**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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

 

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**Commission File**

**Nos.** 33-83868; 333-11693 and333-32251

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**AMERICAN CRYSTAL SUGAR COMPANY**

(Exact name of registrantas specified in its charter)

| **Minnesota**                             | ** ** | **84-0004720**                           |
|-------------------------------------------|------------|------------------------------------------|
| (State of  incorporation)                 |       | (I.R.S. Employer  Identification Number) |
|                                      |       |                                     |
| **101  North Third Street**               | ** ** | ** **                               |
| **Moorhead,  MN 56560**                   | ** ** | **(218)  236-4400**                      |
| (Address of  principal executive offices) |       | (Registrant’s  telephone number)    |

 

Securities registered pursuant to Section 12(b) of theAct:

NONE

Securities registered pursuant to Section 12(g) of theAct:

NONE

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Indicate by check mark ifthe registrant is a well known seasoned issuer, as defined in Rule 405 of theSecurities Act. Yes o  No x

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

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Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes  xNo o

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Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct.

(Check one) Largeaccelerated filer o    Acceleratedfiler o    Non-accelerated filer x

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Indicate by check markwhether the registrant is a shell company (as defined in rule 12b-2 of theAct). Yes o No x

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As of November 15, 2006, 2,874 shares of the Registrant’s CommonStock and 498,570 shares of the Registrant’s Preferred Stock wereoutstanding.  There is no establishedpublic market for the Registrant’s Common Stock or Preferred Stock.  Although there is a limited, private marketfor shares of the Registrant’s stock, the Registrant does not obtaininformation regarding the transfer price in transactions between its membersand therefore is unable to estimate the aggregate market value of theRegistrant’s shares held by non-affiliates.

**DOCUMENTS INCORPORATED BYREFERENCE**

NONE

 

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# **PART I**

*This report contains forward-looking statements andinformation based upon assumptions by the American Crystal Sugar Company’smanagement, including assumptions about risks and uncertainties faced by theCompany.  These forward-lookingstatements can be identified by the use of forward-looking terminology such as “expects”,“believes”, “will” or similar verbs or expressions.  If any of management’s assumptions proveincorrect or should unanticipated circumstances arise, the Company’s actualresults could materially differ from those anticipated by such forward-lookingstatements.  The differences could becaused by a number of factors or combination of factors, including, but notlimited to, those factors influencing the Company and its business which aredescribed in this report in the “Risk Factors” section below.  Readers are urged to consider these factorswhen evaluating any forward-looking statement. The Company undertakes no obligation to update any forward-looking statementsin this report to reflect future events or developments.*

**Item 1.**                                        BUSINESS

**GENERAL**

The Company is a Minnesota agricultural cooperativecorporation owned by approximately 2,900 sugarbeet growers in the Minnesota andNorth Dakota portions of the Red River Valley. The Red River Valley is the largest sugarbeet growing area in the UnitedStates, forming a band approximately 35 miles wide on either side of the NorthDakota and Minnesota border and extending approximately 200 miles south fromthe border of the United States and Canada. The Company was organized in 1973 by sugarbeet growers to acquire thebusiness and assets of the American Crystal Sugar Company, then a publicly heldNew Jersey corporation in operation since 1899. The Company currently processes sugarbeets from a base level ofapproximately 500,000 acres in the Red River Valley (the Red River ValleyCrop), subject to tolerances for over-planting and under-planting establishedby the Board of Directors each year.  Byowning and operating five sugarbeet processing facilities in the Red RiverValley, the Company provides its shareholders with the ability to process theirsugarbeets into sugar and agri-products such as: molasses; sugarbeet pulp; andby-products of the molasses desugarization process, betaine and concentratedseparated by-product (CSB).

The Company, through its wholly-owned subsidiary,Sidney Sugars Incorporated (Sidney Sugars), owns two sugarbeet processingfacilities.  The Company processes thesugarbeets from approximately 40,000 acres grown by non-member growers at theSidney, Montana, facility.  TheTorrington, Wyoming, facility has been leased on a long-term basis to anothersugar producer.

TheCompany, through its wholly-owned subsidiary, Crab Creek Sugar Company (CrabCreek), controls the long-term production of sugar at a sugarbeet processingfacility at Moses Lake, Washington. Neither Crab Creek nor the Company currently operates or intends tooperate the Moses Lake facility.

The Company is the controlling member of ProGoldLimited Liability Company (ProGold), which owns a corn wet-milling plant inWahpeton, North Dakota, that is currently being leased to Cargill,Incorporated.

The Company and Newcourt Capital USA own Crystech, LLC(Crystech), which owns the molasses desugarization facility adjacent to theCompany’s processing facility in Hillsboro, North Dakota.

The Company’s sugar marketing agent, United SugarsCorporation (United), is a cooperative owned by the Company, Minn-Dak FarmersCooperative and United States Sugar Corporation.  The Company’s agri-products are marketedthrough a marketing agent, Midwest Agri-Commodities

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Company (Midwest).  Midwest is a cooperative owned by theCompany, Minn-Dak Farmers Cooperative, Southern Minnesota Beet SugarCooperative and Michigan Sugar Company.

**OperatingSegments**

The Company has identifiedtwo reportable operating segments: Sugar and Leasing.  The sugar segment is engaged primarily in theproduction and marketing of sugar from sugarbeets.  It also sells agri-products and sugarbeetseed.  The leasing segment is engaged inthe leasing of a corn wet milling plant used in the production of high-fructosecorn syrup.  For financial information bysegment see Note 12 of “Notes to the Consolidated Financial Statements.”

**PrincipalProducts Produced**

The Company is engagedprimarily in the production and marketing of sugar from sugarbeets.  Total sugar sales accounted for 88.5 percent,88.1 percent and 88.7 percent of the Company’s consolidated total revenues forthe years ended August 31, 2006, 2005 and 2004, respectively.  United Sugars Corporation, the Company’ssugar marketing agent, sells sugar primarily to industrial users such asconfectioners, breakfast cereal manufacturers and bakeries.  For the fiscal year ended August 31,2006, 86.6 percent (by weight) of the sugar was sold to industrial users.  The remaining portion is marketed by UnitedSugars Corporation through sugar brokers to wholesalers and retailers under the“Crystal Sugar” and various private labels for household consumption.  With regard to brand name sales, the Companylicenses the use of the “Crystal” trademark to United Sugars Corporation.

The largestproportion of United Sugars Corporation’s sugar sales are contracted one ormore quarters in advance.

The Company also sellsagri-products such as: molasses; sugarbeet pulp; betaine and concentratedseparated by-product (CSB), by-products of the molasses desugarization process;and sugarbeet seed.  Substantially all ofthe Company’s agri-products are marketed through Midwest Agri-Commodities Company,a common marketing agency.  Sugarbeetpulp is marketed to livestock feed mixers and livestock feeders in the UnitedStates and foreign markets.  The majorityof the Company’s pulp production is exported to Japan and Europe.  The market for sugarbeet pulp is affected bythe availability and quality of competitive feedstuffs and foreign exchangerates.  Sugarbeet molasses is marketedprimarily to yeast manufacturers, livestock feed mixers and livestock feeders.  Total agri-product sales accounted for 8.2percent of the Company’s consolidated total revenues during fiscal 2006, ofwhich export agri-product sales accounted for 3.8 percent of suchrevenues.  In the past, agri-productssales accounted for 8.2 percent and 7.8 percent of the Company’s consolidatedtotal revenues in fiscal 2005 and fiscal 2004, respectively, while agri-productexport sales accounted for 4.3 percent and 3.7 percent of the Company’s totalrevenues in fiscal 2005 and fiscal 2004, respectively.

There is no singlecustomer of United Sugars Corporation or Midwest Agri-Commodities Companyattributable to the Company that accounts for 10 percent or more of therevenues of the Company.

The Company’s totalannual sugar and agri-product production is influenced by the amount and thequality of sugarbeets grown by its members and non-members, the processingcapacity of the Company’s plants, by its ability to store harvested sugarbeetsand by government programs and regulations.

**RawMaterials**

The Company purchases allof its Red River Valley sugarbeets from members under contract with theCompany.  All members have five-yearcontracts with the Company covering the growing seasons of 2003 through2007.  These five-year contractsautomatically renew for additional five-year

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terms unless terminatedby one of the parties at the end of the current term.  In addition, each member has an annualcontract with the Company specifying the number of acres the member isobligated to grow during that year.  Eachshare of Preferred Stock held by a member requires that member to grow one acreof sugarbeets for sale to the Company. The Company’s Board of Directors has the discretion to adjust theacreage that is required to be planted for each share of Preferred Stock heldby the members.  The Board of Directors intendsto maintain the relationship between shares of Preferred Stock and acres ofsugarbeet production at a ratio as close to 1 to 1 as possible, subject totolerances for over-planting and under-planting established by the Board eachyear and reductions or increases caused by the Company’s marketing allocationsestablished by the USDA.  The Board of Directors and managementcontinue to review and determine the relationship between the ownership ofPreferred Stock and acreage planting.

The gross beet payment is the value of recovered sugarfrom the sugarbeets a member delivers plus the member’s share of agri-productrevenues, minus the member’s share of member business operating costs.  The following allowances, costs anddeductions, if applicable, are used to adjust the gross beet payment to arriveat the net beet payment: hauling program allowance and costs, pre-pile qualitypremium and costs, tare incentive premium/penalty program, late harvest programcosts and unit retains.  Members are paida hauling allowance based on the distance they must transport sugarbeets fordelivery to the Company and may also receive an allowance for early delivery ofsugarbeets prior to the commencement of the stockpiling of harvestedsugarbeets.  The costs of these programsare shared among members on the basis of the net tonnage of sugarbeetsdelivered by each member.

Under current contracts, payments to members forsugarbeets must be made in at least three installments: (i) on or aboutNovember 15, the Company pays its members an amount equal to 65 percent ofthe Company’s estimate of the member’s net beet payment; (ii) on or aboutMarch 31, the Company pays an amount, which combined with theNovember payment, equals 90 percent of the member’s estimated net beetpayment; (iii) and not more than 15 days after completion and acceptanceof the audit of the Company’s annual consolidated financial statements, theCompany pays the remainder of the member’s net beet payment.  Except for unit retains, the Company must payto its members for their sugarbeets all proceeds from the sale of the members’sugar and agri-products in excess of related member business operating costs,as described above.

All of the sugarbeetsprocessed at the Sidney, Montana, factory are purchased from non-member growersunder contract with Sidney Sugars.  Eachnon-member grower has an annual contract with Sidney Sugars specifying thenumber of acres the non-member grower is obligated to grow during each year.

The price per ton ofsugarbeets paid to the growers who deliver to Sidney Sugars (the Scale Payment)is determined according to the sugarbeet payment scale contained in the growercontract and is calculated based on Sidney Sugars’ average net return for sugarfrom that year’s crop and the adjusted average sugar content of each grower’ssugarbeets.

Under current growercontracts between Sidney Sugars and its growers, payments to these growers forsugarbeets must be made in three installments following delivery of the crop:(i) in November, Sidney Sugars pays the growers an amount equal to 65percent of the estimated Scale Payment for that year’s crop; (ii) inApril, Sidney Sugars pays an amount, which combined with theNovember payment, equals 90 percent of the estimated Scale Payment forthat year’s crop; (iii) and in October, Sidney Sugars pays the remainderof the actual Scale Payment.

**Seasonality**

The period during which the Company’s plants are inoperation to process sugarbeets into sugar and agri-products is referred to asthe “campaign.”  During the campaign, theCompany’s factories

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operatetwenty-four hours per day, seven days per week. In the Red River Valley, the campaign typically begins in September andcontinues until the available supply of sugarbeets has been depleted, whichgenerally occurs in May of the following year.  Based on current processing capacity, anaverage campaign lasts approximately 250 days, assuming normal cropyields.  In Sidney, Montana, the campaignalso begins in September and lasts approximately 170 days.

The sales of sugar and agri-products occur ratablythroughout the year with modest increases in sugar sales occurring prior toholiday seasons.

**SalesBacklog**

The backlog of any unfilled sales orders at August 31,2006 and 2005, was not material to the Company.

**Marketand Competition**

Current United States government statistics estimatetotal United States sugar consumption at approximately 193 millionhundredweight for the year beginning October 1, 2005 and endingSeptember 30, 2006.  For the sameperiod ending September 2005, total consumption was approximately 190million hundredweight.  Comparing the twoyears shows an increase in demand of approximately one percent.

The United States refined sugar market has grown overthe past twenty years, despite the demand lost to the substitution of highfructose corn syrups for sugar in beverages and certain food products.  Non-nutritive sweeteners such as aspartamehave also been developed to substitute for sugar.  Corn sweeteners and non-nutritive sweetenersconstitute a large portion of the overall sweetener market.  The Company believes that the United Statesmarket for sugar will reflect minimal increases or be relatively flat in thenear future.

The United States sugar industry has been subject toindustry consolidation.  Today there arefewer than 10 sugar sellers,****withapproximately 70 percent of United States sugar market share concentrated inthe top three sellers.  The Company’ssugar production and sales represent approximately 15 percent of the totaldomestic market for refined sugar in 2005/2006. The Company had the right to market, or to have marketed on its behalf,approximately 32 million hundredweight of sugar from the 2005 crop.  Sugar sales by United Sugars Corporation, theCompany’s marketing agent, represent approximately 23 percent of the UnitedStates sugar market.

United Sugars Corporation’s main competitors in thedomestic market are Imperial Sugar Corporation, Amalgamated Sugar Company, TheAmerican Sugar Refining Company and Western Sugar Cooperative.  Because sugar is a fungible commodity,competition in the United States industry is primarily based upon price,customer service and reliability as a supplier. United Sugars Corporation is currently the second largest marketer ofsugar in the United States.

## **GovernmentPrograms and Regulations**

### **Farm Security and Rural Investment Act of2002**

The Farm Security and Rural Investment Act of 2002(the Farm Bill) was enacted on May 13, 2002. The Farm Bill contains several provisions related to the domestic sugarindustry, with the ultimate goal of such provisions to achieve balance andstability in the U.S. sugar market while minimizing the cost to the Federalgovernment.  The Farm Bill applies to the2002 through 2007 crop years.  Generally,the Farm Bill restricts imports of foreign sugar, maintains the previousnon-recourse loan program, and establishes a system of marketing allocationsfor sugarbeet and sugar cane producers in an attempt to balance the supply anddemand for sugar in the U.S. domestic sugar market.

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Under the Farm Bill, sugar processors can borrow fundson a non-recourse basis from the Commodity Credit Corporation (CCC), withrepayment of such funds secured by sugar. When the price of sugar drops below the forfeiture price, the processorscan 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 pricesabove the forfeiture price without cost to the U.S. Treasury by regulating thesupply of sugar in the U.S. market through regulating the quantity of sugarimports.  Under the Tariff Rate Quota(TRQ) implemented October 1, 1990, sugar producing countries are allowed toexport a fixed quantity of sugar into the United States duty-free or subject tominimal duties.  Unlimited additionalquantities may be exported to the United States upon payment of a tariff of15.36 cents per pound prior to shipment. To date, only immaterial quantities of sugar have been imported underthis higher tariff level.

The Farm Bill sets an 18 cent per pound loan rate forraw cane sugar and a 22.90 cent per pound loan rate for refined beetsugar.  Both loan rates were effectivefor the 2005 year crop.

In order to reduce the risk of sugar forfeitures tothe CCC and to provide balance in the marketplace, the Farm Bill establishesannual flexible marketing allotments for both cane and beet sugarprocessors.  The USDA determines theoverall allotment quantity (OAQ) for the U.S. domestic sugar market for eachcrop year by estimating sugar consumption, adding stocks expected to be carriedinto the succeeding year, and then subtracting 1,532,000 short tons, raw valueof sugar (the maximum level of imports allowed before marketing allotments areexpected to be suspended if the imports would lead to a reduction of theoverall allotment quantity), and subtracting carry-in stocks of sugar,including CCC inventory.  Once the USDAhas determined the OAQ for a crop year, it then determines each allotment forbeet and cane sugar by multiplying the OAQ by 54.35 percent for beet and 45.65percent for cane.  An individualprocessor’s allocation of the allotment for a crop year is determined byformula set forth in the Farm Bill. Sugarbeet processor allocations are based on each sugar processor’ssugar production history, while sugar cane processor allocations are based onpast marketings, ability to market and past processings.  The USDA annually establishes individualprocessor’s allocations.  The Company’smarketing allocations for the 2005, 2004 and 2003 crops were approximately 32million hundredweight, 33 million hundredweight and 32 million hundredweight,respectively, while the marketing allocation for the 2006 crop is currently setat approximately 34 million hundredweight.

Under the Farm Bill, a processor may market sugar inexcess of its allocation if such sales (i) enable another processor to meet itsallocation, (ii) facilitate the export of sugar or (iii) are made for nonhumanconsumption.  The USDA can assess apenalty equal to three times the U.S. market value of any quantity of sugarmarketed in excess of a processor’s allocation. The Farm Bill and its related regulations do not allow marketingallocations to be traded among processors. The Farm Bill does, however, provide for the transfer of allocationsassociated with a particular processing facility in the event ownership of thefacility is transferred.

The marketing allotments and allocations set forthunder the Farm Bill affect the sugar processed from the 2002 crop through the2007 crop.  On an annual basis, themarketing allotments, and the corresponding allocation to the Company, willdetermine the amount of sugar the Company can sell into the domesticmarket.  The Company’s allocation mayreduce the amount of sugar the Company can market for a given year, thusreducing the number of acres of sugarbeets required for processing.

### **North American Free Trade Agreement**

Under the terms of the original North American FreeTrade Agreement (NAFTA) text, Mexicowould have been allowed to ship any excess production of sugar into the UnitedStates if Mexico were to achieve net surplus producer status two years in arow.  Concerned that Mexico’s productive

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capabilities and possibleconversion to the use of high fructose corn sweeteners could quickly changeMexico from a net sugar importer to a net sugar exporter, the U.S. sugarindustry insisted that NAFTA be modified to delay Mexico’s access to the U.S.market.  To embody these modifications, aside letter agreement on sugar was negotiated by the United States and Mexicoprior to passage of NAFTA.  The sideletter agreement gives Mexico incrementally larger but capped volumes ofduty-free access to the U.S. market, and an ability to export additionalquantities of sugar to the United States if Mexico pays a gradually descendingsecond tier tariff.  The side letteragreement establishes a common market between the United States and Mexico insugar by January 1, 2008.

The government of Mexico has indicated that it doesnot agree that the side letter agreement to NAFTA is binding, and has filed aNAFTA Article XX challenge to the United States’ implementation of the sideletter agreement.  At this time, it isnot known when, or if, a ruling will be received on the Article XXchallenge.  If the side letter agreementto the NAFTA is ruled to be invalid, the Company could be materially andadversely affected.

The Company is concerned that low world sugar pricesand a trade conflict between the United States and Mexico over sweeteners couldpermit de facto acceleration of the second tier tariffs under the side letteragreement.  Under the NAFTA tariffschedule, second tier sugar tariffs were set at approximately 12 cents for 2000and decline by approximately 1.5 cents per year until reaching zero in2008.  Low world raw sugar prices and thecurrent second tier tariff make it economically viable for Mexican sugar toenter the United States this year, if the Mexican interests so choose.

Under the current terms of the NAFTA and the sideletter agreement, the Company is concerned that imports from Mexico couldoversupply the U.S. market, forcing sugar prices significantly lower.  The Company, along with the domestic sugarindustry, is seeking negotiated changes to the NAFTA and may also pursue legalremedies to address the matter.  If thesugar industry is unsuccessful in these or any other endeavors it pursues toprevent the influx of Mexican sugar into the U.S. market, there could beadverse financial consequences to the Company and its members.

### **Dominican Republic - Central American FreeTrade Agreement**

TheDominican Republic - Central American Free Trade Agreement (DR-CAFTA) wassigned into law on August 2, 2005 and is anticipated to be implemented later in2006.  As a result, the Company expectsan increase in the amount of sugar that will be imported into the UnitedStates.  The impact of this tradeagreement on the Company cannot be fully assessed at this time.  It is possible, however, that the trade agreementcould have a material adverse effect on the Company through a reduction inacreage that can be planted by the Company’s shareholders and by the growersfor Sidney Sugars, and/or a reduction in sugar selling prices, and acorresponding reduction in the beet payment to the shareholders and the Company’searnings.  The magnitude of the impactcannot be determined at this time.

### **Regional and Bilateral Free Trade Agreements**

TheUnited States government is pursuing an aggressive agenda on international trade.  It is seeking to negotiate new free tradeagreements with a number of countries and regions that are major producers ofsugar.  The Company believes theseagreements, if they reach fruition, could negatively impact the Company’sprofitability.  The primary agreementsunder consideration that affect sugar, to the Company’s knowledge, are theAndean Free Trade Agreement; the Thailand Free Trade Agreement; the U.S.-PanamaFree Trade Agreement; and the Association of Southeastern Nations Free TradeAgreement.  Many of the countriesincluded in these agreements are major sugar producers and exporters.  If increases in guaranteed access orreductions in sugar tariffs are included in these agreements, excess sugar fromthese regions could enter the U.S. market and put pressure on domestic sugarprices.

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Portions of these agreementshave been completed.  Within the AndeanFree Trade Agreement, the U.S.-Peru Free Trade Agreement was signed onApril 12, 2006.  The U.S.-ColombiaFree Trade Agreement is also nearing completion.  The Company expects that these two tradeagreements will be brought before Congress for a vote in 2007.

The Doha Round negotiationsof the World Trade Organization have stalled and it is unclear at this timewhen they will be revived.  If thenegotiations begin again, the outcome could have serious consequences for theCompany.

The U.S. sugar industry andthe Company, as an influential member of such industry, recognize the potentialnegative impact that would result if these agreements are entered into by theUnited States and are taking steps to attempt to manage the situation.  The Company and the sugar industry intend tocontinue to focus significant attention on trade issues in the future.

The impact of the varioustrade agreements on the Company cannot be assessed at this time due to theuncertainty concerning the terms of the agreements and whether they willultimately be implemented.  It ispossible, however, that the passage of various trade agreements could have amaterial adverse effect on the Company through a reduction in acreage that canbe planted by the Company’s shareholders and by the growers for Sidney Sugars,and/or a reduction in sugar selling prices, and a corresponding reduction inthe beet payment to the shareholders and the Company earnings.  Although the magnitude of the impactcannot be determined at this time, the Company estimates that for every 500,000tons of sugar entering the U.S. market and therefore reducing the OAQ (andassuming no other variables change), the Company may need to reduce plantedacres by approximately 40,000, which would negatively impact shareholderprofits.

**Employees**

As of October 1, 2006, the Company had****1,301full-time employees, of which 1,055 were hourly and 246 were salaried.  The Company had 5 part-time employees.  In addition, the Company employsapproximately 787 hourly seasonal workers, approximately 354 during thesugarbeet harvest and approximately 433 during the remainder of the sugarbeetprocessing campaign. ** **During the sugarbeet harvest, theCompany also contracts with third party agencies for approximately another1,300 additional workers.

Substantially all of the hourly employees at theCompany’s factories, including full-time and seasonal employees, arerepresented by the Bakery, Confectionery, Tobacco Workers and Grain Millers(BCTGM) AFL-CIO, and are covered by collective bargaining agreements expiringJuly 31, 2011 for the Red River Valley factory employees and April 30,2008 for the Sidney, Montana, factory employees.  Office, clerical and management employees arenot unionized, except for certain office employees at the Moorhead andCrookston, Minnesota, and Hillsboro, North Dakota, factories who are covered bythe collective bargaining agreement with the BCTGM.  The Company considers its employee relationsto be good.

### **EnvironmentalMatters**

### The Company is subject to extensive federal and state environmentallaws and regulations with respect to water and air quality, solid wastedisposal and odor and noise control.  TheCompany conducts an on-going program designed to meet these environmental lawsand regulations.  The Company believesthat it is in substantial compliance with applicable environmental laws andregulations.  The Company cannot predictwhether future changes in environmental laws or regulations

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### might increasethe cost of operating its facilities and conducting its business.  Any such changes could have adverse financialconsequences for the Company.

