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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K/A-2




|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the Fiscal Year Ended August 31,
    2003                                               
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to           .                                 

Commission file number: 0-50150



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CHS Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                                                         |  |                                                                       
|------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------
|Minnesota                                                                                                                |  | 41-0251095                                                            
|(State or other jurisdiction of
    incorporation or organization)                                                       |  | (I.R.S. Employer
    Identification Number)                           
|                                                                                                                        
|5500 Cenex Drive
    Inver Grove Heights, Minnesota 55077(Address of principal executive
    office, including zip code) |  | (651) 355-6000(Registrants Telephone
    number, including area code)



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Securities Registered Pursuant to
Section 12(b) of the Act:

None


Securities Registered Pursuant to
Section 12(g) of the Act:


8% Cumulative Redeemable Preferred
Stock


(Title of Class)




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

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

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes o          No þ

State the aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by
reference to the price at which the common equity was last sold,
or the average bid and asked price of such common equity, as of
the last business day of the registrants most recently
completed second fiscal quarter:

The registrants voting and non-voting
common equity has no market value (the registrant is a member
cooperative).

Indicate the number of shares outstanding of each
of the registrants classes of common stock, as of the
latest practicable date: The registrant has no common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.



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TABLE OF CONTENTS



|                                      |                                                                       |  |  |  |  |  |  | 
|------------------------------------- | --------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I.                              
|                                      | Item 1. Business                                                     
|                                      | CAUTIONARY STATEMENT                                                 
|                                      | THE COMPANY                                                          
|                                      | AGRONOMY                                                             
|                                      | ENERGY                                                               
|                                      | COUNTRY OPERATIONS AND SERVICES                                      
|                                      | GRAIN MARKETING                                                      
|                                      | PROCESSED GRAINS AND FOODS                                           
|                                      | PRICE RISK AND HEDGING                                               
|                                      | EMPLOYEES                                                            
|                                      | MEMBERSHIP IN THE COMPANY AND AUTHORIZED CAPITAL                     
|PART II.                             
|                                      | Item 9A. Controls and Procedures                                     
|PART IV.                             
|                                      | Item 15. Exhibits, Financial Statements and Reports Filed on Form 8-K
|SIGNATURES                           
|Consent of Independent Accountants   
|Independent Auditors' Consent        
|Certification Pursuant to Section 302
|Certification Pursuant to Section 302
|Certification Pursuant to Section 906
|Certification Pursuant to Section 906



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INDEX







|           |  |                                                                  |    |      |    | 
|---------- |  | ---------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                  |    | Page
|           |  |                                                                  |    | No. 
|           |  |                                                                  |    |     
|PART I.   
|Item 1.    |  | Business                                                         |    |      | 2  | 
|           |  | Cautionary Statement Regarding Forward-Looking
    Statements    |    |      | 2  | 
|           |  | The Company                                                      |    |      | 6  | 
|           |  | Agronomy                                                         |    |      | 6  | 
|           |  | Energy                                                           |    |      | 9  | 
|           |  | Country Operations and Services                                  |    |      | 12 | 
|           |  | Grain Marketing                                                  |    |      | 14 | 
|           |  | Processed Grains and Foods                                       |    |      | 16 | 
|           |  | Price Risk and Hedging                                           |    |      | 19 | 
|           |  | Employees                                                        |    |      | 20 | 
|           |  | Membership in the Company and Authorized Capital                 |    |      | 20 | 
|PART II.  
|Item 9A.   |  | Controls and Procedures                                          |    |      | 24 | 
|PART IV.  
|Item 15.   |  | Exhibits, Financial Statements and Reports Filed
    on Form 8-K |    |      | 24 | 
|SIGNATURES |  |                                                                  | 28 |     




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This Form 10-K/A-2 amends Items 1, 9A
and 15(a)(3) to the Registrants Annual Report on
Form 10-K for the fiscal year ended August 31, 2003,
as previously amended by the Registrants
Form 10-K/A-1. In addition, in connection with the filing
of this Form 10-K/A-2 and pursuant to the rules of the
Securities and Exchange Commission, the Registrant is including
with this Form 10-K/A-2 certain currently dated
certifications. No other changes have been made to the Annual
Report and this Form 10-K/A-2 does not modify or update the
disclosure contained in the Form 10-K as amended by the
Form 10-K/A-1 in any way other than as required to reflect
the amendments discussed above and reflected below.









PART I.







Item
1.     Business







CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS





The information in this Annual Report on
Form 10-K for the year ended August 31, 2003, includes
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to
the Company. In addition, the Company and its representatives
and agents may from time to time make other written or oral
forward-looking statements, including statements contained in
the Companys filings with the Securities and Exchange
Commission and its reports to its members and securityholders.
Words and phrases such as will likely result,
are expected to, is anticipated,
estimate, project and similar
expressions identify forward-looking statements. The Company
wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date
made.




The Companys forward-looking statements
are subject to risks and uncertainties that could cause actual
results to differ materially from those discussed in the
forward-looking statements. This Cautionary Statement is for the
purpose of qualifying for the safe harbor provisions
of the Act and is intended to be a readily available written
document that contains factors which could cause results to
differ materially from those projected in the forward-looking
statements. The following matters, among others, may have a
material adverse effect on the business, financial condition,
liquidity, results of operations or prospects, financial or
otherwise, of the Company. Reference to this Cautionary
Statement in the context of a forward-looking statement shall be
deemed to be a statement that any one or more of the following
factors may cause actual results to differ materially from those
which might be projected, forecasted, estimated or budgeted by
the Company in the forward-looking statement or
statements.

The following factors are in addition to any
other cautionary statements, written or oral, which may be made
or referred to in connection with any particular forward-looking
statement. The following review should not be construed as
exhaustive.

The Company undertakes no obligation to revise
any forward-looking statements to reflect future events or
circumstances.

OUR REVENUES AND OPERATING RESULTS COULD BE
ADVERSELY AFFECTED BY CHANGES IN COMMODITY PRICES.Our revenues and earnings are affected
by market prices for commodities such as crude oil, natural gas,
grain, oilseeds, and flour. Commodity prices generally are
affected by a wide range of factors beyond our control,
including the weather, disease, insect damage, drought, the
availability and adequacy of supply, government regulation and
policies, and general political and economic conditions. We are
also exposed to fluctuating commodity prices as the result of
our inventories of commodities, typically grain and petroleum
products, and purchase and sale contracts at fixed or partially
fixed prices. At any time, our inventory levels and unfulfilled
fixed or partially fixed price contract obligations may be
substantial. Increases in market prices for commodities that we
purchase without a corresponding increase in the prices of our
products or our sales volume or a decrease in our other
operating expenses could reduce our revenues and net income.

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In our energy operations, profitability depends
largely on the margin between the cost of crude oil that we
refine and the selling prices that we obtain for our refined
products. Prices for both crude oil and for gasoline, diesel
fuel, and other refined petroleum products fluctuate widely.
Factors influencing these prices, many of which are beyond our
control, include:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | levels of worldwide and domestic supplies;                                                                                                                  
|
| |  | capacities of domestic and foreign refineries;                                                                                                              
|
| |  | the ability of the members of OPEC to agree to
    and maintain oil price and production controls, and the price
    and level of foreign imports generally;
|
| |  | political instability or armed conflict in
    oil-producing regions;                                                                                       
|
| |  | the level of consumer demand;                                                                                                                               
|
| |  | the price and availability of alternative fuels;                                                                                                            
|
| |  | the availability of pipeline capacity; and                                                                                                                  
|
| |  | domestic and foreign governmental regulations and
    taxes.                                                                                                

The long-term effects of these and other
conditions on the prices of crude oil and refined petroleum
products are uncertain and ever-changing. Accordingly, we expect
our margins on and the profitability of our energy business to
fluctuate, possibly significantly, over time.

OUR OPERATING RESULTS COULD BE ADVERSELY
AFFECTED IF OUR MEMBERS WERE TO DO BUSINESS WITH OTHERS RATHER
THAN WITH US.We do not have an
exclusive relationship with our members and our members are not
obligated to supply us with their products or purchase products
from us. Our members often have a variety of distribution
outlets and product sources available to them. If our members
were to sell their products to other purchasers or purchase
products from other sellers, our revenues would decline and our
results of operations could be adversely affected.

WE PARTICIPATE IN HIGHLY COMPETITIVE BUSINESS
MARKETS IN WHICH WE MAY NOT BE ABLE TO CONTINUE TO COMPETE
SUCCESSFULLY.We operate in several
highly competitive business segments and our competitors may
succeed in developing new or enhanced products that are better
than ours, and may be more successful in marketing and selling
their products than we are with ours. Competitive factors
include price, service level, proximity to markets, product
quality and marketing. In some of our business segments, such as
Energy, we compete with companies that are larger, better known
and have greater marketing, financial, personnel and other
resources. As a result, we may not be able to continue to
compete successfully with our competitors.

CHANGES IN FEDERAL INCOME TAX LAWS OR IN OUR
TAX STATUS COULD INCREASE OUR TAX LIABILITY AND REDUCE OUR NET
INCOME.Current federal income tax
laws, regulations and interpretations regarding the taxation of
cooperatives, which allow us to exclude income generated through
business with or for a member (patronage income) from our
taxable income, could be changed. If this occurred, or if in the
future we were not eligible to be taxed as a cooperative, our
tax liability would significantly increase and our net income
significantly decrease.

WE INCUR SIGNIFICANT COSTS IN COMPLYING WITH
APPLICABLE LAWS AND REGULATIONS. ANY FAILURE TO MAKE THE CAPITAL
INVESTMENTS NECESSARY TO COMPLY WITH THESE LAWS AND REGULATIONS
COULD EXPOSE US TO FINANCIAL LIABILITY. We are subject to
numerous federal, state and local provisions regulating our
business and operations and we incur and expect to incur
significant capital and operating expenses to comply with these
laws and regulations. We may be unable to pass on those expenses
to customers without experiencing volume and margin losses. For
example, capital expenditures for upgrading our refineries,
largely to comply with regulations requiring the reduction of
sulfur levels in refined petroleum products, are expected to be
approximately $87.0 million for our Laurel, Montana
refinery and $324.0 million for National Cooperative
Refinery Associations McPherson, Kansas refinery, of which
$8.7 million had been

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spent at the Laurel refinery and
$36.5 million had been spent by NCRA at the McPherson
refinery as of August 31, 2003. We expect all of these
compliance capital expenditures at the refineries to be complete
by December 31, 2005, and anticipate funding these projects
with a combination of cash flows from operations and debt
proceeds.


We establish reserves for the future cost of
meeting known compliance obligations, such as remediation of
identified environmental issues. However, these reserves may
prove inadequate to meet our actual liability. Moreover,
amended, new or more stringent requirements, stricter
interpretations of existing requirements or the future discovery
of currently unknown compliance issues may require us to make
material expenditures or subject us to liabilities that we
currently do not anticipate. Furthermore, our failure to comply
with applicable laws and regulations could subject us to
administrative penalties and injunctive relief, civil remedies
including fines and injunctions, and recalls of our products.

ENVIRONMENTAL LIABILITIES COULD ADVERSELY
AFFECT OUR RESULTS AND FINANCIAL CONDITION.Many of our current and former
facilities have been in operation for many years and, over that
time, we and other operators of those facilities have generated,
used, stored and disposed of substances or wastes that are or
might be considered hazardous under applicable environmental
laws, including chemicals and fuels stored in underground and
above-ground tanks. Any past or future actions in violation of
applicable environmental laws could subject us to administrative
penalties, fines and injunctions. Moreover, future or unknown
past releases of hazardous substances could subject us to
private lawsuits claiming damages and to adverse publicity.

