.Shareholders
from each district select two shareholders to serve as a Nominating Committee
for that district. The Nominating Committee for each district is responsible
for facilitating nominations for the position of director by shareholders of
that district and evaluating whether shareholder proposed nominees are
qualified candidates. Each Nominating Committee operates under a series of
written guidelines relating to the legal requirements for the Companys
directors, qualifications of nominees, and process for soliciting shareholder
nominees. During 2011, the members of the Nominating Committee are Messrs. Jay
Vagts (Chair), Larry Schneeberger, Dennis Wilts, Reg Hawes, Steven Lacey and
Wayne Krump. In fiscal year 2011 there have not been any material changes to
the procedures by which shareholders may recommend nominees to the Companys
Board of Directors.

Audit Committee.The
Audit Committee assists the Board in fulfilling its responsibility relating to
corporate accounting and reporting practices of the Company, the quality and
integrity of financial reports, the financial reporting processes, the system
of internal controls; the qualifications, independence and performance of the
independent auditors; and compliance by the Company with certain legal and
regulatory requirements. The Audit Committee has the authority to retain,
compensate, oversee and terminate the independent auditors. The Audit Committee
reviews the Company annual audited financial statements, quarterly financial
statements and filings with the Securities and Exchange Commission. The Audit
Committee also pre-approves all audit and non-audit services performed by the
independent auditor. The Audit Committee operates under a written charter that
is available by following the link to Corporate Governance on the Companys
website at www.mdf.coop. During 2011, the Audit Committee consists of Messrs.
Dennis Butenhoff (Chair), Dale Blume, Dennis Klosterman and Brent Davison.

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

Executive Officers

The table
below lists the executive officers (Messrs. Roche, Caspers, Thilmony, Haugen
and Larson) and other senior management employees of the Company, none of whom
owns any common or preferred shares. Brief biographies for each of the officers
are included after the table.

|                   |  |     |  |                                                      
|------------------ |  | --- |  | -----------------------------------------------------
|Name               |  | Age |  | Position                                             
|David H.
 Roche    |  | 64  |  | President
 and Chief Executive Officer               
|                  
|Steven M.
 Caspers |  | 61  |  | Executive
 Vice President and Chief Financial Officer
|                  
|Thomas D.
 Knudsen |  | 57  |  | Vice
 President Agriculture                          
|                  
|Parker
 Thilmony   |  | 41  |  | Vice
 President Operations                           
|                  
|John Haugen        |  | 59  |  | Vice
 President Engineering                          
|                  
|Allen Larson       |  | 56  |  | Controller
 and Chief Accounting Officer             
|                  
|Greg Schmalz       |  | 60  |  | Vice
 President Human Resources                      

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

32

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

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.

Parker Thilmonyis a graduate of the
University of North Dakota, with a Bachelor of Science in Mechanical Engineering.
He started his career with the Company on February 5th, 1995 as an
Assistant Engineer.

John R. Haugen is a graduate of the
University of North Dakota with a Bachelor of Science in Mechanical
Engineering. He started his career with Minn-Dak Farmers Cooperative in 1976 as
an Assistant Engineer.

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.

Greg J. Schmalz is a graduate of the
University of North Dakota, Grand Forks, with a Bachelor of Arts Degree in
Sociology and a Masters Degree in Guidance and Counseling. He has been
employed with the Company since August 30, 2004.

Code of Ethics for Executive Officers

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

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

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

Compensation Discussion and Analysis

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

| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | David H.
 Roche, President and Chief Executive Officer;                  
| |   |                                                                          
| |  | Steven M.
 Caspers, Executive Vice President and Chief Financial Officer;
| |   |                                                                          
| |  | John Haugen,
 Vice President Engineering;                                
| |   |                                                                          
| |  | Allen
 Larson, Controller, Chief Accounting Officer; and                 

33

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| |   |                                             
| | - | --------------------------------------------
| |  | Parker
 Thilmony, Vice President Operations.

This section
is intended to provide a framework within which to
understand the actual compensation awarded to or earned by the Named Executive
Officers during the year ended August 31, 2011, as reported in the compensation
tables and accompanying narrative sections appearing on pages 37 to 42 of this
Annual Report on Form 10-K.

Role of the Compensation Committee in
Determining Executive Compensation

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

Under its
charter, the Committee has the authority to engage the services of outside
advisors, experts and others to assist it in performing its duties. While the
Compensation Committee has used the services of a compensation consultant in
the past, it did not do so in determining fiscal year 2011 compensation for the
Chief Executive Officer. The Compensation Committee may choose to use the
services of a compensation consultant in the future.

Role of Management in Compensation Process

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

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

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

34

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Compensation Philosophy and Design of
Compensation Programs

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

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

The
variable cash compensation for the Chief Executive Officer is provided through
two bonus programs, one based on return per acre (referred to as the Profit
Sharing Bonus) and one recommended by the Compensation Committee for Board of
Directors approval based upon the results of an annual performance review (the
Performance Bonus). The Compensation Committee intends the Profit Sharing
Bonus to be fairly challenging and that average financial performance measured
by return per acre will result in a relatively low level of Profit Sharing
Bonus, while above average or exceptional financial performance would be
required before a higher level Profit Sharing Bonus is earned by the Chief
Executive Officer. Because financial return per acre is the measure that best
quantifies the Companys return to its shareholders, the Compensation Committee
believes that this measure is appropriate to align the Chief Executive
Officers interests with those of the shareholders. Additionally, in
determining the Performance Bonus for Mr. Roche in 2011, the Compensation
Committee also considered the aggregate return to shareholders and the
financial performance of the Company and shareholders for the fiscal year 2011.

The Profit
Sharing Bonus criteria were most recently adjusted in Mr. Roches amended and
restated employment agreement dated August 27, 2009. The criteria were adjusted
to make this bonus more challenging with the goals of ensuring that bonuses
will be paid only when shareholders/growers receive a meaningful return and
providing greater incentives for superior performance. Under the amended and
restated employment agreement, the Compensation Committee will review the
Profit Sharing Bonus every two years with the first review August 31, 2010.
Following a review of those criteria in July 2010, the Compensation Committee
determined that for fiscal year 2011, it would continue to apply the Profit
Sharing Bonus criteria set out in the amended and restated employment
agreement. The Compensation Committee believes that the more challenging Profit
Sharing Bonus formula continues to be consistent with the goals that prompted
the adjustment of the formula for 2009. See Employment and Post-Employment
Arrangements for a description of Mr. Roches employment agreement as in
effect for fiscal year 2011.

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

35

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Elements of In-Service Compensation

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

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

The Company
does not believe that personal benefits or perquisites (i.e. perks) are
appropriate as a significant element of compensation, in particular because
perks are not conditioned upon performance and are not based upon contribution
to the Companys business. None of the Named Executive Officers received perks
that were a significant compensation element in fiscal 2011.

Base Salaries

Mr. Roche
and the Company entered into an employment agreement in 2001 and since that
time, the Company has annually reviewed Mr. Roches performance to determine
whether to retain Mr. Roches services, to establish a salary for Mr. Roche
and, if necessary, to revise other terms of Mr. Roches employment and
compensation. On July 27, 2010, the Compensation Committee set Mr. Roches base
salary for fiscal year 2011 at $361,300, an increase of 2.6% from the annual
base salary of $352,300 for 2010. The Compensation Committee increased Mr.
Roches base salary primarily to recognize an increase in the cost of living
over the prior year. The increased base salary for 2011, as well as a renewal
of the term of the amended and restated employment agreement for an additional
one year period ended August 31, 2011, was reflected in a renewal agreement
entered into by the Company and Mr. Roche on August 27, 2010.

Mr. Roche
determined salaries for the other Named Executive Officers in July 2010, with
adjustments to annual base salaries effective August 1, 2010. These salary
adjustments were considered moderate and were based on cost of living and
compensation market movements. In the case of Mr. Thilmony, Mr. Roche increased
his base salary to reflect significantly increased responsibilities. The
following table sets forth the annual base salaries for 2011 and 2010 for each
of the other Named Executive Officers, as well as the percentage increase in
2011 as compared to 2010:

|                         |  |                          |  |                          |  |                           
|------------------------ |  | ------------------------ |  | ------------------------ |  | --------------------------
|Named
 Executive Officer |  | 2011 Annual
 Base Salary |  | 2010 Annual
 Base Salary |  | % Increase
 2011 Over 2010
|Steven M.
 Caspers       |  | $187,100                 |  | $182,100                 |  | 2.8%                      
|John Haugen              |  | $132,100                 |  | $128,600                 |  | 2.7%                      
|Allen Larson             |  | $134,100                 |  | $130,800                 |  | 2.5%                      
|Parker
 Thilmony         |  | $135,000                 |  | $100,000                 |  | 35%                       

Cash Bonus Programs

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

36

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In July
2011, the Board of Directors conducted a performance review of Mr. Roche for
fiscal 2011, in part to determine whether Mr. Roche would receive a Performance
Bonus. Consistent with its process in prior years, this performance review
solicited a rating from the Board of Directors of Mr. Roches performance in
areas such as leadership, communication, budget and time management, as well as
overall performance. This information was compiled anonymously and discussed
among the Board members. The Board of Directors reviewed various aspects of Mr.
Roches achievements and performance in 2011, prior year compensation
information (including salary, Performance Bonus and Profit Sharing Bonus
amounts) and estimated financial returns to the shareholders for fiscal year
2011 in determining whether to award a Performance Bonus and the amount of the
Performance Bonus. The Board of Directors reported the results of its
performance review to the Compensation Committee. In view of the variety of the
factors and the amount of information considered as well as the complexity and
subjectivity of these matters, the Compensation Committee did not find it practical
to, and did not attempt to, make specific assessments of, quantify, rank or
otherwise assign relative weights to the specific factors considered by the
Board or by the Compensation Committee. While individual members of the
Compensation Committee may have given different weight to different factors,
the predominate factors considered by the Compensation Committee for fiscal
year 2011 were the Companys financial results despite the significant
challenges of processing the sugarbeet crop and the positive evaluations of Mr.
Roches performance by the Board. The Compensation Committee determined Mr.
Roches Performance Bonus for fiscal year 2011 to be $100,000.

Mr. Roche
determined the discretionary performance bonus amounts to be paid to the other
Named Executive Officers. In establishing the performance bonus awards for the
other Named Executive Officers, Mr. Roche considered their individual
contribution toward achieving the Company goals in fiscal year 2011, and the
level of return to shareholders measured through dollars paid per acre of
sugarbeets grown. Consistent with past practice, he also received feedback from
various members of the Compensation Committee and the Board of Directors on
proposed bonus amounts. The Company and Mr. Roche continue to consider and
attempt to develop a more formal program for executive officers (other than the
Chief Executive Officer) for determining performance bonus awards. The
following table shows the individual performance bonus earned by each of the
Named Executive Officers for 2011 and also shows the performance bonus as a
percentage of 2011 salary:

|                        |  |                        |  |                              
|----------------------- |  | ---------------------- |  | -----------------------------
|Named Executive Officer |  | 2011 Performance Bonus |  | % of 2011 Annual
 Base Salary
|Steven M. Caspers       |  | $75,000                |  | 40%                          
|John Haugen             |  | $40,000                |  | 30%                          
|Allen Larson            |  | $34,000                |  | 25%                          
|Parker Thilmony         |  | $45,000                |  | 33%                          

In
determining performance bonus amounts to the other Named Executive Officers,
Mr. Roche considered the significant improvement in financial returns to
shareholders and growers, as well as the significant operational challenges of
processing an extremely large sugarbeet crop. The senior management group
worked well as a team in coping with the challenges of processing a crop which
did not store well and was difficult to process. The overall level of
performance bonuses in 2011, although increased compared to prior years, was
tempered somewhat due to the impact of sugarbeet storage issues on financial
returns. Individual bonus levels are reflective of individual performance and
contributions toward the achievement of Company goals.

Mr. Roche
is also eligible for the Profit Sharing Bonus. This consists of a cash bonus
based upon the return per acre to growers, with a matrix determining the amount
of Profit Sharing Bonus at various levels of return per acre. The matrix
applicable to 2011 was approved as part of the amended and restated employment
agreement entered into between the Company and the Chief Executive Officer on
August 27, 2009 and it sets forth the Profit Sharing Bonus that would be earned
by him at various levels of return per acre to the growers as follows:

|                            |  |                             
|--------------------------- |  | ----------------------------
|Return Per
 Acre to Growers |  | Profit
 Sharing Bonus Amount
|$825 - $900                 |  | $15,000                     
|$901 - $975                 |  | $25,000                     
|$976 -
 $1,050              |  | $35,000                     
|$1,051 -
 $1,125            |  | $45,000                     
|$1,126 -
 $1,200            |  | $55,000                     
|$1,201 and
 over            |  | $65,000                     

37

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For the
purposes of the Profit Sharing Bonus, return per acre is the amount received by
the shareholders/growers as a grower payment for sugarbeets and does not
include patronage, retains or trucking payments. Returns per acre to
shareholder/growers vary from one to the next based upon yield and quality of
the beets delivered by each shareholder/grower. As a consequence, the
calculation of the Return Per Acre to Growers results in an average return per
acre. However, no Profit Sharing Bonus will be paid if 30% or more of the crop,
based on planted acres, is lost or unharvested. For 2011, the average Return
Per Acre to growers was $1,576 per acre, resulting in a Profit Sharing Bonus to
Mr. Roche of $65,000.

Elements of Post-Termination Compensation

In 2001,
the Company entered into an employment agreement with Mr. Roche relating to his
service as the President and Chief Executive Officer. Since 2001, the term of
the employment agreement has been renewed for successive fiscal years. On
August 27, 2010, the Company and Mr. Roche entered into a renewal agreement
relating to Mr. Roches amended and restated employment agreement dated August
27, 2009. Through the renewal agreement, Mr. Roches base salary was increased
and the term of the amended and restated employment agreement was renewed for
an additional one year period ended August 31, 2011. Under this amended and
restated employment agreement, Mr. Roche will be paid his then-current base
salary for a period of twelve months in the event of termination of Mr. Roches
employment without cause, upon receipt of a general release and compliance with
provisions of the agreement relating to confidential information. Mr. Roche is
not entitled to post-employment payments in the event of termination of Mr.
Roches employment by Mr. Roche, by the Company for cause, or by reason of
death or disability.

If Mr.
Roches employment had been terminated without cause on August 31, 2011, he
would receive $361,300 in post-termination benefits, payable over a twelve
month period.

Other than
with respect to Mr. Roche, the Company does not have employment agreements or
arrangements with any of the other Named Executive Officers. Other than with
respect to the post-termination benefits to Mr. Roche as described above, the
Company does not provide for severance or any other post-termination benefits
to the Named Executive Officers, except through plans in which executive
officers participate generally. See Executive Compensation  Employment and
Post-Employment Arrangements in this Annual Report on Form 10-K for a
discussion of the terms of the employment agreement with Mr. Roche as in effect
for fiscal year 2011.

Impact of Regulatory Requirements

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

Summary Compensation Table

The
following table shows information concerning compensation earned for services
in all capacities during the last three fiscal years for: (i) David H. Roche,
who served as the Companys Chief Executive Officer in fiscal year 2011; (ii)
Steven M. Caspers, who served as the Companys Chief Financial Officer in
fiscal year 2011; and (iii) the three other most highly compensated executive
officers of the Company in fiscal year 2011 whose total compensation was at
least $100,000, less the amount representing the change in pension value and
nonqualified deferred compensation earnings (together referred to as the Named
Executive Officers).

38

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|                     |  |      |      |            |   |           |  |                                                                                  |         |                             |   |         |  |   |        |  |   |         | 
|-------------------- |  | ---- | ---- | ---------- | - | --------- |  | -------------------------------------------------------------------------------- | ------- | --------------------------- | - | ------- |  | - | ------ |  | - | ------- | 
|Name and
 Position   |  | Year |      | Salary (1) |   | Bonus (2) |  | Change in 
 Pension Value 
 and Nonqualified Deferred Compensation
 Earnings (3) |         | All Other
 Compensation (4) |   | Total   | 
|David H.
 Roche,     |  |      | 2011 |            | $ | 361,058   |  | $                                                                                | 165,000 |                             | $ | 107,625 |  | $ | 30,490 |  | $ | 664,173 | 
|President
 & CEO     |  |      | 2010 |            | $ | 352,102   |  | $                                                                                | 85,000  |                             | $ | 210,002 |  | $ | 27,025 |  | $ | 674,129 | 
|                     |  |      | 2009 |            | $ | 343,509   |  | $                                                                                | 55,000  |                             | $ | 97,277  |  | $ | 22,133 |  | $ | 517,919 | 
|Steven M.
 Caspers,  |  |      | 2011 |            | $ | 187,423   |  | $                                                                                | 75,000  |                             | $ | 57,949  |  | $ | 22,272 |  | $ | 342,644 | 
|Executive VP
 & CFO  |  |      | 2010 |            | $ | 182,388   |  | $                                                                                | 36,000  |                             | $ | 251,919 |  | $ | 33,270 |  | $ | 503,577 | 
|                     |  |      | 2009 |            | $ | 177,390   |  | $                                                                                | 30,000  |                             | $ | 147,663 |  | $ | 12,020 |  | $ | 367,073 | 
|John Haugen,         |  |      | 2011 |            | $ | 132,355   |  | $                                                                                | 40,000  |                             | $ | 36,535  |  | $ | 15,120 |  | $ | 224,010 | 
|V.P.
 Engineering    |  |      | 2010 |            | $ | 128,802   |  | $                                                                                | 15,000  |                             | $ | 155,355 |  | $ | 12,640 |  | $ | 311,797 | 
|                     |  |      | 2009 |            | $ | 125,209   |  | $                                                                                | 15,000  |                             | $ | 60,842  |  | $ | 20,013 |  | $ | 221,064 | 
|Allen
 Larson,       |  |      | 2011 |            | $ | 134,336   |  | $                                                                                | 34,000  |                             | $ | 30,031  |  | $ | 15,499 |  | $ | 213,866 | 
|Controller           |  |      | 2010 |            | $ | 130,991   |  | $                                                                                | 12,000  |                             | $ | 96,580  |  | $ | 18,581 |  | $ | 258,152 | 
|                     |  |      | 2009 |            | $ | 127,502   |  | $                                                                                | 8,000   |                             | $ | 34,516  |  | $ | 13,786 |  | $ | 183,804 | 
|Parker
 Thilmony     |  |      | 2011 |            | $ | 135,864   |  | $                                                                                | 45,000  |                             | $ | 17,297  |  | $ | 6,513  |  | $ | 204,674 | 
|V.P.
 Operations (5) |  |      |      |            |   |           |  |                                                                                  |         |                             |   |         |  |   |        |  |   |         | 