The Company’s East GrandForks, Minnesota factory has recently experienced hydrogen sulfide emissionsfrom its water treatment ponds that have exceeded permissible limits.  The Company is working with the MinnesotaPollution Control Agency and is aggressively addressing the situation.  While the Company may be assessed penaltiesand/or fines related to this occurrence, as of the date of this report nonehave been assessed.  Any potentialpenalties and/or fines are not expected to be material to the Company.  Capital expenditures will be required toprevent future occurrences of the emissions. The Company’s fiscal 2007 budget includes capital expenditures ofapproximately $4.0 million atthe East Grand Forks factory to address this situation. The amount and timingof any additional capital expenditures that may be required is not currentlyknown.

In addition to theamount discussed above for the East Grand Forks factory, the Company’s fiscal2007 budget also includes capital expenditures of approximately $1.0 millionfor environmentally related projects at the Company’s other factory locations.

## **AvailableInformation**

The Company’s corporate headquarters are located at101 North Third Street, Moorhead, Minnesota 56560, telephone number(218) 236-4400.  The Company’sfiscal year ends August 31.  TheCompany’s website is www.crystalsugar.com. The Company files annual, quarterly and periodic reports with the UnitedStates Securities and Exchange Commission (SEC).  These reports can be accessed by selecting “Links”on the Company’s website or electronic or paper copies can be obtained free ofcharge upon request.  In addition, theCompany’s reports may be read or copied at the SEC Public Reference Room at 450Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the PublicReference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site at http://www.sec.govthat contains reports and other information filed electronically about theCompany.

**Item 1A.****                               RISKFACTORS**

The risks described below together with all of the otherinformation included in this Annual Report on Form 10-K should be consideredcarefully.  The risks and uncertaintiesdescribed below and elsewhere in this Annual Report on Form 10-K are notthe only ones facing the Company.  If anyof the following risks actually occur, our business, financial condition orresults of operations would likely suffer. In that case, the beet payments made to our shareholders may decrease,the value of the Company’s common and preferred stock could fall, and ashareholder could lose all or part of their investment.

**If we donot continue to minimize our operating expenses, we may not be able to competeeffectively in our industry.**

Our strategy involves, to a substantial degree,maximizing profitability by continuing to control operating expenses. Infurtherance of this strategy, we have engaged in ongoing, company-wideefficiency activities intended to increase productivity and reduce costs.  These activities have included realigning andstreamlining our operations and optimizing the efficiency of our productionfacilities.  We cannot assure you thatour continued efforts will result in our continued or increased profitability.

**While we believe that wecurrently have adequate internal control procedures in place, we are still exposedto potential risks from recent legislation requiring companies to evaluatecontrols under Section 404 of the Sarbanes-Oxley Act of 2002.**

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As directed by Section 404 of the Sarbanes-Oxley Actof 2002, the Securities and Exchange Commission adopted rules requiring publiccompanies to include a report of management on the Company’s internal controlover financial reporting in their annual reports on Form 10-K that contains anassessment by management of the effectiveness of the Company’s internal controlover financial reporting.  In addition,the independent registered public accounting firm auditing the Company’sfinancial statements must attest to and report on management’s assessment ofthe effectiveness of the Company’s internal control over financialreporting.  When we are required tocomply, the Company plans to conduct a rigorous review of our internal controlover financial reporting in order to assure compliance with the Section 404requirements.  However, if ourindependent auditors interpret the Section 404 requirements and the relatedrules and regulations differently from us or if our independent auditors arenot satisfied with our internal control over financial reporting or with thelevel at which it is documented, operated or reviewed, they may decline toattest to management’s assessment or issue a qualified report.  Additionally, if we are not able to meet the requirements of Section 404 in a timelymanner or with adequate compliance, we might be subject to sanctions orinvestigation by regulatory authorities, such as the SEC.

**Anoversupply of sugar could adversely affect the price of sugar and our resultsof operations.**

The domestic sugar market is reactive to anyoversupply of refined sugar.  Manyfactors can lead to an oversupply of sugar. Excess supply may result in a decline in domestic sugar prices.  Lower sugar prices directly impactprofitability of selling refined sugar in the United States.  If the selling price of sugar decreases, ourrevenues will decrease which will result in a direct negative impact on ourprofitability.

**Unregulatedforeign competition could result in an oversupply of sugar which could decreasethe price of sugar and impact our business.**

Under the current terms of the NAFTA and othergovernment regulations, imports of sugar from Mexico may enter the U.S.market.  These imports could oversupplythe U.S. market and negatively affect the price of sugar.  We, along with the domestic sugar industry,are seeking improvements to NAFTA and are also pursuing legal remedies toaddress the matter.  If the sugarindustry is unsuccessful in these and any other endeavors it pursues to preventthe influx of Mexican sugar into the U.S. market, we could experience adversefinancial consequences which would in turn be experienced by our members.

**Regional and bilateral tradeagreements could result in an increase in the amount of sugar available in theUnited States sugar market which may impact our business.**

The United States government has been engaged inregional and bilateral trade negotiations with countries that producesugar.  If the United States governmententers into bilateral trade agreements with sugar producing countries, theamount of sugar in the domestic sugar market could increase.  A change in the supply of sugar could putpressure on the price of sugar, which would impact our profitability.

### **Thesuccess or failure of our business is linked to certain government programs,regulations and legislation that may change in the future.**

The nature and scope of future legislation andregulation affecting the sugar market and industry cannot be predicted.  The current price supports and marketprotections for sugar in place may not continue in their present forms.  If the price support programs were eliminatedin their entirety, or if certain protections the federal government providesfrom foreign competitors were materially reduced, the amount of sugar we cansell, the amount of sugarbeets we can process and the price for which we cansell our sugar may be impacted, which could reduce the profitability of ourbusiness.  If legislation or governmentprograms change, we may not be able to adopt strategies that would allow us tocompete

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effectively in a greatlychanged domestic market for sugar and the adverse effects could negativelyimpact the desirability of growing sugarbeets for delivery to us forprocessing, our financial results, and our continued viability.

### **Changesin the Farm Bill may change our results of operations or require a change inour strategic plans.**

The impact of changes to the Farm Bill on ouroperations cannot be completely predicted. The long term ramifications of the current marketing allotment andallocation program depend on our ability to maintain our marketing allocationon an annual basis and to obtain access, if necessary, to additionalallocations at a reasonable price.  Anychanges in the Farm Bill may impact our business.  We cannot predict the changes to the FarmBill or the impact such changes will have at this time.

**If we are unable to compete in the sweetenermarket, our operating results may suffer.**

Sugar is a fungible commodity with competition forsales volume based primarily upon customer service, price and reliability,though differences in proximity to various geographic markets within the UnitedStates result in differences in freight and shipping costs which in turngenerally affect pricing and competitiveness. The overall sweetener market, in addition to sugar, includes corn-basedsweeteners, such as regular and high fructose corn syrups, and non-nutritive,high-intensity sweeteners such as aspartame. Differences in functional properties and prices have tended to definethe use of these various sweeteners. Although the various sweeteners are not interchangeable in allapplications, the substitution of other sweeteners for sugar has occurred incertain products, such as soft drinks. We cannot predict the availability, development or potential use ofthese and other alternative sweeteners and their possible impact on us or ourmembers.  We believe that we possess theability to compete successfully with other producers of sugar in the UnitedStates.  In spite of this competitiveadvantage, substitute products and sugar imports could reduce the demand forsugar which could lower the price of sugar, resulting in a change to ouroperations in the future.

**Ouroperations are sensitive to energy prices.**

The prices we pay for energyrelated products, such as natural gas, coal and coke, have been volatile andmay continue to be volatile.  We usesubstantial amounts of these products in our manufacturing process.  We believe that the prices for energy relatedproducts including natural gas, coal and coke will continue to be volatile andhigher than historical levels.  Higherenergy prices may also increase the costs of many goods and services weacquire.  These higher prices maymaterially increase our cost of production, thus impacting our financialresults.

**Quantity and quality ofsugarbeets is sensitive to weather and other factors such as seed varieties.**

The sugarbeet, as with most other crops, is affectedby many factors, including seed varieties and weather conditions during thegrowing season.  Additionally, thequantity of sugarbeets to be processed and weather conditions during theprocessing season affect our ability to store sugarbeets held forprocessing.  Growing and storageconditions different from what we predict or expect may change the quantity andquality of sugarbeets available for processing and therefore may affect thequantity of the sugar we produce.

A significant increase in the quantity or quality ofsugarbeets harvested due to good weather conditions or improved seed varietiescould result in an unpredictably large quantity of sugarbeets to beprocessed.  If we are required to processa larger than anticipated quantity of sugarbeets we may experience increasedper unit processing cost or a decrease in production which in turn would havean adverse financial consequence to us and our members.  A significant reduction in the quantity orquality of sugarbeets harvested resulting from adverse weather conditions,disease or other factors could result

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in increased per unit processingcosts and decreased production, with adverse financial consequences to us andour members.

In order to manage the quantity and quality ofsugarbeets that are harvested or available for processing, our Grower Contractallows for a reduction in the number of acres to be planted at the beginning ofa crop year or harvested at the end of a crop year.  Up through the 2005 crop year, we had notinstituted or required a reduction in the number of acres harvested at the endof a crop year.  Due to the estimatedlarge size of the 2006 crop, we instituted an eight percent reduction in thenumber of acres harvested by members in order to manage the quantity andquality of the sugarbeets that we have available for processing.  In anticipation of an ever increasingquantity of sugarbeets per acre, we may be required to reduce the plantingtolerances set at the beginning of a crop year. If we are unable to manage the quantity and quality of sugarbeetsavailable for processing, we could experience adverse financial consequencesthat would impact both us and our members.

**Item2.**                                        PROPERTYAND PROCESSING FACILITIES

The Company operates five sugarbeet processingfactories in the Red River Valley and one in Sidney, Montana.  The Company owns all of its factories and theland on which they are located.  Thefactories range in size from 150,000 to 400,000 square feet.  These properties are used in the Company’ssugar segment.

The location andprocessing capacity of the Company’s factories are:
|                       | ** ** | **Approximate Daily Slicing Capacity** | ** ** |
|-----------------------|------------|-------------------------------------------------------|------------|
| **Location**          | ** ** | **(Tons of Sugarbeets)**                    | ** ** |
| Crookston, MN         |       | 5,900                                                 |       |
| East Grand  Forks, MN |       | 9,200                                                 |       |
| Moorhead, MN          |       | 5,900                                                 |       |
| Drayton, ND           |       | 6,700                                                 |       |
| Hillsboro, ND         |       | 9,000                                                 |       |
| Sidney, MT            |       | 6,400                                                 |       |

Each of the processingfactories includes the physical facilities and equipment necessary to processsugarbeets into sugar.  Each factory hasspace for sugarbeet storage, including ventilated storage sites.  The Red River Valley factories also have coldstorage facilities.  Each of thesefactories is currently operating at or near its capacity.  The Company owns a molasses desugarization(MDS) plant at its East Grand Forks facility and owns 50 percent of Crystechwhich owns the MDS plant adjacent to the Hillsboro factory.  The MDS plants process molasses to extractadditional sugar.  The Company has sugarpackaging facilities located at the Moorhead, Hillsboro, Crookston, East GrandForks and Sidney factories.

The Company also owns a sugarbeet processing plant inTorrington, Wyoming.  The Torrington,Wyoming, facility is leased on a long-term basis to another sugar company.

ProGold Limited Liability Company owns a cornwet-milling plant in Wahpeton, North Dakota, that is currently being leased toCargill, Incorporated.  The cornwet-milling plant is capable of processing corn to produce corn sweeteners(including high fructose corn syrups) and various agri-products.  This property is used in the Company’sleasing segment.

The Company’s corporate office is located in a 30,000square foot, two-story office building in Moorhead, Minnesota.  The Company also has a 100,000 square footTechnical Services Center situated on approximately 200 acres in Moorhead,Minnesota.  The Company owns bothfacilities.  The Company also ownsnumerous sites as sugarbeet receiving and storage stations located withinproximity

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of their factories.  Substantially all non-current assets aremortgaged or pledged as collateral for its indebtedness to various financialinstitutions.

**Item3.**                                        LEGALPROCEEDINGS

From time to time and in the ordinary course of itsbusiness, the Company is named as a defendant in legal proceedings related tovarious issues, including worker’s compensation claims, tort claims andcontractual disputes.  The Company iscurrently involved in certain legal proceedings which have arisen in theordinary course of the Company’s business. The Company is also aware of certain other potential claims which couldresult in the commencement of legal proceedings.  The Company carries insurance which providesprotection against certain types of claims. With respect to current litigation and potential claims of which theCompany is aware, the Company’s management believes that (i) the Companyhas insurance protection to cover all or a portion of any judgments which maybe rendered against the Company with respect to certain claims or actions and(ii) any judgments which may be entered against the Company and which mayexceed such insurance coverage or which may arise in actions involvingpotential liabilities not covered by insurance policies are not likely to havea material adverse effect upon the Company, or its assets or operations.

Four administrativeproceedings were brought against the United States Department of Agriculture(USDA) seeking reversal of prior decisions regarding the determination andtransfer of sugar marketing allocations made by the USDA.  While the Company was not a party to any ofthese administrative proceedings, it was, solely or in coordination with othersugar processors, an intervenor in those administrative proceedings.  Each of these proceedings has completed theadministrative process and the decisions by the chief judicial officer of theUSDA in each were such that the Company would not experience a reduction in itsmarketing allocations.  Any decision madeby the chief judicial officer of the USDA can be further appealed in federalcourt.  An appeal of one of the decisionswas subsequently filed by another company. If the decision by the chief judicial officer in this case isoverturned, it could result in the Company experiencing a reduction inmarketing allocations equal to the loss of approximately 25,000 acres in futurecrop years assuming no other related factors were to change.

The outcome of any contestedmatter is never certain and the eventual decisions in the matters identifiedabove may result in a reduction of the Company’s marketing allocations whichwould adversely impact the amount of sugar the Company could produce andmarket.

**Item4.**                                        SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company’sshareholders during the quarter ended August 31, 2006.

# **PART II**

**Item 5.**                                        MARKETFOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of August 31, 2006, the Company had 2,874 shares ofthe Common Stock and 498,570 shares of the Preferred Stock issued andoutstanding.  There is no establishedpublic market for the Company’s Common Stock or Preferred Stock, as such sharesmay be held only by farmer-producers who are eligible for membership in theCompany.  The Company’s shares are notlisted for trading on any exchange or quotation system.  Although transfers of the Company’s sharesmay occur only with the consent of the Board of the Directors, the Company doesnot obtain information regarding the transfer price in connection with suchtransfers.  As a result, the Company isnot able to provide information regarding the prices at which the Company’sshares have been transferred.

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Because the number of acres of sugarbeets a member maygrow for sale to the Company is directly related to the number of shares ofPreferred Stock owned, a limited, private market for Preferred Stockexists.  It is not anticipated that ageneral public market for the Company’s shares of Common Stock or PreferredStock will develop due to the limitations on transfer and the variousmembership requirements which must be satisfied in order to acquire suchshares.

A member desiring to sell his or her Common Stock orPreferred Stock must first offer them to the Company for purchase at parvalue.  If the Company declines topurchase such shares, either class may be sold to a new member (i.e., anotherfarm operator not already a member) and Preferred Stock may be sold to one ormore existing members or farm operators approved for membership, in each casesubject to approval by the Board of Directors. To date, the Company’s Board of Directors has not exercised the Company’sright of first refusal to purchase preferred shares offered for sale by itsmembers.  Because the Company does notrequire parties seeking approval for transfers to provide information regardingthe transfer price, the Company does not possess verifiable informationregarding the transfer price involved in recent transfers of the Company’sPreferred Stock.

**Item 6.**                                        SELECTEDFINANCIAL DATA

The selected financial data of the Company should beread in conjunction with the consolidated financial statements and relatednotes included in Appendix A of this Report.
| ** **                                            | ** ** | **Fiscal Year Ended August 31,  (In Thousands, except for ratios)** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **2006**                                                                                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                  |       |                                                                                                        |       |   |   |   |   |   |   |   |   |
| Net Revenues                                          |       | $                                                                                                           | 1,005,716  |   | $ | 965,474 |   | $ | 1,033,088 |   | $ | 829,246 |   | $ | 775,288 |   |
| Net Proceeds (1)                                      |       | $                                                                                                           | 445,091    |   | $ | 373,260 |   | $ | 473,122 |   | $ | 361,902 |   | $ | 398,588 |   |
| Total Assets                                          |       | $                                                                                                           | 839,997    |   | $ | 774,024 |   | $ | 822,155 |   | $ | 809,751 |   | $ | 622,693 |   |
| Long-Term Debt,  Net of Current Maturities            |       | $                                                                                                           | 200,037    |   | $ | 216,842 |   | $ | 250,086 |   | $ | 286,922 |   | $ | 182,371 |   |
| Members’  Investments                            |       | $                                                                                                           | 323,256    |   | $ | 315,698 |   | $ | 303,426 |   | $ | 270,346 |   | $ | 268,667 |   |
| Property and  Equipment Additions, net of retirements |       | $                                                                                                           | 45,453     |   | $ | 42,595 |   | $ | 30,347 |   | $ | 46,578 |   | $ | 15,281 |   |
| Working Capital                                       |       | $                                                                                                           | 58,214     |   | $ | 47,514 |   | $ | 58,673 |   | $ | 49,572 |   | $ | 58,282 |   |
| Ratio of Long-Term Debt  to Equity (2)                |       | .62:1                                                                                                       |       | .69:1 |   | .82:1 |   | 1.06:1 |   | .68:1 |   |

 
| ** **                         | ** ** | **Fiscal Year Ended August 31,  (In Thousands, except for Tons purchased per acre harvested  and Sugar content of sugarbeets)** | ** ** |
|------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Crop Data (3)**        | ** ** | **2006**                                                                                                                                                                                                        | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|                               |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Acres harvested                    |       | 507                                                                                                                                                                                                             |       | 526 |   | 537 |   | 546 |   | 452 |   |
| Tons purchased                     |       | 9,628                                                                                                                                                                                                           |       | 10,217 |   | 10,982 |   | 9,485 |   | 8,058 |   |
| Tons purchased  per acre harvested |       | 19.0                                                                                                                                                                                                            |       | 19.4 |   | 20.4 |   | 17.6 |   | 17.8 |   |
| Sugar Content of  Sugarbeets       |       | 18.0                                                                                                                                                                                                            | %          | 17.8 | % | 18.5 | % | 17.1 | % | 18.0 | % |
| Sugar  hundredweight               |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Produced                           |       | 29,728                                                                                                                                                                                                          |       | 30,524 |   | 33,829 |   | 26,746 |   | 25,395 |   |
| PIK Sugar Receipts                 |       | —                                                                                                                                                                                                          |       | — |   | — |   | — |   | 1,177 |   |
| Sold, including purchased sugar    |       | 29,691                                                                                                                                                                                                          |       | 31,509 |   | 33,835 |   | 27,077 |   | 26,806 |   |
| Purchased sugar sold               |       | 45                                                                                                                                                                                                              |       | 523 |   | 36 |   | 707 |   | 288 |   |
| Agri-Products  tons                |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Produced                           |       | 717                                                                                                                                                                                                             |       | 732 |   | 876 |   | 760 |   | 612 |   |
| Sold                               |       | 721                                                                                                                                                                                                             |       | 761 |   | 864 |   | 718 |   | 636 |   |

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(1)           NetProceeds are the Company’s gross revenues, less the costs and expenses ofproducing and marketing sugar, agri-products and sugarbeet seed, but beforepayments to members for sugarbeets. Payments to be made to members for the delivery of sugarbeets areliabilities of the Company.  (For a morecomplete description of the calculation of Net Proceeds, see “Item 1.  Business – Raw Materials.”)

(2)           Calculatedby dividing the Company’s long term debt, exclusive of the current maturitiesof such debt, by members’ investments.

(3)           Informationfor a fiscal year relates to the crop planted and harvested in the precedingcalendar year (e.g., information for the fiscal year ended August 31, 2006relates to the crop of 2005).  Crop datafor fiscal years 2003 through 2006 reflect the combined data of the Red RiverValley crop and the Sidney crop.  Fiscalyear 2002 reflects Red River Valley crop data only.

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**Item 7.**             MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

*The following discussion of thefinancial conditions and results of operations of the Company should be read inconjunction with the Company’s consolidated financial statements and notesthereto included in Appendix A of this report.*

## **Liquidityand Capital Resources**

Under the Company’sBylaws and Grower Contracts, payments for member delivered sugarbeets, theprincipal raw material used in producing the sugar and agri-products it sells,are subordinated to all member business expenses.  In addition, the beet payment made to membergrowers and non-member growers are paid in three payments over the course of ayear, and the payments are made net of any anticipated or declared unit retainfor the crop.  These procedures have theeffect of providing the Company with an additional source of short-termfinancing.  This financing arrangementmay result in an additional source of liquidity and reduced need for outsidefinancing in comparison to a similar business operated on a non-cooperativebasis.

Because sugar is sold throughout the year (whilesugarbeets are processed primarily in the fall, winter and spring) and becausesubstantial amounts of equipment are required for its operations, the Companyhas utilized substantial outside financing on both a seasonal and long-termbasis to fund its operations.  Themajority of such financing has been provided by a consortium of lenders led byCoBank, ACB.

The Company has long-term debt availability withCoBank, ACB of****$236.4 million, of which$116.3 million in loans and $52.1 million in long-term letters of credit wereoutstanding as of August 31, 2006.  Theunused long-term line of credit as of August 31, 2006 was $68.0 million.  In addition, the Company has long-term debtoutstanding, as of August 31, 2006, of $50 million from a privateplacement of Senior Notes that occurred in September of 1998; $10.0 million froma private placement of Senior Notes that occurred in January of 2003;$42.3 million from nine separate issuances of Pollution Control and Industrial Development Revenue Bonds; and a termloan with Bank of North Dakota of $2.4 million.

The Company also has a seasonal line of credit with aconsortium of lenders led by CoBank, ACB of $300 million, of which therewas no outstanding balance as of August 31, 2006, and a line of credit withWells Fargo Bank for $1 million, of which there was no outstanding balanceas of August 31, 2006.  The Company’scommercial paper program provides short-term borrowings of up to $225 millionof which approximately $5.3 million was outstanding as of August 31, 2006.  The Company had $5.8 million of short-termletters of credit outstanding as of August 31, 2006.  The unused short-term line of credit as ofAugust 31, 2006 was $289.9 million.  Anyborrowings under the commercial paper program 

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along with outstandingshort-term letters of credit will act to reduce the available credit under theCoBank, ACB seasonal line of credit by a commensurate amount.

The Company had outstandingcommitments totaling $12.4 million as of August 31, 2006 for equipment andconstruction contracts related to various capital and maintenance projects.

The Company controls 50percent of Crystech, LLC, a special purpose entity that operates a molassesdesugarization facility at the Company’s Hillsboro, North Dakota sugarfactory.  The Company accounts for itsinvestment using the equity method.  Asof August 31, 2006, Crystech had outstanding debt of $6.1 million.

As of August 31, 2006,Midwest had outstanding short-term debt with CoBank, ACB of $3.6 million, ofwhich $2.1 million was guaranteed by the Company.

The net cash provided by operations was $105.3 millionfor the year ended August 31, 2006 as compared to $84.6 million for theprevious year.  This increase of $20.7million was primarily due to an increase in the amounts due growers of $127.3million, reduced advances to related parties of $10.8 million, lowercontributions to pension plans of $12.2 million and increased unit retainswithheld from members of $7.8 million partially offset by increased receivablesof $79.7 million and inventories of $58.8 million.  The increase in amounts due growers is dueprimarily to a higher grower payment this year resulting from higher sugarselling prices.  Strong sales in August2006 increased receivables substantially above the prior year’s balance.  The increase in inventories was primarily dueto an increase in the net realizable value of sugar as of August 31, 2006 ascompared to that of August 31, 2005.