ACTUAL OR PERCEIVED QUALITY, SAFETY OR HEALTH
RISKS ASSOCIATED WITH OUR PRODUCTS COULD SUBJECT US TO LIABILITY
AND DAMAGE OUR BUSINESS AND
REPUTATION.If any of our food or feed
products became adulterated or misbranded, we would need to
recall those items and could experience product liability claims
if consumers were injured as a result. A widespread product
recall or a significant product liability judgment could cause
our products to be unavailable for a period of time or a loss of
consumer confidence in our products. Even if a product liability
claim is unsuccessful or is not fully pursued, the negative
publicity surrounding any assertion that our products caused
illness or injury could adversely affect our reputation with
existing and potential customers and our corporate and brand
image. Moreover, claims or liabilities of this sort might not be
covered by our insurance or by any rights of indemnity or
contribution that we may have against others. In addition,
general public perceptions regarding the quality, safety or
health risks associated with particular food or feed products,
such as the concern in some quarters regarding genetically
modified crops, could reduce demand and prices for some of the
products associated with our businesses. To the extent that
consumer preferences evolve away from products that our members
or we produce for health or other reasons, such as the growing
demand for organic food products, and we are unable to develop
products that satisfy new consumer preferences, there will be a
decreased demand for our products.

OUR OPERATIONS ARE SUBJECT TO BUSINESS
INTERRUPTIONS AND CASUALTY LOSSES; WE DO NOT INSURE AGAINST ALL
POTENTIAL LOSSES AND COULD BE SERIOUSLY HARMED BY UNEXPECTED
LIABILITIES.Our operations are
subject to business interruptions due to unanticipated events
such as explosions, fires, pipeline interruptions,
transportation delays, equipment failures, crude oil or refined
product spills, inclement weather and labor disputes. For
example:



| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our oil refineries and other facilities are
    potential targets for terrorist attacks that could halt or
    discontinue production;              
|
| |  | our inability to negotiate acceptable contracts
    with unionized workers in our operations could result in strikes
    or work stoppages; and     
|
| |  | the significant inventories that we carry could
    be damaged or destroyed by catastrophic events, extreme weather
    conditions or contamination.

We maintain insurance against many, but not all,
potential losses or liabilities arising from these operating
hazards, but uninsured losses or losses above our coverage
limits are possible. Uninsured losses

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and liabilities arising from operating hazards
could have a material adverse effect on our financial position
or results of operations.


OUR COOPERATIVE STRUCTURE LIMITS OUR ABILITY
TO ACCESS EQUITY CAPITAL.As a
cooperative, we may not sell common equity in our company. In
addition, existing laws and our articles of incorporation and
bylaws contain limitations on dividends of 8% of any preferred
stock that we may issue. These limitations restrict our ability
to raise equity capital and may adversely affect our ability to
compete with enterprises that do not face similar restrictions.




CONSOLIDATION AMONG THE PRODUCERS OF PRODUCTS
WE PURCHASE AND CUSTOMERS FOR PRODUCTS WE SELL COULD ADVERSELY
AFFECT OUR REVENUES AND OPERATING RESULTS.Consolidation has occurred among the
producers of products we purchase, including crude oil and
grain, and it is likely to continue in the future. Consolidation
could increase the price of these products and allow suppliers
to negotiate pricing and other contract terms that are less
favorable to us. Consolidation also may increase the competition
among consumers of these products to enter into supply
relationships with a smaller number of producers resulting in
potentially higher prices for the products we purchase.




Consolidation among purchasers of our products
and in wholesale and retail distribution channels has resulted
in a smaller customer base for our products and intensified the
competition for these customers. For example, ongoing
consolidation among distributors and brokers of food products
and food retailers has altered the buying patterns of these
businesses, as they have increasingly elected to work with
product suppliers who can meet their needs nationwide rather
than just regionally or locally. If these distributors, brokers,
and retailers elect not to purchase our products, our sales
volumes, revenues, and profitability could be significantly
reduced.




IF OUR CUSTOMERS CHOSE ALTERNATIVES TO OUR
REFINED PETROLEUM PRODUCTS OUR REVENUES AND PROFITS MAY DECLINE.Numerous alternative energy sources
currently under development could serve as alternatives to our
gasoline, diesel fuel and other refined petroleum products. If
any of these alternative products become more economically
viable or preferable to our products for environmental or other
reasons, demand for our energy products would decline. Demand
for our gasoline, diesel fuel and other refined petroleum
products also could be adversely affected by increased fuel
efficiencies.




OUR AGRONOMY BUSINESS IS DEPRESSED AND COULD
CONTINUE TO UNDERPERFORM IN THE FUTURE.Demand for agronomy products in
general has been adversely affected in recent years by drought
and poor weather conditions, idle acreage and development of
insect and disease-resistant crops. These factors could cause
Agriliance, LLC, an agronomy marketing and distribution venture
in which we own a minority interest, to be unable to operate at
profitable margins. In addition, these and other factors,
including fluctuations in the price of natural gas and other raw
materials, an increase in recent years in domestic and foreign
production of fertilizer, and intense competition within the
industry, in particular from lower-cost foreign producers, have
created particular pressure on producers of fertilizers. As a
result, CF Industries, Inc., a fertilizer manufacturer in which
we hold a minority cooperative interest, has suffered
significant losses in recent years as it has incurred increased
prices for raw materials but has been unable to pass those
increased costs on to its customers.

TECHNOLOGICAL IMPROVEMENTS IN AGRICULTURE
COULD DECREASE THE DEMAND FOR OUR AGRONOMY PRODUCTS.Technological advances in agriculture
could decrease the demand for crop nutrients, and other crop
input products and services that we provide. Genetically
engineered seeds that resist disease and insects or meet certain
nutritional requirements could affect the demand for our crop
nutrients and crop protection products, as well as the demand
for fuel that we sell and which is used to operate application
equipment relating to these products.

WE OPERATE SOME OF OUR BUSINESS THROUGH JOINT
VENTURES IN WHICH OUR RIGHTS TO CONTROL BUSINESS DECISIONS ARE
LIMITED.Several parts of our
business, including in particular our agronomy business segment
and portions of our grain marketing, wheat milling

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and foods businesses, are operated through joint
ventures with unaffiliated third parties. By operating a
business through a joint venture, we have less control over
business decisions than we have in our wholly owned businesses.
In particular, we generally cannot act on major business
initiatives in our joint ventures without the consent of the
other party or parties in that venture.







THE COMPANY


CHS Inc. (CHS or the Company) is one of the
nations leading integrated agricultural companies. As a
cooperative, the Company is owned by farmers and ranchers and
their local cooperatives from the Great Lakes to the Pacific
Northwest and from the Canadian border to Texas. CHS buys
commodities from and provides products and services to its
members and other customers. The Company provides a wide variety
of products and services, from initial agricultural inputs such
as fuels, farm supplies, crop nutrients and crop protection
products, to agricultural outputs that include grains and
oilseeds, grain and oilseed processing and food products. A
portion of the Companys operations are conducted through
equity investments and joint ventures whose operating results
are not fully consolidated with the Companys results;
rather, a proportionate share of the income or loss from those
entities is included as a component in the Companys net
income under the equity method of accounting. For the fiscal
year ended August 31, 2003, the Companys total
revenues were $9.4 billion.

The Companys operations are organized into
five business segments: Agronomy, Energy, Country Operations and
Services, Grain Marketing and Processed Grains and Foods.
Together these business segments create vertical integration to
link producers with consumers. The first two segments, Agronomy
and Energy, produce and provide for the wholesale distribution
of inputs that are essential for crop production. The third
segment, Country Operations and Services, serves as the
Company-owned retailer of a portion of these crop inputs and
also serves as the first handler of a significant portion of the
crops marketed and processed by the Company. The fourth segment,
Grain Marketing, purchases and resells grains and oilseeds
originated by the Country Operations and Services segment, by
member cooperatives and also by third parties. The fifth
business segment, Processed Grains and Foods, converts grains
and oilseeds into value-added products.

Only producers of agricultural products and
associations of producers of agricultural products may be
members of CHS. The Companys earnings derived from
business conducted with these members are allocated to members
based on the volume of business they do with the Company.
Members receive earnings in the form of patronage refunds (which
are also called patronage dividends) in cash and patrons
equities, which may be redeemed over time. Earnings derived from
non-members are taxed at regular corporate rates and are
retained by the Company as unallocated equity. The Company also
receives patronage refunds from the cooperatives in which it is
a member if those cooperatives have earnings to distribute and
the Company qualifies for patronage refunds from them.

The origins of CHS date back to the early 1930s
with the founding of the predecessor companies of Cenex, Inc.
and Harvest States Cooperatives. CHS emerged as the result of
the merger of the two entities in 1998, and is headquartered in
Inver Grove Heights, Minnesota. In August 2003, the Company
changed its name from Cenex Harvest States Cooperatives to CHS
Inc.

The international sales information and segment
information in Notes 2 and 11 to the consolidated financial
statements are incorporated by reference into the following
business segment descriptions.

The business segment financial information
presented below does not represent the results that would have
been obtained had the relevant business segment been operated as
an independent business.

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AGRONOMY


Overview

Through the Agronomy business segment, the
Company is engaged in the manufacture of crop nutrients and the
wholesale distribution of crop nutrients and crop protection
products. The Company conducts its agronomy operations primarily
through two investments  a 20% cooperative ownership
interest in CF Industries, Inc. (CF Industries) and, effective
January 2000, a 25% ownership interest in Agriliance, LLC
(Agriliance). CF Industries manufactures crop nutrient products,
particularly nitrogen and phosphate fertilizers, and is one of
the largest suppliers to Agriliance. Agriliance is one of North
Americas largest wholesale distributors of crop nutrients,
crop protection products and other agronomy products based on
sales.

There is significant seasonality in the sale of
crop nutrients and crop protection products and services, with
peak activity coinciding with the planting and input seasons.

The Companys minority ownership interests
in CF Industries and Agriliance are treated as investments, and
therefore, those entities revenues and expenses are not
reflected in the Companys operating results. CF Industries
is treated as a cost method investment and Agriliance is treated
as an equity method investment. CF Industries and Agriliance
each have their own line of financing, without recourse to the
Company.

Operations

CF Industries.CF
Industries is an interregional agricultural cooperative involved
in the manufacturing of crop nutrient products. It is one of
North Americas largest producers of nitrogen and phosphate
fertilizers based on plant capacity. Through its members, CF
Industries nitrogen and phosphate fertilizer products
reach farmers and ranchers in 48 states and two Canadian
provinces. CF Industries conducts its operations primarily from
the following facilities:



| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | a nitrogen manufacturing and processing facility
    at Donaldsonville, Louisiana;                             
|
| |  | a phosphate mine and phosphate fertilizer plant
    in central Florida; and                                    
|
| |  | a 66% ownership interest in a nitrogen fertilizer
    manufacturing and processing facility in Alberta, Canada.

Agriliance.Agriliance is the one of the
nations largest wholesale distributors of crop nutrients
(fertilizers) and crop protection products (insecticides,
fungicides and pesticides) based on sales, accounting for an
estimated 19% of the U.S. market for crop nutrients and
approximately 26% of the U.S. market for crop protection
products. As a wholesale distributor, Agriliance has warehouse,
distribution and service facilities located throughout the
country. Agriliance also owns and operates retail agricultural
units in the southern United States. Agriliance purchased
approximately 36% of its fertilizer from CF Industries during
fiscal year 2003, and purchases most of its crop protection
products from Monsanto and Sygenta.