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | For each
 fiscal year, a portion of Mr. Roches salary was deferred into the Companys
 Nonqualified Deferred Compensation Plan. For fiscal year 2009 and 2010, a
 portion of Mr. Caspers salary was deferred into the Companys Nonqualified
 Deferred Compensation Plan. Amounts shown are not reduced to reflect the
 deferral elections of any of the Named Executive Officers.                                                                                                                                                                                                                                                                               
| | (2) | This column
 reflects bonuses earned in the year indicated by the Named Executive Officers
 and, in the case of the Chief Executive Officer, includes both the
 Performance Bonus and Profit Sharing Bonus. See Compensation Discussion and
 Analysis  Elements of In-Service Compensation  Cash Bonus Programs for a
 description of bonuses that may be earned by the Named Executive Officers.                                                                                                                                                                                                                                                              
| | (3) | Amounts in
 this column reflect the aggregate increase in actuarial present value of the
 benefits under the pension plan as applicable. A portion of the change in
 pension benefits value is attributable to the additional year of service, any
 annual salary increase and bonus received. The 2010 change in Pension Value
 was also affected by a change in the discount rate of 6.19% in 2009 to 5.19%
 in 2010. An additional portion of the change is due to a change in the
 mortality values used for demographic assumptions. This table changed from
 the 1983 Group Annuity Mortality Table in 2009 to the RP-2000 Combined
 Mortality Table in 2010.
| | (4) | Amounts in
 this column include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                  |  |                                                               |        |                        |   |           |  |   |        | 
|----------------- |  | ------------------------------------------------------------- | ------ | ---------------------- | - | --------- |  | - | ------ | 
|                  |  | FY 2011                                                      
|Name              |  | Company Contributions 
 to Defined 
 Contribution 
 Plans (a) |        | Insurance Premiums (b) |   | Other (c) | 
|David H. Roche    |  | $                                                             | 17,496 |                        | $ | 12,994    |  |   |       | 
|Steven M. Caspers |  | $                                                             | 7,502  |                        | $ | 3,976     |  | $ | 10,794 | 
|John Haugen       |  | $                                                             | 5,521  |                        | $ | 1,978     |  | $ | 7,621  | 
|Allen Larson      |  | $                                                             | 5,853  |                        | $ | 1,909     |  | $ | 7,737  | 
|Parker Thilmony   |  | $                                                             | 5,915  |                        | $ | 598       |  |   |       | 

39

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|                   |  |                                                         |        |                       |   |           |  |   |        | 
|------------------ |  | ------------------------------------------------------- | ------ | --------------------- | - | --------- |  | - | ------ | 
|                   |  | FY 2010                                                
|Name               |  | Company Contributions to Defined Contribution Plans (a) |        | InsurancePremiums (b) |   | Other (c) | 
|David H. Roche     |  | $                                                       | 14,184 |                       | $ | 12,841    |  |   |       | 
|Steven M.
 Caspers |  | $                                                       | 8,495  |                       | $ | 3,763     |  | $ | 21,012 | 
|John Haugen        |  | $                                                       | 5,752  |                       | $ | 1,942     |  | $ | 4,946  | 
|Allen Larson       |  | $                                                       | 5,560  |                       | $ | 1,702     |  | $ | 11,319 | 

|                   |  |                                                        |       |                       |   |           |  |   |        | 
|------------------ |  | ------------------------------------------------------ | ----- | --------------------- | - | --------- |  | - | ------ | 
|                   |  | FY 2009                                               
|Name               |  | CompanyContributions to Defined Contribution Plans (a) |       | InsurancePremiums (b) |   | Other (c) | 
|David H. Roche     |  | $                                                      | 9,477 |                       | $ | 12,656    |  |   |       | 
|Steven M.
 Caspers |  | $                                                      | 8,896 |                       | $ | 3,124     |  |   |       | 
|John Haugen        |  | $                                                      | 6,088 |                       | $ | 1,906     |  | $ | 12,019 | 
|Allen Larson       |  | $                                                      | 5,100 |                       | $ | 1,342     |  | $ | 7,344  | 

| |     |                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Reflects the
 Companys contribution to the 401(k) plan for each Named Executive Officer.
 For Mr. Roche, also includes $6,807 in Company contributions to the Deferred
 Compensation Plan for 2011.
| |     |                                                                                                                                                                                                     
| | (b) | Includes
 premiums paid by the Company for life insurance coverage in excess of $50,000
 and supplemental long-term disability coverage.                                                            
| |     |                                                                                                                                                                                                     
| | (c) | Reflects
 amounts paid in cash to Named Executive Officers for vacation hours.                                                                                                                      

|    |                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Mr. Thilmony
 served was named Vice President of Operations effective August 1, 2011 and is
 a Named Executive Officer for fiscal year 2011. Compensation for fiscal year
 2011 reflects compensation for service in all positions. In fiscal years 2010
 and 2009, Mr. Thilmony was not a Named Executive Officer and accordingly,
 compensation information is not required for these years.

2011 Pension Benefits

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

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

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

No
pension benefits were paid to any of the Named Executive Officers in fiscal
year 2011. The Company does not have a policy permitting granting of additional
years of pension service.

40

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The
amounts reported in the table below equal the present value of the accumulated
benefit at August 31, 2011, for the Named Executive Officers under each plan
based upon the assumptions described in footnote 2.

|                  |  |           |              |                                      |  |                                          |  |   |           | 
|----------------- |  | --------- | ------------ | ------------------------------------ |  | ---------------------------------------- |  | - | --------- | 
|Name              |  | Plan Name |              | Number of Years Credited Service (1) |  | Present Value of Accumulated Benefit (2)
|David H. Roche    |  |           | Pension Plan |                                      |  | 11                                       |  | $ | 409,851   | 
|                  |  |           | SERP         |                                      |  | 11                                       |  | $ | 363,997   | 
|Steven M. Caspers |  |           | Pension Plan |                                      |  | 35                                       |  | $ | 1,041,192 | 
|                  |  |           | SERP         |                                      |  | 35                                       |  | $ | 21,354    | 
|John Haugen       |  |           | Pension Plan |                                      |  | 35                                       |  | $ | 563,623   | 
|Allen Larson      |  |           | Pension Plan |                                      |  | 30                                       |  | $ | 368,958   | 
|Parker Thilmony   |  |           | Pension Plan |                                      |  | 17                                       |  | $ | 76,792    | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | An employee
 earns a full year of credited service in the pension plan with 1,000 or more
 hours of service during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2) | The
 accumulated benefit is based on service and earnings (base salary and bonus,
 as described above) considered by the plans for the period through August 31,
 2011. It includes the value of contributions made by the Named Executive
 Officers throughout their careers. For the Pension Plan and SERP, the present
 value has been
 calculated assuming the Named Executive Officers will remain in service until
 age 65, the age at which retirement may occur without any reduction in
 benefits, and that the benefit is payable under the available forms of
 annuity consistent with assumptions as described in Note 13 to the financial
 statements contained elsewhere in this Annual Report on Form 10-K.

Nonqualified Deferred Compensation

The
table below provides information on the non-qualified deferred compensation of
the Named Executive Officers in fiscal year 2011 under the Companys
Nonqualified Deferred Compensation Plan (the Deferred Compensation Plan).
Under the terms of the Deferred Compensation Plan, participants may elect to
defer receipt of their compensation and the Deferred Compensation Plan provides
a means for deferrals of compensation. All of the Named Executive Officer
except Mr. Thilmony participated in
the Deferred Compensation Plan in fiscal year 2011.

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

|                   |  |                                                    |        |                                           |   |                                            |  |                                                    |        |                                        |  |   |  |   |         | 
|------------------ |  | -------------------------------------------------- | ------ | ----------------------------------------- | - | ------------------------------------------ |  | -------------------------------------------------- | ------ | -------------------------------------- |  | - |  | - | ------- | 
|Name               |  | Executive Contributions
 in Fiscal Year 
 2011 (1) |        | Company Contribution
 in Fiscal Year 2011 |   | Aggregate Earnings in Fiscal Year 2011 (2) |  | Distribution and 
 Withdrawals in Fiscal Year 2011 |        | Aggregate Balance at 
 August 31, 2011 | 
|David H.
 Roche    |  | $                                                  | 67,500 |                                           | $ | 6,807                                      |  | $                                                  | 31,200 |                                        |  |  |  | $ | 391,328 | 
|Steven M.
 Caspers |  |                                                    |       |                                           |   |                                           |  | $                                                  | 7,516  |                                        |  |  |  | $ | 52,543  | 
|John Haugen        |  |                                                    |       |                                           |   |                                           |  | $                                                  | 1817   |                                        |  |  |  | $ | 14,168  | 
|Allen Larson       |  |                                                    |       |                                           |   |                                           |  | $                                                  | 1,703  |                                        |  |  |  | $ | 11,496  | 
|Parker Thilmony    |  |                                                    |       |                                           |   |                                           |  |                                                    |       |                                        |  |  |  |   |        | 

41

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| |     |                                                                                                                                                                                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The annual
 salary deferrals included in this column are reflected in the salary column
 of the Summary Compensation Table. The deferrals of the bonus awards
 reflected in this column are reported in the bonus column of the Summary
 Compensation Table.
| | (2) | Amounts in
 this column include gains and losses on deferred compensation invested
 through the Deferred Compensation Plan. None of the earnings or losses in
 this column are included in the Summary Compensation Table.                                  

Employment
and Post-Employment Arrangements

Agreement with David H. Roche

On March 1,
2001, the Company entered into an employment agreement with David H. Roche to
serve as its President and Chief Executive Officer with an initial term through
August 31, 2002. This initial term has been renewed for 12 month periods
running from September 1 to August 31 of the following year. The employment
agreement was amended and restated on August 27, 2009 and renewed for the
fiscal year 2011 term of September 1, 2010 to August 31, 2011 by a renewal
agreement dated August 27, 2010. Below is a description of the amended and
restated employment agreement, as renewed and in effect for fiscal year 2011.

Under the
employment agreement, Mr. Roche will receive an annual base salary of $361,300
per year and is eligible for an increase in this base salary based upon an
annual performance review. Mr. Roche is also eligible for a profit sharing
bonus based upon return per acre. See Compensation Discussion and Analysis 
Elements of In-Service Compensation  Cash Bonus Programs for the matrix
associated with the return per acre bonus. A review of the matrix associated
with the return per acre bonus will be conducted every two years with the first
review August 31, 2010. The Board of Directors also has the discretion to grant
Mr. Roche a performance bonus regardless of whether the return per acre bonus
is awarded. Mr. Roche is also eligible for health, dental and vision insurance
on the same terms as other non-union employees, as well as other group benefits
such as term life insurance, accidental death and dismemberment insurance,
long-term disability insurance. Mr. Roche must also submit to an annual
physical examination at the Companys expense.

If Mr.
Roche retires as Chief Executive Officer on or after his 62nd birthday, the
Company will provide him with medical insurance until he reaches age 65. Mr.
Roche will also be included in the Companys non-qualified deferred
compensation plan, the pension plan, supplemental executive retirement plan and
401(k) plan.

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

If the
Company terminates Mr. Roches employment without cause, the Company will pay
Mr. Roches then-current base salary for a period of 12 months, conditioned
upon receipt of a general release and compliance with provisions of the renewal
agreement relating to confidential information. This post-employment
payment does not apply to termination of Mr. Roches employment by Mr. Roche,
by the Company for cause, or by reason of death or disability. The employment
agreement also contains provisions relating to the confidentiality of
certain Company information.

42

---



Under the
employment agreement, Mr. Roche is entitled to 5 weeks of vacation, seven paid
holidays and four days of floating holiday.

Post-Employment Arrangements for Named Executive Officers

The
Companys employment agreement with Mr. Roche does not provide for severance
(unless terminated without cause) or any other post-termination payments for
2011, except through plans in which the Named Executive Officers participate
generally.

The
Company does provide post-employment compensation for the Named Executive
Officers, David H. Roche, Steven M. Caspers, John Haugen, Allen Larson, and
Parker Thilmony, through the following plans:

| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | Defined benefit retirement
 plan (which is the Minn-Dak Farmers Cooperative Pension Plan);
| |  | Supplemental executive
 retirement plan;                                                  
| |  | Non-qualified deferred
 compensation plan; and                                            
| |  | 401(k) retirement savings
 plan.                                                          

The
Company has established the Minn-Dak Farmers Cooperative Pension Plan. The
Pension Plan is a noncontributory, defined benefit retirement plan, which is
available to all of its eligible employees. For 2011, there were approximately
330 eligible current employees participating in the Pension Plan, including the
Named Executive Officers. The benefits of the Pension Plan are funded by
periodic contributions by the Company to a retirement trust that invests the
contributions and earnings from such contributions to pay benefits to
employees. The Pension Plan provides for the payment of a monthly retirement
benefit determined under a formula based on years of service and each
employees compensation level. Benefits are paid to the employees upon reaching
early (age 55 or older) or normal (age 65) retirement age. The plan also
provides for the payment of certain disability and death benefits. See the
table entitled Pension Benefits under this Item 11 of this Annual Report on
Form 10-K for information on the benefits for 2011 to each of the Named
Executive Officers under the Pension Plan.

The
Board of Directors adopted a Supplemental Executive Retirement Plan on January
21, 1997. Subject to the discretion of the Board of Directors, the Company
credits to the account of each executive eligible to participate in the
Supplemental Plan amounts equal to the difference between the benefits actually
payable to the executive under the provisions of the defined benefit retirement
plan and the amounts which would have been payable under the defined benefit
retirement plan if certain provisions of the Internal Revenue Code did not
prohibit the payment of such benefits. Of the Named Executive Officers, Messrs.
Roche and Caspers were eligible to participate in the Supplemental Executive
Retirement Plan in 2011. In fiscal 2011, only Mr. Roche was credited amounts to
his account in the Supplemental Executive Retirement Plan, representing his
defined benefit plan benefits in excess of the maximums established by the
Internal Revenue Code. See the table entitled Pension Benefits under this
Item 11 of this Annual Report on Form 10-K for information on the benefits for
2011 the Named Executive Officers under the Supplemental Executive Retirement
Plan. Unlike the Companys Pension Plan, the Supplementary Executive Retirement
Plan is an unfunded, unsecured obligation of the Company and is not qualified
for tax purposes.

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

43

---



Under
the Deferred Compensation Plan, participants may elect to defer any amount of
their current salary and bonus as of the end of the prior year for the first
payroll period beginning in the next year of the Deferred Compensation Plan. If
the Company makes matching contributions under its 401(k) retirement savings
plan, amounts in excess of the current 401(k) plan compensation limit may also
be matched, but the matching contributions will be applied to the Deferred
Compensation Plan. For fiscal year 2011, no Named Executive Officer deferred
any amount of salary or and no Named Executive Officer other than Mr. Roche
deferred any bonus under the Deferred Compensation Plan. For fiscal year 2011,
Mr. Roche was eligible to receive a Company match on compensation in excess of
the current 401(k) Plan limit and these excess matching contribution amounts
were contributed to Mr. Roches account in the Deferred Compensation Plan. Income will be gained or lost on a daily
basis as a result of the participants directed investment of his/her account.
The participant is vested in those earnings immediately. Participants are
eligible for payouts from the Deferred Compensation Plan at retirement,
termination, death or disability. With respect to distributions, participants
may only elect to receive payments in the form of cash over no more than ten
annual installments. Participants have no right, either directly or indirectly,
to anticipate, sell, assign or otherwise transfer any benefit accrued under the
Deferred Compensation Plan. In addition, no participant has any interest in any
Company assets set aside as a source of funds to satisfy its benefit
obligations under the Deferred Compensation Plan, including the establishment
of any trust. Participants have the status of general unsecured creditors of
the Company and the Deferred Compensation Plan constitutes an unsecured promise
by the Company to make benefit payments in the future. See the table entitled
Nonqualified Deferred Compensation under this Item 11 in this Annual Report
on Form 10-K for information on the benefits for 2011 for each of the Named
Executive Officers under the Deferred Compensation Plan.

The
Company maintains a Section 401(k) retirement savings plan that permits
employees, including the Named Executive Officers, to elect to set aside a
portion of their gross compensation on a pre-tax basis in a trust to pay future
retirement benefits. The Company provides a matching contribution of 100% 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. Benefits
under the 401(k) plan begin to be paid to the employee: (i) upon the attainment
of normal retirement at age 65, or if the employee chooses, any time after
early retirement at or after age 55; (ii) the date the employee terminates
employment with the Company; or (iii) a pre-retirement distribution equal to
the value of the employees 401(k) account, provided the employee has attained
age 59 1/2 and provided a written consent of the spouse (if married). Federal
law limits employee pre-tax income contributions. For calendar year 2011,
employee pre-tax income contributions were limited to $16,500 for each
participating employee age 49 and under and $22,000 for each participating employee
age 50 and older. See the table entitled Summary Compensation Table for
information on the benefits for 2011 to each of the Named Executive Officers
under the Companys 401(k) plan.

In
fiscal year 2011, the Company also maintained a defined contribution pension
plan for all newly-hired employees who are not part of a collective bargaining
arrangement. None of the Named Executive Officers participate in this defined
contribution pension plan.

44

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DIRECTOR COMPENSATION

Directors
of the Company received the following amounts for Board and committee service
in fiscal year 2011: $300 per regular Board meeting, special Board meeting and
committee meeting. In addition, from time to time the Company requests that
directors represent the Companys interests at various industry meetings and
conferences, meetings with government or regulators, meetings with shareholders
and growers, and other meetings with stakeholders. For attendance at each
meeting requested by the Company, each director receives $300 per day. The Chairman of the Board of
Directors also receives an additional retainer of $750 per month to compensate
for the extra duties associated with that position.Mr. Doug Etten served as the Chairman of the Board of Directors in fiscal
year 2011.

The
following table shows for fiscal year 2011 the amounts earned by each of the
Companys directors. Other than cash retainer and meeting fees as described
above, none of the Companys directors earned any other cash or any other compensation
in fiscal year 2011.

|                  |  |                                   |        | 
|----------------- |  | --------------------------------- | ------ | 
|Name of Director  |  | Fees
 Earned or
 Paid in Cash (1)
|Dale Blume        |  | $                                 | 12,305 | 
|Dennis Butenhoff  |  | $                                 | 15,575 | 
|Brent Davison     |  | $                                 | 16,330 | 
|Doug Etten        |  | $                                 | 27,325 | 
|Patrick Freese    |  | $                                 | 14,860 | 
|Dennis Klosterman |  | $                                 | 15,905 | 
|Russell Mauch     |  | $                                 | 16,550 | 
|Charles Steiner   |  | $                                 | 15,546 | 
|Kevin Kutzer      |  | $                                 | 14,046 | 

| | (1) | Includes the amount of
 cash compensation earned or paid in fiscal year 2011 for Board and committee
 service, as well as for attendance at meetings requested by the Company.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

45

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REPORT OF THE COMPENSATION COMMITTEE

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

The
Compensation Committee has reviewed and discussed the section of this Annual
Report on Form 10-K for the year ended August 31, 2011 entitled Compensation
Discussion and Analysis (the CD&A) with Management. In reliance on this
review and discussion, the Compensation Committee recommended to the Board of
Directors that the CD&A be included in this Annual Report on Form 10-K for
the year ended August 31, 2011 for filing with the Securities and Exchange
Commission.