The net cash used in investing activities was $41.6million for the year ended August 31, 2006 as compared to $43.1 million for theprevious year.  The decrease of $1.5million was primarily related to increased equity distributions from CoBank,ACB of $1.0 million and reduced investments in marketing cooperatives of $1.1million partially offset by increased purchases of property and equipment of$1.4 million.

The net cash used in financing activities was $63.6million for the year ended August 31, 2006 as compared to $41.3 million for theprevious year.  This increase of $22.3million was primarily due to increased payments on short-term debt of $25.9million, increased payments of unit retains and equity retention of $12.9million and increased payments on long-term debt of $3.0 million partiallyoffset by increased proceeds from the issuance of long-term debt of $19.5million.

The Company anticipates that the funds necessary forworking capital requirements and future capital expenditures will be derivedfrom operations, short-term borrowings, depreciation, unit retains andlong-term borrowings.

The following tableprovides information regarding the Company’s contractual obligations as ofAugust 31, 2006:
| **(In Thousands)**           | ** ** | **Total**  | ** ** | **Less than  One Year** | ** ** | **One to  Three Years** | ** ** | **Four to Five  Years** | ** ** | **After Five   Years** | ** ** |
|-----------------------------------|------------|------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| Long-Term Debt                    |       | $          | 220,999    |                              | $          | 20,962                            |       | $                                 | 92,741     |                             | $          | 40,433 |   | $ | 66,863 |   |
| Interest on  Fixed Rate L-T Debt  |       | 82,626     |       | 11,071                            |       | 17,650                            |       | 9,111                             |       | 44,794                           |       |
| Purchase  Obligations             |       | 76,537     |       | 27,332                            |       | 45,374                            |       | 3,606                             |       | 225                              |       |
| Operating Lease  Obligations      |       | 58,475     |       | 2,101                             |       | 15,682                            |       | 11,354                            |       | 29,338                           |       |
| Other Long-Term  Obligations      |       | 844        |       | 186                               |       | 508                               |       | 124                               |       | 26                               |       |
| Pension Plan  Contributions (1)   |       | 4,000      |       | 4,000                             |       |                              |       |                              |       |                             |       |
| ** **                        | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                       | ** ** |
| **Total Contractual Obligations** |       | $          | 443,481    |                              | $          | 65,652                            |       | $                                 | 171,955    |                             | $          | 64,628 |   | $ | 141,246 |   |

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(1) The Company expectsto contribute approximately $4.0 million to the pension plans during the nextfiscal year.  Contributions for futureyears are not known at this time and therefore are not included in the abovetable.

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**Critical Accounting Policies andEstimates**

Preparation of theCompany’s consolidated financial statements requires estimates and judgments tobe made that affect the amounts of assets, liabilities, revenues and expensesreported.  Such decisions include the selection of the appropriateaccounting principles to be applied and the assumptions on which to baseaccounting estimates.  Management continually evaluates these estimatesbased on historical experience and other assumptions we believe to bereasonable under the circumstances.

The difficulty inapplying these policies arises from the assumptions, estimates and judgmentsthat have to be made currently about matters that are inherently uncertain,such as future economic conditions, operating results and valuations as well asmanagement intentions.  As the difficulty increases, the level ofprecision decreases, meaning that actual results can and probably will be differentfrom those currently estimated.

Estimates are consideredto be critical if they meet both of the following criteria: (1) the estimaterequires assumptions about material matters that are uncertain at the time theaccounting estimates are made, and (2) other materially different estimatescould have been reasonably made or material changes in the estimates arereasonably likely to occur from period to period.  The Company’s critical accounting estimatesinclude the following:

* Inventory Valuation*

Sugar, pulp, molasses andother agri-product inventories are valued at estimated net realizablevalue.  The Company derives its estimatesfrom sales contracts, recent sales and evaluations of market conditions andtrends.  Changes in market conditions maycause management’s estimates to differ from actual results.

*Property and Equipment, Property and Equipment Heldfor Lease, and Depreciation*

Property and equipment,and property and equipment held for lease are depreciated for financialreporting purposes principally using straight-line methods with estimateduseful lives ranging from 4 to 40 years. Economic circumstances or otherfactors may cause management’s estimates of expected useful lives to differfrom actual.

The Company reviews itsproperty and equipment, and property and equipment held for lease forimpairment whenever events indicate that the carrying amount of the asset maynot be recoverable.  An impairment lossis recorded when the sum of the future cash flows is less than the carryingamount of the asset.  An impairment lossis measured as the amount by which the carrying amount of the asset exceeds itsfair value.  There were no impairmentlosses incurred during the fiscal year covered by this report.  However, considerable management judgment isnecessary to estimate future cash flows and may differ from actual results.

*Pension Plan and OtherPost-Retirement Benefits*

Accumulated plan benefitsare those future periodic payments, including lump-sum distributions, that areattributable under the Company’s Pension Plan and Post-Retirement Plan to theservice employees have rendered. Accumulated plan benefits include benefitsexpected to be paid to retired or vested terminated employees or theirbeneficiaries; beneficiaries of employees who have died; and present employeesor their beneficiaries.

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The actuarial presentvalue of accumulated plan benefits is determined by an actuary and is theamount that results from applying actuarial assumptions to adjust theaccumulated plan benefits to reflect the time value of money and theprobability of payment.

The significant actuarialassumptions used in the determination of the actuarial present value ofaccumulated pension plan benefits for fiscal 2006 were as follows: *Valuation Funding Method* - Entry age normal, frozen initialliability; *Life Expectancy* – RP-2000 MortalityTable; *Retirement Age –*graded rates from 1percent retiring at age 55 to 100 percent retired by age 70*; InvestmentReturn -*8.25 percent compounded annually for funding*;  Discount* Rate- 6.62percent compounded annually; *Salary Scale* -3.5 percent compounded annually (Plan A only).

The significant actuarialassumptions used in the determination of the actuarial present value ofaccumulated post-retirement benefits for fiscal 2006 were as follows: *Healthcare Cost Trend* - a 10.0 percent annual rate ofincrease in the per capita cost of covered healthcare benefits for participantsunder age 65 was assumed for 2007.  Therate is assumed to decline to 5.0 percent over the next five years.  For participants age 65 and older, an 11.0percent annual rate of increase in the per capita cost of covered healthcarebenefits was assumed for 2007.  The rateis assumed to decline to 6.0 percent over the next five years*; Discount* Rate- 6.62 percent compounded annually.

Actual events may differfrom the assumptions used and may result in plan benefit payments differingsignificantly from these current estimates.

## **Resultsof Operations**

The Company’s operationalresults and the resulting beet payment to members and growers are substantiallydependent on market factors, including domestic prices for refined sugar.  These factors are continuously influenced bya wide variety of market forces, including domestic sugarbeet and cane production,weather conditions and United States’ farm and trade policy, which the Companyis unable to predict.

In addition, highlyvariable weather conditions during the growing, harvesting and processingseasons, as well as diseases and insects, may materially affect the quality andquantity of sugarbeets available for purchase as well as the unit costs of rawmaterials and processing.

**Comparison of the Years Ended August 31, 2006 and2005**

The harvest of the sugarbeet crop grown during 2005and processed during fiscal 2006 produced a total of 9.6 million tons ofsugarbeets, or 19.0 tons of sugarbeets per acre from 507,000 acres.  This represents a decrease in total tonsharvested of 5.8 percent compared to the 2004 crop.  The sugar content of the 2005 crop was 18.0percent as compared to the 17.8 percent sugar content of the 2004 crop.  The Company produced a total of29.7 million hundredweight of sugar from the 2005 crop, a decrease of 2.6percent compared to the 2004 crop. While the Company experienced lowerproduction volumes for most of its products this fiscal year as compared to theprevious fiscal year, the average selling prices for most of these productsincreased due to supply and demand factors. Net Proceeds from Member and Non-Member Business for fiscal 2006 were19.2 percent higher than in fiscal 2005. This increase is primarily the result of the increase in average sellingprices being partially offset by lower production volumes, higher processingcosts and selling expenses.

Revenue for the year ended August 31, 2006, was $1.0billion, an increase of $40.2 million from 2005.  The table below reflects the percentagechanges in product revenue, prices and volumes for the year ended August 31,2006 as compared to the previous year.

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| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | 4.5         | %          | 10.9                   | %          | -5.8       | %          |
| Pulp        |       | 7.0         | %          | 3.9                    | %          | 3.0        | %          |
| Molasses    |       | -18.2       | %          | 22.4                   | %          | -33.2      | %          |
| CSB         |       | 3.0         | %          | 19.6                   | %          | -13.9      | %          |
| Betaine     |       | 4.6         | %          | 19.8                   | %          | -12.7      | %          |

Rental revenue on theProGold operating lease was $25.1 million and $26.1 million for the years endedAugust 31, 2006 and 2005, respectively.

Cost of sales for theyear ended August 31, 2006, exclusive of payments to members for sugarbeets,decreased $35.9 million as compared to fiscal 2005.  The change in the net realizable value ofproduct inventories impacted the cost of sales favorably by $33.0 million.  The costs associated with sugar purchased tomeet customer needs decreased by $12.5 million due to the earlier campaignstart-up this year.  The cost recognizedassociated with the non-member sugarbeets increased $4.7 million or 13.1percent for the year ended August 31, 2006 when compared to last year.  This increase was primarily due to highersugar net selling prices and more sugarbeets harvested this year at SidneySugars Incorporated.  Direct processingcosts for sugar and pulp increased 6.9 percent. The increase is due to higher prices related to energy products andmajor supplies partially offset by harvesting and processing 5.8 percent fewersugarbeets than last year.  Fixed andcommitted expenses increased 2.1 percent reflecting general cost increases.

Selling, general andadministrative expenses increased $7.5 million from 2005.  Selling expenses increased $6.3 millionprimarily due to higherfreight, warehousing and packaging costs.  General and Administrative expenses increased$1.2 million due to general cost increases.

Lower average long-termdebt borrowing levels partially offset by higher average short-term interestrates resulted in interest expense, net, remaining relatively level between thefiscal years ended August 31, 2006 and 2005.

Non-member businessactivities resulted in a gain of $2.2 million in 2006, as compared to a gain of$2.5 million in 2005.  The gain in bothyears was due primarily to activities related to Sidney Sugars.

Payments to members for sugarbeets, net of unitretains declared, increased by $64.5 million from $351.9 million in 2005 to$416.4 million in 2006. This was primarily due to the increased net sellingprices for sugar and agri-products in 2006.

**Comparison of the Years Ended August 31, 2005 and2004**

The harvest of thesugarbeet crop grown during 2004 and processed during fiscal 2005 produced atotal of 10.2 million tons of sugarbeets, or 19.4 tons of sugarbeets peracre from 526,000 acres.  This representsa decrease in total tons harvested of 7.0 percent compared to the 2003crop.  The sugar content of the 2004 cropwas 17.8 percent as compared to the 18.5 percent sugar content of the 2003crop.  The Company produced a total of30.5 million hundredweight of sugar from the 2004 crop, a decrease of 9.8percent compared to the 2003 crop.  NetProceeds from Member and Non-Member Business for fiscal 2005 were 21.1 percentlower than in fiscal 2004.  This decreaseis primarily the result of the smaller and lower quality sugarbeet crop in fiscal2005 as compared to the prior year.

Revenue for the yearended August 31, 2005, was $965.5 million, a decrease of $67.6 million from2004.  The table below reflects thepercentage changes in product revenue, prices and volumes for the year endedAugust 31, 2005 as compared to the previous year.

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| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | -7.1        | %          | -0.3                   | %          | -6.9       | %          |
| Pulp        |       | -2.8        | %          | 9.8                    | %          | -11.5      | %          |
| Molasses    |       | -37.8       | %          | 10.0                   | %          | -43.5      | %          |
| CSB         |       | -5.5        | %          | -9.2                   | %          | 4.1        | %          |
| Betaine     |       | 523.6       | %          | -2.0                   | %          | 536.4      | %          |

Rental revenue on theProGold operating lease was $26.1 million and $25.8 million for the years endedAugust 31, 2005 and 2004, respectively.

Cost of sales for theyear ended August 31, 2005, exclusive of payments to members for sugarbeets,increased $26.7 million as compared to fiscal 2004.  The change in the net realizable value ofproduct inventories impacted the cost of sales unfavorably by $9.0million.  The costs associated with sugarpurchased to meet customer needs increased by $13.3 million due to the latercampaign start-up this year and a 10.0 percent reduction in sugar producedresulting from a 7.0 percent smaller crop along with a lower sugar content ofthe sugarbeets this year.  The costrecognized associated with the non-member sugarbeets decreased $9.0 million or20.1 percent for the year ended August 31, 2005 when compared to lastyear.  This decrease was primarily due tofewer sugarbeets harvested this year. Direct processing costs for sugar and pulp increased 3.7 percent.  The increase is due to increased pricesrelated to energy products and major supplies partially offset by harvestingand processing 7.0 percent fewer sugarbeets than last year.  Fixed and committed expenses increased 3.2percent reflecting increased wastewater treatment expenses and general costincreases.

Selling, general andadministrative expenses increased $3.3 million from 2004.  Selling expenses increased $3.2 millionprimarily due to higherfreight and packaging costs. General and Administrative expenses increased $ .1 million due in partto increased funding for sugar industry and association activities.

Interest expensedecreased $1.0 million from last year. This was the result of decreased averageborrowing levels for short-term and long-term debt, partially offset by highershort-term and long-term interest rates.

Non-member businessactivities resulted in a gain of $2.5 million in 2005, as compared to a gain of$4.2 million in 2004.  The gain in bothyears was due primarily to activities related to Sidney Sugars. Earnings fromthe operations of Sidney Sugars were lower this year due to the smallersugarbeet crop and reduced selling prices for sugar.

Payments to members for sugarbeets, net of unitretains declared, decreased by $86.9 million from $438.9 million in 2004 to$351.9 million in 2005. This was primarily due to the decreased size andquality of the crop harvested and processed in 2005.

## **2006Crop and Estimated Fiscal Year 2007 Information**

This discussion contains the Company’s currentestimate of the results to be obtained from the Company’s processing of the2006 sugarbeet crop.  This discussionincludes forward-looking statements regarding the quantity of sugar to beproduced from the 2006 sugarbeet crop. These forward-looking statements are based largely upon the Company’sexpectations and estimates of future events; as a result, they are subject to avariety of risks and uncertainties.  Theactual results experienced by the Company could differ materially from theforward-looking statements contained herein.

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Due to theestimated large size of the 2006 Red River Valley crop, the Company institutedan eight percent reduction in the number of acres harvested by members in orderto manage the quantity and quality of the sugarbeets available for processingduring fiscal 2007.  The harvest of theRed River Valley and the Sidney sugarbeet crops grown during 2006 is estimatedto produce a total of 12.5 million tons of sugarbeets, or approximately25.2 tons of sugarbeets per acre from approximately 497,000 acres.  This represents an increase in total tonsharvested of approximately 30.2 percent compared to the 2005 crop.  The sugar content of the 2006 crop isestimated to be 18.1 percent as compared to the 18.0 percent sugar content ofthe 2005 crop.  The Company expects toproduce a total of approximately 34.8 million hundredweight of sugar fromthe 2006 crop, an increase of approximately 16.9 percent compared to the 2005crop.

**Item 7A.**                               QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

Market risk is the risk of loss to future earnings, tofair values or to future cash flows that may result from changes in the priceof a financial instrument.  The value ofa 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-risksensitive financial instruments, including long term debt.

The Company does notbelieve that it is subject to any material market risk exposure with respect tointerest rates, exchange rates, commodity prices, equity prices and othermarket changes that would require disclosure under this item.

**Item 8.**                                        FINANCIALSTATEMENTS

The consolidated financial statements of the Companyfor the fiscal years ended August 31, 2006, 2005 and 2004 have been audited byEide Bailly LLP, independent registered public accounting firm.  Such consolidated financial statements havebeen included herein in reliance upon the report of Eide Bailly LLP.  The consolidated financial statements of theCompany are included in Appendix A to this annual report.
| **Item 9.** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE** |
|-------------|-------------------------------------------------------------------------------------------|

** **

None

**Item9A.**                               CONTROLSAND PROCEDURES

The Company’s chiefexecutive officer and chief financial officer have reviewed and evaluated theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities ExchangeAct of 1934) as of August 31, 2006. Based on that review and evaluation, which included inquiries made tocertain other employees of the Company, the chief executive officer and chieffinancial officer have concluded that the Company’s current disclosure controlsand procedures, as designed and implemented, are effective in ensuring thatinformation relating to the Company required to be disclosed in the reports theCompany files or submits under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in theSecurity and Exchange Commission’s rules and forms, including ensuring thatsuch information is accumulated and communicated to the Company’s management,including the chief executive officer and the chief financial officer, asappropriate to allow timely decisions regarding required disclosure.  There were no changes in the Company’sinternal controls over financial reporting that occurred during the Company’smost recent fiscal quarter that may have materially affected, or are reasonablylikely to materially affect, the Company’s internal control over financialreporting.

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# **PART III**

**Item 10.**                                 DIRECTORSAND EXECUTIVE OFFICERS

**Board of Directors**

The Board of Directors ofthe Company consists of three directors from each of the five factorydistricts.  Directors must hold commonstock of the Company or must be representatives of such shareholders belongingto the district they represent and are elected by the members of thatdistrict.  In the case of a holder ofcommon stock who is other than a natural person, a duly appointed or elected representativeof such shareholder may serve as a director. The directors were elected to serve three-year terms expiring inDecember of the years indicated in the table below.  One director is elected each year from eachfactory district.  A director cannotserve more than four consecutive three-year terms.

The table below listscertain information concerning current directors of the Company. 
| **Name and  Address**                                               | ** ** | **Age**    | ** ** | **Factory District** | ** ** | **Director  Since** | ** ** | **Term Expires  December.** |
|---------------------------------------------------------------------|------------|------------|------------|----------------------|------------|---------------------|------------|-----------------------------|
| ** **                                                          | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                  |
| Michael A.  Astrup  PO Box 219  Dilworth, MN 56529                  |       | 53         |       | Moorhead             |       | 1996                |       | 2008                        |
| ** **                                                          | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                  |
| William Baldwin  8244 144th Ave. NE  St Thomas, ND 58276       |       | 60         |       | Drayton              |       | 2004                |       | 2007                        |
| ** **                                                          | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                  |
| Richard Borgen  1544 Co. Highway 39  Perley, MN 56574               |       | 57         |       | Moorhead             |       | 1997                |       | 2006                        |
| ** **                                                          | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                  |
| John Brainard  204 6th St. W  Ada, MN 56510                    |       | 46         |       | Hillsboro            |       | 2005                |       | 2008                        |
| ** **                                                          | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                  |
| Brian R.  Erickson  824 James Ave. S.E.  East Grand Forks, MN 56721 |       | 58         |       | East Grand Forks     |       | 2005                |       | 2008                        |
| ** **                                                          | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                  |
| Robert M. Green  220 Park St.  Saint Thomas, ND 58276               |       | 51         |       | Drayton              |       | 2005                |       | 2008                        |
|                                                                |       |       |       |                 |       |                |       |                        |
| John F. Gudajtes  15363 County Road 15  Minto, ND 58261             |       | 57         |       | East Grand Forks     |       | 2003                |       | 2006                        |
| ** **                                                          | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                  |
| Curtis E. Haugen  45508 300th St. NW  Argyle, MN 56713              |       | 45         |       | East Grand Forks     |       | 2001                |       | 2007                        |

 

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| Lonn M. Kiel  36044 275th Ave. S.W.  Crookston, MN 56716          |       | 53         |       | Crookston  |       | 1994       |       | 2006       |
|------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|
|                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| David J. Kragnes  (Chairman)  10600 60th St. N.  Felton, MN 56536 |       | 54         |       | Moorhead   |       | 1995       |       | 2007       |
| ** **                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Francis L.  Kritzberger  RR 1, Box 22  Hillsboro, ND 58045             |       | 61         |       | Hillsboro  |       | 1996       |       | 2006       |
|                                                                   |       |       |       |       |       |       |       |       |
| Jeff D. McInnes  RR 2 Box 140  Hillsboro, ND 58045                     |       | 49         |       | Hillsboro  |       | 2001       |       | 2007       |
|                                                                   |       |       |       |       |       |       |       |       |
| Ronald E.  Reitmeier  30928 220th St. S.W.  Fisher, MN 56723      |       | 61         |       | Crookston  |       | 1996       |       | 2008       |
|                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Jim A. Ross  25669 328th Ave. S.W.  Fisher, MN 56723              |       | 56         |       | Crookston  |       | 1998       |       | 2007       |
|                                                                   |       |       |       |       |       |       |       |       |
| Neil C. Widner  PO Box 47  Stephen, MN 56757                           |       | 55         |       | Drayton    |       | 2000       |       | 2006       |

Below is the biographicalinformation on each Director.

**Michael A. Astrup.**  Mr. Astrup has been a director since1996.  Mr. Astrup has been a farmersince 1976, with his farming operations located near Dilworth, Minnesota.  Mr. Astrup serves on the Board ofDirectors of United Sugars Corporation, the Board of Governors of ProGoldLimited Liability Company and is a Director of the American Sugarbeet GrowersAssociation.

**William Baldwin. **Mr. Baldwin has been a director since 2004.  Mr.Baldwin has been farming in the Drayton Factory District since 1966 and is thePresident of Baldwin Farms Incorporated. Mr. Baldwin is the past President of the Red River Valley SugarbeetGrowers Association, served on the American Sugarbeet Growers ExecutiveCommittee and is currently serving on the Farm Service Agency, State Committee.

**Richard Borgen.**  Mr. Borgen has been a director since1997.  Mr. Borgen has farmed east ofPerley, Minnesota, since 1967 and has served as a director on the Perley Co-opElevator Board for nine years and the Norman County West school board for 10years.

**John Brainard.**  Mr. Brainard has been a director since2005.  Mr. Brainard has been a sugarbeet grower since 1998.  Mr. Brainard is a past director of theMinnesota Farm Bureau and has served on the executive committee of the RedRiver Valley Sugarbeet Growers Association.

**Brian R. Erickson.**  Mr. Erickson has been a director since2005.  Mr. Erickson has been a sugarbeet grower for over 20 years.  Mr. Erickson is the Chairman of the EastGrand Forks Economic Development and Housing Authority.

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**Robert M. Green.**  Mr. Green has been a director since2005.  Mr. Green has been a sugarbeet grower since 1976.  Mr. Green served 12 years as a director ofthe Red River Valley Sugarbeet Growers Association and is currently a directorof the Wells Fargo Bank in Grafton, ND. Mr. Green serves as a director for the American Sugarbeet GrowersAssociation.

**John F. Gudajtes. **Mr. Gudajtes has been a director since 2003.  Mr. Gudajtes has farmed in the Minto, NorthDakota area since 1967 and is the President of Gudajtes Farms.  Mr. Gudajtes has been the President of WalshCounty Historical Society for three years.

**Curtis E. Haugen. **Mr. Haugen has been a director since 2001.  Mr. Haugen has been a farmer since 1981****and farms near Argyle, Minnesota.  Mr. Haugen is serving as a director andPresident of the Farmer’s Union Oil Company, Oslo, Minnesota.

**Lonn M. Kiel.**  Mr. Kiel has been a director since 1994and has been farming near Crookston, Minnesota, since 1982.  Mr. Kiel is the president of KielCorporation.

**David J. Kragnes.**  Mr. Kragnes has been a director since1995 and has served as Chairman since 2005. Mr. Kragnes has been a farmer since 1972, with his farmingoperation located near Felton, Minnesota. Mr. Kragnes serves on the Board of Directors of United SugarsCorporation, as Chairman of the Board of Directors of Midwest Agri-CommoditiesCompany, as Chairman of the Board of Governors of ProGold Limited LiabilityCompany and is also a director for the American Sugarbeet Growers Association.