Agriliance was formed in 2000 when CHS, Farmland
Industries Inc. (Farmland) and Land OLakes, Inc. (Land
OLakes) contributed their respective agronomy businesses
to the new company in consideration for ownership interests (25%
each for CHS and Farmland and 50% for Land OLakes) in the
venture. CHS and Farmland hold their interests in Agriliance
through United Country Brands, LLC, a 50/50 jointly-owned
holding company.

In April, 2003, CHS acquired a 13.1% additional
economic interest in the crop protection products business of
Agriliance (the CPP Business) for a cash payment of
$34.3 million. After the transaction, the economic
interests in Agriliance are owned 50% by Land O Lakes, 25%
plus an additional 13.1% of the CPP Business by CHS and 25% less
13.1% of the CPP Business by Farmland. The ownership or
governance interests in Agriliance did not change with the
purchase of this additional economic interest. Agriliances
earnings are split among the members based upon the respective
economic interests of each member.

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Products and Services

CF Industries manufactures crop nutrient
products, primarily nitrogen and phosphate fertilizers and
potash. Agriliance wholesales crop nutrient products and crop
protection products that include insecticides, fungicides, and
pesticides. Agriliance also provides field and technical
services, including soil testing, adjuvant and herbicide
formulation, application and related services.

Sales and Marketing; Customers

CF Industries sells its crop nutrient products to
large agricultural cooperatives and distributors. Its largest
customers are Land OLakes, CHS and seven other regional
cooperatives that wholesale the products to their members.
Agriliance distributes agronomy products through approximately
2,200 local cooperatives from Ohio to the West Coast and from
the Canadian border south to Kansas. Agriliance also provides
sales and services through 48 Agriliance Service Centers and
other retail outlets. Agriliances largest customer is the
Companys Country Operations and Services business segment.
In 2003, Agriliance sold approximately $1.3 billion of crop
nutrient products and approximately $1.2 billion of crop
protection and other products.

Industry; Competition




Regulation.The
Agronomy business segments operations are subject to laws
and related regulations and rules designed to protect the
environment that are administered by the Environmental
Protection Agency, the Department of Transportation and similar
state agencies. These laws, regulations and rules govern the
discharge of materials to the environment, air and water;
reporting storage of hazardous wastes; the transportation,
handling and disposition of wastes; and the labelling of
pesticides and similar substances. Failure to comply with these
laws, regulations and rules could subject CHS to administrative
penalties, injunctive relief and civil remedies. CHS believes
that it is in compliance with these laws, regulations and rules
in all material respects and does not expect continued
compliance to have a material effect on its capital
expenditures, earnings or competitive position.




CF Industries.North
American fertilizer producers operate in a highly competitive,
global industry. Commercial fertilizers are world-traded
commodities and producers compete principally on the basis of
price and service. Many of the raw materials that are used in
fertilizer production, such as natural gas, are often more
expensive in the U.S. than other parts of the world. Crop
nutrient margins and earnings have historically been cyclical;
large profits generated throughout the mid-1990s attracted
additional capital and expansion and the industry now suffers
from excess capacity. These factors have produced depressed
margins for North American fertilizer manufacturers over the
past several years, although recently fertilizer margins have
stabilized.

CF Industries competes with numerous domestic and
international crop nutrient manufacturers.

Agriliance.The
wholesale distribution of agronomy products is highly
competitive and dependent upon relationships with agricultural
producers and local cooperatives, proximity to producers and
local cooperatives and competitive pricing. Moreover, the crop
protection products industry is mature with slow growth
predicted for the future, which has led distributors and
suppliers to turn to consolidation and strategic partnerships to
benefit from economies of scale and increased market share.
Agriliance competes with other large agronomy distributors, as
well as other regional or local distributors and retailers.
Agriliance competes on the strength of its relationships with
the members of the Company, Farmland and Land OLakes, its
purchasing power and competitive pricing, and its attention to
service in the field.

Major competitors of Agriliance in crop nutrient
distribution include Agrium, Growmark, Cargill, United Suppliers
and West Central. Major competitors of Agriliance in crop
protection products distribution include Helena, ConAgra (UAP),
Tenkoz and numerous smaller distribution companies.

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Summary Operating Results

The Company accounts for its Agronomy business
segment as follows:

CF Industries.The
Companys investment in CF Industries of $153 million
on August 31, 2003 is carried on the balance sheet at cost,
including allocated patronage. Since CF Industries is a
cooperative, the Company recognizes income from the investment
only if it receives patronage refunds. Over the past five years
CF Industries has realized operating losses and, as a result, it
has not issued any patronage refunds to its members.
Historically, crop nutrients manufacturing earnings have been
cyclical in nature. CHS management has performed the appropriate
impairment tests of this investment, and based upon those tests,
believes that fair market value exceeds its carrying value. The
Company will continue to perform impairment tests annually,
including reviewing operating results, or as circumstances
dictate, which could result in an impairment to its CF
Industries investment.

Agriliance.At
August 31, 2003 the Companys equity investment in
Agriliance was $129.3 million. The Company recognizes
earnings from Agriliance using the equity method of accounting,
which results in the Company including its economic interest
percentage of Agriliances net earnings as equity income
from investments. The Company applies related internal expenses
against those earnings.

Summary operating results and identifiable assets
for the Agronomy business segment for the fiscal years ended
August 31, 2003, 2002 and 2001 are shown below:

|                                      |                     |                        |         |      |   |      |         |     |   |   |         |     | 
|------------------------------------- | ------------------- | ---------------------- | ------- | ---- | - | ---- | ------- | --- | - | - | ------- | --- | 
|                                      |                     | 2003                   |         | 2002 |   | 2001
|                                      |                     |                        |         |      |   |     
|                                      |                     |                       
|                                      |                     | (dollars in thousands)
|Revenues:                             |                     |                        |         |      |   |      |         |     |   |   |         |    
|                                      | Net sales           |                        |         |      |   |      |         |     |   |   |         |     | 
|                                      | Patronage dividends |                        | $       | (84  | ) |      | $       | (89 | ) |   | $       | 196 | 
|                                      | Other revenues      |                        |         |      |   |      |         |     |   |   |         |     | 
|                                      |                     |                        |         |      |   |      |         |     |   |   |         |    
|                                      |                     |                        | (84     | )    |   |      | (89     | )   |   |   | 196     |    
|Cost of goods sold                    |                     |                        |         |      |   |      |         |     |   |   |         |    
|Marketing, general and administrative |                     |                        | 8,138   |      |   |      | 8,957   |     |   |   | 8,503   |    
|                                      |                     |                        |         |      |   |      |         |     |   |   |         |    
|Operating losses                      |                     |                        | (8,222  | )    |   |      | (9,046  | )   |   |   | (8,307  | )  
|Interest                              |                     |                        | (974    | )    |   |      | (1,403  | )   |   |   | (4,529  | )  
|Equity income from investments        |                     |                        | (20,773 | )    |   |      | (13,425 | )   |   |   | (7,360  | )  
|                                      |                     |                        |         |      |   |      |         |     |   |   |         |    
|Income before income taxes            |                     | $                      | 13,525  |      |   | $    | 5,782   |     |   | $ | 3,582   |    
|                                      |                     |                        |         |      |   |      |         |     |   |   |         |    
|Total identifiable assets  August 31 |                     | $                      | 285,906 |      |   | $    | 242,015 |     |   | $ | 230,051 |    
|                                      |                     |                        |         |      |   |      |         |     |   |   |         |    






ENERGY


Overview

CHS is the nations largest cooperative
energy company based on sales, with operations that include
petroleum refining and pipelines; the supply, marketing and
distribution of refined fuels (gasoline, diesel, and other
energy products); the blending, sale and distribution of
lubricants; and the wholesale supply of propane. The Energy
business segment processes crude oil into refined petroleum
products at refineries in Laurel, Montana (wholly-owned) and
McPherson, Kansas (an entity in which CHS has an approximately
74.5% ownership interest) and sells those products under the
Cenex brand to CHSs member cooperatives and others,
through a network of approximately 1,500 independent retailers,
including approximately 800 that operate Cenex/ Ampride
convenience stores.

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Operations

Laurel Refinery.The
Companys Laurel, Montana refinery processes medium and
high sulfur crude oil into refined petroleum products that
primarily include gasoline, diesel, and asphalt. The Laurel
refinery sources approximately 90% of its crude oil supply from
Canada, with the balance obtained from domestic sources. Laurel
has access to Canadian and northwest Montana crude through the
Companys wholly-owned Front Range Pipeline, LLC and other
common carrier pipelines. The Laurel refinery also has access to
Wyoming crude via common carrier pipelines from the south.

The Laurel facility processes approximately
55,000 barrels of crude oil per day to produce refined products
that consist of approximately 42% gasoline, 30% diesel and other
distillates and 28% asphalt and other residual products. Refined
fuels produced at Laurel, Montana are available via the
Yellowstone Pipeline to western Montana terminals and to Spokane
and Moses Lake, Washington, south via common carrier pipelines
to Wyoming terminals and Denver, Colorado, and east via the
Companys wholly-owned Cenex Pipeline, LLC to Glendive,
Montana, and Minot and Fargo, North Dakota.

McPherson Refinery.The McPherson, Kansas refinery is
owned and operated by the National Cooperative Refinery
Association (NCRA), of which the Company owns approximately
74.5%. The McPherson refinery processes low and medium sulfur
crude oil into gasoline, diesel and other distillates, propane,
and other products. McPherson sources approximately 95% of its
crude oil from Kansas, Oklahoma, and Texas through NCRA-owned
and common carrier pipelines.

The McPherson refinery processes approximately
80,000 barrels of crude oil per day to produce refined products
that consist of approximately 57% gasoline, 34% diesel and other
distillates, and 9% propane and other products. Approximately
90% of the refined fuels are shipped via NCRAs proprietary
products pipeline to its terminal in Council Bluffs, Iowa and to
other markets via common carrier pipelines. The balance of the
fuels are loaded into trucks at the refinery.

Other Energy Operations.The Company owns and operates three
propane terminals, four asphalt terminals and three lubricants
blending and packaging facilities. The Company also owns and
leases a fleet of liquid and pressure trailers and tractors
which are used to transport refined fuels, propane and anhydrous
ammonia.

Products and Services

The Energy business segment produces and sells
(primarily wholesale) gasoline, diesel, propane, asphalt,
lubricants and other related products and provides
transportation services. It obtains the petroleum products that
it sells both from the Laurel and McPherson refineries and from
third parties.

Sales and Marketing; Customers

The Company makes approximately 75% of its
refined fuel sales to members, with the balance sold to
non-members. Sales are made wholesale to member cooperatives and
through a network of independent retailers that operate
convenience stores under the Cenex/ Ampride tradename. The
Company sold approximately 1.5 billion gallons of gasoline
and approximately 1.3 billion gallons of diesel fuel in
fiscal year 2003. The Company also wholesales auto and farm
machinery lubricants to both members and non-members. In fiscal
year 2003, energy operations sold approximately 23 million
gallons of lube oil. The Company is one of the nations
largest propane wholesalers based on gallons sold. In fiscal
year 2003, energy operations sold approximately 844 million
gallons of propane. Most of the propane sold in rural areas is
for heating and agricultural consumption. Annual sales volumes
of propane vary greatly depending on weather patterns and crop
conditions.