By the Compensation Committee of the Board of Directors

Dale Blume (Chair) 
Chuck Steiner
Dennis Klosterman
Brent Davison
Dennis Butenhoff

46

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

Under
state law and the Companys Bylaws, each member of the cooperative is entitled
to one vote, regardless of the number of shares the member holds. The Common
Stock of the Company is voting stock and each member of the Company holds one
share of Common Stock. The Preferred Stock of the Company is non-voting stock.
The Companys stock can only be held by individuals who are sugarbeet growers.
To the Companys knowledge, as of November 1, 2011, no person owned
beneficially more than 5 percent of the Companys outstanding shares and none
of the principal officers listed above owned any such shares. As members of the
cooperative, each director owns one share of Common Stock and is entitled to
one vote. As a group, the directors own 4.46 percent of the outstanding
Preferred Stock.

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

Each
of the Companys directors is also a sugarbeet grower or a shareholder member
or representative of a shareholder member. By virtue of their status as such
members of the Company, each director or the member he represents sells
sugarbeets to the Company and receives payments for those sugarbeets; also,
each director could potentially receive grower trucking payments. Such payments
for sugarbeets and trucking payments, either separately or together, can often
exceed $120,000. However, such payments that are received by the directors, or
the entities they represent, are on the same basis as payments received by
other members of the Company for the delivery and payment of their sugarbeets.
Except for the sugarbeet sales and receipt of grower trucking payments
described in the preceding sentences, since the beginning of fiscal year 2011,
the Company has not entered into any transaction and there are no currently
proposed transactions, in which the Company was or is to be a participant and
the amount involved exceeds $120,000 and in which any related person had or
will have a direct or indirect material interest. To the extent that these payments exceeded
$120,000 in fiscal year 2011, the name of the director and the amount of the
payment should be disclosed under Item 13. Certain Relationships and Related
Transactions, and Director Independence.

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The charter of the Audit Committee provides that the Audit Committee
 is responsible for reviewing and approving the terms and conditions of all of
 transactions the Company enters into in which an officer, director or 5
 percent or greater shareholder or any affiliate of these persons has a direct
 or indirect material interest. The Standards of Business Conduct, which is
 applicable to all of the Companys employees and directors, also prohibits
 the Companys employees, including executive officers, and the Companys
 directors from engaging in conflict of interest transactions. Requests for
 waivers by the Companys executive officers and directors from the provisions
 of, or requests for consents by the Companys executive officers and
 directors under, the Standards of Business Conduct must be made to the Audit
 Committee.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In addition, the Company has a formal related person transaction
 approval policy, which sets forth the Companys policies and procedures for
 the review, approval or ratification of any transaction required to be
 reported in its filings with the Securities and Exchange Commission. The
 Companys policy applies to any financial transaction, arrangement or
 relationship or any series of similar transactions, arrangements or
 relationships in which the Company is a participant and in which a related
 person has a direct or indirect interest. Through the policy, the Audit Committee
 has also identified and pre-approved certain transactions with related
 persons, including:                                                                                                                                                                 

| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | employment
 of executive officers, director compensation to be reported in the Companys
 Annual Report on Form 10-K;                       
| |  | payment
 of ordinary expenses and business reimbursements;                                                                                  
| |  | transactions
 with related companies in which the dollar amount does not exceed $60,000 or
 2 percent of the other companys total revenues;

47

---



| |   |                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | charitable
 contributions in which the dollar amount does not exceed $25,000 or 2 percent
 of the charitable organizations receipts;                                                                                                                                
| |  | payments
 made under our articles of incorporation, bylaws, insurance policies or other
 agreements relating to indemnification;                                                                                                                                     
| |  | transactions
 in which our shareholders receive proportional benefits, specifically
 including payments to shareholders for sugarbeets of a similar quality and
 quantity and grower trucking payments to shareholders based upon generally
 applicable formulas; and
| |  | transactions that involve
 competitive bid, banking transactions and transactions where the terms of
 which are regulated by law or governmental authority.                                                                                                          

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

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

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

Independence of Directors and Committee Members

The
Board of Directors undertook a review of director independence in October 2011
as to all nine directors then serving. As part of that process, the Board
reviewed all transactions and relationships between each director (or any
member of his immediate family) and the Company, its executive officers and its
auditors, and other matters bearing on the independence of directors. Although
none of the Companys securities are listed on any stock exchange, the Board of
Directors is required to select and apply the independence standards of a stock
exchange. For the purposes of determining the independence of the Companys
directors and committee members, the Board of Directors selected the NASDAQ
Marketplace Rules. As a result of its review, directors Dale N. Blume, Dennis Butenhoff, Brent
Davison, Douglas Etten, Patrick Freese, Dennis Klosterman, Russell Mauch,
Charles Steiner and Kevin Kutzer meet the criteria for independence
under the NASDAQ Marketplace Rules. All members of the Audit Committee meet the
independence requirements of Section 10A-3.

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

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

48

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

|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL 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, 2011 totaled $98,515 (Including a $20,000
 progress billing for the 2011 audit) and for the fiscal year ended August 31,
 2010 $94,140 (including a $20,000 progress billing for the 2010 audit).                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|2. | Audit
 Related Fees - paid to the Companys principal accountant for the audit of
 employee benefit plans during the fiscal year ended August 31, 2011 totaled
 $16,100 and for the fiscal year ended August 31, 2010 totaled $14,500.                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3. | Tax Fees -
 paid to the Companys principal accountant for professional services rendered
 for tax compliance, tax advice, and tax planning totaled $21,085 for the
 fiscal year ended August 31, 2011 and $27,100 for fiscal year ended August
 31, 2010.                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4. | All Other
 Fees  paid to the Companys principal accountant for USDA agreed upon
 procedures during the fiscal year ended August 31, 2010 totaled $5,000. There
 were no USDA procedures required during the fiscal year ended August 31,
 2011.                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|5. | It is part
 of the audit committees duties to appoint, compensate, and oversee the
 engagement of, retention, or replacement of, the independent auditors who
 audit the financial statements of the Company and its subsidiaries. The audit
 committee approves all audit services to be performed by the independent
 auditor. The committee ensures that the independent auditor is not engaged to
 perform any non-audit services that are considered prohibited activities by
 the Sarbanes-Oxley law.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The audit
 committee approves 100 percent of the services described in items 1 thru 4
 above.                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|6. | The
 percentage of hours expended on the principal accountants engagement to
 audit the Companys financial statements for the most recent fiscal year that
 were attributed to work performed by persons other than the principal
 accountants full-time, permanent employees is zero.                                                                                                                                                                                                                     

49

---



|          |                                             |                                                                                                                  | 
|--------- | ------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | 
|PART
 IV.
|         
|ITEM
 15. | EXHIBITS
 AND FINANCIAL STATEMENT SCHEDULES
|          |                                            
|          | Documents filed as part of this report:    
|          |                                            
|          | a.                                          | Consolidated Financial Statements                                                                               
|          |                                             | -Report
 of Independent Registered Public Accounting Firm                                                       
|          |                                             | -Consolidated
 Balance Sheets as of August 31, 2011, 2010 and 2009                                              
|          |                                             | -Consolidated
 Statements of Operations for the Years Ended August 31, 2011, 2010 and 2009                      
|          |                                             | -Consolidated
 Statements of Changes in Members Investments for the years ended August 31,
 2011, 2010 and 2009
|          |                                             | -Consolidated
 Statements of Cashflows for the Years Ended August 31, 2011, 2010 and 2009                       
|          |                                             | -Notes
 to the Consolidated Financial Statements                                                                
|          |                                             |                                                                                                                  | 
|          | b.                                          | Financial Statement Schedules  None                                                                            
|          |                                             |                                                                                                                 
|          | c.                                          | The exhibits to this Annual Report on Form
 10-K are listed in the Exhibit Index, Item 15c.                     
|          |                                             |                                                                                                                  | 

50

---



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

The Audit
CommitteeMinn-Dak Farmers Cooperative
Wahpeton, North Dakota

We have audited the accompanying
consolidated balance sheets of Minn-Dak Farmers Cooperative (a North Dakota
cooperative association) as of August 31, 2011, 2010 and 2009, and the related
consolidated statements of operations, changes in members investments and
comprehensive income and cash flows for each of the years in the three-year
period ended August 31, 2011. Minn-Dak Farmers Cooperatives management is
responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Minn-Dak Farmers Cooperative as of
August 31, 2011, 2010 and 2009, and the results of its operations and its cash
flows for each of the years in the three-year period ended August 31, 2011 in
conformity with accounting principles generally accepted in the United States
of America.

/S/ Eide
Bailly LLP

Minneapolis, Minnesota
November 1, 2011

51

---



|                                                                                        
|----------------------------------------------------------------------------------------
|MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2011, 2010, AND 2009
|                                                                                        

|                                                                            |  |      |             |      |   |             |  |   |             | 
|--------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- |  | - | ----------- | 
|                                                                            |  | 2011 |             | 2010 |   | 2009        | 
|ASSETS                                                                      |  |      |             |      |   |             |  |   |             | 
|                                                                            |  |      |             |      |   |             |  |   |             | 
|CURRENT ASSETS                                                              |  | $    | 46,384      |      | $ | 128,611     |  | $ | 93,949      | 
|Cash                                                                        |  |      |             |      |   |             |  |   |             | 
|                                                                            |  |      |             |      |   |             |  |   |             | 
|Current bond trust                                                          |  |      | 1,643,824   |      |   | 4,731,005   |  |   |            | 
|                                                                            |  |      |             |      |   |             |  |   |             | 
|Receivables                                                                 |  |      |             |      |   |             |  |   |             | 
|Trade accounts                                                              |  |      | 19,288,079  |      |   | 13,797,508  |  |   | 14,299,830  | 
|Growers                                                                     |  |      | 15,459,594  |      |   | 13,763,089  |  |   | 10,196,312  | 
|Other                                                                       |  |      | 108,551     |      |   | 2,551       |  |   | 2,551       | 
|                                                                            |  |      | 34,856,224  |      |   | 27,563,148  |  |   | 24,498,693  | 
|                                                                            |  |      |             |      |   |             |  |   |             | 
|Advances to affiliates - United Sugars Corporation                          |  |      | 4,456,306   |      |   | 1,424,545   |  |   | 1,740,649   | 
|                                                                           
|Inventories                                                                 |  |      |             |      |   |             |  |   |             | 
|Refined sugar,
pulp, molasses and thick juice 
to be sold on a pooled basis |  |      | 38,833,969  |      |   | 29,770,313  |  |   | 27,046,374  | 
|Sugarbeets                                                                  |  |      |            |      |   | 3,121,298   |  |   |            | 
|Nonmember
refined sugar                                                     |  |      | 4,730,314   |      |   | 1,717,395   |  |   | 1,451,972   | 
|Yeast                                                                       |  |      | 157,135     |      |   | 237,105     |  |   | 200,317     | 
|Beet chemicals
and seed                                                     |  |      | 4,062,960   |      |   |            |  |   |            | 
|Materials and
supplies                                                      |  |      | 15,761,276  |      |   | 13,403,175  |  |   | 11,296,034  | 
|                                                                            |  |      | 63,545,654  |      |   | 48,249,286  |  |   | 39,994,697  | 
|                                                                            |  |      |             |      |   |             |  |   |             | 
|Deferred charges                                                            |  |      | 1,692,826   |      |   |            |  |   | 1,324,353   | 
|                                                                            |  |      |             |      |   |             |  |   |             | 
|Prepaid expenses and other assets                                           |  |      | 2,110,985   |      |   | 2,047,411   |  |   | 3,109,313   | 
|                                                                            |  |      |             |      |   |             |  |   |             | 
|Current deferred income tax asset                                           |  |      | 11,000      |      |   |            |  |   | 25,600      | 
|                                                                            |  |      |             |      |   |             |  |   |             | 
|Total current assets                                                        |  |      | 108,363,203 |      |   | 84,144,006  |  |   | 70,787,254  | 
|                                                                            |  |      |             |      |   |             |  |   |             | 
|PROPERTY, PLANT AND EQUIPMENT                                               |  |      |             |      |   |             |  |   |             | 
|Land and land
improvements                                                  |  |      | 28,741,774  |      |   | 28,164,267  |  |   | 27,130,273  | 
|Buildings                                                                   |  |      | 37,882,719  |      |   | 37,882,719  |  |   | 37,757,659  | 
|Factory
equipment                                                           |  |      | 159,371,094 |      |   | 152,493,105 |  |   | 147,419,262 | 
|Other
equipment                                                             |  |      | 6,619,980   |      |   | 5,300,600   |  |   | 4,675,425   | 
|Capitalized
leases                                                          |  |      | 3,352,917   |      |   | 3,352,917   |  |   | 2,960,658   | 
|Construction
in progress                                                    |  |      | 13,917,186  |      |   | 5,213,973   |  |   | 4,690,526   | 
|                                                                            |  |      | 249,885,670 |      |   | 232,407,581 |  |   | 224,633,803 | 
|Less
accumulated depreciation and amortization                              |  |      | 144,527,188 |      |   | 135,638,384 |  |   | 127,336,389 | 
|                                                                            |  |      | 105,358,482 |      |   | 96,769,197  |  |   | 97,297,414  | 
|OTHER ASSETS                                                                |  |      |             |      |   |             |  |   |             | 
|Investment in
other cooperatives and unconsolidated
marketing cooperatives  |  |      | 11,102,549  |      |   | 11,115,672  |  |   | 11,343,602  | 
|Bond trust and
financing costs                                              |  |      | 2,209,073   |      |   | 2,492,735   |  |   | 98,302      | 
|Other                                                                       |  |      | 3,445,646   |      |   | 5,034,845   |  |   | 992,175     | 
|                                                                            |  |      | 16,757,268  |      |   | 18,643,252  |  |   | 12,434,079  | 
|                                                                            |  |      |             |      |   |             |  |   |             | 
|                                                                            |  | $    | 230,478,953 |      | $ | 199,556,455 |  | $ | 180,518,747 | 

See Notes to Consolidated Financial Statements.

52

---



|                                                                                                                                                                                 |  |      |             |      |   |             |   |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | - | - | ----------- | -
|                                                                                                                                                                                 |  | 2011 |             | 2010 |   | 2009        |  
|LIABILITIES AND MEMBERS INVESTMENT                                                                                                                                              |  |      |             |      |   |             |   |   |             |  
|                                                                                                                                                                                
|CURRENT LIABILITIES                                                                                                                                                              |  |      |             |      |   |             |   |   |             |  
|Short-term
notes payable                                                                                                                                                         |  | $    | 40,646,214  |      | $ | 27,557,680  |   | $ | 18,977,978  |  
|                                                                                                                                                                                
|Current
portion of long-term debt and capital leases                                                                                                                             |  |      | 3,011,998   |      |   | 2,977,034   |   |   | 2,905,841   |  
|Current portion
of bonds payable                                                                                                                                                 |  |      |            |      |   |            |   |   | 2,120,000   |  
|                                                                                                                                                                                 |  |      | 3,011,998   |      |   | 2,977,034   |   |   | 5,025,841   |  
|Accounts payable                                                                                                                                                                 |  |      |             |      |   |             |   |   |             |  
|Trade                                                                                                                                                                            |  |      | 18,459,061  |      |   | 11,210,841  |   |   | 11,566,445  |  
|Checks
Outstanding                                                                                                                                                               |  |      | 928,319     |      |   | 1,007,863   |   |   | 545,766     |  
|Deferred liabilities                                                                                                                                                             |  |      |            |      |   | 8,825,180   |   |   |            |  
|Growers                                                                                                                                                                          |  |      | 24,376,966  |      |   | 13,874,124  |   |   | 17,704,288  |  
|Income tax                                                                                                                                                                       |  |      |            |      |   | 194,745     |   |   |            |  
|                                                                                                                                                                                 |  |      | 43,764,346  |      |   | 35,112,753  |   |   | 29,816,499  |  
|                                                                                                                                                                                
|Payable to affiliates - Midwest Agri-Commodities Co.                                                                                                                             |  |      | 1,674,256   |      |   | 1,708,006   |   |   | 634,852     |  
|                                                                                                                                                                                 |  |      |             |      |   |             |   |   |             |  
|Accrued liabilities                                                                                                                                                              |  |      | 3,788,060   |      |   | 3,100,967   |   |   | 2,945,383   |  
|                                                                                                                                                                                 |  |      |             |      |   |             |   |   |             |  
|Total current
liabilities                                                                                                                                                        |  |      | 92,884,874  |      |   | 70,456,440  |   |   | 57,400,553  |  
|                                                                                                                                                                                
|LONG-TERM DEBT AND CAPITAL LEASES, NET 
OF CURRENT PORTION                                                                                                                       |  |      | 14,846,492  |      |   | 18,690,023  |   |   | 22,148,959  |  
|                                                                                                                                                                                
|BONDS PAYABLE                                                                                                                                                                    |  |      | 28,055,000  |      |   | 19,240,000  |   |   | 11,370,000  |  
|                                                                                                                                                                                
|LONG-TERM DEFERRED INCOME TAX LIABILITY                                                                                                                                          |  |      | 177,200     |      |   | 265,800     |   |   | 354,400     |  
|                                                                                                                                                                                
|LONG-TERM UNRECOGNIZED TAX BENEFITS LIABILITY                                                                                                                                    |  |      |            |      |   |            |   |   | 274,075     |  
|                                                                                                                                                                                
|LONG-TERM PENSION LIABILITY                                                                                                                                                      |  |      | 17,050,081  |      |   | 19,629,704  |   |   | 12,827,360  |  
|                                                                                                                                                                                
|OTHER LONG-TERM LIABILITIES                                                                                                                                                      |  |      | 752,569     |      |   |            |   |   |            |  
|                                                                                                                                                                                
|COMMITMENTS AND CONTINGENCIES (NOTE 10)                                                                                                                                          |  |      |             |      |   |             |   |   |             |  
|                                                                                                                                                                                
|Total
liabilities                                                                                                                                                                |  |      | 153,766,216 |      |   | 128,281,967 |   |   | 104,375,347 |  
|                                                                                                                                                                                
|MEMBERS INVESTMENT                                                                                                                                                              |  |      |             |      |   |             |   |   |             |  
|Preferred
stock                                                                                                                                                                  |  |      |             |      |   |             |   |   |             |  
|Class A -
100,000 shares authorized, $105 par value; 
72,200 shares issued and outstanding                                                                                       |  |      | 7,581,000   |      |   | 7,581,000   |   |   | 7,581,000   |  
|Class B - 100,000 shares authorized $75 par value; 
72,200 shares issued and outstanding                                                                                         |  |      | 5,415,000   |      |   | 5,415,000   |   |   | 5,415,000   |  
|Class C - 100,000 shares authorized, $76 par value; 
72,200 shares issued and outstanding                                                                                        |  |      | 5,487,200   |      |   | 5,487,200   |   |   | 5,487,200   |  
|                                                                                                                                                                                 |  |      | 18,483,200  |      |   | 18,483,200  |   |   | 18,483,200  |  
|                                                                                                                                                                                
|Common stock, 600 shares authorized, $250 par value; 
476 shares issued and outstanding on 8-31-11, 
477 shares outstanding on 8-31-10 and
474 shares outstanding on 8-31-09 and |  |      | 119,000     |      |   | 119,250     |   |   | 118,500     |  
|Paid in capital in excess of par value                                                                                                                                           |  |      | 32,094,407  |      |   | 32,094,407  |   |   | 32,094,407  |  
|Unit retention capital                                                                                                                                                           |  |      | 3,103,553   |      |   |            |   |   |            |  
|Nonqualified allocated patronage                                                                                                                                                 |  |      | 28,298,651  |      |   | 28,298,571  |   |   | 28,298,718  |  
|Accumulated other comprehensive loss-interest swap                                                                                                                               |  |      | (903,337    | )    |   |            |   |   |            |  
|Accumulated other comprehensive loss-pension                                                                                                                                     |  |      | (15,571,283 | )    |   | (18,837,157 | ) |   | (12,811,235 | )
|Retained earnings                                                                                                                                                                |  |      | 11,088,546  |      |   | 11,116,217  |   |   | 9,959,810   |  
|                                                                                                                                                                                 |  |      | 76,712,737  |      |   | 71,274,488  |   |   | 76,143,400  |  
|                                                                                                                                                                                 |  |      |             |      |   |             |   |   |             |  
|                                                                                                                                                                                 |  | $    | 230,478,953 |      | $ | 199,556,455 |   | $ | 180,518,747 |  