**Francis L. Kritzberger.**  Mr. Kritzberger has been a directorsince 1996.  Mr. Kritzberger haspreviously served as a director with the Company, from July 30, 1989 untilJuly 30, 1993.  Mr. Kritzbergerhas been a farmer since 1964. Mr. Kritzberger serves on the Board of Directors of the NorthDakota Council of Cooperatives.

**Jeff D. McInnes.**  Mr. McInnes has been a director since2001.  Mr. McInnes co-manages a4,000 acre farming operation near Hillsboro, North Dakota.  Mr. McInnes is the founder and managerof the Basement Traders Marketing Club, a grain marketing association inHillsboro.  Mr. McInnes serves on theBoard of Directors of Midwest Agri-Commodities Company and the Board ofGovernors of ProGold Limited Liability Company.

**Ronald E. Reitmeier.**  Mr. Reitmeier has been a director since1996, and has been a farmer since 1968. Mr. Reitmeier is the President of R&J Crop Production Inc.  Mr. Reitmeier has served as a member of theBoard of Directors of PKM Electric Co-op of Warren, Minnesota, for 19 years andas its Chairman of the Board since 2004. Mr. Reitmeier previously served on the Fisher, Minnesota, School Boardfor 18 years, as President of the Polk County Farmers Union and Chairman of theMinnesota Farmers Union Executive Committee of County Chairpersons.

**Jim A. Ross.**  Mr. Ross has been a director since1998.  Mr. Ross has farmed near Fisher,Minnesota, since 1971 and is a board member of Fisher Fuel and HardwareCooperative.  Mr. Ross also serves on theBoard of Governors of ProGold Limited Liability Company.

**Neil C. Widner. **Mr. Widner has been a director since 2000.  Mr. Widner has farmed near Stephen,Minnesota, since 1973.  Mr. Widner serveson the Board of Directors of United Sugars Corporation and is also a directorfor the American Sugarbeet Growers Association.

The Board of Directors meets monthly.  For fiscal year 2006, the Company providedits directors with compensation consisting of (i) a payment of $525 permonth, (ii) a per diem payment of $250 for each day spent on Companyactivities, including board meetings and other Company functions, and(iii) reimbursement of expenses for attendance at Board of Directors’meetings.  The Chairman of the Board ofDirectors receives a payment of $1,025 per month, rather than $525 per month;the Chairman

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also receives a per diemin the amount of $250 for each day spent on Company activities.  The Board of Directors has approved an annualincrease in the monthly compensation paid to directors and the Chairman of $25per month for each fiscal year.

Under the terms of the Board of Directors DeferredCompensation Plan, members of the Board of Directors can elect to defer receiptof their monthly and per diem compensation. This is an annual irrevocable election made prior to January 1 of eachcalendar year the fees are to be paid. The amounts are deferred until either withdrawal from the Board ofDirectors by a member or until retirement from the member’s regular employmentor business, but not beyond age 65.  Twopayment options are available at the election of the participant.  Payments can be received in a single lump sumor in equal installments over a period of up to ten years.  The Board of Directors, at its discretion,can elect to distribute the remaining balance at any time.  Interest is earned on the amounts deferredbased on the five year Treasury bond rate. Currently, there is one member who has elected to participate in thisplan.  The amount deferred, as of August31, 2006 was approximately $25,000.

**AuditCommittee and Audit Committee Financial Expert**

The Audit Committeeassists the Board of Directors in fulfilling its oversight responsibilitiesrelating to the Company’s financial reporting and controls, the annualindependent audit of the Company’s consolidated financial statements and thelegal compliance and ethics programs as established by management and the Boardof Directors.  The Audit Committeeselects the independent public accountants, approves the fees and the scope andprocedural plans of the audits of the Company’s consolidated financialstatements.  The Audit Committeeadministers the Company’s employee complaint program and handles, on behalf ofthe full Board of Directors, any issues that arise under the Company’s Code ofEthics.  On August 31, 2006, the membersof the Audit Committee were Neil Widner (Committee Chair), William Baldwin,Brian Erickson, Robert Green and Curtis Haugen.

As of August 31, 2006, the Board of Directors of theCompany has determined that there is no audit committee financial expertserving on the Audit Committee.  TheCompany is a cooperative formed in accordance with the Minnesota cooperativelaw of the State of Minnesota.  Inaccordance with the Minnesota cooperative law, the Amended and RestatedArticles of the Incorporation of the Company and the Amended and RestatedBylaws of the Company, the Board of Directors must be composed of members ofthe Company (the holders of common stock). Membership in the Company is limited to agricultural producers who areactively involved in the production of sugarbeets.  Based on the state law requirements for bothmembership and board service, the Company is unable to recruit outside of itsmembership to elect to its Board of Directors and its audit committee anindividual that possesses the attributes of an “audit committee financialexpert” as defined by the SEC.  To date, the Company has been unable torecruit from its membership an individual to serve on the Board of Directorsthat possesses the attributes of an “audit committee financial expert.”

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**Executive Officers**

The table below lists the principal officers of theCompany, none of whom owns any shares of Common Stock or Preferred Stock.  Officers are elected annually by the Board ofDirectors.
| **Name**           | ** ** | **Age**    | ** ** | **Position**                                                                                             |
|--------------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **         | ** ** | ** ** | ** ** | ** **                                                                                               |
| James J. Horvath   |       | 61         |       | President and Chief Executive Officer                                                                    |
| Thomas S. Astrup   |       | 37         |       | Vice President- Agriculture                                                                              |
| David A. Berg      |       | 52         |       | Vice President-Operations and Chief Operations  Officer                                                  |
| Brian F. Ingulsrud |       | 43         |       | Vice President-Administration                                                                            |
| Joseph J. Talley   |       | 46         |       | Vice President-Finance and Chief Financial Officer                                                       |
| Daniel C. Mott     |       | 47         |       | Secretary                                                                                                |
| Samuel S. M. Wai   |       | 52         |       | Treasurer and Assistant Secretary                                                                        |
| Mark P. Kalvoda    |       | 34         |       | Corporate Controller, Assistant Secretary and  Assistant Treasurer                                       |
| Mark L. Lembke     |       | 50         |       | Finance Administration Manager, Assistant  Secretary and Assistant Treasurer                        |
| David L. Malmskog  |       | 49         |       | Director - Economic Analysis and Business  Development, Assistant Secretary and Assistant Treasurer |
| Ronald K. Peterson |       | 51         |       | Accounting & Systems Manager, Assistant  Secretary and Assistant Treasurer                      |
| Lisa M. Maloy      |       | 42         |       | Treasury Operations Manager and Assistant Secretary                                                      |

 **James J. Horvath.**  Mr. Horvath was named President andChief Executive Officer in May, 1998.  Heserved as Chief Financial Officer from 1996 to 1998.  From 1994 to 1996, Mr. Horvath served asthe Company’s Vice President-Joint Ventures as well as Chief Manager and ChiefOperating Officer of ProGold Limited Liability Company.  Mr. Horvath also served as the Company’sVice President-Finance from 1985 to 1994. Mr. Horvath currently serves on the Boards of Directors of UnitedSugars Corporation and Midwest Agri-Commodities Company.

**Thomas S. Astrup**.  Mr. Astrup was named the Company’s VicePresident-Agriculture in February 2004. Mr. Astrup served as the Company’s Vice President-Administration from2000 to 2004 and as the Company’s Corporate Controller, Assistant Treasurer andAssistant Secretary from 1999 to 2000. From 1997 until 1999, he held the position of Controller for MidwestAgri-Commodities Company.  He was theCorporate Accountant for ProGold Limited Liability Company from 1994 to 1997.

**David A. Berg.**  Mr. Berg was named Vice President-Operationsand Chief Operations Officer in January 2004. He was Vice President-Agriculture during the period December 2000 toJanuary 2004 and Vice President-Administration during the period from October1998 to December 2000.  During the periodfrom 1994 to 1998, Mr. Berg served as the Company’s Vice President-BusinessDevelopment, Vice President-Strategic Planning, Director-Market Information,Manager of Marketing and Analysis and Manager-Economic Research.  Mr. Berg currently serves on the ProGoldLimited Liability Company Board of Governors and as Chairman of the Crystech,LLC Board of Managers.

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**Brian F.Ingulsrud.**  Mr.Ingulsrud was named Vice President-Administration in February 2004.  From 2000 to 2004, he served as the CorporateController, Assistant Secretary and Assistant Treasurer.   Mr. Ingulsrud served as Director ofAgriculture Strategy and Development from 1999 to 2000, Financial PlanningManager from 1997 until 1998, and Factory Offices Manager from 1995 until 1997.

**Joseph J. Talley.**  Mr. Talley currently serves as VicePresident-Finance and Chief Financial Officer of the Company and also as ChiefOperating Officer of Sidney Sugars Incorporated. Mr. Talley was named VicePresident-Finance in 1998, Chief Operating Officer of Sidney SugarsIncorporated in 2002 and Chief Financial Officer of the Company in 2003.  He served as the Company’s Treasurer andFinance Director, Assistant Treasurer and Assistant Secretary from 1996 untilhis appointment as Vice President-Finance. Mr. Talley served as Finance Director of ProGold Limited LiabilityCompany from 1994 through 1996.  Hecurrently serves on the Board of Governors for ProGold Limited LiabilityCompany.

**Daniel C. Mott.**  Mr. Mott became the Company’s Secretaryduring 1999.  Previously, he had servedas Assistant Secretary since 1995.  Mr.Mott also serves as the Company’s General Counsel.  He is a Shareholder in the law firm ofFredrikson & Byron, P.A.  Mr. Mott isnot an employee of the Company.

**Samuel S. M. Wai.**  Mr. Wai was named the Company’sTreasurer and Assistant Secretary in 1999. He served as the Company’s Corporate Controller from 1996 until 1999 andwas the Company’s Treasurer from 1985 to 1996. He held various financial positions with the Company from 1979 to1985.  Mr. Wai also serves on theBoard of Managers of Crystech, LLC and as Treasurer of the American CrystalSugar Political Action Committee.  Mr.Wai also serves on the Board of Directors of the Institute of CooperativeFinancial Officers.

**Mark P. Kalvoda.**  Mr. Kalvoda was named Assistant Secretary andAssistant Treasurer in 2004.  He wasemployed by the Company in 2004 and currently serves as the CorporateController.  Prior to his employment withthe Company, Mr. Kalvoda held various financial positions within Hormel FoodsCorporation.

**Mark L. Lembke.**  Mr. Lembke was named Assistant Secretaryand Assistant Treasurer in 1996.  Hecurrently serves as Finance Administration Manager.  Mr. Lembke served as the Company’sCorporate Accounting Manager from 1995 to 1999. From 1987 through 1995, Mr. Lembke served as Factory AccountingSupervisor.

**Ronald K. Peterson.**  Mr. Peterson has served as AssistantTreasurer and Assistant Secretary since 1993. He currently holds the position of Accounting and Systems Manager.  From 1996 to 1999 Mr. Peterson was theFinancial Systems Manager and from 1991 to 1995 served as the Company’sCorporate Accounting Manager. Mr. Peterson has held various financial positions with the Companysince 1979.

**David L. Malmskog.**  Mr. Malmskog currently serves asDirector-Economic Analysis and Business Development and was appointed AssistantSecretary and Assistant Treasurer in 1998. Mr. Malmskog has held various financial positions with the Companysince 1980.  Mr. Malmskog serves onthe Board of Managers of Crystech, LLC

**Lisa M. Maloy.**Ms. Maloycurrently serves as Treasury Operations Manager and was appointed AssistantSecretary in 2002.  Prior to joining theCompany in 1997, Ms. Maloy was a tax attorney with Ernst & Young LLP inMinneapolis, Minnesota.

**Code ofEthics**

The Company has adopted acode of ethics that applies to its principal executive officer, principalfinancial officer, principal accounting officer or controller and certain othersenior financial personnel.  The Companywill provide at no charge a copy of the code of ethics to any person who

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requests a copy by sending a written request to theCompany’s headquarters, attention of the Chief Executive Officer of theCompany.

**Item 11.****                                EXECUTIVECOMPENSATION**

The following tablesummarizes the amount of compensation paid for services rendered to the Companyduring the fiscal year ended August 31, 2006 and the two prior fiscalyears to those persons serving as the Company’s Chief Executive Officer and tothe four other most highly compensated current executive officers of theCompany.

**SUMMARY COMPENSATION TABLE**
|                                 | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Long-Term**               | ** ** |
|---------------------------------|------------|------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **Year**   | ** ** | **Salary**                   | ** ** | **Incentive  Compensation** | ** ** | **Other Annual  Compensation (1)** | ** ** | **Compensation  Payouts (2)** | ** ** |
|                            |       |       |       |                         |       |                        |       |   |   |   |   |
| James J. Horvath                |       | 2006       |       | $                            | 500,000    |                        | $          | 312,750 |   | $ | 43,712 |   | $ | 118,222 |   |
| President and Chief  Executive  |       | 2005       |       | $                            | 494,615    |                        | $          | 156,400 |   | $ | 46,961 |   | $ | 605,031 |   |
| Officer                         |       | 2004       |       | $                            | 462,652    |                        | $          | 313,875 |   | $ | 38,315 |   | $ | 83,828 |   |
|                            |       |       |       |                         |       |                        |       |   |   |   |   |
| Thomas S. Astrup                |       | 2006       |       | $                            | 214,615    |                        | $          | 91,476 |   | $ | 11,632 |   | $ | 22,564 |   |
| Vice President-Agriculture*     |       | 2005       |       | $                            | 204,692    |                        | $          | 53,986 |   | $ | 12,650 |   | $ | 5,160 |   |
|                                 |       | 2004       |       | $                            | 189,475    |                        | $          | 90,048 |   | $ | 10,487 |   | $ | 5,453 |   |
|                            |       |       |       |                         |       |                        |       |   |   |   |   |
| David A. Berg                   |       | 2006       |       | $                            | 246,000    |                        | $          | 118,818 |   | $ | 21,126 |   | $ | 31,654 |   |
| Vice President-Operations  and  |       | 2005       |       | $                            | 243,846    |                        | $          | 59,852 |   | $ | 23,384 |   | $ | 99,805 |   |
| Chief Operations Officer**      |       | 2004       |       | $                            | 227,731    |                        | $          | 110,000 |   | $ | 21,245 |   | $ | 18,211 |   |
|                            |       |       |       |                         |       |                        |       |   |   |   |   |
| Brian F. Ingulsrud              |       | 2006       |       | $                            | 182,692    |                        | $          | 84,823 |   | $ | 11,805 |   | $ | 1,404 |   |
| Vice  President-Administration* |       | 2005       |       | $                            | 166,923    |                        | $          | 42,840 |   | $ | 10,764 |   | — |   |
|                                 |       | 2004       |       | $                            | 137,552    |                        | $          | 51,075 |   | $ | 8,290 |   | — |   |
|                            |       |       |       |                         |       |                        |       |   |   |   |   |
| Joseph J. Talley                |       | 2006       |       | $                            | 248,538    |                        | $          | 110,681 |   | $ | 22,787 |   | $ | 32,234 |   |
| Vice President-Finance and      |       | 2005       |       | $                            | 243,846    |                        | $          | 77,933 |   | $ | 23,716 |   | $ | 254,279 |   |
| Chief Financial Officer         |       | 2004       |       | $                            | 229,077    |                        | $          | 128,296 |   | $ | 20,998 |   | $ | 18,325 |   |

----

*       EffectiveFebruary 9, 2004

**     Effective January 12,2004

(1)           Includes the cost of additional life insurance coverage,imputed value of long-term disability insurance, car allowance, reimbursedhealth club dues, costs of tax return preparation, Company 401(k) matchingcontributions, Company matching SERP contributions, flexible spending taxablecash, and flexible spending dollars into 401(k).

(2)           Includes amounts paid to executiveofficers who exercised vested contract rights and the “profit per acre payments”earned by the executive under the Company’s LTIP plans (described below).  The profit per acre payments are determinedby subtracting from the Company’s gross beet payment per acre the average costof production per acre incurred by the Company’s members and multiplying theresult by the number of vested contract rights held by the executive.

28

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**Employment Agreement with CEO**

Effective May 15, 1998, the Company andMr. Horvath entered into an agreement regarding Mr. Horvath’semployment by the Company.  The agreementprovides that Mr. Horvath shall serve as an “at will” employee at thepleasure of the Board of Directors.  Theagreement also contains the provision of a three-yearnon-compete/non-solicitation agreement with Mr. Horvath, grants the Boardof Directors the authority to establish Mr. Horvath’s base compensation eachyear, and also provides that he may participate in other benefit plans offeredby the Company.

On September 28, 2005, the Company and Mr. Horvath,entered into an amendment to his existing employment agreement with the Companydated May 15, 1998.  Prior to thisAmendment, the Employment Agreement contained certain provisions that were adisincentive to Mr. Horvath continuing his employment with the Company beyondSeptember 30, 2005 and other provisions that required amendment as a result ofrecent changes in the tax laws.  The Amendment(1) eliminates the disincentive to Mr. Horvath to continue his employment withthe Company, (2) changes certain vacation accruals so that Mr. Horvath accruesadditional vacation days and (3) makes certain other changes required to complywith the recent changes to the tax laws.

If Mr. Horvath’s employment terminates with theCompany without cause or he incurs a termination due to disability after age60, Mr. Horvath is entitled to receive reimbursement for the cost ofmedical and dental coverage for himself and his spouse from the date oftermination through their respective deaths; life insurance coverage equal tohis base salary on the date of termination until he attains age 65, from age 65to 70 equal to 50 percent of his base salary on the date of termination, andafter age 70 equal to 25 percent of his base salary on the date of termination;and supplemental pension benefits equal to the difference between thecumulative monthly amount of the retirement benefit Mr. Horvath would havereceived under Retirement Plan A and the Supplemental Executive Retirement Plan(SERP) computed as though Mr. Horvath continued his employment to age 65assuming compensation equal to or greater of (1) the actual compensation paidtwelve months immediately preceding termination (including annual incentivecompensation paid in only the most recently completed fiscal year) to beapplied for the years remaining to age 65 (with actual compensation to be usedfor the years prior to the date of termination); or (2) the compensation paidfor the period beginning October 1, 2004, and ending September 30, 2005, to beapplied for each of the five years from age 60 to age 65, and in each caseassuming 30 years of service actually attained as of the date of termination ofemployment or the date on which he attains age 65, with no reduction inbenefits on account of an election by Mr. Horvath for any death benefit to bepaid to his spouse under the Retirement Plan A and the cumulative monthlyamount of the retirement benefits actually paid to Mr. Horvath underRetirement Plan A and the Supplemental Executive Retirement Plan (SERP).

If Mr. Horvath’s employment terminates with theCompany without cause after age 60 and Mr. Horvath subsequently dies, orif Mr. Horvath dies prior to terminating his employment with the Company,Mr. Horvath’s spouse is entitled to receive monthly payments for theremainder of her life equal to the difference between the cumulative monthlyamount of the retirement benefit Mr. Horvath would have received underRetirement Plan A and the Supplemental Executive Retirement Plan (SERP)computed as though Mr. Horvath continued his employment to age 65 assumingcompensation equal to or greater of (1) the actual compensation paid twelvemonths immediately preceding termination (including annual incentivecompensation paid in only the most recently completed fiscal year) to beapplied for the years remaining to age 65 (with actual compensation to be usedfor the years prior to the date of termination); or (2) the compensation paidfor the period beginning October 1, 2004, and ending September 30, 2005 to beapplied for each of the five years from age 60 to age 65, and in each caseassuming 30 years of service actually attained as of the date of termination ofemployment or the date on which he attains age 65, with no reduction inbenefits on account of an election by Mr. Horvath for any death benefit to bepaid to his spouse under the Retirement Plan A and the cumulative monthlyamount

29

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of the retirementbenefits actually paid to Mr. Horvath under Retirement Plan A and theSupplemental Executive Retirement Plan (SERP).

**Incentive Plans**

**Annual Incentive Plan**

The Company’s salaried employees are entitled toparticipate in an annual incentive program that provides for cash awards basedpartially on the performance of the Company and partially on achievement ofcertain performance objectives.  Theperformance objectives of the CEO are determined by the Board of Directors.  The performance objectives of otherexecutives are determined by the CEO. The amount of the incentive bonus is dependent on the employee’sresponsibilities, the performance of the Company and the employee’s performancefor the fiscal year.

**Long-TermIncentive Plans**

*1999Long-Term Incentive Plan*

During 2005, the grantingof additional contract rights under the 1999 Long-Term Incentive Plan (1999Plan) was discontinued with the adoption of the 2005 Long-Term Incentive Plan(2005 Plan) discussed below.  All vestedcontract rights as of December 31, 2004, remained in the 1999 Plan while allunvested contract rights were transferred to the 2005 Plan. The value of thecontract rights remaining in the 1999 Plan is related to the value of preferredshares of the Company as determined by the Board of Directors.

As of August 31, 2006,there were 455.07 vested contract rights remaining in the 1999 Plan.  At August 31, 2006, the Board of Directorsincreased the value of these contract rights from $1,800 to $1,900 per contractright.

*2005 Long-Term Incentive Plan*

Under this plan, which became effective in fiscal2005, awards are based upon progress towards achieving certain long-termstrategic objectives established by the Board of Directors.  Incentive awards under the plan range from 0to 40 percent of base compensation for the Vice Presidents and from 0 to 80percent of base compensation for the CEO. The actual amount of the award available to a given individual is basedupon the collective performance level of participants as determined by theBoard of Directors.  Awards paid underthe plan may be paid in the form of cash paid to the employee’s SupplementalExecutive Retirement Plan, as discussed below, or in the form of contractrights, in each case as determined by the Board of Directors.  All awards will be subject to a three yearvesting schedule.  The Board of Directorsretains the discretion to determine the amount of any cash awards and/orcontract rights to be made available to plan participants with respect to agiven fiscal year.  The 2005 Planestablishes additional restrictions on distributions, as compared to thosecontained in the 1999 Plan, along with other changes necessary to comply withrecent changes to the tax laws.

During 2006, 12.63 vestedcontract rights were exercised at a stated value of $1,800 per contractright.  In 2006, 306.05 contract rightswere granted at a stated value of $1,900 per contract right.  At August 31, 2006, the Board of Directorsincreased the value of the 659.92 contract rights previously granted from$1,800 to $1,900 per contract right.  Asof August 31, 2006, there were 965.97 contract rights issued and outstanding ata stated value of $1,900 per contract right, of which 473.01 were vested.

30

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The table below lists the executives named in thecompensation table who have been granted and hold contract rights under theplans discussed above.

|                             | ** ** | **Long-Term Incentive Plan Awards** | ** ** |
|-----------------------------|------------|----------------------------------------------------|------------|
| ** **                  | ** ** | **Fiscal 2006**                               | ** ** | ** ** | ** ** | **Fiscal 2006** | ** ** |
| ** **                  | ** ** | **Contract Rights**                           | ** ** | **Total Contract Rights Held** | ** ** | **Representative** | ** ** |
| **Executive Officers** | ** ** | **Granted**                                        | ** ** | **Stated Value** | ** ** | **Granted** | ** ** | **Vested** | ** ** | **Stated Value** | ** ** | **Payout (1)** | ** ** |
|                        |       |                                               |       |   |   |   |   |   |   |   |   |   |   |
| James J. Horvath            |       | 161.42                                             |       | $ | 306,698 |   | 853.10 |   | 589.44 |   | $ | 1,620,892 |   | $ | 118,222 |   |
| Thomas S. Astrup            |       | 34.87                                              |       | $ | 66,253 |   | 169.95 |   | 113.95 |   | $ | 322,909 |   | $ | 22,564 |   |
| David A. Berg               |       | 39.71                                              |       | $ | 75,449 |   | 219.80 |   | 154.84 |   | $ | 417,622 |   | $ | 31,654 |   |
| Brian F.  Ingulsrud         |       | 29.86                                              |       | $ | 56,734 |   | 57.54 |   | 14.75 |   | $ | 109,316 |   | $ | 1,404 |   |
| Joseph J. Talley            |       | 40.19                                              |       | $ | 76,361 |   | 120.65 |   | 55.10 |   | $ | 229,236 |   | $ | 32,234 |   |

----

(1)                                  Theamount shown represents the value of vested contract rights exercised duringfiscal 2006 and a representative amount, determined for the last fiscal year,with respect to “profit per acre payments”, which are non-stock price basedpayments.  The profit per acre paymentsare determined by subtracting from the Company’s gross beet payment per acrethe average cost of production per acre incurred by the Company’s members andmultiplying the result by the number of vested contract rights held by theexecutive.  Based on that formula, theCompany must provide a beet payment per acre to its members equal to theaverage cost of production for an acre of sugarbeets in order for executivesholding contract rights to obtain any payment of profit per acre payments.  Given the method of determining the profitper acre payments, there is no maximum payment amount.