Industry; Competition




Regulation.Governmental regulations and policies, particularly in the areas
of taxation, energy and the environment, have a significant
impact on the Companys Energy business segment. The Energy
business segments operations are subject to laws and
related regulations and rules designed to protect the




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environment that are administered by the
Environmental Protection Agency, the Department of
Transportation and similar state agencies. These laws,
regulations and rules govern the discharge of materials to the
environment, air and water; reporting storage of hazardous
wastes; the transportation, handling and disposition of wastes;
and the labelling of pesticides and similar substances. Failure
to comply with these laws, regulations and rules could subject
CHS to administrative penalties, injunctive relief and civil
remedies. CHS believes that it is in compliance with these laws,
regulations and rules in all material respects and does not
expect continued compliance to have a material effect on its
capital expenditures, earnings or competitive position.





Like many other refineries, the Energy business
segments refineries are currently focusing their capital
spending on reducing pollution. In particular, these refineries
are currently working to comply with the Environmental
Protection Agency low sulfur fuel regulations required by 2006,
which are intended to lower the sulfur content of gasoline and
diesel. The Company currently expects that the cost of
compliance will be approximately $87.0 million for the
Companys Laurel, Montana refinery and $324.0 million
for NCRAs McPherson, Kansas refinery, of which
$8.7 million had been spent at the Laurel refinery and
$36.5 million had been spent by NCRA at the McPherson
refinery as of August 31, 2003. The Company expects all of
these compliance capital expenditures at the refineries to be
complete by December 31, 2005, and anticipates funding these
projects with a combination of cash flows from operations and
debt proceeds.

The energy business is highly cyclical. Demand
for crude oil and its products are driven by the condition of
local and worldwide economies, local and regional weather
patterns and taxation relative to other energy sources. Most of
the Companys energy product market is located in rural
areas, so sales activity tends to follow the planting and
harvesting cycles. More fuel efficient equipment, reduced crop
tillage, depressed prices for crops, warm winter weather, and
government programs which encourage idle acres may all reduce
demand for the Companys energy products.

The refining and wholesale fuels business is very
competitive. Among the Companys competitors are some of
the worlds largest integrated petroleum companies, which
have their own crude oil supplies, distribution and marketing
systems. The Company also competes with smaller domestic
refiners and marketers in the midwestern and northwestern United
States, with foreign refiners who import products into the
United States and with producers and marketers in other
industries supplying other forms of energy and fuels to
consumers. Given the commodity nature of the end products,
profitability in the refining and marketing industry depends
largely on margins, as well as operating efficiency, product
mix, and costs of product distribution and transportation. The
retail gasoline market is highly competitive, with much larger
competitors that have greater brand recognition and distribution
outlets throughout the country and the world. CHS owned and
non-owned retail outlets are located primarily in the southern,
midwestern and northwestern United States.

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Summary Operating Results

Summary operating results and identifiable assets
for the Energy business segment for the fiscal years ended
August 31, 2003, 2002 and 2001 are shown below:

|                                      |                     |                        |           |           |  |      |           |           |  |   |           |           | 
|------------------------------------- | ------------------- | ---------------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                      |                     | 2003                   |           | 2002      |  | 2001
|                                      |                     |                        |           |           |  |     
|                                      |                     |                       
|                                      |                     | (dollars in thousands)
|Revenues:                             |                     |                        |           |           |  |      |           |           |  |   |           |          
|                                      | Net sales           |                        | $         | 3,648,093 |  |      | $         | 2,657,689 |  |   | $         | 2,781,243 | 
|                                      | Patronage dividends |                        |           | 415       |  |      |           | 458       |  |   |           | 712       | 
|                                      | Other revenues      |                        |           | 10,461    |  |      |           | 6,392     |  |   |           | 4,036     | 
|                                      |                     |                        |           |           |  |      |           |           |  |   |           |          
|                                      |                     |                        | 3,658,969 |           |  |      | 2,664,539 |           |  |   | 2,785,991 |          
|Cost of goods sold                    |                     |                        | 3,475,947 |           |  |      | 2,489,352 |           |  |   | 2,549,099 |          
|Marketing, general and administrative |                     |                        | 63,740    |           |  |      | 66,731    |           |  |   | 48,432    |          
|                                      |                     |                        |           |           |  |      |           |           |  |   |           |          
|Operating earnings                    |                     |                        | 119,282   |           |  |      | 108,456   |           |  |   | 188,460   |          
|Interest                              |                     |                        | 16,401    |           |  |      | 16,875    |           |  |   | 25,097    |          
|Equity (income) loss from investments |                     |                        | (1,353    | )         |  |      | 1,166     |           |  |   | 4,081     |          
|Minority interests                    |                     |                        | 20,782    |           |  |      | 14,604    |           |  |   | 34,713    |          
|                                      |                     |                        |           |           |  |      |           |           |  |   |           |          
|Income before income taxes            |                     | $                      | 83,452    |           |  | $    | 75,811    |           |  | $ | 124,569   |          
|                                      |                     |                        |           |           |  |      |           |           |  |   |           |          
|Total identifiable assets  August 31 |                     | $                      | 1,449,652 |           |  | $    | 1,305,828 |           |  | $ | 1,154,036 |          
|                                      |                     |                        |           |           |  |      |           |           |  |   |           |          






COUNTRY OPERATIONS AND SERVICES


Overview

The Country Operations and Services business
segment purchases a variety of grains from the Companys
producer members and provides cooperative members and producers
with access to a full range of products and services including
farm supplies, programs for crop and livestock production,
hedging and insurance services, and agricultural operations
financing. Country Operations and Services operates at 282
locations dispersed throughout Minnesota, North Dakota, South
Dakota, Nebraska, Montana, Idaho, Washington and Oregon. Most of
these locations purchase grain from farmers and sell agronomy
products, energy products and feed to those same producers and
others, although not all locations provide every product and
service.

Products and Services

Grain Purchasing.The Company is one of the largest country elevator operators in
North America based on the number of country elevators. Through
a majority of its elevator locations, the Country Operations and
Services business segment purchases grain from member and
non-member producers and other elevators and grain dealers. Most
of the grain purchased is either sold through the Companys
Grain Marketing business segment or used for local feed and
processing operations. For the year ended August 31, 2003,
the Country Operations and Services business segment purchased
approximately 298 million bushels of grain, primarily wheat
(136 million bushels), corn (79 million bushels) and
soybeans (46 million bushels). Of these bushels,
274 million were purchased from members and
204 million were sold through the Grain Marketing business
segment.

Other Products.Country Operations and Services
manufactures and sells other products, both directly and through
ownership interests in other entities. These include seed; plant
food; energy products; animal feed ingredients, supplements and
products; animal health products; crop protection products; and
processed sunflowers. The Company sells agronomy products at
155 locations, feed products at 128 locations and energy
products at 93 locations. Farm supplies are purchased
through cooperatives whenever possible.

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Financial Services.The Company has provided open account financing to more than 150
CHS members that are cooperatives (cooperative association
members) in the past year. These arrangements involve the
discretionary extension of credit in the form of term and
seasonal loans and can also be used as a clearing account for
settlement of grain purchases and as a cash management tool. A
substantial part of the term and seasonal loans are sold to the
National Bank for Cooperatives (CoBank), with CoBank purchasing
up to 90% of any loan. The Companys guarantee exposure on
these loans at August 31, 2003 was approximately
$6.7 million. Through its wholly-owned subsidiary Fin-Ag,
Inc. the Company provides seasonal cattle feeding and swine
financing loans, facility financing loans and crop production
loans. It also provides consulting services to member
cooperatives. Most loans are sold to CoBank under a separate
program from that described above, under which the Company has
guaranteed a portion of the loans. The Companys exposure
at August 31, 2003 was approximately $43.0 million.
The Companys borrowing arrangements allow for the Company
to retain up to $110.0 million of loans in aggregate for
both finance programs, or to sell the loans and extend
guarantees up to $150.0 million in aggregate.

The Companys wholly-owned subsidiary
Country Hedging, Inc., which is a registered futures commission
merchant and a clearing member of both the Minneapolis Grain
Exchange and the Kansas City Board of Trade, is a full service
commodity futures and options broker.

Ag States Agency, LLC is an independent insurance
agency in which the Company holds a majority ownership interest.
It sells insurance, including group benefits, property and
casualty, and bonding programs. Its approximately 1,600
customers are primarily agricultural businesses, including local
cooperatives and independent elevators, oil stations, agronomy
and feed/seed plants, implement dealers, fruit and vegetable
packers/warehouses, and food processors.

Industry; Competition




Regulation.The
Country Operations and Services business segments
operations are subject to laws and related regulations and rules
designed to protect the environment that are administered by the
Environmental Protection Agency, the Department of
Transportation and similar state agencies. These laws,
regulations and rules govern the discharge of materials to the
environment, air and water; reporting storage of hazardous
wastes; the transportation, handling and disposition of wastes;
and the labelling of pesticides and similar substances. The
Country Operations and Services business segments
operations are also subject to laws and related regulations and
rules administered by the United States Department of
Agriculture, the Federal Food and Drug Administration, and other
federal state, local and foreign governmental agencies that
govern the processing, packaging, storage, distribution,
advertising, labeling, quality and safety of feed and grain
products. Failure to comply with these laws, regulations and
rules could subject CHS to administrative penalties, injunctive
relief, civil remedies and possible recalls of products. CHS
believes that it is in compliance with these laws, regulations
and rules in all material respects and does not expect continued
compliance to have a material effect on its capital
expenditures, earnings or competitive position.







Competition.Competitors for the purchase of grain include other elevators
and large grain marketing companies. Competitors for farm supply
include a variety of cooperatives, privately held and large
national companies. The Company competes primarily on the basis
of price, services and patronage.




Competitors to the Companys financing
operations are primarily other financial institutions. The
Company competes primarily on the basis of price, services and
patronage. Country Hedgings competitors include
international brokerage firms, national brokerage firms,
regional brokerage firms (both cooperatives and
non-cooperatives) as well as local introducing brokers, with
competition driven by price and level of service. Ag States
Agency, LLC competes with other insurance agencies, primarily on
the basis of price and services.

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Summary Operating Results

Summary operating results and identifiable assets
for the Country Operations and Services business segment for the
fiscal years ended August 31, 2003, 2002 and 2001 are shown
below:

|                                      |                     |                        |           |           |  |      |           |           |  |   |           |           | 
|------------------------------------- | ------------------- | ---------------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                      |                     | 2003                   |           | 2002      |  | 2001
|                                      |                     |                        |           |           |  |     
|                                      |                     |                       
|                                      |                     | (dollars in thousands)
|Revenues:                             |                     |                        |           |           |  |      |           |           |  |   |           |          
|                                      | Net sales           |                        | $         | 1,885,825 |  |      | $         | 1,474,553 |  |   | $         | 1,577,268 | 
|                                      | Patronage dividends |                        |           | 2,467     |  |      |           | 2,572     |  |   |           | 3,683     | 
|                                      | Other revenues      |                        |           | 81,739    |  |      |           | 80,789    |  |   |           | 80,479    | 
|                                      |                     |                        |           |           |  |      |           |           |  |   |           |          
|                                      |                     |                        | 1,970,031 |           |  |      | 1,557,914 |           |  |   | 1,661,430 |          
|Cost of goods sold                    |                     |                        | 1,876,811 |           |  |      | 1,474,392 |           |  |   | 1,569,884 |          
|Marketing, general and administrative |                     |                        | 55,887    |           |  |      | 47,995    |           |  |   | 53,417    |          
|                                      |                     |                        |           |           |  |      |           |           |  |   |           |          
|Operating earnings                    |                     |                        | 37,333    |           |  |      | 35,527    |           |  |   | 38,129    |          
|Gain on legal settlements             |                     |                        | (10,867   | )         |  |      | (2,970    | )         |  |   |           |          
|Interest                              |                     |                        | 14,975    |           |  |      | 13,851    |           |  |   | 15,695    |          
|Equity income from investments        |                     |                        | (788      | )         |  |      | (283      | )         |  |   | (246      | )        
|Minority interests                    |                     |                        | 1,168     |           |  |      | 786       |           |  |   | 385       |          
|                                      |                     |                        |           |           |  |      |           |           |  |   |           |          
|Income before income taxes            |                     | $                      | 32,845    |           |  | $    | 24,143    |           |  | $ | 22,295    |          
|                                      |                     |                        |           |           |  |      |           |           |  |   |           |          
|Total identifiable assets  August 31 |                     | $                      | 857,523   |           |  | $    | 799,711   |           |  | $ | 679,053   |          
|                                      |                     |                        |           |           |  |      |           |           |  |   |           |          






GRAIN MARKETING


Overview

CHS is the nations largest cooperative
marketer of grain and oilseed based on grain storage capacity
and grain sales, handling about 1.1 billion bushels
annually. During fiscal year 2003, the Company purchased
approximately 67% of total grain volumes from individual and
member cooperatives and the Country Operations and Services
business segment, with the balance purchased from third parties.
CHS arranges for the transportation of the grains either
directly to customers or to Company owned or leased grain
terminals and elevators awaiting delivery to domestic and
foreign purchasers. The Company primarily conducts its Grain
Marketing operations directly, but does conduct some of its
business through two 50% owned joint ventures.