53

---



|                                                                                                              
|--------------------------------------------------------------------------------------------------------------
|MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 2011, 2010, AND 2009
|                                                                                                              

|                                                                               |  |      |             |      |   |             |  |   |             |  
|------------------------------------------------------------------------------ |  | ---- | ----------- | ---- | - | ----------- |  | - | ----------- | -
|                                                                               |  | 2011 |             | 2010 |   | 2009        | 
|REVENUE                                                                        |  |      |             |      |   |             |  |   |             |  
|From
sales of sugar, sugar co-products, 
and yeast, net of discounts           |  | $    | 345,509,932 |      | $ | 214,311,789 |  | $ | 225,034,020 |  
|                                                                               |  |      |             |      |   |             |  |   |             |  
|EXPENSES                                                                       |  |      |             |      |   |             |  |   |             |  
|Production costs of sugar, co-products, and yeast sold                         |  |      | 89,900,186  |      |   | 72,008,374  |  |   | 79,586,897  |  
|Sales and distribution costs                                                   |  |      | 59,070,100  |      |   | 40,451,329  |  |   | 43,308,982  |  
|General and administrative                                                     |  |      | 8,140,176   |      |   | 7,079,301   |  |   | 7,065,675   |  
|Interest                                                                       |  |      | 2,491,014   |      |   | 1,974,363   |  |   | 2,017,946   |  
|                                                                               |  |      | 159,601,476 |      |   | 121,513,367 |  |   | 131,979,500 |  
|                                                                               |  |      |             |      |   |             |  |   |             |  
|OTHER
INCOME                                                                   |  |      | 774,336     |      |   | 7,777,785   |  |   | 2,493,245   |  
|                                                                               |  |      |             |      |   |             |  |   |             |  
|NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS BEFORE INCOME TAXES |  |      | 186,682,792 |      |   | 100,576,207 |  |   | 95,547,765  |  
|                                                                               |  |      |             |      |   |             |  |   |             |  
|INCOME
TAX EXPENSE (BENEFIT)                                                   |  |      | (83,600     | )    |   | 343,580     |  |   | (505,145    | )
|                                                                               |  |      |             |      |   |             |  |   |             |  
|NET
PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS                     |  | $    | 186,766,392 |      | $ | 100,232,627 |  | $ | 96,052,910  |  
|                                                                               |  |      |             |      |   |             |  |   |             |  
|DISTRIBUTION
OF NET PROCEEDS                                                   |  |      |             |      |   |             |  |   |             |  
|Credited to members investment                                                |  |      |             |      |   |             |  |   |             |  
|Components of net income                                                       |  |      |             |      |   |             |  |   |             |  
|Income from non-member business                                                |  | $    | (27,671     | )    | $ | 1,156,407   |  | $ | 334,861     |  
|Patronage income                                                               |  |      | 6,216,008   |      |   | 4,020,142   |  |   | 3,727,840   |  
|                                                                               |  |      |             |      |   |             |  |   |             |  
|Net
income credited to members
investment                                     |  |      | 6,188,337   |      |   | 5,176,549   |  |   | 4,062,701   |  
|                                                                               |  |      |             |      |   |             |  |   |             |  
|Payments
to members for sugarbeets, prior to unit retention capital            |  |      | 180,578,055 |      |   | 95,056,078  |  |   | 91,990,209  |  
|                                                                               |  |      |             |      |   |             |  |   |             |  
|NET
PROCEEDS RESULTING FROM MEMBER AND NONMEMBER BUSINESS                      |  | $    | 186,766,392 |      | $ | 100,232,627 |  | $ | 96,052,910  |  

See Notes to Consolidated Financial
Statements.

54

---



|                                                                                                                                   
|-----------------------------------------------------------------------------------------------------------------------------------
|MINN-DAK FARMERS COOPERATIVECONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS INVESTMENT 
 YEARS ENDED AUGUST 31, 2011, 2010, AND 2009

|                                                |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   |            |   |   |            |  
|----------------------------------------------- |  | ---------------- | ---------- | ------------- | - | ----------------------------------------- | - | ------------------------ | ---------- | ----------------------------------- | - | --------------------------------------------------------------- | - | --------------------------------------------------------- | ---------- | ------------------ | - | -------- | - | ------------------------------ | ----------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                |  | Preferred
 Stock |            | Common
 Stock |   | Paid
 in Capital
 In Excess of
 Par Value |   | Unit
 Retention
 Capital |            | Non-Qualified
 Allocated
 Patronage |   | Accumulated
 Other
 Comprehensive
 Income (Loss)
 Interest Swap |   | Accumulated
 Other
 Comprehensive
 Income (Loss)
 Pension |            | Retained
 Earnings |   | Total    |   | Comprehensive
 Income/
 (Loss) |            
|BALANCE, AUGUST 31, 2008                        |  | $                | 18,483,200 |               | $ | 120,750                                   |   | $                        | 32,094,407 |                                     | $ |                                                                |   | $                                                         | 28,298,508 |                    | $ |         |   | $                              | (4,890,516  | ) | $ | 9,909,845  |   | $ | 84,016,194 |   |   |            |  
|Stock - Sales - common (6 shares)               |  |                  |            |               |   | 1,500                                     |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   | 1,500      |   |   |            |  
|Repurchases - common (15 shares)                |  |                  |            |               |   | (3,750                                    | ) |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   | (3,750     | ) |   |            |  
|Revolvement of patronage-Estate                 |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           | (101,701   | )                  |   |          |   |                                |             |   |   |            |   |   | (101,701   | ) |   |            |  
|Revolvement of prior years allocated patronage |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           | (3,625,929 | )                  |   |          |   |                                |             |   |   |            |   |   | (3,625,929 | ) |   |            |  
|Effects of FAS 158 Adjustments                  |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   | (284,896   | ) |   | (284,896   | ) |   |            |  
|Net income for the year ended August 31, 2009   |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           | 3,727,840  |                    |   |          |   |                                |             |   |   | 334,861    |   |   | 4,062,701  |   | $ | 4,062,701  |  
|Pension liability adjustment                    |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                | (7,920,719  | ) |   |            |   |   | (7,920,719 | ) |   | (7,920,719 | )
|Comprehensive Income (Loss)                     |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   |            |   | $ | (3,858,018 | )
|BALANCE, AUGUST 31, 2009                        |  |                  | 18,483,200 |               |   | 118,500                                   |   |                          | 32,094,407 |                                     |   |                                                                |   |                                                           | 28,298,718 |                    |   |         |   |                                | (12,811,235 | ) |   | 9,959,810  |   |   | 76,143,400 |   |   |            |  
|Stock - Sales - common (10 shares)              |  |                  |            |               |   | 2,500                                     |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   | 2,500      |   |   |            |  
|Repurchases - common (7 shares)                 |  |                  |            |               |   | (1,750                                    | ) |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   | (1,750     | ) |   |            |  
|Revolvement of prior years allocated patronage |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           | (4,020,289 | )                  |   |          |   |                                |             |   |   |            |   |   | (4,020,289 | ) |   |            |  
|Effects of FAS 158 Adjustments                  |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   |           |   |   |            |  
|Net income for the year ended August 31, 2010   |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           | 4,020,142  |                    |   |          |   |                                |             |   |   | 1,156,407  |   |   | 5,176,549  |   | $ | 5,176,549  |  
|Pension liability adjustment                    |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                | (6,025,922  | ) |   |            |   |   | (6,025,922 | ) |   | (6,025,922 | )
|Comprehensive Income (Loss)                     |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   |            |   | $ | (849,374   | )
|BALANCE, AUGUST 31, 2010                        |  |                  | 18,483,200 |               |   | 119,250                                   |   |                          | 32,094,407 |                                     |   |                                                                |   |                                                           | 28,298,571 |                    |   |         |   |                                | (18,837,157 | ) |   | 11,116,217 |   |   | 71,274,488 |   |   |            |  
|Stock - Sales - common (14 shares)              |  |                  |            |               |   | 3,500                                     |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   | 3,500      |   |   |            |  
|Repurchases - common (15 shares)                |  |                  |            |               |   | (3,750                                    | ) |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   | (3,750     | ) |   |            |  
|Revolvement of prior years allocated patronage |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           | (6,215,928 | )                  |   |          |   |                                |             |   |   |            |   |   | (6,215,928 | ) |   |            |  
|Unit retention capital                          |  |                  |            |               |   |                                           |   |                          |            |                                     |   | 3,108,004                                                       |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   | 3,108,004  |   |   |            |  
|Revolvement of unit retention-Estate            |  |                  |            |               |   |                                           |   |                          |            |                                     |   | (4,451                                                          | ) |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   | (4,451     | ) |   |            |  
|Net income for the year ended August 31, 2011   |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           | 6,216,008  |                    |   |          |   |                                |             |   |   | (27,671    | ) |   | 6,188,337  |   | $ | 6,188,337  |  
|Interest rate swap liability adjustment         |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   | (903,337 | ) |                                |             |   |   |            |   |   | (903,337   | ) |   | (903,337   | )
|Pension liability adjustment                    |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                | 3,265,874   |   |   |            |   |   | 3,265,874  |   |   | 3,265,874  |  
|Comprehensive Income (Loss)                     |  |                  |            |               |   |                                           |   |                          |            |                                     |   |                                                                 |   |                                                           |            |                    |   |          |   |                                |             |   |   |            |   |   |            |   | $ | 8,550,874  |  
|BALANCE, AUGUST 31, 2011                        |  | $                | 18,483,200 |               | $ | 119,000                                   |   | $                        | 32,094,407 |                                     | $ | 3,103,553                                                       |   | $                                                         | 28,298,651 |                    | $ | (903,337 | ) | $                              | (15,571,283 | ) | $ | 11,088,546 |   | $ | 76,712,737 |   |   |            |  

See Notes to Consolidated
Financial Statements.

55

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|                                           
|-------------------------------------------
|MINN-DAK
FARMERS COOPERATIVE               
|CONSOLIDATED STATEMENTS OF CASH FLOWS      
|YEARS ENDED
AUGUST 31, 2011, 2010, AND 2009

|                                                                           |  |      |             |      |   |            |   |   |            |  
|-------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                           |  | 2011 |             | 2010 |   | 2009       |  
|OPERATING ACTIVITIES                                                       |  |      |             |      |   |            |   |   |            |  
|Income allocated to members investment                                    |  | $    | 6,188,337   |      | $ | 5,176,549  |   | $ | 4,062,701  |  
|Accumulated other comprehensive
 gain/(loss)-interest swap                 |  |      | (903,337    | )    |   |           |   |   |           |  
|Accumulated other comprehensive
 gain/(loss)-pension                       |  |      | 3,265,874   |      |   | (6,025,922 | ) |   | (7,920,718 | )
|Add (deduct) noncash items                                                 |  |      |             |      |   |            |   |   |            |  
|Depreciation                                                               |  |      | 9,191,821   |      |   | 8,808,312  |   |   | 8,440,002  |  
|Amortization                                                               |  |      | 758,066     |      |   | 752,461    |   |   | 359,548    |  
|(Gain) Loss on disposal of equipment                                       |  |      | 14,249      |      |   | (25,553    | ) |   | (108,602   | )
|(Gain) Loss allocated from unconsolidated
 marketing cooperatives          |  |      | 91,557      |      |   | 84,761     |   |   | (115,543   | )
|Noncash portion of patronage capital
 credits                              |  |      | (584,496    | )    |   | 32,396     |   |   | (974,925   | )
|Deferred income taxes                                                      |  |      | (99,601     | )    |   | (63,000    | ) |   | 30,800     |  
|(Increase)/Decrease in cash surrender of
 retired executive life insurance |  |      | (14,769     | )    |   | 11,651     |   |   | 49,555     |  
|Retention of non-qualified unit retains                                    |  |      | 3,103,553   |      |   |           |   |   |           |  
|Changes in assets and liabilities:                                         |  |      |             |      |   |            |   |   |            |  
|Accounts receivable and advances                                           |  |      | (11,425,433 | )    |   | (1,675,199 | ) |   | (420,329   | )
|Inventory and prepaid expenses                                             |  |      | (15,359,942 | )    |   | (7,192,687 | ) |   | (815,803   | )
|Deferred charges and other                                                 |  |      | 12,075,830  |      |   | (2,873,808 | ) |   | 114,473    |  
|Accounts payable, accrued liabilities, and
 other liabilities              |  |      | 6,462,382   |      |   | 11,225,351 |   |   | 9,665,509  |  
|                                                                           |  |      |             |      |   |            |   |   |            |  
|NET CASH FROM OPERATING ACTIVITIES                                         |  |      | 12,764,091  |      |   | 8,235,312  |   |   | 12,366,668 |  
|                                                                           |  |      |             |      |   |            |   |   |            |  
|INVESTING ACTIVITIES                                                       |  |      |             |      |   |            |   |   |            |  
|Proceeds from disposition of property,
 plant and equipment                |  |      |            |      |   | 125,666    |   |   | 332,455    |  
|Capital expenditures                                                       |  |      | (17,795,356 | )    |   | (7,987,929 | ) |   | (8,817,485 | )
|Capital adjustment of unconsolidated
 marketing cooperatives               |  |      | 106,834     |      |   | (237,248   | ) |   | 871,094    |  
|Proceeds from patronage refunds and equity
 revolvements                   |  |      | 412,153     |      |   | 367,407    |   |   | 418,184    |  
|                                                                           |  |      |             |      |   |            |   |   |            |  
|NET CASH USED FOR INVESTING ACTIVITIES                                     |  |      | (17,276,369 | )    |   | (7,732,104 | ) |   | (7,195,752 | )
|                                                                           |  |      |             |      |   |            |   |   |            |  
|FINANCING ACTIVITIES                                                       |  |      |             |      |   |            |   |   |            |  
|Sale (repurchase) of common stock, net                                     |  |      | (250        | )    |   | 750        |   |   | (2,250     | )
|Net proceeds (repayments) of short-term
 debt                              |  |      | 13,088,534  |      |   | 8,579,703  |   |   | (5,462,022 | )
|Checks outstanding                                                         |  |      | (79,543     | )    |   | 462,098    |   |   | 545,766    |  
|Proceeds from long term debt                                               |  |      |            |      |   |           |   |   | 10,000,000 |  
|Payment of financing fees                                                  |  |      | (749,835    | )    |   | (753,447   | ) |   | (207,405   | )
|Payment of long-term debt/lease                                            |  |      | (3,808,566  | )    |   | (5,030,020 | ) |   | (5,692,828 | )
|Payment of unit retains and allocated
 patronage                           |  |      | (4,020,289  | )    |   | (3,727,630 | ) |   | (4,417,403 | )
|                                                                           |  |      |             |      |   |            |   |   |            |  
|NET CASH USED FOR FINANCING ACTIVITIES                                     |  |      | 4,430,051   |      |   | (468,546   | ) |   | (5,236,142 | )
|                                                                           |  |      |             |      |   |            |   |   |            |  
|NET CHANGE IN CASH                                                         |  |      | (82,227     | )    |   | 34,662     |   |   | (65,226    | )
|                                                                           |  |      |             |      |   |            |   |   |            |  
|                                                                           |  |      |             |      |   |            |   |   |            |  
|CASH, BEGINNING OF YEAR                                                    |  |      | 128,611     |      |   | 93,949     |   |   | 159,175    |  
|                                                                           |  |      |             |      |   |            |   |   |            |  
|CASH, END OF YEAR                                                          |  | $    | 46,384      |      | $ | 128,611    |   | $ | 93,949     |  

56

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|                                           
|-------------------------------------------
|MINN-DAK FARMERS
COOPERATIVE               
|CONSOLIDATED STATEMENTS OF
CASHFLOWS       
|YEARS ENDED AUGUST 31,
2011, 2010, AND 2009

|                                                                         |  |      |           |      |   |           |  |   |           |  
|------------------------------------------------------------------------ |  | ---- | --------- | ---- | - | --------- |  | - | --------- | -
|                                                                         |  | 2011 |           | 2010 |   | 2009      | 
|                                                                         |  |      |           |      |   |           |  |   |           |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION                       |  |      |           |      |   |           |  |   |           |  
|                                                                         |  |      |           |      |   |           |  |   |           |  
|Cash payments for Interest                                               |  | $    | 2,064,030 |      | $ | 1,861,232 |  | $ | 2,067,437 |  
|                                                                         |  |      |           |      |   |           |  |   |           |  
|Income tax net payments (refunds)                                        |  | $    | 336,897   |      | $ | 485,910   |  | $ | (790,406  | )
|                                                                         |  |      |           |      |   |           |  |   |           |  
|SUPPLEMENTAL DISCLOSURES OF NON-CASH
 INVESTING AND FINANCING ACTIVITIES |  |      |           |      |   |           |  |   |           |  
|                                                                         |  |      |           |      |   |           |  |   |           |  
|Proceeds for bond issuance transferred to
 restricted investment         |  | $    | 8,815,000 |      | $ | 7,000,000 |  |   |          |  
|                                                                         |  |      |           |      |   |           |  |   |           |  
|Equipment purchased by issuance of capital
 lease                        |  | $    |          |      | $ | 392,259   |  | $ | 2,365,296 |  

See Notes to
Consolidated Financial Statements.