**Retirement Plans**

The Company has established noncontributory, definedbenefit retirement plans which are available to all eligible employees of theCompany.  Those employees who are coveredby a collective bargaining agreement participate in Plan B, while employees whoare not subject to a collective bargaining agreement, including the executiveofficers listed on the Summary Compensation Table, participate in pension PlanA.  The benefits of the plans are fundedby periodic Company contributions to a retirement trust which invests theCompany’s contributions and the earnings from such contributions in order topay the benefits to the employees.  Theplans provide for the payment of monthly retirement benefits determined under acalculation based on years of service and a participant’s compensation.  Retirement benefits are paid to participantsupon normal retirement at the age of 65 or later or upon early retirement.  The plans also provide for the payment ofcertain disability and death benefits.

Certain executiveemployees of the Company are eligible to participate in a “SupplementalExecutive Retirement Plan.”  Subject tothe discretion of the Board of Directors, the plan provides for the Company tocredit to the account of each executive eligible to participate in theSupplemental Plan amounts equal to (i) the difference between amountsactually contributed to the Company’s 401(k) plan on behalf of the executiveand the amounts which could have been contributed if certain provisions of theInternal Revenue Code did not prohibit the contribution of such amounts and(ii) the difference between the benefits actually payable to the executiveunder the provisions of Retirement Plan “A” and the amounts which would bepayable under Retirement Plan “A” if certain provisions of the Internal RevenueCode did not prohibit the payment of such benefits.  In addition, the executive may elect to defera portion of his or her compensation, ranging from 2 percent to 20 percent, byregular payroll deductions under the Supplemental Plan, and may also defer 100percent of all incentive compensation

31

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and profits-per-acrepayments.  The Supplemental Plan is an “unfunded”plan, with all amounts to be paid under the Supplemental Plan to be paid fromthe general assets of the Company when due and also to be subject to the claimsof the Company’s creditors.

The table below shows the approximate annual pensionbenefits payable to executive officers at normal retirement under RetirementPlan A, as well as a non-qualified supplemental benefit plan.  The compensation covered by the pensionprogram is based on an employee’s annual salary and incentivecompensation.  Amounts payable arecomputed on the basis of a straight life annuity and are not reduced for socialsecurity benefits or other offsets.

**American Crystal Sugar Company**

**2006 Calculation**

**Plan A Qualified andNon-Qualified Supplemental Benefits**
|                  | ** ** | **Years of Service** | ** ** |
|------------------|------------|--------------------------------|------------|
| **Remuneration** | ** ** | **15**                         | ** ** | **20** | ** ** | **25** | ** ** | **30** | ** ** | **35** | ** ** |
|             |       |                           |       |   |   |   |   |   |   |   |   |
| $125,000         |       | $                              | 23,175     |   | $ | 30,900 |   | $ | 38,625 |   | $ | 46,350 |   | $ | 46,350 |   |
| $150,000         |       | $                              | 28,425     |   | $ | 37,900 |   | $ | 47,375 |   | $ | 56,850 |   | $ | 56,850 |   |
| $175,000         |       | $                              | 33,675     |   | $ | 44,900 |   | $ | 56,125 |   | $ | 67,350 |   | $ | 67,350 |   |
| $200,000         |       | $                              | 38,925     |   | $ | 51,900 |   | $ | 64,875 |   | $ | 77,850 |   | $ | 77,850 |   |
| $225,000         |       | $                              | 44,175     |   | $ | 58,900 |   | $ | 73,625 |   | $ | 88,350 |   | $ | 88,350 |   |
| $250,000         |       | $                              | 49,425     |   | $ | 65,900 |   | $ | 82,375 |   | $ | 98,850 |   | $ | 98,850 |   |
| $300,000         |       | $                              | 59,925     |   | $ | 79,900 |   | $ | 99,875 |   | $ | 119,850 |   | $ | 119,850 |   |
| $400,000         |       | $                              | 80,925     |   | $ | 107,900 |   | $ | 134,875 |   | $ | 161,850 |   | $ | 161,850 |   |
| $450,000         |       | $                              | 91,425     |   | $ | 121,900 |   | $ | 152,375 |   | $ | 182,850 |   | $ | 182,850 |   |
| $500,000         |       | $                              | 101,925    |   | $ | 135,900 |   | $ | 169,875 |   | $ | 203,850 |   | $ | 203,850 |   |
| $600,000         |       | $                              | 122,925    |   | $ | 163,900 |   | $ | 204,875 |   | $ | 245,850 |   | $ | 245,850 |   |
| $700,000         |       | $                              | 143,925    |   | $ | 191,900 |   | $ | 239,875 |   | $ | 287,850 |   | $ | 287,850 |   |
| $800,000         |       | $                              | 164,925    |   | $ | 219,900 |   | $ | 274,875 |   | $ | 329,850 |   | $ | 329,850 |   |
| $900,000         |       | $                              | 185,925    |   | $ | 247,900 |   | $ | 309,875 |   | $ | 371,850 |   | $ | 371,850 |   |
| $1,000,000       |       | $                              | 206,925    |   | $ | 275,900 |   | $ | 344,875 |   | $ | 413,850 |   | $ | 413,850 |   |

The five executiveofficers named in the Summary Compensation Table who are currently employees ofthe Company, have years of service under the plan as follows: Mr. Horvathhas served for 21 years; Mr. Astrup has served for 12 years; Mr. Berg hasserved for 19 years; Mr. Ingulsrud has served for 15 years; and Mr. Talleyhas served for 12 years.

The Company maintainsSection 401(k) plans that permit employees to elect to set aside, on a pre-taxand after-tax basis, a portion of their gross compensation in trust to payfuture retirement benefits.  The Companymatches 100 percent of the nonunion and eligible union year-round participant’spre-tax contribution up to 4 percent and 2 percent, respectively, of theirgross earnings.  The total annualaddition to any employee’s account in any calendar year may not exceed thelesser of (i) $40,000 or (ii) 100 percent of annual compensation lessthe amount of the employer match and the employee deferral.  For calendar 2006, the employee pre-incometax contribution is limited to $15,000 and an additional $5,000 of Catch-up contributions,if applicable.  Benefits under the 401(k)plans can begin to be paid to the employee upon the close of the plan year inwhich one of the following events has occurred: the date the employee attainsage 591⁄2, the date the employee terminates his service with the employer and thedate specified in a written election made by the employee to receive benefitsno

32

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later than April 1of the year following the calendar year in which the employee retires, dies,becomes disabled, reaches age 701⁄2 or is terminated.

**Item12.**                                 SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Under state law and the Company’s Bylaws, each memberof the cooperative is entitled to one vote, regardless of the number of sharesthe member holds.  The Common Stock ofthe Company is voting stock and each member of the Company holds one share ofCommon Stock.  The Preferred Stock of theCompany is non-voting stock.  The Company’sstock can only be held by individuals who are sugarbeet growers.  None of the officers or executives of theCompany hold stock of the Company.  Asmembers of the cooperative, each director owns one share of Common Stock and isentitled to one vote.  As a group, thedirectors generally own approximately 2 to 3 percent of the outstandingPreferred Stock.

**Item13.**                                 CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

Each of the Company’s directors is also a sugarbeetfarmer and a shareholder member or representative of a shareholder member ofthe Company.  By virtue of their statusas such members of the Company, each director or the member he represents sellssugarbeets to the Company and receives payments for those sugarbeets.  Such payments for sugarbeets often exceed$60,000.  Such payments, however, arereceived by the directors or the entities they represent on exactly the samebasis as payments received by other members of the Company for the delivery oftheir sugarbeets.  Except for thesugarbeet sales described in the preceding sentences, none of the directors orexecutive officers of the Company have engaged in any other transactions withthe Company involving amounts in excess of $60,000.

**Item14.**                                 PRINCIPALACCOUNTANT FEES AND SERVICES

The following table presents fees for professionalaudit services rendered by Eide Bailly LLP for the audits of the Company’s andconsolidated companies’ annual financial statements for the years ended August31, 2006 and 2005 and fees for other services rendered by Eide Bailly LLPduring those periods.

| (In Thousands) | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Audit Fees          |       | $        | 125        |     | $          | 121 |   |
| Audit-Related  Fees |       | 23       |       | 32       |       |
| Tax Fees            |       | 31       |       | 35       |       |
| All Other Fees      |       | —   |       | —   |       |
| Total               |       | $        | 179        |     | $          | 188 |   |

**AuditFees.**  The Audit Feesset forth above include the aggregate fees billed by Eide Bailly LLP to theCompany for audit services related to the audit of the Company’s andconsolidated companies’ annual financial statements and review of thestatements included in the Company’s quarterly reports on Form 10-Q for fiscal2006 and fiscal 2005.

**Audit-Related Fees.**  The Audit-Related Fees set forth aboveinclude the aggregate fees billed by EideBailly LLP to the Company and consolidated companies for assurance and relatedservices provided by Eide Bailly LLP related to the performance of the audit orreview of the Company’s financial statements for fiscal 2006 and fiscal2005.  These services included BenefitPlan audits.

**Tax Fees.**  The Tax Fees set forth above include theaggregate fees billed by Eide Bailly LLPto the Company and consolidatedcompanies for professional services rendered by Eide Bailly for tax

33

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compliance, tax adviceand tax planning for fiscal 2006 and fiscal 2005.  These services include tax return preparation, tax planning and taxresearch.

**All Other Fees.**  The All Other Fees set forth above includethe aggregate fees billed by Eide Bailly LLP to the Company and consolidated companies forprofessional services provided by Eide Bailly LLP to the Company and consolidated companies.  There were no other fees paid to Eide BaillyLLP for fiscal 2006 or fiscal 2005.

The Company’s Audit Committeepre-approves all professional services provided by Eide Bailly LLP to theCompany.  The Audit Committee approved all****of the services and the fees billed for such services to theCompany that are included above.  TheAudit Committee makes its decisions on the approval of services with due considerationgiven to maintaining the independence of the principal accountant.  Noneof the hours expended on the audit of the 2006 financial statements wereattributed to work performed by persons who were not employed full time on apermanent basis by Eide Bailly LLP.

34

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# **PART IV**

**Item 15.**                                 EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

(a)           Documentsfiled as part of this report

1.             ConsolidatedFinancial Statements

Report of Independent Registered Public AccountingFirm

Consolidated Statementsof Operations for the Years Ended August 31, 2006, 2005 and 2004

Consolidated Balance Sheets as of August 31, 2006and 2005

Consolidated Statementsof Changes in Members’ Investments and Comprehensive Income for the Years EndedAugust 31, 2006, 2005 and 2004

Consolidated Statementsof Cash Flows for the Years Ended August 31, 2006, 2005 and 2004

Notes to the ConsolidatedFinancial Statements

2.             FinancialStatement Schedules

None

3.                                       Theexhibits to this Annual Report on Form 10-K are listed in the Exhibit Index onpages E-1 to E-4 of this report

(b)           Exhibits

The response to thisportion of Item 15 is included as a separate section of this Annual Report onForm 10-K.

35

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**SIGNATURES**

Pursuant to the requirements of Section 13 or 15 ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized, onNovember 29, 2006.
|        | AMERICAN CRYSTAL SUGAR COMPANY |
|--------|--------------------------------|
|   | By:                            | /s/ JAMES J. HORVATH |   |
|   |                           | *President and Chief Executive Officer* |
|   |                           | * * |
|   | Dated: November 29, 2006  |

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned by the following persons on behalf of the registrant in the capacitiesand on the dates indicated.
| Signature                  | ** ** | **Title**                                  | ** ** | **Date**               |
|----------------------------|------------|--------------------------------------------|------------|------------------------|
| ** **                 | ** ** | ** **                                 | ** ** | ** **             |
| /s/ JAMES J. HORVATH       |       | President and Chief Executive Officer      |       | November 29, 2006 |
|                       |       | (Principal Executive Officer)              |       |                   |
| /s/ JOSEPH J. TALLEY       |       | Vice President-Finance and Chief Financial |       | November 29, 2006 |
|                       |       | Officer (Principal Financial Officer)      |       |                   |
| /s/ MARK P. KALVODA        |       | Corporate Controller                       |       | November 29, 2006 |
|                       |       | (Principal Accounting Officer)             |       |                   |
| /s/ MICHAEL A. ASTRUP      |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ WILLIAM BALDWIN        |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ RICHARD BORGEN         |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ JOHN BRAINARD          |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ BRIAN R. ERICKSON      |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ ROBERT M. GREEN        |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ JOHN F. GUDAJTES       |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ CURTIS E. HAUGEN       |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ LONN M. KIEL           |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ DAVID J. KRAGNES       |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ FRANCIS L. KRITZBERGER |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ JEFF D. MCINNES        |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ RONALD E. REITMEIER    |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ JIM A. ROSS            |       | Director                                   |       | November 29, 2006 |
|                       |       |                                       |       |                   |
| /s/ NEIL C. WIDNER         |       | Director                                   |       | November 29, 2006 |

 

36

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**APPENDIXA**

**INDEXTO THE CONSOLIDATED FINANCIAL STATEMENTS**
| **AMERICAN CRYSTAL SUGAR COMPANY**                                                                                                                 |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| CONSOLIDATED  FINANCIAL STATEMENTS:                                                                                                                |   |   |
| Report  of Independent Registered Public Accounting Firm                                                                                           |   |   |
| Consolidated  Statements of Operations for the Years Ended August 31, 2006, 2005 and  2004                                                    |   |   |
| Consolidated  Balance Sheets as of August 31, 2006 and 2005                                                                                   |   |   |
| Consolidated  Statements of Changes in Members’ Investments and Comprehensive Income for  the Years Ended August 31, 2006, 2005 and 2004 |   |   |
| Consolidated  Statements of Cash Flows for the Years Ended August 31, 2006, 2005 and  2004                                                    |   |   |
| Notes  to the Consolidated Financial Statements                                                                                                    |   |   |

 

A-1

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the AuditCommittee of American Crystal Sugar Company

Moorhead, Minnesota

Wehave audited the accompanying consolidated balance sheets of **American Crystal Sugar Company****andSubsidiaries**as of August 31, 2006 and 2005, and the relatedconsolidated statements of operations, changes in members’ investments andcomprehensive income, and cash flows for the years ended August 31, 2006,2005, and 2004.  These consolidatedfinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

We conducted our audits inaccordance with standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement.  An audit includes consideration of internalcontrols over financial reporting as a basis for designing audit proceduresthat are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal controlover financial reporting.  Accordingly,we do not express such an opinion.  Anaudit also includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of **American Crystal Sugar Company and Subsidiaries** as ofAugust 31, 2006 and 2005, and the results of their operations and theircash flows for the years ended August 31, 2006, 2005, and 2004, inconformity with accounting principles generally accepted in the United Statesof America.

 
| /s/ EIDE BAILLY LLP       |   |
|---------------------------|--------|
|                      |   |
| Sioux Falls, South Dakota |
| October 11, 2006     |

 

A-2

----

**American Crystal Sugar Company**

**Consolidated Statements of Operations**

**For the Years Ended August 31**

**(InThousands)**
| ** **                                                        | ** ** | **2006**    | ** **    | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------------------------|------------|-------------|---------------|----------|------------|----------|------------|
| **Net Revenue**                                                   | ** ** | **$**       | **1,005,716** |     | $          | 965,474  |       | $ | 1,033,088 |   |
| ** **                                                        | ** ** | ** **  |          |     |       |     |       |
| **Cost of Sales**                                                 | ** ** | **328,767** |          | 364,687  |       | 337,988  |       |
| ** **                                                        | ** ** | ** **  |          |     |       |     |       |
| **Gross Proceeds**                                                | ** ** | **676,949** |          | 600,787  |       | 695,100  |       |
| ** **                                                        | ** ** | ** **  |          |     |       |     |       |
| **Selling, General and  Administrative Expenses**                 | ** ** | **211,188** |          | 203,663  |       | 200,314  |       |
| ** **                                                        | ** ** | ** **  |          |     |       |     |       |
| **Operating Proceeds**                                            | ** ** | **465,761** |          | 397,124  |       | 494,786  |       |
| ** **                                                        | ** ** | ** **  |          |     |       |     |       |
| **Other Income (Expense):**                                       | ** ** | ** **  |          |     |       |     |       |
| Interest Income                                                   | ** ** | **397**     |          | 529      |       | 169      |       |
| Interest  Expense, Net                                            | ** ** | **(19,096** | **)**         | (19,170  | )          | (20,149  | )          |
| Other, Net                                                        | ** ** | **4,283**   |          | 201      |       | 2,097    |       |
|                                                              | ** ** | ** **  |          |     |       |     |       |
| **Total Other Expense**                                           | ** ** | **(14,416** | **)**         | (18,440  | )          | (17,883  | )          |
| ** **                                                        | ** ** | ** **  |          |     |       |     |       |
| **Proceeds Before Minority  Interest and Income Tax Expense**     |       | **451,345** |          | 378,684  |       | 476,903  |       |
| ** **                                                        | ** ** | ** **  |          |     |       |     |       |
| **Minority Interest**                                             | ** ** | **(4,567**  | **)**         | (4,169   | )          | (3,593   | )          |
| ** **                                                        | ** ** | ** **  |          |     |       |     |       |
| **Income Tax Expense**                                            | ** ** | **(1,687**  | **)**         | (1,255   | )          | (188     | )          |
| ** **                                                        | ** ** | ** **  |          |     |       |     |       |
| **Net Proceeds Resulting from  Member and Non-Member Business**   | ** ** | **$**       | **445,091**   |     | $          | 373,260  |       | $ | 473,122 |   |
| ** **                                                        | ** ** | ** **  |          |     |       |     |       |
| **Distributions of Net Proceeds:**                                | ** ** | ** **  |          |     |       |     |       |
| Credited to  Members’ Investments:                           | ** ** | ** **  |          |     |       |     |       |
| Non-Member  Business Income                                       | ** ** | **$**       | **2,246**     |     | $          | 2,475    |       | $ | 4,240 |   |
| Unit Retains  Declared to Members                                 | ** ** | **26,417**  |          | 18,840   |       | 29,991   |       |
| Net Credit to  Members’ Investments                          | ** ** | **28,663**  |          | 21,315   |       | 34,231   |       |
| Payments to  Members for Sugarbeets, Net of Unit Retains Declared | ** ** | **416,428** |          | 351,945  |       | 438,891  |       |
| **Total**                                                         | ** ** | **$**       | **445,091**   |     | $          | 373,260  |       | $ | 473,122 |   |

 

The Accompanying Notes are an Integral Part of These ConsolidatedFinancial Statements.

A-3

----

**American Crystal Sugar Company**

**Consolidated Balance Sheets**

**August 31**

**(InThousands)**

**Assets**
| ** **                                     | ** ** | **2006**     | ** **  | **2005** | ** ** |
|------------------------------------------------|------------|--------------|-------------|----------|------------|
| **Current Assets:**                            | ** ** | ** **   |        |     |       |
| Cash and Cash  Equivalents                     | ** ** | **$**        | **345**     |     | $          | 337 |   |
| Receivables:                                   | ** ** | ** **   |        |     |       |
| Trade                                          | ** ** | **78,242**   |        | 39,752   |       |
| Members                                        | ** ** | **3,383**    |        | 3,683    |       |
| Other                                          | ** ** | **4,036**    |        | 3,490    |       |
| Advances to  Related Parties                   | ** ** | **4,737**    |        | 15,108   |       |
| Inventories                                    | ** ** | **174,761**  |        | 122,627  |       |
| Prepaid Expenses                               | ** ** | **4,390**    |        | 5,582    |       |
|                                           | ** ** | ** **   |        |     |       |
| **Total Current Assets**                       | ** ** | **269,894**  |        | 190,579  |       |
| ** **                                     | ** ** | ** **   |        |     |       |
| **Property and Equipment:**                    | ** ** | ** **   |        |     |       |
| Land                                           | ** ** | **55,808**   |        | 53,728   |       |
| Buildings                                      | ** ** | **102,986**  |        | 96,816   |       |
| Equipment                                      | ** ** | **799,175**  |        | 767,698  |       |
| Construction in  Progress                      | ** ** | **11,754**   |        | 14,345   |       |
| Less Accumulated  Depreciation                 | ** ** | **(637,583** | **)**       | (602,727 | )          |
|                                           | ** ** | ** **   |        |     |       |
| **Net Property and Equipment**                 | ** ** | **332,140**  |        | 329,860  |       |
| ** **                                     | ** ** | ** **   |        |     |       |
| **Net Property and Equipment Held  for Lease** | ** ** | **140,041**  |        | 150,892  |       |
| ** **                                     | ** ** | ** **   |        |     |       |
| **Other Assets:**                              | ** ** | ** **   |        |     |       |
| Investments in  CoBank, ACB                    | ** ** | **13,138**   |        | 16,716   |       |
| Investments in  Marketing Cooperatives         | ** ** | **5,638**    |        | 6,060    |       |
| Investments in  Crystech, LLC                  | ** ** | **15,399**   |        | 15,376   |       |
| Prepaid Pension  Expense                       | ** ** | **45,425**   |        | 43,789   |       |
| Other Assets                                   | ** ** | **18,322**   |        | 20,752   |       |
|                                           | ** ** | ** **   |        |     |       |
| **Total Other Assets**                         | ** ** | **97,922**   |        | 102,693  |       |
| ** **                                     | ** ** | ** **   |        |     |       |
| **Total Assets**                               | ** ** | **$**        | **839,997** |     | $          | 774,024 |   |

 

The Accompanying Notes are an Integral Part of These ConsolidatedFinancial Statements.

A-4

----

**Liabilitiesand Members’ Investments**
| ** **                                                  | ** ** | **2006**    | ** **  | **2005** | ** ** |
|-------------------------------------------------------------|------------|-------------|-------------|----------|------------|
| **Current Liabilities:**                                    | ** ** | ** **  |        |     |       |
| Short-Term Debt                                             | ** ** | **$**       | **5,300**   |     | $          | 30,685 |   |
| Current  Maturities of Long-Term Debt                       | ** ** | **20,962**  |        | 20,947   |       |
| Accounts Payable                                            | ** ** | **27,120**  |        | 27,165   |       |
| Advances Due to  Related Parties                            | ** ** | **7,033**   |        | 8,031    |       |
| Other Current  Liabilities                                  | ** ** | **27,617**  |        | 22,803   |       |
| Amounts Due  Growers                                        | ** ** | **123,648** |        | 33,434   |       |
|                                                        | ** ** | ** **  |        |     |       |
| **Total Current Liabilities**                               | ** ** | **211,680** |        | 143,065  |       |
| ** **                                                  | ** ** | ** **  |        |     |       |
| **Long-Term Debt, Net of Current  Maturities**              | ** ** | **200,037** |        | 216,842  |       |
| ** **                                                  | ** ** | ** **  |        |     |       |
| **Accrued Employee Benefits**                               | ** ** | **40,987**  |        | 37,990   |       |
| ** **                                                  | ** ** | ** **  |        |     |       |
| **Other Liabilities**                                       | ** ** | **7,938**   |        | 8,897    |       |
| ** **                                                  | ** ** | ** **  |        |     |       |
| **Total Liabilities**                                       | ** ** | **460,642** |        | 406,794  |       |
| ** **                                                  | ** ** | ** **  |        |     |       |
| **Commitments and Contingencies**                           | ** ** | ** **  |        |     |       |
| ** **                                                  | ** ** | ** **  |        |     |       |
| **Minority Interest in ProGold  Limited Liability Company** | ** ** | **56,099**  |        | 51,532   |       |
| ** **                                                  | ** ** | ** **  |        |     |       |
| **Members’ Investments:**                              | ** ** | ** **  |        |     |       |
| Preferred Stock                                             | ** ** | **38,275**  |        | 38,275   |       |
| Common Stock                                                | ** ** | **29**      |        | 29       |       |
| Additional  Paid-In Capital                                 | ** ** | **152,261** |        | 152,261  |       |
| Unit Retains                                                | ** ** | **153,961** |        | 148,972  |       |
| Equity Retention                                            | ** ** | **2,694**   |        | 2,703    |       |
| Accumulated  Other Comprehensive Income (Loss)              | ** ** | **(500**    | **)**       | (832     | )          |
| Retained  Earnings (Accumulated Deficit)                    | ** ** | **(23,464** | **)**       | (25,710  | )          |
|                                                        | ** ** | ** **  |        |     |       |
| **Total Members’ Investments**                         | ** ** | **323,256** |        | 315,698  |       |
| ** **                                                  | ** ** | ** **  |        |     |       |
| **Total Liabilities and Members’ Investments**         | ** ** | **$**       | **839,997** |     | $          | 774,024 |   |

 

The Accompanying Notes are an Integral Part of These ConsolidatedFinancial Statements.