Operations

The Grain Marketing segment purchases grain
directly and indirectly from agricultural producers primarily in
the midwestern and western United States. The purchased grain is
typically contracted for sale for future delivery at a specified
location, with the Company responsible for handling the grain
and arranging for its transportation to that location. The sale
of grain is recorded after title to the commodity has
transferred and final weights, grades and settlement price have
been agreed upon. Amounts billed to the customer as part of a
sales transaction include the costs for shipping and handling.
The Companys ability to arrange efficient transportation,
including loading capabilities onto unit trains, ocean-going
vessels, and barges, is a significant part of the service it
offers to its customers. Rail, vessel, barge and truck
transportation is carried out by third parties, often under
long-term freight agreements with the Company. Grain intended
for export is usually shipped by rail or barge to an export
terminal, where it is loaded onto ocean-going vessels. Grain
intended for domestic use is usually shipped by rail or truck to
various locations throughout the country.

CHS owns export terminals, river terminals, and
elevators involved in the handling and transport of grain. River
terminals at St. Paul, Savage, and Winona, Minnesota, and
Davenport, Iowa are used to load

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grains onto barges for shipment to both domestic
and export customers via the Mississippi River System. The
Companys export terminal at Superior, Wisconsin provides
access to the Great Lakes and St. Lawrence Seaway, and an export
terminal at Myrtle Grove, Louisiana serves the Gulf market. In
the Pacific Northwest, the Company conducts its grain marketing
operations through United Harvest, LLC (a 50% joint venture with
United Grain Corporation) and TEMCO, LLC (a 50% joint venture
with Cargill, Incorporated). United Harvest, LLC operates grain
terminals in Vancouver and Kalama, Washington. TEMCO, LLC
operates a large export terminal in Tacoma, Washington. These
facilities serve the Pacific market, as well as domestic grain
customers in the western United States. Grain Suppliers, LLC, a
wholly-owned subsidiary (previously a 50% joint venture),
operates elevator facilities in Friona, Texas and Collins,
Mississippi. In 2003, the Company opened an office in Sao Paulo,
Brazil for the procurement of soybeans for the Grain Marketing
segments international customers.


Grain Marketing purchases most of its grain
during the summer and fall harvest period. Because of the
Companys geographic location and the fact that it is
further from its export facilities, grain tends to be sold later
than in other parts of the country. However, as many producers
have significant on-farm storage capacity and in light of the
Companys own storage capacity, the Grain Marketing
business segment buys and ships grain throughout the year. Due
to the amount of grain purchased and held in inventory, the
Grain Marketing business segment has significant working capital
needs at various times of the year. The amount of borrowings for
this purpose, and the interest rate charged on those borrowings,
directly affect the profitability of the Grain Marketing segment.

Products and Services

The primary grains purchased by the Grain
Marketing business segment for the year ended August 31,
2003 were corn (412 million bushels), wheat (329 million
bushels) and soybeans (245 million bushels). Of the total
grains purchased by the Grain Marketing business segment during
the year ended August 31, 2003, 508 million bushels were
purchased from the Companys individual and cooperative
association members, 204 million bushels were purchased
from the Country Operations and Services business segment and
the remainder were purchased from third parties.

Sales and Marketing; Customers

Purchasers include domestic and foreign millers,
maltsters, feeders, crushers, and other processors. To a much
lesser extent purchasers include intermediaries and
distributors. Grain Marketing operations are not dependent on
any one customer. The Grain Marketing segment has supply
relationships calling for delivery of grain at prevailing market
prices.

Industry; Competition




Regulation.The
Grain Marketing business segments operations are subject
to laws and related regulations and rules designed to protect
the environment that are administered by the Environmental
Protection Agency, the Department of Transportation and similar
state agencies. These laws, regulations and rules govern the
discharge of materials to the environment, air and water;
reporting storage of hazardous wastes; and the transportation,
handling and disposition of wastes. The Grain Marketing business
segments operations are also subject to laws and related
regulations and rules administered by the United States
Department of Agriculture, the Federal Food and Drug
Administration, and other federal state, local and foreign
governmental agencies that govern the processing, packaging,
storage, distribution, advertising, labeling, quality and safety
of food and grain products. Failure to comply with these laws,
regulations and rules could subject CHS to administrative
penalties, injunctive relief, civil remedies and possible
recalls of products. CHS believes that it is in compliance with
these laws, regulations and rules in all material respects and
does not expect continued compliance to have a material effect
on its capital expenditures, earnings or competitive position.







Competition.The
Grain Marketing business segment competes for both the purchase
and sale of grain. Competition is intense and margins are low.
Some competitors are integrated food producers, which




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may also be customers. A few major competitors
have substantially greater financial resources than the Company.


In the purchase of grain from producers, location
of the delivery facility is a prime consideration, but producers
are increasingly willing to truck grain longer distances for
sale. Price is affected by the capabilities of the facility; for
example, if it is cheaper to deliver to a customer by unit train
than by truck, a facility with unit train capability provides a
price advantage. The Company believes that its relationships
with individual members serviced by local Country Operations and
Services locations and with cooperative members gives it a broad
origination capability.

The Grain Marketing business segment competes for
grain sales based on price, services and ability to provide the
desired quantity and quality of grains. Location of facilities
is a major factor in the ability to compete. Grain marketing
operations compete with numerous grain merchandisers, including
major grain merchandising companies such as Archer Daniels
Midland (ADM), Cargill, Incorporated (Cargill), ConAgra, Bunge
and Louis Dreyfus, each of which handle grain volumes of more
than one billion bushels annually.

The results of the grain marketing business may
be adversely affected by relative levels of supply and demand,
both domestic and international, commodity price levels
(including grain prices reported on national markets) and
transportation costs and conditions. Supply is affected by
weather conditions, disease, insect damage, acreage planted and
government regulations and policies. Demand may be affected by
foreign governments and their programs, relationships of foreign
countries with the United States, the affluence of foreign
countries, acts of war, currency exchange fluctuations and
substitution of commodities. Demand may also be affected by
changes in eating habits, by population growth, and by increased
or decreased per capita consumption of some products.

Summary Operating Results

Summary operating results and identifiable assets
for the Grain Marketing business segment for the fiscal years
ended August 31, 2003, 2002 and 2001 are shown below:

|                                          |                     |                        |           |           |  |      |           |           |  |   |           |           | 
|----------------------------------------- | ------------------- | ---------------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                          |                     | 2003                   |           | 2002      |  | 2001
|                                          |                     |                        |           |           |  |     
|                                          |                     |                       
|                                          |                     | (dollars in thousands)
|Revenues:                                 |                     |                        |           |           |  |      |           |           |  |   |           |          
|                                          | Net sales           |                        | $         | 4,139,226 |  |      | $         | 3,281,469 |  |   | $         | 3,416,239 | 
|                                          | Patronage dividends |                        |           | 218       |  |      |           | 497       |  |   |           | 840       | 
|                                          | Other revenues      |                        |           | 25,458    |  |      |           | 21,902    |  |   |           | 22,964    | 
|                                          |                     |                        |           |           |  |      |           |           |  |   |           |          
|                                          |                     |                        | 4,164,902 |           |  |      | 3,303,868 |           |  |   | 3,440,043 |          
|Cost of goods sold                        |                     |                        | 4,133,677 |           |  |      | 3,272,985 |           |  |   | 3,416,500 |          
|Marketing, general and administrative     |                     |                        | 21,072    |           |  |      | 22,213    |           |  |   | 22,396    |          
|                                          |                     |                        |           |           |  |      |           |           |  |   |           |          
|Operating earnings                        |                     |                        | 10,153    |           |  |      | 8,670     |           |  |   | 1,147     |          
|Interest                                  |                     |                        | 4,738     |           |  |      | 4,807     |           |  |   | 8,144     |          
|Equity loss (income) from investments     |                     |                        | 1,673     |           |  |      | (4,257    | )         |  |   | (4,519    | )        
|                                          |                     |                        |           |           |  |      |           |           |  |   |           |          
|Income (loss) before income taxes         |                     | $                      | 3,742     |           |  | $    | 8,120     |           |  | $ | (2,478    | )        
|                                          |                     |                        |           |           |  |      |           |           |  |   |           |          
|Total identifiable assets 
    August 31 |                     | $                      | 450,415   |           |  | $    | 481,232   |           |  | $ | 345,696   |          
|                                          |                     |                        |           |           |  |      |           |           |  |   |           |          






PROCESSED GRAINS AND FOODS


Overview

The Processed Grains and Foods business segment
converts raw agricultural commodities into ingredients for
finished food products or into finished consumer food products.
The Company has focused

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on areas that allow it to utilize the products
supplied by member producers. These areas are oilseed
processing, wheat milling and foods.





The Processed Grains and Foods business
segments operations are subject to laws and related
regulations and rules designed to protect the environment that
are administered by the Environmental Protection Agency, the
Department of Transportation and similar state agencies. These
laws, regulations and rules govern the discharge of materials to
the environment, air and water; reporting storage of hazardous
wastes; and the transportation, handling and disposition of
wastes. The Processed Grains and Foods business segments
operations are also subject to laws and related regulations and
rules administered by the United States Department of
Agriculture, the Federal Food and Drug Administration, and other
federal state, local and foreign governmental agencies that
govern the processing, packaging, storage, distribution,
advertising, labeling, quality and safety of food and grain
products. Failure to comply with these laws, regulations and
rules could subject CHS to administrative penalties, injunctive
relief, civil remedies and possible recalls of products. CHS
believes that it is in compliance with these laws, regulations
and rules in all material respects and does not expect continued
compliance to have a material effect on its capital
expenditures, earnings or competitive position.




Oilseed Processing

The Companys oilseed processing operations
convert soybeans into soybean meal, soyflour, crude soyoil,
refined soybean oil and associated by-products. These operations
are conducted at a facility in Mankato, Minnesota that can crush
39 million bushels of soybeans on an annual basis,
producing approximately 940,000 short tons of soybean meal and
460 million pounds of crude soybean oil. The same facility
is able to produce approximately 1 billion pounds of
refined soybean oil annually. Another crushing facility in
Fairmont, Minnesota has a crushing capacity and crude soyoil
output similar to the Mankato facility. The facility in Fairmont
was essentially complete and became operational in the first
fiscal quarter of 2004. Total costs for this new facility are
estimated to be approximately $85.0 million, of which
$68.9 million has been spent through August 31, 2003.