57

---



NOTE 1 - PRINCIPAL
ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

Minn-Dak Farmers Cooperative
(the Company) is a North Dakota cooperative association owned by its
member-growers for the purpose of processing sugarbeets and marketing sugar and
co-products. Minn-Dak Yeast Company, Inc. (Minn-Dak Yeast) is a North Dakota
corporation engaged primarily in the production and marketing of bakers yeast.
Link Acquisition Company LLC (Link) was formed to advance possible strategic
business activities by the Company. Approximately 96% of net sales are related
to sugarbeet operations and 4% are related to yeast operations.

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

Principles of Consolidation

The financial statements
include the accounts of the Company and its wholly owned subsidiaries, Minn-Dak
Yeast and Link. Significant intercompany activity has been eliminated from the
Balance Sheet, Statement of Operations, Statement of Members Investment and
Statements of Cash Flows.

Cash and Cash Equivalents

Cash Equivalents are assets
which are readily convertible into cash within three months. The Company does
not consider Bond Trust assets as Cash Equivalents, since it is restricted in
nature.

Receivable and Credit Policy

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

Credit Risk

The Company via United
Sugars, Midwest Agri-Commodities and Minn-Dak Yeast grants credit to food
processors located throughout the United States. In addition, the Company
grants credit to member-growers located in North Dakota and Minnesota, for
sugarbeet seed, technology fees, and co-products.

Inventories

Inventories of refined
sugar, thick juice, pulp and molasses to be sold on a pooled basis are valued
at net realizable value, while third-party purchased refined sugar to be sold
on a pooled basis is valued at the lower of the cost or market. Inventory of
yeast is valued at the lower of average cost or market. Materials and supplies
are valued using the lower of cost (determined using the first in first out
method) or market. During the periods when sugarbeets are purchased from
growers, but not yet converted into bin sugar or thick juice, that inventory is
valued at grower payment cost. In valuing inventories at net realizable value,
the Company, in effect sells the remaining inventory to the subsequent periods
sugar and co-product pool.

58

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Inventories of conventional
beet chemicals and conventional beet seed are valued at lower of cost or market
until the threat of legal action against the planting of Round-up Ready®
seed is substantially eliminated.

Reclassifications

Certain accounts in the
prior-year financial statements have been reclassified for comparative purposes
to conform to the presentation in the current-year financial statements.

Prepaid Expense and Other Assets

Purchased sugar allocation
and prepaid insurance costs related to subsequent fiscal years are recorded as
assets and subsequently expensed to those years.

Deferred Costs and Product Values

All costs incurred prior to
the beginning of the Companys fiscal year that relate to agricultural
development and labor procurement costs, receiving and processing the
subsequent years sugarbeet crop are deferred. Similarly, the net realizable
values of products produced prior to the beginning of the Companys fiscal year
that relate to the subsequent years sugarbeet crop are deferred. Deferred
costs as of August 31, 2011 and August 31, 2009 of $1,692,826 and $1,324,353
respectively were recorded in the Companys balance sheet as current assets
under the heading Deferred charges. There were no products produced prior to
the fiscal years ending August 31, 2011 and August 31, 2009. The net result of
deferred costs and grower sugar beet payables as of August 31, 2010 of
$8,825,180 was recorded in the Companys balance sheet in Deferred
liabilities.

Property, Plant, Equipment and Depreciation

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

It is the policy of the
Company to provide depreciation based on methods designed to amortize the cost
of the properties over their estimated useful lives. Property, plant and
equipment are depreciated for financial reporting purposes, principally using
declining balance methods, with estimated useful lives ranging from 3 to 40
years. Statutory lives and methods are used for income tax reporting purposes.
Capital lease equipment is depreciated in accordance with FASB ASC 840, Accounting for Leases.

Capitalized assets include
indirect costs such as fringe benefits, interest and engineering when
appropriate. The indirect costs capitalized for the years ended August 31,
2011, 2010 and 2009 were $179,935, $257,391, and $205,240 respectively. There
was no construction-period interest capitalized for the years ended August 31,
2011, 2010 and 2009.

Goodwill and Other Intangible Assets

In accordance with Statement
of Financial Accounting Standards FASB ASC 350 (Accounting Standards
Codification), Intangibles  Goodwill and
Other, the Company does not amortize goodwill. The Company has
annually evaluated goodwill and other intangible assets for impairment and
concluded that no impairment charge was necessary.

Costs associated with the
acquisition of permanent allocation rights will be amortized over the remaining
life of the farm program, currently estimated at three crop years.

59

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Investments in Other Cooperatives and Unconsolidated
Marketing Cooperatives

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

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

Income Taxes

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

Revenue Recognition

The Company recognizes all
revenue at the point of customer receipt of product.

Accounting Estimates

The preparation of financial
statements in conformity with U.S. 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.

Bond Origination Costs

Bond financing costs
incurred in connection with the financing of the construction projects related
to the processing facility have been capitalized. The Company is amortizing the
bond financing costs over the terms of the financing obtained using a straight
line method.

Amortization of bond
financing cost for the years ended August 31, 2011, 2010, and 2009 totaled
$27,995, $21,650 and $28,362, respectively.

Self-Funded Insurance

The Contract year for the
Companys employee health plan starts January 1 and ends December 31. The
Company operates with a self-funded employee health plan administered by Blue
Cross Blue Shield of North Dakota (BCBS). In addition to administering claims,
BCBS insures individual health claims in excess of $200,000 and aggregate
annual claims in excess of 120% of expected claims for the plan year. The Company
has exposure for claims incurred but not paid at the end of each reporting
period. Historical information supplied by BCBS, based on employee enrollment
and factors that are established at each contract renewal, is used to estimate
its liability for these claims. This liability is estimated, actual claims
experience may differ from Company estimates.

Uninsured Cash Balance

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

60

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Impairment and Disposal of Long-Lived Assets

The Company accounts for
impairment or disposal of long-lived assets in accordance with the provisions
of FASB ASC 144, Impairment or Disposal of
Long-Lived Assets. As of August 31, 2011, the Company had no
impaired long lived assets.

Shipping and Handling Costs

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

Advertising

The
Companys advertising costs are expensed as incurred. Advertising expense for the years ended August 31, 2011,
2010 and 2009 totaled $13,373, $19,875 and $19,955, respectively.

Research and Development

Costs of research and
development are expensed in the period in which they are incurred. Research and
development expense for the years ended August 31, 2011, 2010 and 2009 totaled
$195,021, $335,259 and $241,560, respectively.

Pension Liability

In
accordance with FASB ASC 715, Accounting for
Defined Benefit Pension and Other Postretirement Plans, the Company
records the liability for its defined benefit retirement plan as the benefit
obligation in the financial statements. The Company has determined that the
future tax benefits associated with FASB ASC 715 are patronage sourced and,
therefore, will flow directly to the shareholder/growers. As a result, no
future tax benefit to the Company is recorded.

Fair Value Measurements

Fair value is defined under
FASB ASC 820, Accounting for Fair Value
Measurementsas the price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. Quoted market prices are generally
not available for the Companys financial instruments. 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. These estimates involve uncertainties and
matters of judgment, and therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o | Long-Term
 Debt, Inclusive of Current Maturities - Based upon discounted cash flows and
 current borrowing rates with similar maturities, the book value of the Bank
 debt of approximately $15.8 million, $19.1 million and $22.8 million compares
 to fair values of $15.8 million, $19.1 million and $22.8 million respectively
 as of August 31, 2011, 2010 and 2009. Also included in the Companys
 long-term debt was $28.1 million, $19.2, million and $13.5 million in tax
 exempt bonds, in comparison to the fair value of $28.1 million, $19.2 million
 and $13.5 million respectively for the periods ending August 31, 2011, 2010
 and 2009.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | o | Proceeds
 for Bond Issuance Transferred to Restricted Investment included in the Companys current bond
 trust and restricted long-term other assets was $3.6 million, $7.0 million
 and $0.0 million in comparison to the fair value of $3.6 million, $7.0 million
 and $0.0 million as of August 31, 2011, 2010, and 2009.                                                                                                                                                                                                                                                                                                                             

61

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o | Investments
 in CoBank, Dakota Valley Electric and Investments in Marketing Cooperatives - The Company believes it is not practical
 to estimate the fair value of these investments without incurring excessive
 costs because there is no established market for these securities and equity
 interests, and it is inappropriate to estimate future cash flows which are
 largely dependent on future earnings of these organizations.

Derivative Instruments and Hedging Activities

The
Company recognizes all derivatives in its Consolidated Balance Sheet at fair
value. On the date the derivative instrument is entered into, the Company
designates the derivative as either (a) a hedge of the fair value of a
recognized asset or liability, or of an unrecognized firm commitment (fair
value hedge) or (2) a hedge of a forecasted transaction or of the variability
of cash flows to be received or paid related to a recognized asset or liability
(cash flow hedge). Changes in the fair value of a derivative designated as a
cash flow hedge are recorded in accumulated other comprehensive income (loss)
and are classified into earnings as the underlying hedged item affects
earnings.

Recently Issued Accounting Pronouncements

In December, 2010, the FASB
issued ASU 2010-28, authoritative guidance to improve goodwill impairment
testing. Under this guidance, goodwill and other intangible assets testing is a
two-step test. When a goodwill impairment test is performed (either on an
annual or interim basis), an entity must assess whether the carrying amount of
a reporting unit exceeds its fair value (Step 1). If it does, an entity must
perform an additional test to determine whether goodwill has been impaired and
to calculate the amount of that impairment (Step 2). This guidance is effective
for fiscal years, and interim periods within those years, beginning after
December 15, 2010. Early adoption is not permitted. This Update will be
implemented for the quarter ending November 2011. The Company does not expect
that this authoritative guidance on impairment testing will have a material
effect on the Companys financial statements

In May, 2011, the FASB
issued ASU 2011-4, amendments to achieve common Fair Value Measurement and
Disclosure requirements in U.S GAAP and IFRSs. This amendment is to ensure that
fair value has the same meaning in U.S. GAAP and International Financial
Reporting Standards (IFRSs) and that their respective fair value measurement
and disclosure requirements are the same. This guidance is effective during the
interim and annual periods beginning after December 15, 2011. The Company does
not expect that this authoritative guidance will have any material effect on
the Companys financial statements.

In June, 2011, the FASB
issued ASU 2011-5. This objective of this amendment is to improve the
comparability, consistence, and transparency of financial reporting and to
increase the prominence of items reported in other comprehensive income. This
guidance is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2011. The Company does not expect that this
authoritative guidance will have any material effect on the Companys financial
statements but could potentially change the format of the Consolidated
Statements of Changes in Members Investment and Comprehensive Income.

In September, 2011, the FASB
issued ASU 2011-08. The objective of this amendment is to simplify how entities
test goodwill for impairment allowing an entity to use a qualitative approach
to test goodwill for impairment. This guidance is effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after
December 15, 2011. The Company does not expect that this authoritative guidance
on impairment testing will have a material effect on the Companys financial
statements

Recently Adopted Accounting Pronouncements

In January 2010, the FASB
issued new standards in the ASC 820, Fair
Value Measurements. These standards require new disclosures on the
amount and reason for transfers in and out of Level 1 and 2 fair value
measurements. The standards also require disclosure of activities, including
purchases, sales, issuances, and settlements within the Level 3 fair value
measurements. The standard also clarifies existing disclosure requirements on
levels of disaggregation and disclosures about inputs and valuation techniques.
The new disclosures regarding Level 1 and 2 fair value measurements and
clarification of existing disclosures were effective for the Company beginning
with its interim filing beginning February 2010. The section regarding Level 3
disclosures in ASU 2010-6 is effective for fiscal year beginning after December
15, 2010 and interim periods within those years, so for the Company it will be
effective for the quarter beginning September 1, 2011.

62

---



In June and December 2009,
the FASB issued authoritative guidance to improve financial reporting by
enterprises involved with variable interest entities and to provide more
relevant and reliable information to users of financial statements. This
guidance became effective for the Company in fiscal year 2011. The Company does
not consider the adoption of this guidance to have a material effect on its
financial statements.

Concentration and Sources of Labor

The Companys total factory
campaign and full time work force consists of 463 employees, of which 56% are
covered by a collective bargaining agreement represented by the Bakery,
Confectionery, Tobacco Workers and Grain Millers (BCTGM) AFL-CIO. The agreement
expires on May 31, 2013.

Risks and Uncertainties

Interest
costs - The Company is at risk for interest rate changes in both seasonal and
long-term debt. The Company has variable rates on a substantial majority of its
seasonal and long-term debt. Interest rate risk is not expected to have a
material impact on the Companys annual return to its growers. During the first
quarter of the Companys fiscal year ending August 31, 2011, the Company
adopted a policy to manage future risks associated with interest rate
variability.

Accumulated Other Comprehensive Income
(Loss)

FASB ASC
220, Reporting Comprehensive Income (Loss),
establishes rules for reporting comprehensive income and loss and its
components.

Accumulated
other comprehensive loss consists of:

| |   |                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
 FASB ASC 715, Accounting for Defined
 Benefit Pension and Other Postretirement Plans adjustment and is
 presented in the Statement of Members Investment. See Note 12.                                 
| |  | Interest
 Rate Contracts.See
 Note 13.                                                                                                                                                                       
| |  | Accumulated other comprehensive
 income/loss does not include any adjustment for income taxes, which is
 consistent with the Companys treatment of income tax related to
 member-patron income and expenses.

NOTE 2 - INTANGIBLE ASSETS

Intangible assets derived from the purchase of the
non-controlling interest in Minn-Dak Yeast include $110,152 of Goodwill, which
is not being amortized; $514,000 for Customer Relations and $62,000 for a
Non-Compete Agreement, which were amortized on a straight-line basis over 5
years. The amortization of these intangible assets for the years ended August
31, 2011, 2010 and 2009 was $95,418, $143,127 and $143,127, respectively. The
cumulative amortization of these intangible assets as of August 31, 2011, 2010
and 2009 was $576,000, $480,582 and $337,455 respectively.

NOTE 3 - INVESTMENTS

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

63

---



|                                    |  |      |            |      |   |            |  |   |            | 
|----------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | 
|                                    |  | 2011 |            | 2010 |   | 2009       | 
|                                    |  |      |            |      |   |            |  |   |            | 
|Dakota
 Valley Electric Cooperative |  | $    | 6,438,691  |      | $ | 6,166,685  |  | $ | 5,978,829  | 
|CoBank                              |  |      | 4,241,108  |      |   | 4,379,995  |  |   | 4,964,489  | 
|United Sugars Corporation           |  |      | 170,341    |      |   | 369,509    |  |   | 216,396    | 
|Midwest Agri-Commodities            |  |      | 10,867     |      |   | 10,091     |  |   | 10,717     | 
|Other                               |  |      | 241,542    |      |   | 189,392    |  |   | 173,171    | 
|                                   
|                                    |  | $    | 11,102,549 |      | $ | 11,115,672 |  | $ | 11,343,602 | 

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

Short-Term Debt

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

|                                                                                                     |  |      |            |      |   |            |  |   |            | 
|---------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | 
|                                                                                                     |  | 2011 |            | 2010 |   | 2009       | 
|                                                                                                     |  |      |            |      |   |            |  |   |            | 
|Sugar Loan with CCC due September 30, 2011,
 the interest rate was 1.25% as of August 31, 2011       |  | $    | 3,546,000  |      | $ |           |  | $ |           | 
|                                                                                                     |  |      |            |      |   |            |  |   |            | 
|Seasonal loan with CoBank, due December 31,
 2011, the interest rate was 2.69% as of August 31, 2011 |  |      | 37,100,214 |      |   | 27,557,680 |  |   | 18,977,978 | 
|                                                                                                     |  |      |            |      |   |            |  |   |            | 
|                                                                                                     |  | $    | 40,646,214 |      | $ | 27,557,680 |  | $ | 18,977,978 | 

The Company
had a $3,546,000 outstanding CCC Loan with no additional available credit draw
and a $50,000,000 seasonal line of credit with CoBank, with $12,899,786
available credit draw on August 31, 2011. On November 15, 2010, the Company
obtained a seasonal line of Credit renewal for $85,000,000 through May 31,
2011; with a step down to $45,000,000 from June 1, 2011 through December 31,
2011. On July 5, 2011 due to additional needs for operating capital the company
obtained an addition of $5,000,000 for the seasonal line of credit which increased
the seasonal line of credit to $50,000,000 through December 31, 2011. The lines
are secured with a first lien on substantially all property and equipment and
current assets of the Company. The Company utilizes the USDAs CCC Sugar Loan
Program to provide an additional source of seasonal financing. Un-advanced
funds remaining from the $85,000,000 and $50,000,000 seasonal debt lines are
subject to a 0.375% commitment fee.

64

---



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

|                          |  |      |            |   |      |   |            |      |  |   |            |  
|------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                          |  | 2011 |            |   | 2010 |   |            | 2009 | 
|Maximum
 borrowings       |  | $    | 86,346,055 |   |      | $ | 50,390,927 |      |  | $ | 45,551,000 |  
|                         
|Average
 borrowing levels |  | $    | 56,342,018 |   |      | $ | 33,570,102 |      |  | $ | 28,410,018 |  
|                         
|Average
 interest rates   |  |      | 2.41       | % |      |   | 2.37       | %    |  |   | 2.23       | %

Long-Term Debt

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

|                                                                                                                                                                                                                                                                                                                                                                     |  |      |            |      |   |            |   |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                                                                     |  | 2011 |            | 2010 |   | 2009       |  
|CoBank term
 loan, with fixed and variable rates, due in varying principal repayments through
 August 20, 2016 as of August 31, 2011, fixed interest rate currently at 5.60%
 and the variable interest rate was 1.59% as of August 31, 2011 with a first
 lien on substantially all property, equipment, and current assets of the
 Company located in Wahpeton, ND |  | $    | 15,806,563 |      | $ | 19,134,260 |   | $ | 22,461,958 |  
|                                                                                                                                                                                                                                                                                                                                                                     |  |      |            |      |   |            |   |   |            |  
|Less current portion                                                                                                                                                                                                                                                                                                                                                 |  |      | (2,495,773 | )    |   | (2,495,773 | ) |   | (2,495,773 | )
|Long term portion                                                                                                                                                                                                                                                                                                                                                    |  | $    | 13,310,790 |      | $ | 16,638,487 |   | $ | 19,966,185 |  

In addition,
the Company may make special advance payments on its term loans with CoBank
after its seasonal loans have been paid in full, with the understanding that
the special advance payments will be re-advanced subject to the reinstatement
provisions, prior to the granting of any new seasonal loans. Any such advance
payments are subject to a commitment fee of 0.375% of the daily un-advanced
commitment.

Interest
expense for the years ended August 31, 2011, 2010 and 2009 totaled $2,491,013,
$1,974,363, and $2,017,946, respectively.