A-5

----

**American Crystal Sugar Company**

**Consolidated Statements of Changes in Members’Investments and Comprehensive Income**

**For the Years Ended August 31**

**(InThousands)**

|                                                           | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | **Accumulated**        | ** ** | **Retained**     | ** ** | ** **  | ** ** | ** **             | ** ** |
|-----------------------------------------------------------|------------|---------------|------------|------------|------------|----------------|------------|-------------|-------------|---------------|------------|------------------------|------------|------------------|------------|-------------|------------|------------------------|------------|
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **  | ** **  | ** **    | ** ** | **Other**              | ** ** | **Earnings**     | ** ** | ** **  | ** ** | **Annual**             | ** ** |
| ** **                                                | ** ** | **Preferred** | ** ** | **Common** | ** ** | **Paid-In**    | ** ** | **Unit**    | ** **  | **Equity**    | ** ** | **Comprehensive**      | ** ** | **(Accumulated** | ** ** | ** **  | ** ** | **Comprehensive**      | ** ** |
| ** **                                                | ** ** | **Stock**     | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Retains** | ** **  | **Retention** | ** ** | **Income (Loss)** | ** ** | **Deficit)**     | ** ** | **Total**   | ** ** | **Income (Loss)** | ** ** |
| **Balance, August 31, 2003**                              |       | $             | 38,275     |       | $          | 30             |       | $           | 148,238     |          | $          | 125,409                |       | $                | 2,719      |        | $          | (11,900                | )          | $ | (32,425 | ) | $ | 270,346 |   |   |   |
| Non-Member  Business Income                               |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | 4,240            |       | 4,240       |       | $                      | 4,240      |   |
| Pension  Liability Adjustment                             |       | —        |       | —     |       | —         |       | —      |        | —        |       | 11,524                 |       | —           |       | 11,524      |       | 11,524                 |       |
| Unit  Retains Withheld from Members                       |       | —        |       | —     |       | —         |       | 29,991      |        | —        |       | —                 |       | —           |       | 29,991      |       | —                 |       |
| Payments  of Unit Retains and Equity Retention to Members |       | —        |       | —     |       | —         |       | (16,686     | )           | (11           | )          | —                 |       | —           |       | (16,697     | )          | —                 |       |
| Stock  Issued, Net                                        |       | —        |       | (1         | )          | 4,023          |       | —      |        | —        |       | —                 |       | —           |       | 4,022       |       | —                 |       |
|                                                      | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | ** **             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **             | ** ** |
| **Balance, August 31, 2004**                              |       | 38,275        |       | 29         |       | 152,261        |       | 138,714     |        | 2,708         |       | (376                   | )          | (28,185          | )          | 303,426     |       | $                      | 15,764     |   |
| Non-Member  Business Income                               |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | 2,475            |       | 2,475       |       | $                      | 2,475      |   |
| Pension  Liability Adjustment                             |       | —        |       | —     |       | —         |       | —      |        | —        |       | (456                   | )          | —           |       | (456        | )          | (456                   | )          |
| Unit  Retains Withheld from Members                       |       | —        |       | —     |       | —         |       | 18,840      |        | —        |       | —                 |       | —           |       | 18,840      |       | —                 |       |
| Payments  of Unit Retains and Equity Retention to Members |       | —        |       | —     |       | —         |       | (8,582      | )           | (5            | )          | —                 |       | —           |       | (8,587      | )          | —                 |       |
| Stock  Issued, Net                                        |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | —           |       | —      |       | —                 |       |
|                                                      |       |          |       |       |       |           |       |        |        |          |       |                   |       |             |       |        |       |                   |       |
| **Balance, August 31, 2005**                              |       | 38,275        |       | 29         |       | 152,261        |       | 148,972     |        | 2,703         |       | (832                   | )          | (25,710          | )          | 315,698     |       | $                      | 2,019      |   |
| Non-Member  Business Income                               | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**             | ** ** | **2,246**        | ** ** | **2,246**   | ** ** | **$**                  | **2,246**  | ** ** |
| Pension  Liability Adjustment                             | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **332**                | ** ** | **—**       | ** ** | **332**     | ** ** | **332**                | ** ** |
| Unit  Retains Withheld from Members                       | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **26,417**  | ** **  | **—**    | ** ** | **—**             | ** ** | **—**       | ** ** | **26,417**  | ** ** | **—**             | ** ** |
| Payments  of Unit Retains and Equity Retention to Members | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **(21,428** | **)**       | **(9**        | **)**      | **—**             | ** ** | **—**       | ** ** | **(21,437** | **)**      | **—**             | ** ** |
| Stock  Issued, Net                                        | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**             | ** ** | **—**       | ** ** | **—**  | ** ** | **—**             | ** ** |
|                                                      | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | ** **             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **             | ** ** |
| **Balance, August 31, 2006**                              | ** ** | **$**         | **38,275** | ** ** | **$**      | **29**         | ** ** | **$**       | **152,261** | ** **    | **$**      | **153,961**            | ** ** | **$**            | **2,694**  | ** **  | **$**      | **(500**               | **)**      | **$** | **(23,464** | **)** | **$** | **323,256** | ** ** | **$** | **2,578** | ** ** |

 

The Accompanying Notesare an Integral Part of These Consolidated Financial Statements.

A-6

----

**American Crystal Sugar Company**

**Consolidated Statements of Cash Flows**

**For the Years Ended August 31**

**(InThousands)**
| ** **                                                            | ** ** | **2006**     | ** **  | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------------------|------------|--------------|-------------|----------|------------|----------|------------|
| **Cash Provided By (Used In)  Operating Activities:**                 | ** ** | ** **   |        |     |       |     |       |
| Net Proceeds  Resulting from Member and Non-Member Business           | ** ** | **$**        | **445,091** |     | $          | 373,260  |       | $ | 473,122 |   |
| Payments To/Due  Members for Sugarbeets, Net of Unit Retains Declared | ** ** | **(416,428** | **)**       | (351,945 | )          | (438,891 | )          |
| Add (Deduct)  Non-Cash Items:                                         | ** ** | ** **   |        |     |       |     |       |
| Depreciation and  Amortization                                        | ** ** | **56,753**   |        | 59,558   |       | 56,835   |       |
| Income from  Equity Method Investees                                  | ** ** | **(537**     | **)**       | (1,402   | )          | (286     | )          |
| Loss on the  Disposition of Property and Equipment                    | ** ** | **835**      |        | 2,386    |       | 749      |       |
| Non-Cash Portion  of Patronage Dividend from CoBank, ACB              | ** ** | **(218**     | **)**       | (447     | )          | (542     | )          |
| Gain on the  Disposition of Assets Held for Sale                      | ** ** | **—**   |        | —   |       | (1,341   | )          |
| Deferred Gain  Recognition                                            | ** ** | **(197**     | **)**       | (197     | )          | (197     | )          |
| Minority  Interest in ProGold Limited Liability Company               | ** ** | **4,567**    |        | 4,169    |       | 3,593    |       |
| Changes in  Assets and Liabilities:                                   | ** ** | ** **   |        |     |       |     |       |
| Receivables                                                           | ** ** | **(38,736**  | **)**       | 40,970   |       | (16,118  | )          |
| Inventories                                                           | ** ** | **(52,134**  | **)**       | 6,665    |       | 1,965    |       |
| Prepaid Expenses                                                      | ** ** | **1,192**    |        | (736     | )          | 2,216    |       |
| Long-Term  Prepaid Pension Expense                                    | ** ** | **(1,636**   | **)**       | (13,855  | )          | (11,196  | )          |
| Advances To/Due  to Related Parties                                   | ** ** | **9,373**    |        | (1,433   | )          | (4,682   | )          |
| Accounts Payable                                                      | ** ** | **(45**      | **)**       | 102      |       | 3,994    |       |
| Other  Liabilities                                                    | ** ** | **7,183**    |        | 4,530    |       | 3,045    |       |
| Amounts Due  Growers                                                  | ** ** | **90,214**   |        | (37,053  | )          | 11,591   |       |
| **Net Cash Provided By Operating  Activities**                        | ** ** | **105,277**  |        | 84,572   |       | 83,857   |       |
| ** **                                                            | ** ** | ** **   |        |     |       |     |       |
| **Cash Provided By (Used In)  Investing Activities:**                 | ** ** | ** **   |        |     |       |     |       |
| Purchases of  Property and Equipment                                  | ** ** | **(46,154**  | **)**       | (43,758  | )          | (30,045  | )          |
| Purchases of  Property and Equipment Held for Lease                   | ** ** | **(382**     | **)**       | (1,332   | )          | (1,119   | )          |
| Proceeds from  the Sale of Property and Equipment                     | ** ** | **248**      |        | 109      |       | 68       |       |
| Proceeds from  the Disposition of Assets Held for Sale                | ** ** | **—**   |        | —   |       | 1,655    |       |
| Equity  Distribution from Crystech, LLC                               | ** ** | **1,044**    |        | 1,044    |       | 1,044    |       |
| Equity  Distribution from CoBank, ACB                                 | ** ** | **3,796**    |        | 2,800    |       | 3,158    |       |
| Investments in  Marketing Cooperatives                                | ** ** | **62**       |        | (1,067   | )          | 1,068    |       |
| Acquisition by  Crab Creek Sugar Company                              | ** ** | **—**   |        | —   |       | (5,763   | )          |
| Changes in Other  Assets                                              | ** ** | **(271**     | **)**       | (885     | )          | 5,053    |       |
| **Net Cash (Used In) Investing  Activities**                          | ** ** | **(41,657**  | **)**       | (43,089  | )          | (24,881  | )          |
| ** **                                                            | ** ** | ** **   |        |     |       |     |       |
| **Cash Provided By (Used In)  Financing Activities:**                 | ** ** | ** **   |        |     |       |     |       |
| Net Proceeds  from (Payments on) Short-Term Debt                      | ** ** | **(25,385**  | **)**       | 486      |       | (19,790  | )          |
| Proceeds from  Issuance of Long-Term Debt                             | ** ** | **24,674**   |        | 5,203    |       | —   |       |
| Long-Term Debt  Repayment                                             | ** ** | **(41,464**  | **)**       | (38,432  | )          | (27,186  | )          |
| Proceeds from  Issuance of Stock                                      | ** ** | **—**   |        | —   |       | 4,022    |       |
| Payment of Unit  Retains and Equity Retention                         | ** ** | **(21,437**  | **)**       | (8,587   | )          | (16,697  | )          |
| **Net Cash (Used In) Financing  Activities**                          | ** ** | **(63,612**  | **)**       | (41,330  | )          | (59,651  | )          |
| **Increase (Decrease) In Cash and  Cash Equivalents**                 | ** ** | **8**        |        | 153      |       | (675     | )          |
| **Cash and Cash Equivalents,  Beginning of Year**                     | ** ** | **337**      |        | 184      |       | 859      |       |
| ** **                                                            | ** ** | ** **   |        |     |       |     |       |
| **Cash and Cash Equivalents, End of Year**                            | ** ** | **$**        | **345**     |     | $          | 337      |       | $ | 184 |   |

 

**Non-CashInvesting and Financing activities:**In September 2003, a notepayable in the amount of $969,000 was issued in connection with the acquisitionby Crab Creek Sugar Company.

The Accompanying Notesare an Integral Part of These Consolidated Financial Statements.

A-7

----

**American Crystal Sugar Company**

**Notes to theConsolidated Financial Statements**

**(1) PRINCIPAL ACTIVITY ANDSIGNIFICANT ACCOUNTING POLICIES:**

*Organization*

American Crystal Sugar Company(the Company) is a Minnesota agricultural cooperative corporation whichprocesses and markets sugar, sugarbeet pulp, molasses, concentrated separatedby-product (CSB), betaine and seed. Business done with its shareholders (members) constitutes “patronagebusiness” as defined by the Internal Revenue Code, and the net proceedstherefrom are credited to members’ investments in the form of unit retains ordistributed to members in the form of payments for sugarbeets.  Members are paid the net amounts realizedfrom the current year’s production less member operating costs determined inconformity with accounting principles generally accepted in the United Statesof America.

*Basis of Presentation*

The Company’s consolidated financial statements arecomprised of American Crystal Sugar Company, its wholly-owned subsidiariesSidney Sugars Incorporated (Sidney Sugars) and Crab Creek Sugar Company (CrabCreek), and ProGold Limited Liability Company (ProGold), a limited liabilitycompany in which the Company holds a 51 percent ownership interest.

All material inter-company transactions have beeneliminated.

*Revenue Recognition*

Revenue from the sale of sugar, agri-products and seedis recorded when the product is delivered to the customer.  Operating lease revenue is recognized asearned ratably over the term of the lease.

*Operating Lease*

ProGold owns a corn wet milling facility which itleases under an operating lease. Payments are to be received monthly under the lease, which runs throughDecember 31, 2007.  The lease containsprovisions for extension or modification of the lease terms at the end of thelease period.  The lease also containsprovisions for increased payments to be received during the lease periodrelated to the facility’s profitability and capital additions.

*Cash and Cash Equivalents*

The Company considers all highly liquid investmentswith a maturity of three months or less when purchased to be cashequivalents.  The Company places itstemporary cash investments with high credit quality financial institutions.  At times, such investments may be in excessof the applicable insurance limit.

*Accounts Receivable and CreditPolicies*

The Company grants credit, individually and throughits marketing cooperatives, to its customers, which are primarily companies inthe food processing industry located throughout the United States.

Trade receivables areuncollateralized customer obligations due under normal trade terms requiringpayment within 15 to 90 days from the invoice date.  The receivables are non-interest bearing.  Trade receivables are stated at the amountbilled to the customer.  Payments oftrade receivables are

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allocatedto the specific invoices identified on the customer’s remittance advice or, ifunspecified, are applied to the earliest unpaid invoices.

Ongoing credit evaluationsof customers’ financial condition are performed and the Company maintains areserve for potential credit losses.  Thecarrying amount of trade receivables is reduced by a valuation allowance thatreflects the Company’s best estimate of the amounts that will not be collected.

*Inventories*

Sugar, pulp, molasses and other agri-productsinventories are valued at estimated net realizable value.  Maintenance parts and supplies and sugarbeetseed inventories are valued at the lower of average cost or market.  Sugarbeets are valued at the projected grossper-ton beet payment related to that year’s crop.

*Net Propertyand Equipment*

Property and equipment are recorded at cost.  Indirect costs and construction periodinterest are capitalized as a component of the cost of qualified assets.  Property and equipment are depreciated forfinancial reporting purposes principally using straight-line methods withestimated useful lives ranging from 4 to 33 years.

*Net Propertyand Equipment Held for Lease*

Net property and equipment held for lease are statedat cost.  Depreciation on assets placedin service is provided using the straight-line method over the estimated usefullives of the individual assets, ranging from 5 to 40 years.

*Impairmentof Long Lived Assets*

The Company reviews its long lived assets forimpairment whenever events indicate that the carrying amount of the asset maynot be recoverable.  An impairment lossis recorded when the sum of the future cash flows is less than the carrying amountof the asset.  An impairment loss ismeasured as the amount by which the carrying amount of the asset exceeds itsfair value. There were no impairment losses incurred during the year.

*RelatedParties*

The following organizations are considered relatedparties for financial reporting purposes: United Sugars Corporation (United);Midwest Agri-Commodities Company (Midwest); and Crystech, LLC (Crystech).

*Investments*

Investments in CoBank, ACB are stated at cost plusunredeemed patronage refunds received in the form of capital stock.  Investments in marketing cooperatives andCrystech are accounted for using the equity method.

*Members’Investments*

Preferred and Common Stock - The ownership of commonand preferred stock is restricted to a “farm operator” as defined by the bylawsof the Company.  Each shareholder may ownonly one share of common stock and is entitled to one vote in the affairs ofthe Company.  Each shareholder isrequired to grow a specified number of acres of sugarbeets in proportion to theshares of preferred stock owned.  Thepreferred shares are non-voting.  Alltransfers of stock must be approved by the Company’s Board of Directors and anyshareholder desiring to sell stock must first offer it to the Company forrepurchase

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at its par value.  The Company has never exercised this repurchaseoption for preferred stock.  The bylawsdo not allow dividends to be paid on either the common or preferred stock.

Unit Retains - The bylaws authorize the Company’sBoard of Directors to require additional direct capital investments by membersin the form of a variable unit retain per ton of up to a maximum of 10 percentof the weighted average gross per ton beet payment.  All refunds and retirements of unit retainsmust be approved by the Board of Directors.

Equity Retention – The Payment-In-Kind (PIK)Certificate Purchase Agreement authorizes the Company to require additionaldirect capital investments by members participating in the PIK program. Theamount of the equity contribution is calculated per hundredweight of PIKcertificates and is approximately equivalent (on a Company-wide average basis)to the unit retain declared by the Company on the corresponding year’ssugarbeet crop.  All refunds andretirements of equity retains must be approved by the Board of Directors.

Accumulated Other Comprehensive Income (Loss) -Accumulated Other Comprehensive Income (Loss) represents the cumulative netincrease (decrease) in equity related to the recording of the minimum pensionliability adjustment.  Consistent withthe Company’s treatment of income taxes related to member-source income andexpenses, accumulated other comprehensive income (loss) does not include anyadjustment for income taxes.

Retained Earnings (Accumulated Deficit) - Retainedearnings represents the cumulative net income (loss) resulting from non-memberbusiness and, for years prior to 1996, the difference between member income asdetermined for financial reporting purposes and for federal income taxreporting purposes.

*Interest Expense, Net*

The Company earns patronage dividends from CoBank, ACBbased on the Company’s share of the net income earned by CoBank, ACB.  These patronage dividends are applied againstinterest expense.

*Income Taxes*

The Company is a non-exempt cooperative for federalincome tax purposes.  As such, theCompany is subject to corporate income taxes on its net income from non-membersources.  The provision for income taxesrelates to the results of operations from non-member business, state incometaxes and certain other permanent differences between financial and income taxreporting. The Company also has various temporary differences between financialand income tax reporting, most notable of which is depreciation.

Deferred tax assets, less any applicable valuationallowance, and deferred tax liabilities are included in the financialstatements at currently enacted income tax rates applicable to the period inwhich the deferred tax assets and liabilities are expected to be realized orsettled.

*Accounting Estimates*

The preparation of the financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

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*Business Risk*

The financial results of the Company’s operations maybe directly and materially affected by many factors, including prevailing pricesof sugar and agri-products, the Company’s ability to market its sugarcompetitively, the weather, government programs and regulations, and costs andexpenses.

*Shipping and Handling Costs*

The costs incurred for the shipping and handling ofproducts sold are classified in the financial statements as a selling expenseon the Statements of Operations. Shipping and handling costs were $130.6million, $127.4 million and $129.1 million for the years ended August 31, 2006,2005 and 2004, respectively.

*Deferred Costs and Product Values*

All costs incurred prior to the beginning of theCompany’s fiscal year that relate to receiving and processing the subsequentyear’s sugarbeet crop are deferred. Similarly, the net realizable values of products produced prior to thebeginning of the Company’s fiscal year that relate to the subsequent year’ssugarbeet crop are deferred.  The netresult of these deferred costs and product values as of August 31, 2006 of $2.9million has been recorded in the Company’s balance sheet in “Other CurrentLiabilities.”  There were no deferredcosts or deferred product values as of August 31, 2005 or 2004.

*Recently Issued AccountingPronouncements*

The Financial AccountingStandards Board (FASB) has recently issued Statement No. 157, *Fair Value Measurements*. This Statement defines fair value, establishes a framework for measuringfair value in generally accepted accounting principles (GAAP), and expandsdisclosures about fair value measurements. This statement becomes effective for the Company in the first quarter offiscal 2009.  The Company does not expectthat the adoption of this statement will have a material effect on the Company’sfinancial statements.

The Financial AccountingStandards Board has also recently issued Statement No. 158, *Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and132(R)*.  This Statement will require theCompany to recognize the overfunded or underfunded status of a defined benefitpostretirement plan as an asset or liability in its statement of financialposition and to recognize changes in that funded status in the year in whichthe changes occur through comprehensive income. This requirement becomeseffective for the Company as of August 31, 2007.  This Statement will also require theCompany to measure the funded status of a plan as of the date of its year-endstatement of financial position.  This requirement becomes effective for theCompany as of August 31, 2009.  TheCompany expects that the adoption of this statement will have a material impacton Prepaid Pension Expense and Accumulated Other Comprehensive Income/Loss onthe Company’s Consolidated Balance Sheet.

The Financial AccountingStandards Board has also recently issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes—an interpretation of FASBStatement No. 109*.  ThisInterpretation clarifies the accounting for uncertainty in income taxesrecognized in the financial statements in accordance with FASB Statement No.109, *Accounting for Income Taxes.*  This interpretation becomes effective for theCompany in the first quarter of fiscal 2008. The Company does not expect that the adoption of this interpretationwill have a material effect on the Company’s financial statements.

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**(2)RECEIVABLES:**

There were two customers attributable to the Companythat accounted for 13 percent and 16 percent, respectively, of the Company’stotal receivables as of August 31, 2006. There was no single customer attributable to the Company that accountedfor 10 percent or more of the Company’s total receivables as of August 31, 2005or that accounted for 10 percent or more of the revenues of the Company for theyears ended August 31, 2006, 2005 or 2004.

**(3)****INVENTORIES:**

The major components ofinventories as of August 31, 2006 and 2005 are as follows:
| **(In Thousands)**                                                | ** ** | **2006**   | ** **  | **2005** | ** ** |
|------------------------------------------------------------------------|------------|------------|-------------|----------|------------|
| Refined Sugar, Pulp,  Molasses, Other Agri-Products and Sugarbeet Seed | ** ** | **$**      | **134,211** |     | $          | 96,647 |   |
| Unprocessed Sugarbeets                                                 | ** ** | **8,721**  |        | —   |       |
| Maintenance Parts and  Supplies                                        | ** ** | **31,829** |        | 25,980   |       |
| Total Inventories                                                      | ** ** | **$**      | **174,761** |     | $          | 122,627 |   |

 

**(4) NETPROPERTY AND EQUIPMENT:**

Indirect costs capitalized were $1.1 million, $1.0million and $1.1 million in 2006, 2005 and 2004, respectively.  Construction period interest capitalized was$ .8 million, $ .6 million and $ .3 million in 2006, 2005 and 2004,respectively. Depreciation expense was $42.9 million, $41.9 million and $41.6million in 2006, 2005 and 2004, respectively. The Company had outstandingcommitments totaling $12.4 million as of August 31, 2006, for equipment andconstruction contracts related to various capital projects.