The Companys oilseed processing operations
produce three primary products: refined oils, soybean meal and
soyflour. Refined oils are used in processed foods, such as
margarine, shortening, salad dressings and baked goods and, to a
lesser extent for certain industrial uses for plastics, inks and
paints. Soybean meal has a high protein content and is used for
feeding livestock. Soyflour is used in the baking industry, as a
milk replacement in animal feed and in industrial applications.

The Companys soy processing facilities are
located in areas with a strong production base of soybeans and
end-user market for the meal and soyflour. The Company purchases
virtually all of its soybeans from members. The oilseed crushing
operations currently produce approximately 45% of the crude oil
that the Company refines; it purchases the balance from outside
suppliers. Once the Fairmount, Minnesota crushing facility is
fully operational, the oilseed crushing operations will produce
approximately 85% of the crude oil the Company refines.

The Companys customers for refined oil are
principally large food product companies located throughout the
United States. However, over 50% of the customers are located in
the midwest due to lower freight costs and slightly higher
profitability. The largest customer for refined oil products is
Ventura Foods, LLC (Ventura Foods), in which the Company holds a
50% ownership interest and with which the Company has a
long-term supply agreement to supply minimum quantities of
edible soybean oils as long as the Company maintains a minimum
25.5% ownership interest and the Companys price is
comparative with other suppliers of the product. The
Companys sales to Ventura Foods were $78.5 million in
fiscal year 2003. The Company also sells soymeal to almost 400
customers, primarily feed lots and feed mills in southern
Minnesota; five of these customers accounted for approximately
58% of the soymeal sold. One customer accounted for 25% of
soymeal sold and another customer accounted for 12% of soymeal
sold. The Company sells soyflour to customers in the baking
industry both domestically and for export.

The refined soybean products industry is highly
competitive. Major industry competitors include ADM, Cargill, Ag
Processing, Inc., and Bunge. These and other competitors have
acquired other

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processors and have expanded existing plants, or
are proposing to construct new plants, both domestically and
internationally. Price, transportation costs, services and
product quality drive competition. The Company estimates that it
has a market share of approximately 4% to 5% of the domestic
refined soybean oil market and less than 3% of the domestic
soybean crushing capacity.


Soybeans are a commodity and their price can
fluctuate significantly depending on production levels, demand
for the refined products, and other supply and demand factors.

Wheat Milling

In January 2002, the Company and Cargill formed
Horizon Milling, LLC (Horizon Milling), in which the Company
owns 24% and Cargill owns the remaining 76%. Horizon Milling is
the largest U.S. wheat miller based on milling capacity. Sales
and purchases of wheat and durum by the Company to Horizon
Milling during fiscal year 2003 were $191.3 million and
$8.8 million, respectively. Horizon Millings advance
payments on grain to the Company were $7.5 million on
August 31, 2003, and are included in Customer advance
payments on the Companys Consolidated Balance Sheets.

The Company ceased operations at its Huron, Ohio
mill prior to the formation of Horizon Milling and the
Companys facility lease expired on September 30,
2002. The Company has dismantled the milling equipment and is
currently negotiating for the sale of the equipment that has not
yet been sold. The Processed Grains and Foods business segment
established an impairment of approximately $6.5 million on
the equipment during the fourth quarter of fiscal year 2002.

Foods

The Company has two primary areas of focus in the
foods area: Ventura Foods, which produces oilseed based products
such as margarine and salad dressing and which is 50% owned by
the Company, and the production of Mexican foods such as
tortillas, tortilla chips and entrees.

Ventura Foods.Ventura Foods manufactures, packages, distributes and markets
bulk margarine, salad dressings, mayonnaise, salad oils, syrups,
soup bases and sauces, many of which utilize soybean oil as a
primary ingredient. Approximately 30% of Ventura Foods
volume, based on sales revenues, comes from products for which
Ventura Foods owns the brand, and the remainder comes from
products that it produces for third parties. A variety of
Ventura Foods product formulations and processes are
proprietary to it or its customers. Ventura Foods is one of the
largest manufacturers of margarine in the U.S. based on sales
and is a major producer of many other products.

Ventura Foods has 13 manufacturing and
distribution locations across the United States. It sources its
raw materials, which consists primarily of soybean oil, canola
oil, cottonseed oil, peanut oil and various other ingredients
and supplies, from various national suppliers, including the
Companys oilseed processing operations. It sells the
products it manufactures to third parties as a contract
manufacturer, as well as directly to retailers, food
distribution companies and large institutional food service
companies. Ventura Foods sales are approximately 60% in
foodservice and the remainder split between retail and
industrial customers who use edible oil products as ingredients
in foods they manufacture for resale. One customer accounted for
23% of net sales during Ventura Foods 2003 fiscal year.

Ventura Foods competes with a variety of large
companies in the food manufacturing industry. Some of its major
competitors are ADM, Cargill, Bunge, Unilever, ConAgra, ACH,
Smuckers, Kraft, and CF Sauer.

Ventura Foods was created in 1996 and at the time
was owned 40% by the Company and 60% by Wilsey Foods, Inc., a
majority owned subsidiary of Mitsui & Co., Ltd. In
March 2000, the Company purchased an additional 10% interest
from Wilsey Foods, Inc. bringing the Companys total equity
investment in Ventura Foods to 50%. The Company accounts for the
Ventura Foods investment under the equity method of accounting.

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Mexican Foods.Since
June 2000, the Company has acquired three regional producers of
Mexican foods. Through its Mexican foods operations, the Company
manufactures, packages, and distributes tortillas, tortilla
chips and prepared frozen Mexican food products such as burritos
and tamales. The Company sells these products under a variety of
local and regional brand names and also produces private label
products and co-packs for customers. The current operational
focus is on integrating these disparate operations into a single
business entity with consistent standards, systems and sales
practices.

The tortilla and tortilla chip industry in the
United States is comprised of a large number of small regional
manufacturers and a few dominant manufacturers. The Company
estimates that its Mexican foods operation has approximately a
1.5% share of the national tortilla market and less than a 1%
share of the national tortilla chip market. On a national basis,
the primary competitors are large chip and snack companies such
as Frito Lay. During the Companys fiscal year ended
August 31, 2003 one customer accounted for 13% of Mexican
foods net sales and another customer accounted for 12% of
net sales.

Summary Operating Results

Summary operating results and identifiable assets
for the Processed Grains and Foods business segment for the
fiscal years ended August 31, 2003, 2002 and 2001 are shown
below:

|                                          |                     |                        |         |         |  |      |         |         |   |   |         |         |  
|----------------------------------------- | ------------------- | ---------------------- | ------- | ------- |  | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                          |                     | 2003                   |         | 2002    |  | 2001
|                                          |                     |                        |         |         |  |     
|                                          |                     |                       
|                                          |                     | (dollars in thousands)
|Revenues:                                 |                     |                        |         |         |  |      |         |         |   |   |         |        
|                                          | Net sales*          |                        | $       | 491,931 |  |      | $       | 496,084 |   |   | $       | 662,726 |  
|                                          | Patronage dividends |                        |         | 111     |  |      |         | 260     |   |   |         | 339     |  
|                                          | Other revenues      |                        |         | 2,300   |  |      |         | (1,469  | ) |   |         | (238    | )
|                                          |                     |                        |         |         |  |      |         |         |   |   |         |        
|                                          |                     |                        | 494,342 |         |  |      | 494,875 |         |   |   | 662,827 |        
|Cost of goods sold                        |                     |                        | 466,857 |         |  |      | 457,538 |         |   |   | 619,184 |        
|Marketing, general and administrative     |                     |                        | 36,540  |         |  |      | 36,930  |         |   |   | 44,870  |        
|                                          |                     |                        |         |         |  |      |         |         |   |   |         |        
|Operating (losses) earnings               |                     |                        | (9,055  | )       |  |      | 407     |         |   |   | (1,227  | )      
|Interest                                  |                     |                        | 12,845  |         |  |      | 9,514   |         |   |   | 13,026  |        
|Equity income from investments            |                     |                        | (26,056 | )       |  |      | (41,331 | )       |   |   | (35,505 | )      
|                                          |                     |                        |         |         |  |      |         |         |   |   |         |        
|Income before income taxes                |                     | $                      | 4,156   |         |  | $    | 32,224  |         |   | $ | 21,252  |        
|                                          |                     |                        |         |         |  |      |         |         |   |   |         |        
|Total identifiable assets 
    August 31 |                     | $                      | 498,872 |         |  | $    | 439,942 |         |   | $ | 430,871 |        
|                                          |                     |                        |         |         |  |      |         |         |   |   |         |        



---



|  |                                                                                                                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The sales decline from 2001 is primarily due to
    the formation of Horizon Milling. Since January 2002 the Company
    has accounted for the operating results of its milling
    operations under the equity method of accounting. Earnings from
    the Companys interest in Horizon Milling are included as
    part of equity income from investments.






PRICE RISK AND HEDGING


Whenever the Company enters into a commodity
purchase commitment it incurs risks of carrying inventory,
including risks related to price changes and performance
(including delivery, quality, quantity and shipment period). The
Company is exposed to risk of loss in the market value of
positions held, consisting of inventory and purchase contracts
at a fixed or partially fixed price in the event market prices
decrease. The Company is also exposed to risk of loss on its
fixed price or partially fixed price sales contracts in the
event market prices increase.

To reduce the price change risks associated with
holding fixed price commitments, the Company generally takes
opposite and offsetting positions by entering into commodity
futures contracts (either a straight futures contract or an
options futures contract) on regulated commodity futures
exchanges for

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grain, and regulated mercantile exchanges for
refined products and crude oil. The crude oil and most of the
grain and oilseed volume handled by the Company can be hedged.
Some grains cannot be hedged because there are no futures for
certain commodities. For those commodities, risk is managed
through the use of forward sales and various pricing
arrangements and to some extent cross-commodity futures hedging.
While hedging activities reduce the risk of loss from changing
market values of inventory, such activities also limit the gain
potential which otherwise could result from changes in market
prices of inventory. The Companys policy is to generally
maintain hedged positions in grain. The Companys
profitability from operations is primarily derived from margins
on products sold and grain merchandised, not from hedging
transactions. Hedging arrangements do not protect against
nonperformance of a contract.


When a futures contract is entered into, an
initial margin deposit must be sent to the applicable exchange
or broker. The amount of the deposit is set by the exchange and
varies by commodity. If the market price of a short futures
contract increases, then an additional margin deposit
(maintenance margin) would be required. Similarly, if the price
of a long futures contract decreases, a maintenance margin
deposit would be required and sent to the applicable exchange.
Subsequent price changes could require additional maintenance
margins or could result in the return of maintenance margins.

At any one time, inventory and purchase contracts
for delivery to the Company may be substantial. The Company has
risk management policies and procedures that include net
position limits. These limits are defined for each commodity and
include both trader and management limits. This policy, and
computerized procedures in grain marketing operations, requires
a review by operations management when any trader is outside of
position limits and also a review by senior management of the
Company if operating areas are outside of position limits. A
similar process is used in energy operations. The position
limits are reviewed at least annually with the management of the
Company. The Company monitors current market conditions and may
expand or reduce its risk management policies or procedures in
response to changes in those conditions. In addition, all
purchase and sale contracts are subject to credit approvals and
appropriate terms and conditions.