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

|                            |  |   |            |  | 
|--------------------------- |  | - | ---------- |  | 
|Years ending August 31,     |  |   |            |  | 
|                            |  |   |            | 
|2012                        |  | $ | 2,495,773  | 
|2013                        |  |   | 3,327,697  | 
|2014                        |  |   | 3,327,697  | 
|2015                        |  |   | 3,327,697  | 
|2016                        |  |   | 3,327,699  | 
|                            |  |   |            | 
|Total Principal amounts due |  | $ | 15,806,563 | 

As of August
31, 2011, the Company was in compliance with all loan covenants with the Bank.

65

---



Capital Leases

The Company is
the lessee of equipment under capital leases with varying expiration dates. The
assets and liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the asset. For
the years ended August 31, 2011, 2010 and 2009 the capitalized costs of the
leased assets were $3,352,917, $3,352,917 and $2,960,658 respectively and
accumulated amortization was $1,344,315, $853,734, and $365,403 respectively.
This equipment is being depreciated in accordance with FASB ASC 840, Accounting for Leases. Depreciation of
assets under these capital leases is included in depreciation expense.

Minimum future
lease payments under capital leases are as follows:

|                                            |  |   |           | 
|------------------------------------------- |  | - | --------- | 
|Years ending August 31,                     |  |   |           | 
|                                            |  |   |           | 
|2012                                        |  | $ | 609,893   | 
|2013                                        |  |   | 960,621   | 
|2014                                        |  |   | 212,886   | 
|2015                                        |  |   | 463,710   | 
|                                            |  |   |           | 
|Total
 minimum lease payments               |  | $ | 2,247,110 | 
|                                            |  |   |           | 
|Less: Amount
 representing interest         |  |   | 195,183   | 
|                                            |  |   |           | 
|Present
 value of net minimum lease payment |  | $ | 2,051,927 | 
|                                            |  |   |           | 
|Less:
 Current Portion                      |  |   | 516,225   | 
|                                            |  |   |           | 
|Long Term
 Portion                          |  | $ | 1,535,702 | 

Bonds Payable

The Company
financed capital expenditures related to the processing facility through the
sale of Industrial Development Revenue Bonds, Series 2002, by Richland County
North Dakota. On December 7, 2009, the Company applied for and received
approval from Richland County to re-finance its tax-exempt long-term bonds. All
variable rate bonds outstanding as of January 15, 2010 were called and new
variable rate bonds were issued with a single maturity date of February 1, 2023
with no associated gains or losses. In addition, $7.0 million in new tax-exempt
bonds, which are exempt from alternative minimum taxes, were approved by
Richland County to finance future capital expenditures. These variable rate
bonds were issued on February 18, 2010 with a single maturity date of February
1, 2025. An additional $8.815 million in new tax-exempt bonds, which are exempt
from alternative minimum taxes, were approved by Richland County to finance
future capital expenditures. These variable rate bonds were issued on November
30, 2010 with a single maturity date of November 1, 2028. The letters of credit
from the Bank associated with these bonds were also renewed as of the date of
the issuance of the bonds. The new tax-exempt bond proceeds, initially $8.815
million, are held as a restricted investment in a bond trust until qualified
expenditures related to the bonds have been expended by the Company. As of
August 31, 2011 a total of $5.26 million has been drawn and $3.56 million remain
in the bond trust until additional qualified expenditures related to the bonds
have been expended by the Company. The Company guarantees the bonds. The
Company has letter of credit arrangements expiring February 28, 2012 and April
30, 2012 with a bank that provides security for obligations under the bonds
payable totaling approximately $19,814,564 and $9,078,242; respectively at
August 31, 2011. There were no outstanding advances under these letter of
credit arrangements as of August 31, 2011.

66

---



Information regarding tax
exempt bonds payable at August 31 is as follows:

|                                                                                                                                                      |  |      |            |      |   |            |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | -
|                                                                                                                                                      |  | 2011 |            | 2010 |   | 2009       | 
|                                                                                                                                                      |  |      |            |      |   |            |  |   |            |  
|Richland
 County North Dakota Bonds, with variable rates, due in varying principal
 repayments through January 2011                                   |  | $    |           |      | $ |           |  | $ | 2,570,000  |  
|                                                                                                                                                      |  |      |            |      |   |            |  |   |            |  
|Refinanced $1,320,0000 January 28,
 2010. Bonds with repayments through April 2019. Refinanced $10,920,000 January
 28, 2010.                         |  |      |           |      |   |           |  |   | 10,920,000 |  
|                                                                                                                                                      |  |      |            |      |   |            |  |   |            |  
|Richland County North Dakota bonds, with
 variable interest rates due February 1, 2023, the effective interest rate was
 2.31% as of August 31, 2011. |  |      | 12,240,000 |      |   | 12,240,000 |  |   |           |  
|                                                                                                                                                      |  |      |            |      |   |            |  |   |            |  
|Richland County North Dakota bonds with
 variable interests rate due February 1, 2025, the effective interest rate was
 2.22% as of August 31, 2011.  |  |      | 7,000,000  |      |   | 7,000,000  |  |   |           |  
|                                                                                                                                                      |  |      |            |      |   |            |  |   |            |  
|Richland County North Dakota bonds with
 variable interest rate due November 1, 2028, the effective interest rate was
 2.22% as of August 31, 2011.   |  |      | 8,815,000  |      |   |           |  |   |           |  
|                                                                                                                                                      |  |      |            |      |   |            |  |   |            |  
|                                                                                                                                                      |  |      | 28,055,000 |      |   | 19,240,000 |  |   | 13,490,000 |  
|                                                                                                                                                      |  |      |            |      |   |            |  |   |            |  
|Less Current Portion                                                                                                                                  |  |      |           |      |   |           |  |   | (2,120,000 | )
|Long Term Portion                                                                                                                                     |  | $    | 28,055,000 |      | $ | 19,240,000 |  | $ | 11,370,000 |  

67

---



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

|                        |  |                    |            | 
|----------------------- |  | ------------------ | ---------- | 
|Years ending August 31, |  | Per
 Bond Schedule |           
|                       
|2012                    |  | $                  |           | 
|2013                    |  |                    |           | 
|2014                    |  |                    |           | 
|2015                    |  |                    |           | 
|2016                    |  |                    |           | 
|Thereafter              |  |                    | 28,055,000 | 
|                        |  |                    |            | 
|                        |  | $                  | 28,055,000 | 

|                                                         |  |   |            |  
|-------------------------------------------------------- |  | - | ---------- | -
|Funds held
 in trust as of August 31, 2011               |  | $ | 3,555,648  |  
|Funds
 eligible for Draw-Current as of August 31, 2011   |  |   | (1,643,824 | )
|Funds
 eligible for Draw-Long Term as of August 31, 2011 |  | $ | 1,911,824  |  

NOTE 5 - MEMBERS INVESTMENT AND GROWER
PAYMENTS

The ownership of non-dividend bearing common stock is restricted to a
member-producer, as defined in the by-laws of the Company. Each
member-producer shall own only one share of common stock and is entitled to one
vote at any meeting of the members. Each member-producer is also required to
purchase units of preferred stock and is entitled to grow the maximum acres per
unit of preferred stock as is authorized by the Board of Directors each farming
year. The Companys Board of Directors authorized the members to plant for the
fiscal years 2011, 2010 and 2009, respectively 1.70, 1.60 and 1.50 acres per
unit of preferred stock.A unit
consists of one share each of Class A, Class B and Class C preferred stock. The
preferred shares are non-voting and non-dividend bearing. The Companys Board
of Directors must approve all transfers and sales of stock.

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

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

The Company
allocated non-qualified patronage to the members for the years ended August 31,
2011, 2010 and 2009 of $6,216,008, $4,020,142, and $3,727,840, respectively.

68

---



The Company
deducted unit retains from the members for the years ended August 31, 2011,
2010, and 2009 of $3,108,004, $-0- and $-0-, respectively.

During the
year ended August 31, 2011, the Company revolved the remaining 76% of the
allocated patronage for the fiscal year ended August 31, 2005 totaling
$3,706,906 and 59% of the allocated patronage for the fiscal year ended August
31, 2006, totaling $2,485,193. In addition, for the fiscal period ending August
31, 2011 the Company revolved $23,830 of allocated patronage and $4,451 of unit
retains to certain deceased members estates.

During the
year ended August 31, 2010, the Company revolved the remaining 66% of the
allocated patronage for the fiscal year ended August 31, 2004 totaling
$2,876,660 and 24% of the allocated patronage for the fiscal year ended August
31, 2005, totaling $1,143,629. In addition, for the fiscal period ending August
31, 2010 the Company revolved $-0- of allocated patronage to certain deceased
members estates.

During the
year ended August 31, 2009, the Company revolved the remaining 46% of the
allocated patronage for the fiscal year ended August 31, 2003 totaling
$2,199,418 and 33% of the allocated patronage for the fiscal year ended August
31, 2004, totaling $1,426,511. In addition, for the fiscal period ending August
31, 2009 the Company revolved $101,701 of allocated patronage to certain
deceased members estates.

NOTE 6 - INVESTMENT IN MARKETING COOPERATIVES

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

The Companys
ownership requirement in United Sugars is calculated periodically and is based
on the average volume of sugar produced during the five previous fiscal years.
The investment is accounted for on the equity method and the amount of sales
and related costs recognized by each member processor is allocated based on
their pro-rata share of production for the year. The Company provided United
Sugars with cash advances on an ongoing basis for its share of operating and
marketing expenses incurred. During the years ended August 31, 2011, 2010 and
2009, the Company had advanced $45,544,024, $26,299,502 and $30,087,285, for
operating and marketing expenses incurred respectively. The Company had
outstanding advances due (from) United Sugars as of August 31, 2011, 2010 and
2009 of $(4,456,306), $(1,424,545) and $(1,740,649), respectively. In addition,
the Company had an outstanding payable to United Sugars as of August 31, 2011,
2010 and 2009 of $5,003,916, $3,150,736 and $4,675,037, respectively. The
Company accounts for United Sugars FASB ASC 715, Accounting for Defined Benefit Pension and Other Postretirement Plans
adjustment as an additional change in accumulated other comprehensive income
(loss).

The Company
has a one-fourth ownership interest in Midwest. The amount of the investment is
accounted for using the equity method. All sugarbeet pulp and a portion of the
molasses produced are sold by Midwest as an agent for the Company. The amount
of sales and related costs to be recognized by each owner is allocated based on
their pro-rata share of production for the year. The Company provided Midwest
with cash advances on an ongoing basis for its share of operating and marketing
expenses incurred by Midwest. The Company advanced Midwest during the years
ended August 31, 2011, 2010 and 2009, $11,998,912, $9,235,346 and $8,440,062,
respectively. The Company had outstanding advances payable to Midwest as of
August 31, 2011, 2010 and 2009 of $1,674,256, $1,708,006 and $634,852,
respectively. In addition, the Company had an outstanding receivable (from)
Midwest as of August 31, 2011 and 2010 of $(753,538) and $(1,066,848), respectively
and an outstanding payable for 2009 of $110,353. The owners of Midwest
guarantee, on a pro-rata basis, the $11,000,000 short-term line of credit that
Midwest has with its primary lender. The Company accounts for Midwests FASB
ASC 715, Accounting for Defined Benefit
Pension and Other Postretirement Plans adjustment as an additional
change in accumulated other comprehensive income (loss).

69

---



NOTE 7 - INCOME TAXES

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

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

|                                                                   |  |      |            |      |   |            |   |   |            |  
|------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                   |  | 2011 |            | 2010 |   | 2009       |  
|Deferred tax
 assets                                               |  |      |            |      |   |            |   |   |            |  
|Non-qualified unit retains and allocated
 patronage due to members |  | $    | 11,319,460 |      | $ | 11,319,500 |   | $ | 11,319,000 |  
|Net operating loss carryforwards                                   |  |      | 5,444,329  |      |   | 7,241,900  |   |   | 6,121,600  |  
|Other                                                              |  |      | 3,990,950  |      |   | 2,443,123  |   |   | 1,113,741  |  
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Total deferred tax assets                                          |  |      | 20,754,739 |      |   | 21,004,523 |   |   | 18,554,341 |  
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Deferred tax liabilities                                           |  |      |            |      |   |            |   |   |            |  
|Depreciation                                                       |  |      | 18,130,724 |      |   | 18,503,239 |   |   | 18,528,741 |  
|Other                                                              |  |      | 2,790,215  |      |   | 2,767,084  |   |   | 354,400    |  
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Total deferred tax liabilities                                     |  |      | 20,920,939 |      |   | 21,270,323 |   |   | 18,883,141 |  
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Net deferred tax asset (liability)                                 |  | $    | (166,200   | )    | $ | (265,800   | ) | $ | (328,800   | )
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Classified as follows                                              |  |      |            |      |   |            |   |   |            |  
|Current asset                                                      |  | $    | 11,000     |      | $ |           |   | $ | 25,600     |  
|Long-term asset (liability)                                        |  |      | (177,200   | )    |   | (265,800   | ) |   | (354,400   | )
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Net deferred tax asset (liability)                                 |  | $    | (166,200   | )    | $ | (265,800   | ) | $ | (328,800   | )

The state and federal operating loss carry forwards totaling
approximately $13,530,000 will expire in 2015 through 2030.

The provision for income taxes is as follows:

|                                     |  |      |         |      |   |         |   |   |          |  
|------------------------------------ |  | ---- | ------- | ---- | - | ------- | - | - | -------- | -
|                                     |  | 2011 |         | 2010 |   | 2009    |  
|Current
 expense (benefit)           |  | $    | 16,000  |      | $ | 406,579 |   | $ | (535,945 | )
|Net change
 in temporary differences |  |      | (99,600 | )    |   | (62,999 | ) |   | 30,800   |  
|                                    
|Provision (benefit) for income taxes |  | $    | (83,600 | )    | $ | 343,580 |   | $ | (505,145 | )

Deferred tax
assets are reduced by a valuation allowance to the extent Management concludes
it is more likely than not that the assets will not be realized. For the years
ended August 31, 2011, 2010, and 2009 the Company had a valuation allowance of
$1,185,100, $705,400 and $355,300 respectively.

The items
accounting for the difference between expected tax (benefit) computed at the
federal statutory rate of 35% and the provision of income taxes were as
follows:

70

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|                                                       |  |      |        |      |  |       |   |  |       |  
|------------------------------------------------------ |  | ---- | ------ | ---- |  | ----- | - |  | ----- | -
|                                                       |  | 2011 |        | 2010 |  | 2009  |  
|Expected
 federal income tax expense at statutory rate |  |      | 35.00  | %    |  | 35.0  | % |  | 35.0  | %
|State tax
 expense at statutory rate                   |  |      | 5.00   | %    |  | 5.0   | % |  | 5.0   | %
|Payments to
 members                                   |  |      | -40.02 | %    |  | -39.4 | % |  | -40.0 | %
|Other, net                                             |  |      | -0.02  | %    |  | -0.3  | % |  | -5.0  | %
|                                                      
|Effective
 tax rate                                    |  |      | -0.04  | %    |  | 0.3   | % |  | -5.0  | %

The Company
allocates the patronage related benefits of the Domestic Production Activities
Deduction directly to its patrons. During the years ended August 31, 2011, 2010
and 2009 the Company passed through $10,574,618, $5,944,573 and $5,742,508
respectively to its patrons.

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | When
 non-qualified allocated patronage is elected by the Board of Directors, the
 Company is not allowed an income tax deduction until they are paid in cash to
 the member-producers, where-as qualified allocated patronage is deducted when
 declared.                                                                                                                                                                                                                                                                                                                                                                                               
| | 2. | Depreciation
 - For financial reporting purposes, the Company uses straight-line and
 accelerated methods of depreciation with lives of 3 to 40 years, while, for
 income tax purposes, the Company uses required statutory depreciable lives
 and methods.                                                                                                                                                                                                                                                                                                                                                                                              
| | 3. | Non-qualified
 patronage credits from investments in other cooperatives - For financial
 statement purposes, the Company recognizes 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 to the extent paid within 2 1⁄2 months of year end.                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 6. | On August
 31, 2006, the Company had a net $915,560 in non-patronage long-term tax
 liability resulting from a combination of non-patronage tax issues that will
 reverse over the life of certain assets now considered to be member business
 related. The Company will amortize the $915,560 long-term liability over the
 approximate remaining book life of those assets generating the liability. The
 amortization of the long-term tax liability for the years ended August 31,
 2011, 2010 and 2009 was $88,600, $88,600 and $88,600, respectively leaving a
 remaining balance on August 31, 2011 of $177,200 to be amortized in future
 years.
| | 7. | Non-qualified
 deferred compensation is deducted for book purposes as incurred and deducted
 for tax purposes as paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 8. | The
 Companys tax strategy calls for up to $3,103,533 of the 2010-crop unit
 retains to be declared qualified for AMT tax purposes with notifications sent
 to shareholder/patrons in calendar year 2012. The 2010-crop unit retains will
 be non-qualified for book and regular tax purposes, but qualified for AMT tax
 purposes only.                                                                                                                                                                                                                                                                                                                

71

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Adoption of FASB ASC 740-10, Accounting for Uncertainty in Income Taxes

On September
1, 2007 The Company adopted the provisions of FASB ASC 740-10, Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109. FASB ASC 740-10
prescribes a threshold for the financial statement recognition and measurement
of a tax position taken or expected to be taken in an income tax return. FASB
ASC 740-10 requires that the company determine whether the benefits of tax
positions are more likely than not of being sustained upon audit based upon the
technical merits of the tax position. For tax positions that are more likely
than not of being sustained upon audit, the Company recognizes the largest
amount of the benefit that is more likely than not of being sustained in our
financial statements. For tax positions that are not more likely than not of
being sustained upon audit, the Company does not recognize any portion of the
benefit in its financial statements

As of August
31, 2011, the companys has no tax positions that qualifying for FASB ASC
740-10 treatment. For purposes of FASB ASC Topic 740-10, the Company would
recognize any interest and penalties accrued related to unrecognized tax benefits
in tax expense.

The aggregate
changes in the balance of the Companys gross unrecognized tax benefits were as
follows for the periods indicated:

|                                                     |  |      |   |      |   |          |   |   |         | 
|---------------------------------------------------- |  | ---- | - | ---- | - | -------- | - | - | ------- | 
|Year Ended
 August 31,                               |  | 2011 |   | 2010 |   | 2009     |  
|                                                     |  |      |   |      |   |          |   |   |         | 
|Balance
 unrecognized tax benefits beginning balance |  | $    |  |      | $ | 274,075  |   | $ | 256,075 | 
|Increases for tax positions related to
 current year |  |      |  |      |   | 13,500   |   |   | 18,000  | 
|Increases for tax positions related to
 prior year   |  |      |  |      |   |         |   |   |        | 
|Reductions for tax positions of prior years          |  |      |  |      |   |         |   |   |        | 
|Decreases related to settlements                     |  |      |  |      |   | (287,575 | ) |   |        | 
|Reductions due to lapsed statute of
 limitations     |  |      |  |      |   |         |   |   |        | 
|Balance
 unrecognized tax benefits at August 31      |  | $    |  |      | $ |         |   | $ | 274,075 | 

Tax returns
filed as of August 31, 2008 through current filings are open for examination.