**(5) NET PROPERTY AND EQUIPMENT HELD FOR LEASE:**

ProGold owns a cornwet-milling facility that it leases under an operating lease which runs throughDecember 31, 2007.  Under theterms of the operating lease, the lessee manages all aspects of the operationsof the ProGold corn wet-milling facility.

Net Property and EquipmentHeld for Lease are stated at cost, net of accumulated depreciation. Thecomponents of Net Property and Equipment Held for Lease as of August 31, 2006and 2005 are shown below:
| **(In Thousands)**                   | ** ** | **2006**     | ** **  | **2005** | ** ** |
|-------------------------------------------|------------|--------------|-------------|----------|------------|
| Land and Land  Improvements               | ** ** | **$**        | **7,937**   |     | $          | 7,905 |   |
| Buildings                                 | ** ** | **41,193**   |        | 41,055   |       |
| Equipment                                 | ** ** | **200,485**  |        | 200,151  |       |
| Construction in  Progress                 | ** ** | **160**      |        | 503      |       |
| Less Accumulated  Depreciation            | ** ** | **(109,734** | **)**       | (98,722  | )          |
|                                      |       |         |        |     |       |
| Net Property and Equipment Held for Lease | ** ** | **$**        | **140,041** |     | $          | 150,892 |   |

 

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Future minimum payments tobe received under the lease are as follows:
| Fiscal year ending August 31, (In Thousands) | ** ** |
|----------------------------------------------------------------------------|------------|
| 2007                                                                       |       | $ | 23,452 |   |
| 2008                                                                       |       | 8,093 |   |
|                                                                       |       |   |   |
| Total                                                                      |       | $ | 31,545 |   |

 

**(6)****INVESTMENTS IN MARKETING COOPERATIVES:**

The Company has a 65 percent ownership interest and a33 1/3 percent voting interest in United. The investment is accounted for using the equity method.  All sugar products produced are sold byUnited as an agent for the Company.  Theamount of sales and related costs to be recognized by each owner of United isallocated based on its pro rata share of sugar production for the year.  The owners provide United with cash advanceson an ongoing basis for operating and marketing expenses incurred byUnited.  The Company had outstandingadvances to United of $4.3 million and $14.6 million as of August 31, 2006 and2005, respectively.  The Company providesadministrative services for United and is reimbursed for costs incurred.  The Company was reimbursed $1.2 million, $1.1million and $1.0 million for services provided during 2006, 2005 and 2004,respectively.

The Company has a 53 percent ownership interest and a25 percent voting interest in Midwest. The investment is accounted for using the equity method.  Substantially all sugarbeet pulp, molassesand other agri-products produced are sold by Midwest as an agent for theCompany.  The amount of sales and relatedcosts to be recognized by each owner of Midwest is allocated based on its prorata share of production for each product for the year.  The owners provide Midwest with cash advanceson an ongoing basis for operating and marketing expenses incurred byMidwest.  The Company had outstandingadvances from Midwest of $2.7 million and $4.1 million as of August 31, 2006and 2005, respectively.  The Companyprovides administrative services for Midwest and is reimbursed for costs incurred.  The Company was reimbursed $121,000, $95,000and $71,000 for services provided during 2006, 2005 and 2004,respectively.  The owners of Midwest areguarantors of the short-term line of credit Midwest has with CoBank, ACB.  As of August 31, 2006, Midwest hadoutstanding short-term debt with CoBank, ACB of $3.6 million, of which $2.1million was guaranteed by the Company.

**(7)****CRYSTECH, LLC:**

Crystech is a special purpose entity that operates amolasses desugarization facility at the Company’s Hillsboro, North Dakota,sugar factory together with certain sugar processing equipment located at theHillsboro, North Dakota, and Moorhead, Minnesota, sugar factories.  The Company controls 50 percent of Crystechand accounts for its investment using the equity method.

The Company has a tolling services agreement withCrystech whereby the Company pays for tolling services for processing sugarbeetmolasses delivered to Crystech with title and risk of loss throughout theprocess maintained by the Company.  Thetolling agreement expires in 2012 and is subject to early termination by theCompany in the event that specified plant performance is not maintained.

On a cumulative basis, the Company receives an annualallocation of Crystech’s net income equal to 7.5 percent of the initial valueof the Preferred Equity contribution by the Company or approximately $1.0million.  The Company had outstandingpayables to Crystech of approximately $4.3 million and $3.9 million as ofAugust 31, 2006 and 2005, respectively, related to the tolling servicesagreement.  Following is summaryfinancial information for Crystech:

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| As of August 31, (In Thousands) | ** ** | **2006**   | ** ** | **2005** | ** ** |
|----------------------------------------------------------|------------|------------|------------|----------|------------|
| Current Assets                                           | ** ** | **$**      | **4,348**  |     | $          | 3,933 |   |
| Long-Term Assets                                         | ** ** | **18,665** |       | 31,267   |       |
| Total Assets                                             | ** ** | **$**      | **23,013** |     | $          | 35,200 |   |
|                                                     |       |       |       |     |       |
| Current  Liabilities                                     | ** ** | **$**      | **6,143**  |     | $          | 9,216 |   |
| Long-Term  Liabilities                                   | ** ** | **—** |       | 9,214    |       |
| Total Liabilities                                        | ** ** | **6,143**  |       | 18,430   |       |
| Members’ Equity                                     | ** ** | **16,870** |       | 16,770   |       |
| Total  Liabilities and Members’ Equity              | ** ** | **$**      | **23,013** |     | $          | 35,200 |   |

 
| **For the Years Ended August 31,  (In Thousands)** | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Revenue                                                                          | ** ** | **$**      | **20,582** |     | $          | 21,186   |       | $ | 21,261 |   |
| Operating  Expenses                                                              | ** ** | **18,006** |       | 17,727   |       | 16,911   |       |
| Other Expenses                                                                   | ** ** | **1,432**  |       | 2,315    |       | 3,206    |       |
| Net Income                                                                       | ** ** | **$**      | **1,144**  |     | $          | 1,144    |       | $ | 1,144 |   |

 

**(8) LONG-TERM AND SHORT-TERM DEBT:**

The long-term debtoutstanding as of August 31, 2006 and 2005 is summarized below: 
| **(In Thousands)**                                                                                                                                                                                                                            | ** ** | **2006**    | ** **  | **2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|----------|------------|
| Term Loans from  CoBank, ACB, due in varying amounts through 2011, interest at fixed rates of  5.35% to 8.57%, with senior lien on substantially all non-current assets                                                                            | ** ** | **$**       | **116,276** |     | $          | 128,793 |   |
| Term Loans from  Insurance Companies, due in varying amounts from 2010 through 2028, interest  at fixed rates of 4.78% to 7.42%, with senior lien on substantially all  non-current assets                                                         | ** ** | **60,000**  |        | 62,857   |       |
| Pollution  Control and Industrial Development Revenue Bonds, due in varying amounts  through 2020 interest at fixed rates of 5.0% to 5.40% and varying rates of  3.40% to 3.51% as of August 31, 2006, substantially secured by letters of  credit | ** ** | **42,323**  |        | 42,939   |       |
| Term Loan from  the Bank of North Dakota, due in equal amounts through 2009, interest at a  fixed rate of 3.30%, unsecured                                                                                                                         | ** ** | **2,400**   |        | 3,200    |       |
| Total Long-Term  Debt                                                                                                                                                                                                                              | ** ** | **220,999** |        | 237,789  |       |
| Less Current  Maturities                                                                                                                                                                                                                           | ** ** | **(20,962** | **)**       | (20,947  | )          |
| Long-Term Debt, Net of  Current Maturities                                                                                                                                                                                                         | ** ** | **$**       | **200,037** |     | $          | 216,842 |   |

 

Minimum annual principalpayments for the next five years are as follows:
| (In Thousands) | ** ** |
|---------------------|------------|
| 2007                |       | $ | 20,962 |   |
| 2008                |       | $ | 52,960 |   |
| 2009                |       | $ | 20,992 |   |
| 2010                |       | $ | 18,789 |   |
| 2011                |       | $ | 34,668 |   |

 

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The Company has a long-term debt line of credit withCoBank, ACB of $236.4 million, of which $116.3 million in loans and $52.1million in long-term letters of credit were outstanding as of August 31,2006.  The unused long-term line ofcredit as of August 31, 2006 was $68.0 million.

The short-term debt outstanding as of August 31, 2006and 2005 is summarized below:
| **(In Thousands)**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Commercial  Paper, at a fixed interest rate of 5.47%, due 9/1/06 | ** ** | **$**    | **5,300**  |     | $          | 30,685 |   |
|                                                                  |            |          |            |          |            |  |  |

 

During the year ended August 31, 2006, the Companyborrowed from CoBank, ACB, and issued commercial paper to meet its short-termborrowing requirements.  As of August 31,2006, the Company had available short-term lines of credit totaling $301.0million, of which $5.3 million in commercial paper and $5.8 million inshort-term letters of credit were outstanding. The unused short-term line of credit as of August 31, 2006 was $289.9million.

Maximum borrowings, average borrowing levels andaverage interest rates for short-term debt for the years ended August 31, 2006and 2005, follow:
| **(In Thousands, Except Interest Rates)** | ** ** | **2006**  | ** **  | **2005**   | ** ** |
|-------------------------------------------|------------|-----------|-------------|------------|------------|
| Maximum Borrowings                        | ** ** | **$**     | **216,055** | ** ** | $          | 197,077 |   |
| Average Borrowing Levels                  | ** ** | **$**     | **118,553** |       | $          | 112,560 |   |
| Average Interest Rates                    | ** ** | **5.16%** |        | 3.18%      |       |

 

The terms of the loan agreements contain prepaymentpenalties along with certain covenants related to, among other matters, the:level of working capital; ratio of term liabilities to members’ investments;current ratio; level of term debt to net funds generated; and investment inCoBank, ACB stock in amounts prescribed by the bank.  Substantially all non-current assets arepledged to the senior lenders to provide security to support the Company’sseasonal and long-term financing.  As ofAugust 31, 2006, the Company was in compliance with the terms of the loanagreements.

Interest paid, net of amounts capitalized, was $19.6million, $20.0 million and $21.1 million for the years ended August 31, 2006,2005 and 2004, respectively.

**(9)****OPERATING LEASES**:

The Company is party to operating leases for suchitems as rail cars, product storage tanks, computer hardware and vehicles.  Cargill, Incorporated has assumedresponsibility for the payments on a rail car lease for the duration of theoperating lease with ProGold, described in Note 1.  After the lease with Cargill, Incorporatedexpires, responsibility for the rail car lease payments reverts back toProGold.  Operating lease expense was $1.6 million, $ 1.4 million and $ 1.4 million for years ended August 31, 2006,2005 and 2004, respectively.  Futureminimum payments under these obligations are as follows:
| Fiscal year ending August 31, (In Thousands) | ** ** |
|----------------------------------------------------------------------------|------------|
| 2007                                                                       |       | $ | 2,101 |   |
| 2008                                                                       |       | 4,281 |   |
| 2009                                                                       |       | 5,717 |   |
| 2010                                                                       |       | 5,684 |   |
| 2011                                                                       |       | 5,677 |   |
| Thereafter                                                                 |       | 35,015 |   |
|                                                                       |       |   |   |
| Total                                                                      |       | $ | 58,475 |   |

 

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**(10)****EMPLOYEE BENEFIT PLANS:**

*Company-Sponsored Defined Benefit Pension and OtherPost-Retirement Benefit Plans*

Substantially all employees who meet eligibilityrequirements of age and length of service are covered by a Company-sponsoredretirement plan.  As of August 31, 2006,the pension plans were funded as required by the funding standards set forth bythe Employee Retirement Income Security Act (ERISA).  The Company also has non-qualifiedsupplemental executive retirement plans for certain employees.

The following schedule reflectsthe percentage of pension plan assets by asset class as of the latestmeasurement date, May 31, 2006:

**Percentage of Pension Plan Assets by Asset Class as of May31, 2006**
| **Asset Class** | ** ** | **Target Range** | ** ** | **Actual Allocation** |
|----------------------|------------|-----------------------|------------|----------------------------|
| Large U.S.  Stocks   |       | 20.0%-40.0%           |       | 29.5%                      |
| Small U.S.  Stocks   |       | 17.5%-27.5%           |       | 25.6%                      |
| Non-U.S. Stocks      |       | 17.5%-27.5%           |       | 24.2%                      |
| U.S. Bonds           |       | 15.0%-35.0%           |       | 20.5%                      |
| Cash                 |       | 0.0%-5.0%             |       | 0.2%                       |

                                                

The Investment Committee has theresponsibility of managing the operations and administration of AmericanCrystal Sugar Company’s retirement plans and trust.  The Investment Committee has an investmentpolicy for the pension plan assets that establishes target asset allocations asshown above.  The Investment Committee iscommitted to diversification to reduce the risk of large losses.  To that end, the Investment Committee hasadopted policies requiring that each asset class will be diversified and equityexposure will be limited to 85% of the total portfolio value. The stated goalis for each component of the plan to earn a rate of return greater than itscorresponding benchmark.  Progress of theplan against its return objectives will be measured over a full market cycle.

To develop the expectedlong-term rate of return on assets assumption, the Company considered thehistorical returns and the future expectations for returns for each assetclass, as well as, the target asset allocation of the pension portfolio.  This resulted in the selection of the 8.25%long-term rate of return on assets assumption.

The development of the discountrate was based on a bond matching model whereby a hypothetical portfolio ofbonds with an “AA” or better rating by a nationally recognized debt ratingagency was constructed to match the expected benefit payments under the Company’spension plans through the year 2035.  Thereinvestment rate for benefit cash flow occurring after 2035 was discountedback to the year 2035 at a rate consistent with the yields on long-termzero-coupon bonds. The resulting present value was treated as additionalbenefit cash flow for the year 2035 and consistently applied as any otherbenefit cash flow during the bond matching process.

The following schedule reflectsthe expected pension and post-retirement benefit payments during each of thenext five years and the aggregate for the following five years:

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|                         | ** ** | **Expected Benefit Payments** | ** ** |
|-------------------------|------------|-----------------------------------------|------------|
| **(In Thousands)** | ** ** | **Pension**                             | ** ** | **Post-Retirement** | ** ** |
| 2007                    |       | $                                       | 4,576      |   | $ | 680 |   |
| 2008                    |       | 8,172                                   |       | 884 |   |
| 2009                    |       | 5,239                                   |       | 1,055 |   |
| 2010                    |       | 5,676                                   |       | 1,315 |   |
| 2011                    |       | 6,192                                   |       | 1,614 |   |
| 2012-2016               |       | 40,431                                  |       | 12,243 |   |
| Total                   |       | $                                       | 70,286     |   | $ | 17,791 |   |

 

The Company expects tocontribute approximately $4.0 million to the pension plans and $680,000 to thepost-retirement plans during the next fiscal year.

The Company has a medical plan and a Medicaresupplement plan which are available to union retirees and certain non-unionretirees.  The costs of these plans areshared by the Company and plan participants.  TheCompany’s post-retirement plan for certain non-union employees currentlycoordinates with Medicare’s medical coverage and provides tiered prescriptiondrug coverage.  The Company hasdetermined that this plan is actuarially equivalent to Medicare Part D andtherefore qualifies for the Federal subsidy provision in the MedicarePrescription Drug, Improvement, and Modernization Act of 2003.  This provision allows the Company to take atax deduction for 28 percent of the dollars spent providing prescription drugcoverage beginning in calendar year 2006. In accordance with FASB Staff Position (FSP) FAS-106-2, the Company recognizeda reduction in the accumulated post-retirement benefit obligation in fiscal2005 of approximately $4.6 million due to the effect of the subsidy.

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The following schedules provide the components of the Net PeriodicPension and Post-Retirement Costs for the years ended August 31, 2006, 2005 and2004:

***Components of Net Periodic Pension Cost***
| **(In Thousands)**               | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Service Cost                          | ** ** | **$**      | **4,222**  |     | $          | 3,383    |       | $ | 2,772 |   |
| Interest Cost                         | ** ** | **7,185**  |       | 7,075    |       | 6,017    |       |
| Expected Return on Plan Assets        | ** ** | **(9,856** | **)**      | (8,062   | )          | (5,960   | )          |
| Multiple Employer Adjustment          | ** ** | **(69**    | **)**      | (348     | )          | (342     | )          |
| Amortization of Net Transition Assets | ** ** | **—** |       | (21      | )          | (124     | )          |
| Amortization of Prior Service Costs   | ** ** | **1,126**  |       | 1,428    |       | 544      |       |
| Amortization of Net Loss              | ** ** | **2,992**  |       | 2,197    |       | 1,999    |       |
| Net  Periodic Pension Cost            | ** ** | **$**      | **5,600**  |     | $          | 5,652    |       | $ | 4,906 |   |

 

***Components of Net Periodic Post-Retirement Cost***
| **(In Thousands)**            | ** ** | **2006**  | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------|------------|-----------|------------|----------|------------|----------|------------|
| Service Cost                       | ** ** | **$**     | **1,411**  |     | $          | 1,099    |       | $ | 1,223 |   |
| Interest Cost                      | ** ** | **2,088** |       | 2,172    |       | 1,924    |       |
| Amortization of Net Loss           | ** ** | **387**   |       | 287      |       | 498      |       |
| Net  Periodic Post-Retirement Cost | ** ** | **$**     | **3,886**  |     | $          | 3,558    |       | $ | 3,645 |   |

 

For measurement purposes, a 10.0 percent annual rateof increase in the per capita cost of covered healthcare benefits forparticipants under age 65 was assumed for 2007. The rate is assumed to decline to 5.0 percent over the next fiveyears.  For participants age 65 andolder, an 11.0 percent annual rate of increase in the per capita cost ofcovered healthcare benefits was assumed for 2007.  The rate is assumed to decline to 6.0 percentover the next five years.

Assumed healthcare trends can have a significant effecton the amounts reported for healthcare plans. A one percent change in the assumed healthcare trend rates would havethe following effects:
| **(In Thousands)**                                                                              | ** ** | **1% Increase** | ** ** | **1% Decrease** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| Effect on total  service and interest cost components of net periodic post-retirement benefit  costs |       | $                    | 643        |                 | $          | (513 | ) |
| Effect on the  accumulated post-retirement benefit obligation                                        |       | $                    | 3,978      |                 | $          | (3,357 | ) |

 

A-18

----

The following schedules set forth a reconciliation ofthe changes in the plans’ benefit obligation and fair value of assets for theyears ending August 31, 2006 and 2005 and a statement of the funded status andamounts recognized in the Balance Sheets as of August 31, 2006 and 2005:
| ** **                                     | ** ** | **Pension** | ** **  | **Post-Retirement** | ** ** |
|------------------------------------------------|------------|-------------|-------------|---------------------|------------|
| **(In Thousands)**                        | ** ** | **2006**    | ** **  | **2005**            | ** ** | **2006** | ** ** | **2005** | ** ** |
| ***Change in Benefit Obligation***             | ** ** | ** **  | ** **  | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Obligation at the Beginning of the Year        | ** ** | **$**       | **130,647** |                | $          | 96,936 | ** ** | **$** | **37,660** |   | $ | 32,152 |   |
| Service Cost                                   | ** ** | **4,222**   |        | 3,383               | ** ** | **1,411** |   | 1,099 |   |
| Interest Cost                                  | ** ** | **7,185**   |        | 7,075               | ** ** | **2,088** |   | 2,172 |   |
| Plan Amendments                                | ** ** | **—**  |        | 8,164               | ** ** | **—** |   | — |   |
| Plan Participant Contributions                 | ** ** | **—**  |        | —              | ** ** | **508** |   | 626 |   |
| Medicare Part D Subsidy                        | ** ** | **—**  |        | —              | ** ** | **34** |   | — |   |
| Actuarial (Gain) Loss                          | ** ** | **(15,454** | **)**       | 19,196              | ** ** | **(10,821** | **)** | 2,997 |   |
| Benefits Paid                                  | ** ** | **(4,187**  | **)**       | (4,107              | )          | **(1,450** | **)** | (1,386 | ) |
| Obligation at the End of the Year              | ** ** | **$**       | **122,413** |                | $          | 130,647 | ** ** | **$** | **29,430** |   | $ | 37,660 |   |
|                                           |       |        | ** **  | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** |
| ***Change in Plan Assets***                    |       |        | ** **  | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fair Value at the Beginning of the Year        | ** ** | **$**       | **121,553** |                | $          | 98,107 | ** ** | **$** | **—** |   | $ | — |   |
| Actual Return on Plan Assets                   | ** ** | **15,939**  |        | 8,730               | ** ** | **—** |   | — |   |
| Plan Participant Contributions                 | ** ** | **—**  |        | —              | ** ** | **508** |   | 626 |   |
| Medicare Part D Subsidy                        | ** ** | **—**  |        | —              | ** ** | **34** |   | — |   |
| Employer Contributions                         | ** ** | **5,292**   |        | 18,823              | ** ** | **908** |   | 760 |   |
| Benefits Paid                                  | ** ** | **(4,187**  | **)**       | (4,107              | )          | **(1,450** | **)** | (1,386 | ) |
| Fair Value at the End of the Year              | ** ** | **$**       | **138,597** |                | $          | 121,553 | ** ** | **$** | **—** |   | $ | — |   |
| *** ***                                   |       |        |        |                |       |   |   |   |   |
| ***Funded Status***                            |       |        |        |                |       |   |   |   |   |
| Funded Status as of August 31,                 | ** ** | **$**       | **16,184**  |                | $          | (9,094 | ) | **$** | **(29,430** | **)** | $ | (37,660 | ) |
| Unrecognized Actuarial (Gain) Loss             | ** ** | **18,289**  |        | 42,812              | ** ** | **(1,818** | **)** | 9,390 |   |
| Unrecognized Prior Service Cost                | ** ** | **8,178**   |        | 9,304               | ** ** | **—** |   | — |   |
| Adjustment for Multiple Employer Plan          | ** ** | **—**  |        | (6                  | )          | **—** |   | — |   |
| Net Amount Recognized                          | ** ** | **$**       | **42,651**  |                | $          | 43,016 | ** ** | **$** | **(31,248** | **)** | $ | (28,270 | ) |
|                                           |       |        | ** **  | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** |
| ***Amounts Recognized in the Balance Sheets*** |       |        | ** **  | ** **          |       |   |   |   |   |
| Prepaid Pension Cost                           | ** ** | **$**       | **48,773**  |                | $          | 48,262 | ** ** | **$** | **—** |   | $ | — |   |
| Accrued Benefit Liability                      | ** ** | **(6,622**  | **)**       | (6,078              | )          | **(31,248** | **)** | (28,270 | ) |
| Accumulated Other Comprehensive Loss           | ** ** | **500**     |        | 832                 | ** ** | **—** |   | — |   |
| Net  Amount Recognized                         | ** ** | **$**       | **42,651**  |                | $          | 43,016 | ** ** | **$** | **(31,248** | **)** | $ | (28,270 | ) |

 

***Change in AdditionalMinimum Liability (for the current year)***
| (In Thousands)                | ** ** | **2006** | ** ** |
|------------------------------------|------------|----------|------------|
| Other Comprehensive Loss           | ** ** | **$**    | **(332**   | **)** |
| Accrued Pension Liability Decrease | ** ** | **$**    | **332**    | ** ** |

 

A-19

----

The assumptions used in the measurement of the Company’s benefitobligations are shown below:

***Weighted AverageAssumptions as of August 31,***
|                                                       | ** ** | **Pension** | ** ** | **Post-Retirement** | ** ** |
|-------------------------------------------------------|------------|-------------|------------|---------------------|------------|
| ** **                                            | ** ** | **2006**    | ** ** | **2005**            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Discount Rate                                         | ** ** | **6.62**    | **%**      | 5.61                | %          | **6.62** | **%** | 5.61 | % |
| Expected Return on Plan Assets                        | ** ** | **8.25**    | **%**      | 8.25                | %          | **N/A** |   | N/A |   |
| Rate  of Compensation Increase (Non-Union  Plan Only) | ** ** | **3.5**     | **%**      | 3.5                 | %          | **N/A** |   | N/A |   |

 

*1999 Long-Term Incentive Plan*

During 2005, the grantingof additional contract rights under the 1999 Long-Term Incentive Plan (1999Plan) was discontinued with the adoption of the 2005 Long-Term Incentive Plan(2005 Plan).  All vested contract rightsas of December 31, 2004, remained in the 1999 Plan while all unvested contract rightswere transferred to the 2005 Plan. The value of the contract rights remainingin the 1999 Plan is related to the value of preferred shares of the Company asdetermined by the Board of Directors.  Asof August 31, 2006, there were 455.07 vested contract rights remaining in the1999 Plan.  At August 31, 2006, the Boardof Directors increased the value of these contract rights from $1,800 to $1,900per contract right.