EMPLOYEES


At August 31, 2003, CHS had approximately
6,820 full and part-time employees, which included approximately
560 employees of NCRA. Of that total, approximately 1,890 were
employed in the Energy segment, 2,440 in the Country Operations
and Services segment (not including an estimated 1,010 seasonal
and temporary employees), 440 in the Grain Marketing segment,
850 in the Processed Grains and Foods segment and 190 in
corporate and administrative functions. In addition to those
employed directly by the Company, many employees work for the
joint ventures in which the Company has an ownership interest.
All of the employees in the Agronomy segment and a portion of
the Grain Marketing and Processed Grains and Foods segments are
employed in this manner.

Employees in certain areas are represented by
collective bargaining agreements. Refinery workers in Laurel,
Montana (185 employees), are represented by agreements with
two unions (Paper, Allied-Industrial, Chemical and Energy
Workers International Union (PACE) and Oil Basin Pipeliners
Union (OBP)), for which agreements are in place through 2006 for
PACE, and through 2006 for OBP in regard to wages and benefits.
The contracts covering the NCRA McPherson, Kansas refinery
(254 employees in the PACE union) are also in place through
2006. There are approximately 170 employees in
transportation and lubricant plant operations that are covered
by collective bargaining agreements that expire at various
times. Production workers in grain marketing operations
(144 employees) are represented by agreements with four
unions which expire at various times from 2003 through 2005. In
particular, grain marketing employees in the Bakers,
Confectionary, Tobacco Workers and Grain Millers International
Union in Superior, Wisconsin (49 employees) have contracts
that have expired and are currently being negotiated, with the
Company anticipating a successful resolution. Finally, certain
production workers in oilseed processing operations are subject
to collective bargaining agreements with the American Federation
of Grain Millers (127 employees) and the Pipefitters
Union (2 employees) for which agreements are in place
through 2006.

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MEMBERSHIP IN THE COMPANY AND AUTHORIZED
CAPITAL


Introduction

The Company is an agricultural membership
cooperative organized under Minnesota cooperative law to do
business with member and non-member patrons. Patrons, and not
the Company, are subject to income taxes on income from
patronage. The Company is subject to income taxes on
non-patronage-sourced income. See  Tax
Treatment below.

Distribution of Net Income; Patronage
Refunds

The Company is required by its organizational
documents annually to distribute net earnings derived from
patronage business with members, after payment of dividends on
equity capital, to members on the basis of patronage, except
that the Board of Directors may elect to retain and add to the
Companys unallocated capital reserve an amount not to
exceed 10% of the distributable net income from patronage
business. Net income from non-patronage business may be
distributed to members or added to the unallocated capital
reserve, in whatever proportions the Board of Directors deems
appropriate.

These distributions, referred to as
patronage refunds or patronage
dividends, may be distributed in cash, patrons
equities, revolving fund certificates, securities of the Company
or others or any combination designated by the Board of
Directors. Since 1998, the Board of Directors has distributed
patronage refunds the form of 30% cash and 70% patrons
equities (see  Patrons Equities
below). The Board of Directors may change the mix in the form of
the patronage refunds in the future. In making distributions,
the Board of Directors may use any method of allocation that, in
its judgment, is reasonable and equitable. Patronage refunds
distributed during the years ended August 31, 2003, 2002
and 2001 were $88.3 million ($26.5 million in cash),
$132.6 million ($40.1 million in cash) and
$86.4 million ($26.1 million in cash), respectively.

Patrons Equities

Patrons equities are in the form of a book
entry and represent a right to receive cash or other property,
including securities, when redeemed by the Company.
Patrons equities form part of the capital of the Company,
do not bear interest and are not subject to redemption upon
request of a member. Patrons equities are redeemable only
at the discretion of the Board of Directors and in accordance
with the terms of the redemption policy adopted by the Board of
Directors, which may be modified at any time without member
consent. The Companys bylaws grant the Board of Directors
the discretion to redeem patrons equities upon such terms
as the Board of Directors may, from time to time, determine. The
Companys current policy is to redeem the equities of those
members who were age 61 and older on June 1, 1998 when
they reach the age of 72 and upon death. The current policy also
provides for an annual pro-rata redemption of equities older
than 10 years held by active members in an amount
determined by the Board of Directors.

Redemptions of patrons and other equities,
including equity participation units (discussed in Note 9
to the Consolidated Financial Statements), during the years
ended August 31, 2003, 2002 and 2001 were
$31.1 million, $31.1 million and $33.0 million,
respectively.

Governance

The Company is managed by a Board of Directors of
at least 17 persons elected by the members at the Companys
annual meeting. Terms of Directors are staggered so that no more
than seven directors are elected in any year. The Board of
Directors is currently comprised of 17 directors. The articles
of incorporation and bylaws of the Company may be amended only
upon approval of a majority of the votes cast at an annual or
special meeting of the members, except for the higher vote
described under  Certain Antitakeover
Measures below.

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Membership

Membership in the Company is restricted to
certain producers of agricultural products and to associations
of producers of agricultural products that are organized and
operating so as to adhere to the provisions of the Agricultural
Marketing Act and the Capper-Volstead Act, as amended. The Board
of Directors may establish other qualifications for membership
as it may from time to time deem advisable.

As a membership cooperative, the Company does not
have common stock. The Company may issue equity or debt
securities, on a patronage basis or otherwise, to its members.
The Company has two classes of outstanding membership.
Individual members are individuals actually engaged in the
production of agricultural products. Cooperative associations
are associations of agricultural producers, either cooperatives
or other associations organized and operated under the
provisions of the Agricultural Marketing Act and the
Capper-Volstead Act.

Voting Rights

Voting rights arise by virtue of membership in
the Company, not because of ownership of any equity or debt
security. Members that are cooperative associations are entitled
to vote based upon a formula that takes into account the equity
held by the cooperative in the Company and the average amount of
business done with the Company over the previous three years.

Members who are individuals are entitled to one
vote. Individual members may exercise their voting power
directly or through a patrons association associated with
a grain elevator, feed mill, seed plant or any other Company
facility (with certain historical exceptions) recognized by the
Board of Directors. The number of votes of patrons
associations is determined under the same formula as cooperative
association members.

Most matters submitted to a vote of the members
require the approval of a majority of the votes cast at a
meeting of the members, although the approval of not less than
two-thirds of the votes cast at a meeting is required to approve
Change of Control transactions, which include a
merger, consolidation, liquidation, dissolution, or the sale of
all or substantially all of the Companys assets and, in
certain circumstances, a greater vote may be required. See
Certain Antitakeover Measures below.

Debt and Equity Instruments

The Company may issue debt and equity instruments
to its current members and patrons, on a patronage basis or
otherwise, and to persons who are neither members nor patrons.
Under our articles of incorporation, equity issued by the
Company is subject to a first lien in favor of the Company for
all indebtedness of the holder to the Company. As of
August 31, 2003, the Companys outstanding capital
included patrons equities (consisting of capital equity
certificates and non-patronage earnings certificates), 8%
Cumulative Redeemable Preferred Stock (dividends paid quarterly)
and certain capital reserves.

Distribution of Assets Upon Dissolution;
Merger and Consolidation

In the event of any dissolution, liquidation or
winding up of the Company, whether voluntary or involuntary, all
debts and liabilities would be paid first according to their
respective priorities. As more particularly provided in the
Companys bylaws, the remaining assets would be paid to the
holders of equity capital to the extent of their interests and
any excess would be paid to patrons on the basis of their past
patronage. The bylaws provide for the allocation among the
members and nonmember patrons of the consideration received in
any merger or consolidation to which the Company is a party.

Certain Antitakeover Measures

The Companys governing documents may be
amended upon the approval of a majority of the votes cast at an
annual or special meeting. However, if the Board of Directors,
in its sole discretion, declares that a proposed amendment to
the Companys governing documents involves or is related to
a hostile takeover, the amendment must be adopted by
80% of the total voting power of the members of the

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Company. Further, if the Board of Directors
determines that a proposed change of control transaction
involves a hostile takeover, the 80% approval requirement
applies. The term hostile takeover is not further
defined in the Minnesota cooperative law or the governing
documents of the Company.


Tax Treatment

Subchapter T of the Internal Revenue Code sets
forth rules for the tax treatment of cooperatives and applies to
both cooperatives exempt from taxation under Section 521 of
the Internal Revenue Code and to nonexempt corporations
operating on a cooperative basis. The Company is a nonexempt
cooperative.

As a cooperative, the Company is not taxed on
patronage paid to its members either in the form of equities or
cash. Consequently, such amounts are taxed only at the patron
level. However, the amounts of any allocated but undistributed
patronage earnings (called non-qualified unit retains) are
taxable to the Company when allocated. Upon redemption of any
such non-qualified unit retains, the amount is deductible to the
Company and taxable to the member.

Income derived by the Company from non-patronage
sources is not entitled to the single tax benefit of
Subchapter T and is taxed to the Company at corporate
income tax rates.




NCRA is not consolidated for tax purposes.




23



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##### Table of Contents











PART II.













Item
9A.     Controls and
Procedures








Under the supervision and with the participation
of our management, including our Chief Executive Officer and
Chief Financial Officer, we evaluated the effectiveness of the
design and operation of our disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934 (the Exchange Act)) as of
August 31, 2003. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as
of that date except as noted below with respect to the
identification and elimination of certain sales and transfers
within our Grain Marketing business segment, our disclosure
controls and procedures were effective in timely making known to
them the material information relating to us (including our
consolidated subsidiaries) required to be included in the
reports we file or submit under the Exchange Act.




During our fourth fiscal quarter, there was no
change in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

Following the end of our fourth fiscal quarter,
we determined that certain sales and transfers within our Grain
Marketing business segment and also between the Grain Marketing
segment and the Processed Grains and Foods segment had not been
properly identified and eliminated in our consolidated financial
statements for certain periods prior to that fiscal quarter.
Following this determination, we restated our consolidated
statements of operations for the fiscal years ended
August 31, 2002, 2001 and 2000 and for the first three
fiscal quarters of the fiscal year ended August 31, 2003.
These changes had no effect on our financial condition, or
changes in cash flows, and no effect on reported gross profit or
net income for the periods stated above. In response, we changed
our internal control over financial reporting to include
additional processes that are intended to ensure the proper
identification and reporting of intra-company transactions and
enable us to eliminate those transactions in the preparation of
our consolidated financial statements.









PART IV.