NOTE 8 - DEPRECIATION

The Companys
depreciation expense for the years ended August 31, 2011, 2010 and 2009 was
$9,191,821, $8,808,312, and $8,440,002, respectively.

NOTE 9 - ENVIRONMENTAL MATTERS

The Company is
subject to extensive federal and state environmental laws and regulations with
respect to water and air quality, solid waste disposal and odor control. The
Company conducts an ongoing compliance program designed to meet these
environmental laws and regulations. The Company believes that it is in
substantial compliance with applicable environmental laws and regulations. From
time to time, however, the Company may be involved in investigations or
determinations regarding matters that may arise in the ordinary course of
business. The Company works closely with all affected government agencies to
resolve environmental issues that have arisen and believes such issues will be
resolved without any material adverse effect on the Company.

72

---



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

NOTE 10 - COMMITMENTS AND CONTINGENCIES

During fiscal
year 1997, the Company entered into a long-term lease agreement on a property,
which included providing a guarantee for the notes to finance the leased
property. The Companys contingent liability related to these notes totaled
$538,599 as of August 31, 2011.

During the
fiscal year 2010, the Company entered into a coal purchase agreement requiring
a minimum annual transportation commitment of coal in the amount of $4.3
million for each of the fiscal years ending August 31, 2011, 2012 and 2013
respectively.

Legal action
to stop seed and root plantings of Roundup Ready® sugarbeets for the 2011 crop
was unsuccessful. The ability of shareholder/growers to plant Roundup Ready®
sugarbeets in future years will be based upon actions by the United States
Department of Agriculture, which may be subject to further legal challenge.

NOTE 11 - OPERATING LEASES

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

|                        |  |   |         | 
|----------------------- |  | - | ------- | 
|Years ending August 31, |  |   |         | 
|2012                    |  | $ | 67,721  | 
|2013                    |  |   | 38,222  | 
|                        |  | $ | 105,943 | 

Operating
lease and contract expenses for the years ended August 31, 2011, 2010 and 2009,
totaled $75,333, $960,068 and $1,145,998, respectively.

NOTE 12 - EMPLOYEE BENEFIT PLANS

401(k) Plan

The Company
has a qualified 401(k) employee benefit plan that covers all employees meeting
eligibility requirements. The Companys matching contribution to the plan is at
a level of 100% of employee contributions, with a maximum of 4% of
compensation. Employer contributions to the plan for the years ended August 31,
2011, 2010 and 2009 totaled $707,640, $660,677, and $637,822, respectively.

Effective
September 1, 2007, individual participating employees who have met the
non-elective eligibility requirements of the plan received a contribution of 4%
of their compensation each pay period as provided by the plan. Individuals
participating in this benefit are excluded from the non-contributory defined
benefit plan. Employer contributions to the plan for the years ended August 31,
2011, 2010, and 2009 totaled $93,402, $79,385, and $65,657, respectively.

73

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Pension plan

The Company
has a non-contributory defined benefit plan, which covers substantially all
employees who meet certain requirements of age, hours worked per year, years of
service, and age at retirement or termination. The pension funding policy is to
deposit amounts allowable by law with independent trustees. Funds deposited
with independent trustees maintained to provide pension benefits to plan
participants and their beneficiaries. The Companys measurement date is August
31, 2011, 2010 and 2009.

In August
2006, the Pension Protection Act (PPA) was signed into law. The PPA modified
the funding requirements for defined benefit pension plans by subjecting
defined benefit plans to 100% of the current liability-funding target. Defined
benefit plans with a funding status of less than 80% of the current liability
are defined as being at risk. These provisions do not apply to plans with
less than 500 participants. As of the last plan filing, the Companys plan had
474 participants.

In September
2006, the FASB issued FASB ASC 715, Accounting
for Defined Benefit Pension and Other Postretirement Plans. This
standard requires employers to recognize the underfunded or overfunded status
of defined benefit pension and Post-retirement plans as an asset or liability
in its statement of financial position, and recognize changes in the funded
status in the year in which the changes occur through accumulated other
comprehensive loss, which is a component of stockholders equity. As a result
of the application of FASB ASC 715, Accounting
for Defined Benefit Pension and Other Postretirement Plans as of
August 31, 2011, 2010 and 2009 the Company increased/(decreased) liabilities by
($2,579,623), $6,802,344, and $7,547,180. These liabilities were offset to
accumulated other comprehensive income (loss). As a result of FASB ASC 715, in
the year ended August 31, 2011, 2010 and 2009 the Company recognized a change
in accumulated other comprehensive income/(loss) of $3,587,230, ($6,274,921),
and ($7,080,155), respectively. In accordance with FASB ASC 715, the measurement
date was moved from May 31, 2008 to August 31, 2009 creating a fifteen-month
period vs. twelve-month period the fiscal year ended August 31, 2009.

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

|                                                  |  |      |             |      |   |             |   |   |             |  
|------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | - | - | ----------- | -
|                                                  |  | 2011 |             | 2010 |   | 2009        |  
|                                                 
|Change in benefit obligation                      |  |      |             |      |   |             |   |   |             |  
|Benefit obligation at beginning of year           |  | $    | 40,131,981  |      | $ | 31,076,170  |   | $ | 26,101,309  |  
|Service cost                                      |  |      | 1,280,297   |      |   | 1,003,895   |   |   | 1,284,966   |  
|Interest cost                                     |  |      | 1,991,063   |      |   | 1,843,576   |   |   | 2,175,966   |  
|Experience (gain)/loss due to participant changes |  |      | (1,309,940  | )    |   | 7,260,190   |   |   | 2,774,339   |  
|Benefits paid                                     |  |      | (1,326,132  | )    |   | (1,051,850  | ) |   | (1,260,410  | )
|                                                  |  |      |             |      |   |             |   |   |             |  
|Benefit obligation at end of year                 |  |      | 40,767,269  |      |   | 40,131,981  |   |   | 31,076,170  |  
|                                                  |  |      |             |      |   |             |   |   |             |  
|Change in plan assets                             |  |      |             |      |   |             |   |   |             |  
|Fair value of plan assets at beginning of
 year   |  |      | 20,807,092  |      |   | 18,480,578  |   |   | 20,158,363  |  
|Actual return on plan assets                      |  |      | 2,858,499   |      |   | 1,882,201   |   |   | (2,494,214  | )
|Employer contribution                             |  |      | 1,763,866   |      |   | 1,512,580   |   |   | 2,097,024   |  
|Benefits and expenses paid                        |  |      | (1,339,959  | )    |   | (1,068,267  | ) |   | (1,280,595  | )
|                                                  |  |      |             |      |   |             |   |   |             |  
|Fair value of plan assets at end of year          |  |      | 24,089,498  |      |   | 20,807,092  |   |   | 18,480,578  |  
|                                                  |  |      |             |      |   |             |   |   |             |  
|Accrued benefit cost liability                    |  | $    | (16,677,771 | )    | $ | (19,324,889 | ) | $ | (12,595,592 | )

74

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|                        |  |      |             |      |   |             |  
|----------------------- |  | ---- | ----------- | ---- | - | ----------- | -
|                        |  | 2011 |             | 2010 |   | 2009        |  
|                        |  |      |             |      |   |             |  
|Non-current
 assets     |  | $    |            |      | $ |            |  
|Current
 liabilities    |  |      |            |      |   |            |  
|Noncurrent
 liabilities |  |      | (16,677,771 | )    |   | (19,324,889 | )
|                        |  | $    | (16,677,771 | )    | $ | (19,324,889 | )

The estimated amounts that will
be amortized from Accumulated Other Comprehensive Income to future fiscal years
are as follows:

|                    |  |      |            |      |   |            |  |   |            | 
|------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | 
|                    |  | 2011 |            | 2010 |   | 2009       | 
|                    |  |      |            |      |   |            | 
|Accumulated
 loss   |  | $    | 14,228,955 |      | $ | 17,802,784 |  | $ | 11,525,420 | 
|Prior
 service cost |  |      | 72,796     |      |   | 104,828    |  |   | 136,860    | 
|                    |  | $    | 14,301,751 |      | $ | 17,907,612 |  | $ | 11,662,280 | 

The
accumulated benefit obligations for all defined benefit pension plans for the
years ended August 31, 2011, 2010 and 2009 were $31,067,502, $29,641,358, and
$22,858,793, respectively.

|                                             |  |      |      |      |  |      |  |  |      | 
|-------------------------------------------- |  | ---- | ---- | ---- |  | ---- |  |  | ---- | 
|                                             |  | 2011 |      | 2010 |  | 2009 | 
|                                             |  |      |      |      |  |      | 
|Weighted-average assumptions as of August 31 |  |      |      |      |  |      |  |  |      | 
|Discount rate                                |  |      | 5.2% |      |  | 5.2% |  |  | 6.2% | 
|Expected return on plan assets               |  |      | 8.0% |      |  | 8.0% |  |  | 8.0% | 
|Rate of total compensation increase          |  |      | 4.5% |      |  | 4.5% |  |  | 4.3% | 

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

|                                        |  |   |            |   |   |            |   |   |            |  
|--------------------------------------- |  | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                        |  |   | 2011       |   |   | 2010       |   |   | 2009       |  
|                                        |  |   |            |   |   |            |   |   |            |  
|Components on net periodic benefit cost |  |   |            |   |   |            |   |   |            |  
|Service cost                            |  | $ | 1,280,297  |   | $ | 1,003,895  |   | $ | 1,284,966  |  
|Interest cost                           |  |   | 1,991,063  |   |   | 1,843,576  |   |   | 2,175,966  |  
|Expected return on plan assets          |  |   | (1,665,212 | ) |   | (1,492,426 | ) |   | (2,036,453 | )
|Amortization of prior service cost      |  |   | 32,032     |   |   | 32,032     |   |   | 32,247     |  
|Amortization of net (gain) or loss      |  |   | 1,084,429  |   |   | 609,468    |   |   | 236,046    |  
|                                        |  |   |            |   |   |            |   |   |            |  
|Net periodic benefit cost               |  | $ | 2,722,609  |   | $ | 1,996,545  |   | $ | 1,692,772  |  

The 2009 data includes a
fifteen-month period. The net periodic cost was allocated as follows:

|                                 |  |   |           | 
|-------------------------------- |  | - | --------- | 
|Current period                   |  | $ | 1,407,876 | 
|Adjustment to Retained
 Earnings |  |   | 284,896   | 
|Total                            |  | $ | 1,692,772 | 

75

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

|                  |  |      |     |      |  |      |   |  |     |  
|----------------- |  | ---- | --- | ---- |  | ---- | - |  | --- | -
|                  |  | 2011 |     | 2010 |  | 2009 |  
|                  |  |      |     |      |  |      |  
|Asset Category    |  |      |     |      |  |      |   |  |     |  
|Equity securities |  |      | 60  | %    |  | 59   | % |  | 61  | %
|Debt securities   |  |      | 30  | %    |  | 35   | % |  | 37  | %
|Real estate       |  |      | 4   | %    |  | 4    | % |  | 0   | %
|Other             |  |      | 6   | %    |  | 2    | % |  | 2   | %
|                  |  |      |     |      |  |      |   |  |     |  
|Total             |  |      | 100 | %    |  | 100  | % |  | 100 | %

76

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The fair values of the
companys pension plan assets at August 31, 2011, by asset category are as
follows:

|                                                                 |  |       |            |                                             |   |                                           |  |                                             |           |  |   |         | 
|---------------------------------------------------------------- |  | ----- | ---------- | ------------------------------------------- | - | ----------------------------------------- |  | ------------------------------------------- | --------- |  | - | ------- | 
|Pension Plan Assets
 Fair Value Measurements at
 August 31, 2011
|                                                                 |  |       |            |                                             |   |                                           |  |                                             |           |  |   |         | 
|                                                                 |  | Total |            | Quoted Prices in
 Active Markets
 (Level 1) |   | Significant
 Observable
 Inputs (Level 2) |  | Significant
 Unobservable
 Inputs (Level 3) |          
|                                                                 |  |       |            |                                             |   |                                           |  |                                             |           |  |   |         | 
|Money Market Funds                                               |  | $     | 196,611    |                                             | $ | 196,611                                   |  | $                                           |          |  | $ |        | 
|Mutual Funds                                                     |  | $     | 17,071,785 |                                             | $ | 11,588,124                                |  | $                                           | 5,483,661 |  | $ |        | 
|Stock                                                            |  |       |            |                                             |   |                                           |  |                                             |           |  |   |         | 
|Domestic Stock                                                   |  | $     | 3,307,367  |                                             | $ | 3,307,367                                 |  | $                                           |          |  | $ |        | 
|Foreign Stock                                                    |  | $     | 123,927    |                                             | $ | 123,927                                   |  | $                                           |          |  | $ |        | 
|Pooled Separate Accounts                                         |  |       |            |                                             |   |                                           |  |                                             |           |  |   |         | 
|International Equity                                             |  | $     | 2,736,754  |                                             | $ |                                          |  | $                                           | 2,736,754 |  | $ |        | 
|Guaranteed
 Investment Contract                                  |  | $     | 649,242    |                                             | $ |                                          |  | $                                           |          |  | $ | 649,242 | 
|                                                                 |  | $     | 24,085,686 |                                             | $ | 15,216,029                                |  | $                                           | 8,220,415 |  | $ | 649,242 | 

77

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The fair values of the
companys pension plan assets at August 31, 2010, by asset category are as
follows:

|                                                                 |  |       |            |                                             |   |                                           |  |                                             |           |  |   |         | 
|---------------------------------------------------------------- |  | ----- | ---------- | ------------------------------------------- | - | ----------------------------------------- |  | ------------------------------------------- | --------- |  | - | ------- | 
|Pension Plan Assets
 Fair Value Measurements at
 August 31, 2010
|                                                                 |  |       |            |                                             |   |                                           |  |                                             |           |  |   |         | 
|                                                                 |  | Total |            | Quoted Prices in
 Active Markets
 (Level 1) |   | Significant
 Observable
 Inputs (Level 2) |  | Significant
 Unobservable
 Inputs (Level 3) |          
|                                                                 |  |       |            |                                             |   |                                           |  |                                             |           |  |   |         | 
|Money Market Funds                                               |  | $     | 110,390    |                                             | $ | 110,390                                   |  | $                                           |          |  | $ |        | 
|Mutual Funds                                                     |  | $     | 14,996,689 |                                             | $ | 9,132,538                                 |  | $                                           | 5,864,151 |  | $ |        | 
|Stock                                                            |  |       |            |                                             |   |                                           |  |                                             |           |  |   |         | 
|Domestic Stock                                                   |  | $     | 2,708,722  |                                             | $ | 2,708,722                                 |  | $                                           |          |  | $ |        | 
|Foreign Stock                                                    |  | $     | 85,377     |                                             | $ | 85,377                                    |  | $                                           |          |  | $ |        | 
|Pooled Separate Accounts                                         |  |       |            |                                             |   |                                           |  |                                             |           |  |   |         | 
|Core Equity                                                      |  | $     | 296,752    |                                             | $ |                                          |  | $                                           | 296,752   |  | $ |        | 
|International Equity                                             |  | $     | 2,174,569  |                                             | $ |                                          |  | $                                           | 2,174,569 |  | $ |        | 
|Guaranteed Investment Contract                                   |  | $     | 428,017    |                                             | $ |                                          |  | $                                           |          |  | $ | 428,017 | 
|                                                                 |  | $     | 20,800,516 |                                             | $ | 12,037,027                                |  | $                                           | 8,335,472 |  | $ | 428,017 | 

78

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The fair
values of the companys pension plan assets at August 31, 2009, by asset
category are as follows:

|                                                              
|--------------------------------------------------------------
|Pension Plan Assets
 Fair Value Measurements atAugust 31, 2009

|                                |  |       |            |                                           |   |                                         |  |                                           |           |  |   |         | 
|------------------------------- |  | ----- | ---------- | ----------------------------------------- | - | --------------------------------------- |  | ----------------------------------------- | --------- |  | - | ------- | 
|                                |  | Total |            | Quoted Prices in
Active Markets
(Level 1) |   | Significant
Observable
Inputs (Level 2) |  | Significant
Unobservable
Inputs (Level 3) |          
|                                |  |       |            |                                           |   |                                         |  |                                           |           |  |   |         | 
|Money Market Funds              |  | $     | 371,510    |                                           | $ | 371,510                                 |  | $                                         |          |  | $ |        | 
|Mutual Funds                    |  | $     | 13,168,703 |                                           | $ | 9,807,726                               |  | $                                         | 3,360,977 |  | $ |        | 
|Stock                           |  |       |            |                                           |   |                                         |  |                                           |           |  |   |         | 
|Domestic Stock                  |  | $     | 2,400,669  |                                           | $ | 2,400,669                               |  | $                                         |          |  | $ |        | 
|Foreign Stock                   |  | $     | 131,010    |                                           | $ | 131,010                                 |  | $                                         |          |  | $ |        | 
|Pooled Separate Accounts        |  |       |            |                                           |   |                                         |  |                                           |           |  |   |         | 
|Core Equity                     |  | $     | 440,639    |                                           | $ |                                        |  | $                                         | 440,639   |  | $ |        | 
|International Equity            |  | $     | 1,640,485  |                                           | $ |                                        |  | $                                         | 1,640,485 |  | $ |        | 
|Guaranteed
 Investment Contract |  | $     | 543,116    |                                           | $ |                                        |  | $                                         |          |  | $ | 543,116 | 
|                                |  | $     | 18,696,132 |                                           | $ | 12,710,915                              |  | $                                         | 5,442,101 |  | $ | 543,116 | 

Level 3 Gains and Losses

The table
below sets forth a summary of changes in the fair value of the Plans level 3
assets for the years ended August 31, 2011, 2010 and 2009:

|                                                         |  |   |            |   |   |            |   |   |            |  
|-------------------------------------------------------- |  | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                         |  |   | 2011       |   |   | 2010       |   |   | 2009       |  
|                                                         |  |   |            |   |   |            |   |   |            |  
|Guaranteed Investment Contract at beginning
 of the year |  | $ | 428,017    |   | $ | 543,116    |   | $ | 312,748    |  
|Deposits                                                 |  |   | 1,245,846  |   |   | 931,027    |   |   | 1,243,000  |  
|Interest Earned                                          |  |   | 8,586      |   |   | 11,943     |   |   | 9,172      |  
|Other Additions                                          |  |   | 298,895    |   |   |           |   |   | 13,588     |  
|Annuity Payments                                         |  |   | (1,326,132 | ) |   | (1,050,660 | ) |   | (1,026,966 | )
|Other Benefits Paid                                      |  |   | (5,970     | ) |   | (1,190     | ) |   | (2,674     | )
|Expenses                                                 |  |   |           |   |   | (6,219     | ) |   | (5,752     | )
|                                                         |  |   |            |   |   |            |   |   |            |  
|Guaranteed
 Investment Contract at the end of the year   |  | $ | 649,242    |   | $ | 428,017    |   | $ | 543,116    |  

Valuation Techniques

The following
is a description of the valuation methodologies used for assets measured at
fair value. There have been no changes in the methodologies used at August 31,
2011, 2010, and 2009.