*2005 Long-Term Incentive Plan*

The 2005 Long-TermIncentive Plan provides deferred compensation to certain key executives of theCompany.  The plan creates financialincentives that are based upon contract rights which are available to theexecutive under the terms of the plan, the value of which is related to thevalue of preferred shares of the Company as determined by the Board ofDirectors.  During 2006, 12.63 vestedcontract rights were exercised at a stated value of $1,800 per contractright.  In 2006, 306.05 contract rightswere granted at a stated value of $1,900 per contract right.  At August 31, 2006, the Board of Directorsincreased the value of the 659.92 contract rights previously granted from$1,800 to $1,900 per contract right.  Asof August 31, 2006, there were 965.97 contract rights issued and outstanding ata stated value of $1,900 per contract right, of which 473.01 were vested.

*DefinedContribution Plans*

The Company has qualified401(k) plans for all eligible employees. The plans provide for immediate vesting of benefits.  Participants may contribute a percentage oftheir gross earnings each pay period as provided in the participationagreement.  The Company matches thenon-union and eligible union year-round participants’ contributions up to 4percent and 2 percent, respectively, of their gross earnings.  The Company’s contributions to these planstotaled $1.8 million, $1.7 million and $1.6 million for the years ended August31, 2006, 2005 and 2004, respectively.

A-20

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**(11)****MEMBERS’ INVESTMENTS:**

The followingschedule details the Preferred Stock and Common Stock as of August 31, 2006,2005 and 2004:

|                  | ** ** | **Par**   | ** ** | **Shares**     | ** ** | **Shares Issued**     | ** ** |
|------------------|------------|-----------|------------|----------------|------------|----------------------------|------------|
| ** **       | ** ** | **Value** | ** ** | **Authorized** | ** ** | **& Outstanding** | ** ** |
| Preferred Stock: |       |      |       |           |       |                       |       |
| August 31, 2006  |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
| August 31, 2005  |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
| August 31, 2004  |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
|             |       |      |       |           |       |                       |       |
| Common Stock:    |       |      |       |           |       |                       |       |
| August 31, 2006  |       | $         | 10.00      |           | 4,000      |                       | 2,874      |   |
| August 31, 2005  |       | $         | 10.00      |           | 4,000      |                       | 2,904      |   |
| August 31, 2004  |       | $         | 10.00      |           | 4,000      |                       | 2,873      |   |

 

**(12)****SEGMENTREPORTING:**

The Company has identifiedtwo reportable segments: Sugar and Leasing. The sugar segment is engaged primarily in the production and marketingof sugar from sugarbeets.  It also sellsagri-products and sugarbeet seed.  Theleasing segment is engaged in the leasing of a corn wet milling plant used inthe production of high-fructose corn syrup. The segments are managed separately. There are no inter-segment sales. The leasing segment has a major customer that accounts for all of thatsegment’s revenue.

Summarized financialinformation concerning the Company’s reportable segments is shown below:
|                                      | ** ** | **For the Year Ended August 31, 2006** | ** ** |
|--------------------------------------|------------|----------------------------------------------------------------------|------------|
| **(In Thousands)**              | ** ** | **Sugar**                                                            | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                    | 980,615    |   | $ | 25,101 |   | $ | 1,005,716 |   |
| Gross Proceeds                       |       | $                                                                    | 663,909    |   | $ | 13,040 |   | $ | 676,949 |   |
| Depreciation and  Amortization       |       | $                                                                    | 45,637     |   | $ | 11,116 |   | $ | 56,753 |   |
| Interest Income                      |       | $                                                                    | 357        |   | $ | 40 |   | $ | 397 |   |
| Interest Expense                     |       | $                                                                    | 15,565     |   | $ | 3,531 |   | $ | 19,096 |   |
| Income from  Equity Method Investees |       | $                                                                    | 537        |   | $ | — |   | $ | 537 |   |
| Other  Income/(Expense), Net         |       | $                                                                    | 3,216      |   | $ | (115 | ) | $ | 3,101 |   |
| Net Proceeds                         |       | $                                                                    | 440,337    |   | $ | 4,754 |   | $ | 445,091 |   |
|                                 |       |                                                                 |       |   |   |   |   |
| Capital Expenditures                 |       | $                                                                    | 46,154     |   | $ | 382 |   | $ | 46,536 |   |

 

A-21

----

 
|                                      | ** ** | **For the Year Ended August 31, 2005** | ** ** |
|--------------------------------------|------------|----------------------------------------------------------------------|------------|
| **(In Thousands)**              | ** ** | **Sugar**                                                            | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                    | 939,424    |   | $ | 26,050 |   | $ | 965,474 |   |
| Gross Proceeds                       |       | $                                                                    | 586,754    |   | $ | 14,033 |   | $ | 600,787 |   |
| Depreciation and  Amortization       |       | $                                                                    | 48,486     |   | $ | 11,072 |   | $ | 59,558 |   |
| Interest Income                      |       | $                                                                    | 512        |   | $ | 17 |   | $ | 529 |   |
| Interest Expense                     |       | $                                                                    | 13,982     |   | $ | 5,188 |   | $ | 19,170 |   |
| Income from  Equity Method Investees |       | $                                                                    | 1,402      |   | $ | — |   | $ | 1,402 |   |
| Other  Income/(Expense), Net         |       | $                                                                    | (863       | ) | $ | (11 | ) | $ | (874 | ) |
| Net Proceeds                         |       | $                                                                    | 368,920    |   | $ | 4,340 |   | $ | 373,260 |   |
|                                 |       |                                                                 |       |   |   |   |   |
| Capital Expenditures                 |       | $                                                                    | 43,758     |   | $ | 1,332 |   | $ | 45,090 |   |

 
|                                      | ** ** | **For the Year Ended August 31, 2004** | ** ** |
|--------------------------------------|------------|----------------------------------------------------------------------|------------|
| **(In Thousands)**              | ** ** | **Sugar**                                                            | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                    | 1,007,251  |   | $ | 25,837 |   | $ | 1,033,088 |   |
| Gross Proceeds                       |       | $                                                                    | 681,234    |   | $ | 13,866 |   | $ | 695,100 |   |
| Depreciation and  Amortization       |       | $                                                                    | 45,809     |   | $ | 11,026 |   | $ | 56,835 |   |
| Interest Income                      |       | $                                                                    | 163        |   | $ | 6 |   | $ | 169 |   |
| Interest Expense                     |       | $                                                                    | 13,822     |   | $ | 6,327 |   | $ | 20,149 |   |
| Income from  Equity Method Investees |       | $                                                                    | 286        |   | $ | — |   | $ | 286 |   |
| Other  Income/(Expense), Net         |       | $                                                                    | 1,104      |   | $ | (109 | ) | $ | 995 |   |
| Net Proceeds                         |       | $                                                                    | 469,383    |   | $ | 3,739 |   | $ | 473,122 |   |
|                                 |       |                                                                 |       |   |   |   |   |
| Capital Expenditures                 |       | $                                                                    | 30,045     |   | $ | 1,119 |   | $ | 31,164 |   |

 
|                              | ** ** | **As of August 31, 2006** | ** ** |
|------------------------------|------------|-----------------------------------------------|------------|
| **(In Thousands)**      | ** ** | **Sugar**                                     | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and  Equipment, Net |       | $                                             | 332,140    |   | $ | — |   | $ | 332,140 |   |
| Assets Held for  Lease, Net  |       | $                                             | —     |   | $ | 140,041 |   | $ | 140,041 |   |
| Segment Assets               |       | $                                             | 690,638    |   | $ | 149,359 |   | $ | 839,997 |   |

 
|                              | ** ** | **As of August 31, 2005** | ** ** |
|------------------------------|------------|-----------------------------------------------|------------|
| **(In Thousands)**      | ** ** | **Sugar**                                     | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and  Equipment, Net |       | $                                             | 329,859    |   | $ | 1 |   | $ | 329,860 |   |
| Assets Held for  Lease, Net  |       | $                                             | —     |   | $ | 150,892 |   | $ | 150,892 |   |
| Segment Assets               |       | $                                             | 611,964    |   | $ | 162,060 |   | $ | 774,024 |   |

 

**(13)****FAIR VALUEOF FINANCIAL INSTRUMENTS:**

The fair value of financial instruments is generallydefined as the amount at which the instrument could be exchanged in a currenttransaction between willing parties, other than in a forced liquidationsale.  Quoted market prices are generallynot available for the Company’s financial instruments.  Fair values are based on judgments regardinganticipated cash flows, future expected loss experience, current economicconditions, risk characteristics of various financial instruments and otherfactors.  These

A-22

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estimates involveuncertainties and matters of judgment, and therefore, cannot be determined withprecision.  Changes in assumptions couldsignificantly affect the estimates.

*Long-Term Debt* - Based uponcurrent borrowing rates with similar maturities, the fair value of thelong-term debt is approximately $229.0 million in comparison to the carryingvalue of $221.0 million.

*Investments in CoBank, ACB, Investments inMarketing Cooperatives, and Investments in Crystech, LLC* -The Company believes it is not practical to estimate the fair value of theseinvestments without incurring excessive costs because there is no establishedmarket for these securities and equity interests, and it is inappropriate toestimate future cash flows which are largely dependent on future earnings ofthese organizations.

**(14)****INCOME TAXES:**

Total income tax payments were $290,000; $336,000; and$70,000 for the years ended August 31, 2006, 2005 and 2004, respectively.

As of August 31, 2006, the Company had accumulatedapproximately $24.5 million of net operating loss carry-forwards for income taxreporting purposes.  The net operatingloss carry-forwards expire in the years 2012 through 2023.  The Company’s net deferred tax liabilityincluded in Other Liabilities on the Company’s Balance Sheets as of August 31,2006 and 2005 is reflected below:
| (In Thousands)                                                           | ** ** | **2006**   | ** ** | **2005** | ** ** |
|-------------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Deferred Tax  Assets related to non-patronage source temporary differences    |       | **$**      | **15,000** |     | $          | 14,600 |   |
| Deferred Tax  Liability related to non-patronage source temporary differences |       | **19,200** |       | 17,800   |       |
|                                                                          |       | ** ** |       |     |       |
| Net Deferred Tax  Liability                                                   |       | **$**      | **4,200**  |     | $          | 3,200 |   |

 

Income tax expensefor the years ended August 31, 2006, 2005 and 2004 is as follows:
| **(In Thousands)**   | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------|------------|------------|------------|----------|------------|----------|------------|
| Current Income  Taxes     |       | **$**      | **687**    |     | $          | 355      |       | $ | 88 |   |
| Deferred Income  Taxes    |       | **1,000**  |       | 900      |       | 100      |       |
|                      |       | ** ** |       |     |       |     |       |
| Total Income Tax  Expense |       | **$**      | **1,687**  |     | $          | 1,255    |       | $ | 188 |   |

 

A reconciliation of the Company’s effective tax ratesfor the years ended August 31, 2006, 2005 and 2004 is shown below:
| ** **                             | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Federal tax  expense at statutory rate |       | **35.0**   | **%**      | 35.0     | %          | 35.0     | %          |
| State tax  expense at statutory rate   |       | **6.0**    | **%**      | 6.0      | %          | 6.0      | %          |
| Payments to  members                   |       | **(40.7**  | **)%**     | (40.5    | )%         | (41.2    | )%         |
| Other, net                             |       | **—** |       | (0.2     | )%         | 0.3      | %          |
| Effective tax rate                     |       | **0.3**    | **%**      | 0.3      | %          | 0.1      | %          |

 

A-23

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**(15)****ENVIRONMENTAL MATTERS:**

The Company is subject to extensive federal and stateenvironmental laws and regulations with respect to water and air quality, solidwaste disposal and odor and noise control. The Company conducts an ongoing compliance program designed to meetthese environmental laws and regulations. The Company believes that it is in substantial compliance withapplicable environmental laws and regulations. From time to time, however, the Company may be involved ininvestigations or determinations regarding non-material matters that may arise.

The Company’s East GrandForks, Minnesota factory has recently experienced hydrogen sulfide emissionsfrom its water treatment ponds that have exceeded permissible limits.  The Company is working with the MinnesotaPollution Control Agency and is aggressively addressing the situation.  While the Company may be assessed penaltiesand/or fines related to this occurrence, as of the date of this report nonehave been assessed.  Any potentialpenalties and/or fines are not expected to be material to the Company.  Capital expenditures will be required toprevent future occurrences of the emissions. The Company’s fiscal 2007 budget includes capital expenditures ofapproximately $4.0 million atthe East Grand Forks factory to address this situation. The amount and timingof any additional capital expenditures that may be required is not currentlyknown.

In addition to the amount discussed above for the EastGrand Forks factory, the Company’s fiscal 2007 budget also includes capitalexpenditures of approximately $1.0 million for environmentally related projectsat the Company’s other factory locations.

**(16)****LEGAL MATTERS:**

As of the date of thisreport, four administrative proceedings have been brought against the UnitedStates Department of Agriculture (USDA) seeking reversal of prior decisionsregarding the determination and transfer of sugar marketing allocations made bythe USDA.  While the Company was not aparty to any of these administrative proceedings, it was, solely or incoordination with other sugar processors, an intervenor in those administrativeproceedings.  As of the date of thisreport, each of the proceedings has completed the administrative process andthe decisions by the chief judicial officer of the USDA in each were such thatthe Company would not experience a reduction in its marketing allocations.  Any decision made by the chief judicialofficer of the USDA can be further appealed in federal court.  An appeal of one of the decisions wassubsequently filed by another company. If the decision by the chief judicial officer of the USDA in this caseis overturned, it could result in the Company experiencing a reduction inmarketing allocations equal to the loss of approximately 25,000 acres in futurecrop years assuming no other related factors were to change.

A-24

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**EXHIBITINDEX TO ANNUAL REPORT ON FORM 10-KFOR FISCAL YEAR ENDED AUGUST 31, 2006**
| Item No. | ** ** | ** **                                                                                                         | ** ** | **Method of Filing**                                                                                                                                                     |
|----------|------------|--------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |       |                                                                                                               |       |                                                                                                                                                                     |
| 3.1      |       | Restated Articles of Incorporation of American  Crystal Sugar Company                                              |       | Incorporated by reference to Exhibit 3(i) from the  Company’s Registration Statement on Form S-1 (File No. 33-83868), declared  effective November 23, 1994.   |
|     |       |                                                                                                               |       |                                                                                                                                                                     |
| 3.2      |       | Restated By-laws of American Crystal Sugar Company                                                                 |       | Incorporated by reference to Exhibit 3(ii) from the  Company’s Registration Statement on Form S-1 (File No. 333-11693), declared  effective November 13, 1996. |
|     |       |                                                                                                               |       |                                                                                                                                                                     |
| 4.1      |       | Restated Articles of Incorporation of American  Crystal Sugar Company                                              |       | See Exhibit 3.1                                                                                                                                                          |
|     |       |                                                                                                               |       |                                                                                                                                                                     |
| 4.2      |       | Restated By-laws of American Crystal Sugar Company                                                                 |       | See Exhibit 3.2                                                                                                                                                          |
|     |       |                                                                                                               |       |                                                                                                                                                                     |
| 10.1     |       | Form of Operating Agreement between Registrant and  ProGold Limited Liability Company                              |       | Incorporated by reference to Exhibit 10(u) from the  Company’s Registration Statement on Form S-1 (File No. 33-83868), declared  effective November 23, 1994.  |
|     |       |                                                                                                               |       |                                                                                                                                                                     |
| 10.2     |       | Form of Member Control Agreement between Registrant  and ProGold Limited Liability Company                         |       | Incorporated by reference to Exhibit 10(v) from the  Company’s Registration Statement on Form S-1 (File No. 33-83868), declared  effective November 23, 1994.  |
|     |       |                                                                                                               |       |                                                                                                                                                                     |
| 10.3     |       | Pledge Agreement between Registrant and First Union  Trust Company, NA                                             |       | Incorporated by reference to Exhibit 10(ee) from the  Company’s Annual Report on Form 10-K for the year ended August 31, 1998.                                      |
|     |       |                                                                                                               |       |                                                                                                                                                                     |
| 10.4     |       | Indemnity Agreement between Registrant, Newcourt  Capital USA Inc., Crystech, LLC and Crystech Senior Lender Trust |       | Incorporated by reference to Exhibit 10(ff) from the  Company’s Annual Report on Form 10-K for the year ended August 31, 1998.                                      |

 

E-1

----

 
| 10.5    |   | Tolling Services Agreement between Crystech, LLC and  Registrant                                               |   | Incorporated by reference to Exhibit 10(gg) from the  Company’s Annual Report on Form 10-K for the year ended August 31, 1998. |
|---------|--------|----------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                           |   |                                                                                                                                |
| 10.6    |   | Operations and Maintenance Agreement between  Crystech, LLC and Registrant                                     |   | Incorporated by reference to Exhibit 10(hh) from the  Company’s Annual Report on Form 10-K for the year ended August 31, 1998. |
|    |   |                                                                                                           |   |                                                                                                                                |
| +10.7   |   | Limited Liability Company Agreement of Crystech, LLC                                                           |   | Incorporated by reference to Exhibit 10(ii) from the  Company’s Annual Report on Form 10-K for the year ended August 31, 1998. |
|    |   |                                                                                                           |   |                                                                                                                                |
| 10.8    |   | Registrant’s Senior Note  Purchase Agreement                                                              |   | Incorporated by reference to Exhibit 10.24 from the  Company’s Annual Report on Form 10-K for the year ended August 31, 1999   |
|    |   |                                                                                                           |   |                                                                                                                                |
| 10.9    |   | Registrant’s Senior Note  Inter-creditor and Collateral Agency Agreement                                  |   | Incorporated by reference to Exhibit 10.25 from the  Company’s Annual Report on Form 10-K for the year ended August 31, 1999   |
|    |   |                                                                                                           |   |                                                                                                                                |
| 10.10   |   | Registrant’s Senior Note  Restated Mortgage and Security Agreement                                        |   | Incorporated by reference to Exhibit 10.26 from the  Company’s Annual Report on Form 10-K for the year ended August 31, 1999   |
|    |   |                                                                                                           |   |                                                                                                                                |
| ++10.11 |   | Employment Agreement between the Registrant and  James J. Horvath                                              |   | Incorporated by reference to Exhibit 10.28 from the  Company’s Annual Report on Form 10-K form the year ended August 31, 1999  |
|    |   |                                                                                                           |   |                                                                                                                                |
| 10.12   |   | Stipulation Agreement between Registrant and State  of Minnesota Pollution Control Agency, dated April 4, 2000 |   | Incorporated by reference to Exhibit 10.28 from the  Company’s Form 10-Q for the quarter ended May 31, 2000                    |
|    |   |                                                                                                           |   |                                                                                                                                |
| ++10.13 |   | Board of Directors Deferred Compensation Plan, dated  June 30, 1994                                            |   | Incorporated by reference to Exhibit 10.29 from the  Company’s Annual Report on Form 10-K for the year ended August 31, 2000   |

 

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| ++10.14 |   | Long Term Incentive Plan, dated June 23, 1999                                                                            |   | Incorporated by reference to Exhibit 10.31 from the  Company’s Annual Report on Form 10-K for the year ended August 31, 2000 |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                     |   |                                                                                                                              |
| 10.15   |   | Uniform Member Sugar Marketing Agreement between the  Registrant and United Sugars Corporation dated September 1, 2001.  |   | Incorporated by reference to Exhibit 10.27 from the  Company’s Form 10-Q for the quarter ended November 30, 2001             |
|    |   |                                                                                                                     |   |                                                                                                                              |
| 10.16   |   | Uniform Member Marketing Agreement between the  Registrant and Midwest Agri-Commodities Company dated September 1, 2001. |   | Incorporated by reference to Exhibit 10.28 from the  Company’s Form 10-Q for the quarter ended November 30, 2001             |
|    |   |                                                                                                                     |   |                                                                                                                              |
| 10.17   |   | Registrant’s Senior Note  Purchase Agreement dated January 15, 2003                                                 |   | Incorporated by reference to Exhibit 10.29 from the  Company’s Form 10-Q for the quarter ended February 28, 2003             |
|    |   |                                                                                                                     |   |                                                                                                                              |
| 10.18   |   | Growers’ Contract (5-year Agreement) for the crop  years 2003 through 2007                                          |   | Incorporated by reference to Exhibit 10.30 from the  Company’s Form 10-Q for the quarter ended February 28, 2003             |
|    |   |                                                                                                                     |   |                                                                                                                              |
| +10.19  |   | Beet Loading and Hauling Agreement between the  Registrant and Transystems LLC for the crop years 2003 through 2007      |   | Incorporated by reference to Exhibit 10.31 from the  Company’s Form 10-Q for the quarter ended May 31, 2003                  |
|    |   |                                                                                                                     |   |                                                                                                                              |
| 10.20   |   | Stipulation Agreement between Registrant and State  of Minnesota Pollution Control Agency, dated August 5, 2003          |   | Incorporated by reference to Exhibit 10.30 from the  Company’s Annual Report on Form 10-K for the year ended August 31, 2003 |
|    |   |                                                                                                                     |   |                                                                                                                              |
| 10.21   |   | Crop year 2005, 2006 and 2007 Sugarbeet Delivery  Agreements between Sidney Sugars Incorporated and Growers              |   | Incorporated by reference to Exhibit 10.25 from the  Company’s Form 10-Q for the quarter ended May 31, 2005                  |
|    |   |                                                                                                                     |   |                                                                                                                              |
| ++10.22 |   | Amendment to Employment Agreement dated September  28, 2005 between the Company and James J. Horvath                     |   | Incorporated by reference to Exhibit 10.1 from the  Company’s Form 8-K dated September 30, 2005                              |

 

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| ++10.23 |   | Long Term Incentive Plan, dated August 24, 2005                                               |   | Incorporated by reference to Exhibit 10.25 from the  Company’s Annual Report on Form 10-K for the year ended August 31, 2005 |
|---------|--------|-----------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                          |   |                                                                                                                              |
| 10.24   |   | Term and Seasonal Loan Agreements between the  Registrant and CoBank, ACB dated July 31, 2006 |   | Filed herewith electronically                                                                                                     |
|    |   |                                                                                          |   |                                                                                                                              |
| 21.1    |   | List of Subsidiaries of the Registrant                                                        |   | Filed herewith electronically                                                                                                     |
|    |   |                                                                                          |   |                                                                                                                              |
| 31.1    |   | Rule 13a-14(a)/15(d)-14(a) Certification of the  Chief Executive Officer                      |   | Accompanying herewith electronically                                                                                              |
|    |   |                                                                                          |   |                                                                                                                              |
| 31.2    |   | Rule 13a-14(a)/15(d)-14(a) Certification of the  Chief Financial Officer                      |   | Accompanying herewith electronically                                                                                              |
|    |   |                                                                                          |   |                                                                                                                              |
| 32.1    |   | Section 1350 Certification of the Chief Executive  Officer                                    |   | Accompanying herewith electronically                                                                                              |
|    |   |                                                                                          |   |                                                                                                                              |
| 32.2    |   | Section 1350 Certification of the Chief Financial  Officer                                    |   | Accompanying herewith electronically                                                                                              |

 

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+              Confidential treatment under Rule 24b-2 of theSecurities and Exchange Act of 1934, as amended, has been granted with respectto designated portions of this document.

++           A management contract or compensatoryplan required to be filed with this report.

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