Item
15.     Exhibits, Financial
Statements and Reports Filed on Form 8-K





(a)(3)     Exhibits

| |      |  |  |                                                                                                                                                                                                                                                                      
| | ---- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1  |  |  | Articles of Incorporation of the Company, as
    amended.(13)                                                                                                                                                                                                        
| | 3.2  |  |  | Articles of Amendment to the Articles of
    Incorporation.(18)                                                                                                                                                                                                      
| | 3.3  |  |  | Bylaws of the Company, as amended.(13)                                                                                                                                                                                                                               
| | 4.1  |  |  | Resolution Creating a Series of Preferred Equity
    to be Designated 8% Cumulative Redeemable Preferred Stock.(14)                                                                                                                                                  
| | 4.2  |  |  | Unanimous Written Consent Resolution of the Board
    of Directors of Cenex Harvest States Cooperatives Amending the
    Amended and Restated Resolution Creating a Series of Preferred
    Equity to be Designated 8% Cumulative Redeemable Preferred
    Stock.(15)
| | 4.3  |  |  | Resolution amending a previous Preferred Stock
    Resolution with respect to the record date for payment of
    dividends for the Companys 8% Cumulative Redeemable
    Preferred Stock.(17)                                                                       
| | 4.4  |  |  | Form of Certificate Representing 8% Cumulative
    Redeemable Preferred Stock.(15)                                                                                                                                                                                   
| | 10.1 |  |  | Lease between the Port of Kalama and North
    Pacific Grain Growers, Inc., dated November 22, 1960.(1)                                                                                                                                                              
| | 10.2 |  |  | Limited Liability Company Agreement for the
    Wilsey-Holsum Foods, LLC dated July 24, 1996.(1)                                                                                                                                                                     
| | 10.3 |  |  | Long Term Supply Agreement between Wilsey-Holsum
    Foods, LLC and Harvest States Cooperatives dated August 30,
    1996.(*)(1)                                                                                                                                     

24



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##### Table of Contents



| |        |  |  |                                                                                                                                                                                                                                                   
| | ------ |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.4   |  |  | TEMCO, LLC Limited Liability Company Agreement
    between Cargill, Incorporated and Cenex Harvest States
    Cooperatives dated as of August 26, 2002.(12)                                                                                       
| | 10.5   |  |  | Cenex Harvest States Cooperatives Supplemental
    Savings Plan.(7)                                                                                                                                                                               
| | 10.6   |  |  | Cenex Harvest States Cooperatives Supplemental
    Executive Retirement Plan.(7)                                                                                                                                                                  
| | 10.7   |  |  | Cenex Harvest States Cooperatives Senior
    Management Compensation Plan.(7)                                                                                                                                                                     
| | 10.8   |  |  | Cenex Harvest States Cooperatives Executive
    Long-Term Variable Compensation Plan.(7)                                                                                                                                                          
| | 10.9   |  |  | Cenex Harvest States Cooperatives Share Option
    Plan.(7)                                                                                                                                                                                       
| | 10.9A  |  |  | Amendment to Cenex Harvest States Share Option
    Plan, dated June 28, 2001.(10)                                                                                                                                                                 
| | 10.10  |  |  | $225,000,000 Note Agreement (Private Placement
    Agreement) dated as of June 19, 1998 among Cenex Harvest
    States Cooperatives and each of the Purchasers of the Notes.(2)                                                                   
| | 10.10A |  |  | First Amendment to Note Agreement ($225,000,000
    Private Placement), effective September 10, 2003, among CHS
    Inc. and each of the Purchasers of the notes.(19)                                                                             
| | 10.11  |  |  | Credit Agreement (Revolving Loan) dated as of
    May 21, 2003 among Cenex Harvest States Cooperatives,
    CoBank, ACB, SunTrust Bank, Cooperatieve Centrale
    Raiffeisen-Boerenleenbank B.A., BNP Paribas and the Syndication
    Parties.(17)
| | 10.12  |  |  | $200 Million Term Loan Credit Agreement dated as
    of June 1, 1998 among Cenex Harvest States Cooperatives,
    CoBank, ACB, and St. Paul Bank for Cooperatives, including
    Exhibit 2.4 (form of $200 Million Promissory Note).(2)           
| | 10.12A |  |  | First Amendment to Credit Agreement (Term Loan),
    effective as of May 31, 1999 among Cenex Harvest States
    Cooperatives, CoBank, ACB, and St. Paul Bank for Cooperatives.(4)                                                                
| | 10.12B |  |  | Second Amendment to Credit Agreement (Term Loan)
    dated May 23, 2000 by and among Cenex Harvest States
    Cooperatives, CoBank, ACB, St. Paul Bank for Cooperatives
    and the Syndication Parties.(6)                                       
| | 10.12C |  |  | Third Amendment to Credit Agreement (Term Loan)
    dated May 23, 2001 among Cenex Harvest States Cooperatives,
    CoBank, ACB, and the Syndication Parties.(9)                                                                                  
| | 10.12D |  |  | Fourth Amendment to Credit Agreement (Term Loan)
    dated May 22, 2002 among Cenex Harvest States Cooperatives,
    CoBank, ACB and the Syndication Parties.(11)                                                                                 
| | 10.13  |  |  | Limited Liability Agreement of United Harvest,
    LLC dated November 9, 1998 between United Grain Corporation
    and Cenex Harvest States Cooperatives.(3)                                                                                      
| | 10.14  |  |  | Joint Venture Agreement for Agriliance LLC, dated
    as of January 1, 2000 among Farmland Industries, Inc.,
    Cenex Harvest States Cooperatives, United Country Brands, LLC
    and Land O Lakes, Inc.(5)                                     
| | 10.15  |  |  | Employment Agreement dated November 6, 2003
    by and between John D. Johnson and CHS Inc.(19)                                                                                                                                                   
| | 10.16  |  |  | CHS Inc. Special Supplemental Executive
    Retirement Plan.(19)                                                                                                                                                                                  
| | 10.17  |  |  | Note purchase and Private Shelf Agreement dated
    as of January 10, 2001 between Cenex Harvest States
    Cooperatives and The Prudential Insurance Company of America.(8)                                                                      
| | 10.17A |  |  | Amendment No. 1 to Note Purchase and Private
    Shelf Agreement, dated as of March 2, 2001.(8)                                                                                                                                                   
| | 10.18  |  |  | Note Purchase Agreement and Series D & E
    Senior Notes dated October 18, 2002.(12)                                                                                                                                                             
| | 10.19  |  |  | 2002 Amended and Restated Credit Agreement
    (364-Day Revolving Loan) dated December 17, 2002 by and
    among National Cooperative Refinery Association, CoBank, ACB and
    Farm Credit Bank of Wichita, D/B/A U.S. AgBank, FCB.(16)          
| | 21.1   |  |  | Subsidiaries of the Registrant.(19)                                                                                                                                                                                                               
| | 23.1   |  |  | Consent of Independent Accountants.(20)                                                                                                                                                                                                           
| | 23.2   |  |  | Independent Auditors Consent.(20)                                                                                                                                                                                                                
| | 24.1   |  |  | Power of Attorney.(19)                                                                                                                                                                                                                            
| | 31.1   |  |  | Certification Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.(20)                                                                                                                                                                  
| | 31.2   |  |  | Certification Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.(20)                                                                                                                                                                  

25



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##### Table of Contents



| |      |  |  |                                                                                                                                    
| | ---- |  |  | -----------------------------------------------------------------------------------------------------------------------------------
| | 32.1 |  |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.(20)
| | 32.2 |  |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.(20)



---



|    |                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) | Pursuant to Rule 406 of the Securities Act
    of 1933, as amended, confidential portions of Exhibit 10.3
    have been deleted and filed separately with the Securities and
    Exchange Commission pursuant to a request for confidential
    treatment.
|   
|(1) | Incorporated by reference to the Companys
    Registration Statement on Form S-1 (File
    No. 333-17865), filed February 7, 1997.                                                                                                                       
|   
|(2) | Incorporated by reference to the Companys
    Form 10-Q Transition Report for the period June 1,
    1998 to August 31, 1998, filed October 14, 1998.                                                                                                    
|   
|(3) | Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended November 30,
    1998, filed January 13, 1999.                                                                                                                    
|   
|(4) | Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended May 31, 1999,
    filed July 13, 1999.                                                                                                                            
|   
|(5) | Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended February 29,
    2000 filed April 11, 2000.                                                                                                                       
|   
|(6) | Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended May 31, 2000,
    filed July 10, 2000.                                                                                                                            
|   
|(7) | Incorporated by reference to the Companys
    Form 10-K for the year ended August 31, 2000, filed
    November 22, 2000.                                                                                                                                 
|   
|(8) | Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended February 28,
    2001, filed April 10, 2001.                                                                                                                      
|   
|(9) | Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended May 31, 2001,
    filed July 3, 2001.                                                                                                                             



|     |                                                                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the Companys
    Registration Statement on Form S-2 (File
    No. 333-65364), filed October 26, 2001.                    
|    
|(11) | Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended May 31, 2002,
    filed July 3, 2002.                          
|    
|(12) | Incorporated by reference to the Companys
    Form 10-K for the year ended August 31, 2002, filed
    November 25, 2002.                              
|    
|(13) | Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended November 30,
    2002, filed January 9, 2003.                  
|    
|(14) | Incorporated by reference to Amendment No. 1
    to the Companys Registration Statement on Form S-2
    (File No. 333-101916), dated January 13, 2003.
|    
|(15) | Incorporated by reference to Amendment No. 2
    to the Companys Registration Statement on Form S-2
    (File No. 333-101916), dated January 23, 2003.
|    
|(16) | Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended February 28,
    2003, filed April 4, 2003.                    
|    
|(17) | Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended May 31, 2003,
    filed July 2, 2003.                          
|    
|(18) | Incorporated by reference to the Companys
    Form 8-K, filed August 5, 2003.                                                                         
|    
|(19) | Incorporated by reference to the Companys
    Form 10-K for the year ended August 31, 2003 filed on
    November 21, 2003.                            
|    
|(20) | Filed herewith.                                                                                                                                        

26



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##### Table of Contents



(b)     Reports on
Form 8-K

On August 5, 2003 the Company filed a report
on Form 8-K announcing the Companys name change from
Cenex Harvest States Cooperatives to CHS Inc. This was the only
report on Form 8-K filed during the fourth quarter.

(c)     Exhibits

The exhibits shown in Item 15(a)(3) above
are being filed herewith.

(d)     Schedules




None.







Supplemental Information







As a cooperative, the Company does not utilize
proxy statements.




27



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##### Table of Contents








SIGNATURES





Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on
February 13, 2004.






| |         
| | --------
| | CHS INC.



| |     |                    
| | --- | -------------------
| | By: | /s/ JOHN D. JOHNSON

| |                                          
| | -----------------------------------------
| |                                          
| | John D. Johnson                          
| | President and Chief Executive
    Officer




Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities indicated on February 13, 2004:




|                                   |  |                                                                                            |  | 
|---------------------------------- |  | ------------------------------------------------------------------------------------------ |  | 
|                                   |  |                                                                                           
|Signature                          |  | Title                                                                                     
|                                   |  |                                                                                           
|                                  
|/s/ JOHN D. JOHNSONJohn D. Johnson |  | President and Chief Executive Officer
    (principal executive officer)                   
|                                  
|/s/ JOHN SCHMITZJohn Schmitz       |  | Executive Vice President and Chief Financial
    Officer
    (principal financial officer)
|                                  
|/s/ JODELL HELLERJodell Heller     |  | Vice President and Controller
    (principal accounting officer)                          
|                                  
|Michael Toelle*                    |  | Chairman of the Board of Directors                                                        
|                                  
|Bruce Anderson*                    |  | Director                                                                                  
|                                  
|Robert Bass*                       |  | Director                                                                                  
|                                  
|David Bielenberg*                  |  | Director                                                                                  
|                                  
|Dennis Carlson*                    |  | Director                                                                                  
|                                  
|Curt Eischens*                     |  | Director                                                                                  
|                                  
|Robert Elliott*                    |  | Director                                                                                  
|                                  
|Robert Grabarski*                  |  | Director                                                                                  
|                                  
|Jerry Hasnedl*                     |  | Director                                                                                  
|                                  
|Glen Keppy*                        |  | Director                                                                                  
|                                  
|James Kile*                        |  | Director                                                                                  
|                                  
|Randy Knecht*                      |  | Director                                                                                  
|                                  
|Richard Owen*                      |  | Director                                                                                  
|                                  
|Duane Stenzel*                     |  | Director                                                                                  
|                                  
|Merlin Van Walleghen*              |  | Director                                                                                  
|                                  
|Michael Mulcahey                   |  | Director                                                                                  
|                                  
|Steve Fritel                       |  | Director                                                                                  
|*By:                               |  | /s/ JOHN D. JOHNSONJohn D. Johnson
    Attorney-in-fact                                    |  | 

28