 Mutual funds:Valued at the net asset
value (NAV) of shares held by the plan at year end.

79

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 Money market deposit accounts:Valued at
cost, which approximates fair value, based on the amount of net contribution
plus any investment earning allocated to the account.

 Common stock:Valued at the closing price
reported on the active market on which the individual securities are traded.

 Pooled separate accounts:Valued at the
net asset value (NAV) of the underlying assets within the account.

 Investment contract with insurance company:Valued
at contract value, which approximates fair value reported to the Plan by the
custodian. Contract value represents contributions made under the contract,
plus earnings, less Plan withdrawals and administrative fees.

The methods
described above may produce a fair value calculation that may not be indicative
of net realizable value or reflective of future fair values. Furthermore, while
the Plan believes its valuation methods are appropriate and consistent with
other market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a
different fair value measurement at the reporting date.

Discount Rate

The Companys
methodology for selecting the discount rate for the Companys plan was to seek
guidance from outside pension experts for determination of the appropriate
discount rate through August 31, 2008 and use the Mercer Index for dates beginning
September 1, 2008. The decision to use the Mercer index rate was intended to
provide an outside unbiased benchmark for this key accounting assumption.

Investment Philosophy

The Companys
Board of Directors appoints individuals to serve as Trustees of the Companys
Pension Plans. The Trustees approve the Investment Policy Statement for the
Companys Pension Plans. The Pension Operating committee is responsible for
administering and following the Investment Policy Statement. The independent
Investment Consultant provides investment advice and assistance regarding the
investments of the Trust, analyzes investment expenses, and negotiates fees of
Investment Managers and Custodians. The Investment Policy Statement is designed
to diversify against the risk of large losses while still achieving long-term
return goals on a historical basis. The Investment Policy is reviewed at least
annually by the Operating Committee who recommends changes to the Trustees.
Diversification of investment risk is consistent with other pension plans of
similar size and demographics as reviewed by the Companys independent
Investment Consultant. The asset allocation targets for the plan consist of
five primary areas: Domestic Equity, International Equity, Real Estate,
Marketable Alternatives and Fixed Income. Cash allocations are allowed only as
necessary for impending benefit payments. The stated goal for each allocation
target is to exceed the return of its corresponding benchmark without exposure
to excessive risk.

80

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Percentage of Pension Plan Assets by Asset
Class as of August 31, 2011

|                                  |              |                   
|--------------------------------- | ------------ | ------------------
|Asset
 Class                      | Target Range | Actual Allocations
|                                  |              |                   
|Large Cap Us Common Stocks        | 25% - 35%    | 28.7%             
|                                  |              |                   
|Mid and Small Cap US Common Stock | 10% - 20%    | 13.7%             
|                                  |              |                   
|Total Domestic Equity             | 40% - 55%    | 42.4%             
|                                  |              |                   
|International (Non US) Equity     | 15% - 21%    | 18.3%             
|                                  |              |                   
|Total Equity                      | 58% - 68%    | 60.7%             
|                                  |              |                   
|Real Estate                       | 3.0% - 6.0%  | 4.5%              
|                                  |              |                   
|Marketable Alternatives           | 2.0% - 5.0%  | 4.5%              
|                                  |              |                   
|Total Fixed Income                | 25% - 40%    | 30.2%             
|                                  |              |                   
|Cash                              | 0% - 5%      | 0.1%              
|                                  |              |                   

Prohibited InvestmentsNon-Marketable Securities 
Short Sales or Purchases on Margin

Expected Return on Plan Assets

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

The expected
return on total Plan assets is developed by combining the Plans long-term
asset class allocation targets with the long-term return expectations for each
of these asset classes. Expected asset class returns are developed by the
Plans investment consultant. The final assumption is chosen by the company as
their best estimate among a range of possible alternatives, and reviewed for
reasonableness by the Plan actuary.

Contributions

The Company
expects to contribute $2,201,000 to its pension plan in 2012.

Distributions (Expected Future)

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

|                         |  |   |            | 
|------------------------ |  | - | ---------- | 
|2012                     |  | $ | 1,109,593  | 
|2013                     |  |   | 1,041,912  | 
|2014                     |  |   | 842,493    | 
|2015                     |  |   | 973,230    | 
|2016                     |  |   | 1,137,955  | 
|Thereafter, through 2021 |  |   | 9,718,407  | 
|                         |  | $ | 14,823,590 | 

As a result of
FASB ASC 715, Accounting for Defined Benefit
Pension and Other Postretirement Plans, the Company has recognized:

81

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A charge to
accumulated other comprehensive loss as follows:

|                             |  |   |            |   |   |            |   |   |            | 
|---------------------------- |  | - | ---------- | - | - | ---------- | - | - | ---------- | 
|Fiscal Year Ended August
31: |  |   | 2011       |   |   | 2010       |   |   | 2009       | 
|                             |  |   |            |   |   |            |   |   |            | 
|Beginning Balance            |  | $ | 18,837,157 |   | $ | 12,811,235 |   | $ | 4,890,516  | 
|Minn Dak Farmers Cooperative |  |   | (3,587,230 | ) |   | 6,274,921  |   |   | 7,080,155  | 
|United Sugars                |  |   | 361,693    |   |   | (315,151   | ) |   | 771,949    | 
|Midwest Agri                 |  |   | (40,337    | ) |   | 66,152     |   |   | 68,615     | 
|                             |  |   |            |   |   |            |   |   |            | 
|Ending Balance               |  | $ | 15,571,283 |   | $ | 18,837,157 |   | $ | 12,811,235 | 

An accumulated
balance of other comprehensive loss as follows:

|                             |  |   |            |  |   |            |  |   |            | 
|---------------------------- |  | - | ---------- |  | - | ---------- |  | - | ---------- | 
|Fiscal Year Ended August 31: |  |   | 2011       |  |   | 2010       |  |   | 2009       | 
|                             |  |   |            |  |   |            |  |   |            | 
|Minn Dak Farmers Cooperative |  | $ | 14,354,584 |  | $ | 17,941,814 |  | $ | 11,666,893 | 
|United Sugars                |  |   | 1,027,508  |  |   | 665,815    |  |   | 980,966    | 
|Midwest Agri                 |  |   | 189,191    |  |   | 229,528    |  |   | 163,376    | 
|                             |  |   |            |  |   |            |  |   |            | 
|Ending Balance               |  | $ | 15,571,283 |  | $ | 18,837,157 |  | $ | 12,811,235 | 

Non-qualified benefit plans

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

The Supplemental Executive Retirement Plan (SERP) is designed to
provide an employee who exceeds the annual compensation limit of the Companys
defined benefit plan with a benefit as if the annual compensation limit didnt
apply. This plan is unfunded; therefore there are no assets associated with
this plan. The cumulative liability for this plan for the years ended August
31, 2011, 2010, and 2009 was $372,310, $304,815, and $231,768, respectively.

The Non-Qualified Deferred Compensation plan allows an employee to
defer wages to a future date. The deferment becomes part of the company assets.
To receive payments under this plan, the participant must meet the requirements
of the plan or separate from the Company. The cumulative assets and liabilities
for this plan for the years ended August 31, 2011, 2010, and 2009 were
$489,354, $411,507, and $365,015, respectively.

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

NOTE 13  FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the
price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. When determining the fair value measurements for assets and
liabilities required to be recorded at fair value, the Company considers the
principal or most advantageous market in which it would transact and considers
assumptions that market participants would use when pricing the asset or
liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

82

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The fair value hierarchy
requires the Company to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. A financial instruments
categorization within the fair value hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. Three levels of
inputs may be used to measure fair value:

| |  |                                                                                                                                                        |   |                                                                                                                                                     
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 1: Quoted prices in
 active markets for identical assets or liabilities                                                                         
| |  | Level 2: Includes the
 following inputs:                                                                                                              
| |  |                                                                                                                                                        |  | Quoted prices in active
 markets for similar assets or liabilities                                                                                  
| |  |                                                                                                                                                        |  | Quoted prices for
 identical or similar assets or liabilities in markets that are not active                                                        
| |  |                                                                                                                                                        |  | Or other inputs that are
 observable or can be corroborated by observable market data for substantially
 the full term of the assets or liabilities.
| |  | Level 3: Unobservable
 inputs that are supported by little or no market activity and that are
 significant to the fair value of assets or liabilities.

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Foreign
 Currency Forward Contracts  There were no open foreign currency forward contracts as of August
 31, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2. | Interest
 Rate Contracts 
 Based on the zero coupon method in which the term, notional amount, and
 repricing date of the interest rate swap match the term, repricing date, and
 principal amount of the interest-bearing liability on which the hedging
 interest payments are due, the fair value of the interest rate contracts as
 of August 31, 2011 was a liability of $0.9 million. The current portion of
 the liability ($0.2 MM) is included in accrued liabilities and the long-term
 portion of the liability ($0.7 MM) is included in other long-term
 liabilities. Inputs used to measure the fair value of the interest rate swap
 contracts are quoted prices in active markets for similar assets or
 liabilities and therefore are contained within level 2 of the fair value
 hierarchy. Because the critical terms of the swap contracts and the notes
 payable are the same, the swap contracts effectively hedge the risk of
 changes in interest payments. Due to this, the changes in the fair value of
 the swap contracts have been excluded from the statement of operations. There
 were no assets or liabilities as of August 31, 2010 and 2009. Financial
 instruments recorded at fair value on a recurring basis are as follows:

|                                                |  |   |               |  |  |       |   |                                                 |   |         |   |         |  |       |   |  |   |     | 
|----------------------------------------------- |  | - | ------------- |  |  | ----- | - | ----------------------------------------------- | - | ------- | - | ------- |  | ----- | - |  | - | --- | 
|                                                |  |   |               |  |  |       |   | Fair Value of Liabilities as of August 31, 2011 |  
|Interest
Rate Swaps                             |  |   |               |  |  |       |   |                                                 |   |         |   |         |  |       |   |  |   |     | 
|(In Millions)                                   |  |   |               |  |  |       |   | Level
1                                         |   | Level
2 |   | Level
3 |  | Total |  
|                                                |  |   |               |  |  |       |   |                                                 |   |         |   |         |  |       |   |  |   |     | 
|Fiscal Year - Notional Amt
 - Ave Interest Rate |  |   |               |  |  |       |   |                                                 |   |         |   |         |  |       |   | 
|                                                |  |   |               |  |  |       |   |                                                 |   |         |   |         |  |       |   | 
|2012                                            |  | $ | 30.0
 Million |  |  | 0.853 | % | $                                               |  |         | $ | 0.2     |  | $     |  |  | $ | 0.2 | 
|2013                                            |  | $ | 25.0
 Million |  |  | 1.870 | % | $                                               |  |         | $ | 0.3     |  | $     |  |  | $ | 0.3 | 
|2014                                            |  | $ | 15.0
 Million |  |  | 2.879 | % | $                                               |  |         | $ | 0.3     |  | $     |  |  | $ | 0.3 | 
|2015                                            |  | $ | 5.0
 Million  |  |  | 2.943 | % | $                                               |  |         | $ | 0.1     |  | $     |  |  | $ | 0.1 | 
|                                               
|Total                                           |  |   |               |  |  |       |   | $                                               |  |         | $ | 0.9     |  | $     |  |  | $ | 0.9 | 

83

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NOTE 14  SUBSEQUENT EVENTS

Recent LIBOR Swap
Agreements

The
Company entered into the following effective 30-day LIBOR swap agreements on
September 15, 2011.

|           |          |                   |           
|---------- | -------- | ----------------- | ----------
|Start Date | End
Date | Notational
Amount | LIBOR Rate
|12-1-11    | 5-1-12   | $15,000,000       | 0.4525%   
|12-3-12    | 5-1-13   | $15,000,000       | 0.5550%   
|12-2-13    | 5-1-14   | $15,000,000       | 0.9250%   

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.

The
Company has considered subsequent events through the date the financial
statements were issued.

84

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

|       |  |                                                                                                                                                                                                                                                                                                | 
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Index  |  |                                                                                                                                                                                                                                                                                                | 
|3(i)   |  | Articles of Amendment to the Articles of Incorporation of Minn-Dak
 Farmers Cooperative. Incorporated by reference from the Companys Annual
 Report on Form 10-K for the fiscal year ended August 31, 1996 as filed on November
 21, 1996.                                                   
|3(ii)  |  | Articles of Incorporation of Minn-Dak Farmers Cooperative.
 Incorporated by reference from the Companys Registration Statement on Form
 S-1 (File No. 33-94644), declared effective September 11, 1995.                                                                                      
|3(iii) |  | Amended Bylaws of Minn-Dak Farmers Cooperative. Incorporated by
 reference from the Companys7 Annual Report on Form 10-K for the fiscal year
 ended August 31, 2008 as filed on November 26, 2008.                                                                                           
|10(a)  |  | Growers SubCompliance Agreement (example of agreement which each
 Shareholder is                                                                                                                                                                                                             
|       |  | required to sign) including Appendix A.                                                                                                                                                                                                                                                       
|10(b)  |  | Amended and Restated Uniform Member Marketing Agreement by and
 between United
 Sugars Corporation and Minn-Dak Farmers Cooperative. Incorporated by
 reference from the Companys Annual Report on Form 10-k for the fiscal year
 ended August 31, 2007 as filed November 29, 2007.          
|10(e)  |  | Memorandum of Understanding and Uniform Member Agreement by and
 between Midwest Agri-Commodities Company and Minn-Dak Farmers Cooperative.
 Incorporated by reference from the Companys Annual Report on Form 10-K for
 the fiscal year ended August 31, 2006 as filed on November 28, 2006.
|10(k)  |  | Agreement for Electrical Service. Incorporated by reference from the
 Companys Registration Statement on Form S-1 (File No. 33-94644), declared
 effective September 11, 1995.                                                                                                               
|10(l)  |  | Master Coal Purchase and Sale Agreement and Railroad Equipment Lease
 Agreement (Confidential Treatment has been requested as to certain
 provisions) as filed on November 24, 2010.                                                                                                          
|10(m)  |  | Minn-Dak Farmers Cooperative Pension Plan. Incorporated by reference
 from the Companys Registration Statement on Form S-1 (File No. 33-94644),
 declared effective September 11, 1995.                                                                                                      
|10(p)  |  | Amendment to Minn-Dak Farmers Cooperative Pension Plan. Incorporated
 by reference from the Companys Annual Report on Form 10-K for the fiscal
 year ended August 31, 1997 as filed on November 25, 1997.                                                                                    
|10(q)  |  | Amendment to Minn-Dak Farmers Cooperative Pension Plan. Incorporated
 by reference from the Companys Annual Report on Form 10-K for the fiscal
 year ended August 31, 1998 as filed on November 24, 1998.                                                                                    
|10(r)  |  | David H. Roche Employment Agreement. Incorporated by reference from
 the Companys Annual Report on Form 10-K for the fiscal year ended August 31,
 2001 as filed on November 29, 2001 and Amended and Restated Agreement dated
 August 27, 2010.                                             
|10(s)  |  | Richland County Development Revenue Refunding Bond agreement dated
 February 18, 2010 as filed on November 24, 2010.                                                                                                                                                                          
|10(t)  |  | CoBank revolving credit supplement dated November 15, 2010
 as filed on November 24, 2010.                                                                                                                                                                                                    
|12     |  | Statement re Computation of Ratio of Net Proceeds to Fixed Charges.                                                                                                                                                                                                                           
|21     |  | Subsidiaries of the Registrant. Incorporated by reference from the
 Companys Registration Statement on Form S-1 (File No. 33-94644), declared
 effective September 11, 1995.                                                                                                                 
|31.1   |  | Certification of the President/Chief Executive Officer in accordance
 with Section 302 of the Sarbanes-Oxley Act.                                                                                                                                                                             
|31.2   |  | Certification of the Executive Vice President/Chief Financial Officer
 in accordance with Section 302 of the Sarbanes-Oxley Act.                                                                                                                                                              
|31.3   |  | Certification of the Controller/Chief Accounting Officer in accordance
 with Section 302 of the Sarbanes-Oxley Act.                                                                                                                                                                           
|32     |  | Certification of the President/Chief Executive Officer and the
 Executive Vice President/Chief Financial Officer in accordance with Section
 906 of the Sarbanes-Oxley Act.                                                                                                                   
|99.1   |  | Audit Committee Charter. Incorporated by reference from the Companys
 Annual Report on Form 10-K for the fiscal year ended August 31, 2003 as filed
 on November 26, 2003                                                                                                                    

85

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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, PRESIDENT    | 
| |                               |                                     | AND CHIEF EXECUTIVE
 OFFICER | 

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

|                      |           |                               |  |                  
|--------------------- | --------- | ----------------------------- |  | -----------------
|                      | SIGNATURE |                               |  |                  
|                      |           |                               |  |                  
|/s/ David H. Roche    |           | President
 and                |  | November
 1, 2011
|David H. Roche        |           | Chief
 Executive Officer      |  |                  
|                      |           |                               |  |                  
|/s/ Steven M. Caspers |           | Executive
 Vice President and |  | November
 1, 2011
|Steven M. Caspers     |           | Chief
 Financial Officer      |  |                  
|                      |           |                               |  |                  
|/s/ Allen E. Larson   |           | Controller
 and               |  | November
 1, 2011
|Allen E. Larson       |           | Chief
 Accounting Officer     |  |                  
|                      |           |                               |  |                  
|/s/ Dale Blume        |           | Director                      |  | November
 1, 2011
|Dale Blume            |           |                               |  |                  
|                      |           |                               |  |                  
|/s/ Dennis Butenhoff  |           | Director                      |  | November
 1, 2011
|Dennis Butenhoff      |           |                               |  |                  
|                      |           |                               |  |                  
|/s/ Brent Davison     |           | Director                      |  | November
 1, 2011
|Brent Davison         |           |                               |  |                  
|                      |           |                               |  |                  
|/s/ Doug Etten        |           | Director                      |  | November
 1, 2011
|Doug Etten            |           |                               |  |                  
|                      |           |                               |  |                  
|/s/ Patrick Freese    |           | Director                      |  | November
 1, 2011
|Patrick Freese        |           |                               |  |                  
|                      |           |                               |  |                  
|/s/ Dennis Klosterman |           | Director                      |  | November
 1, 2011
|Dennis Klosterman     |           |                               |  |                  
|                      |           |                               |  |                  
|/s/ Russell Mauch     |           | Director                      |  | November
 1, 2011
|Russell Mauch         |           |                               |  |                  
|                      |           |                               |  |                  
|/s/ C Kevin Kutzer    |           | Director                      |  | November
 1, 2011
|C Kevin Kutzer        |           |                               |  |                  
|                      |           |                               |  |                  
|/s/ Charles Steiner   |           | Director                      |  | November
 1, 2011
|Charles
 Steiner      |           |                               |  |                  

86

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