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SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


Form 10-Q

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | for the quarterly period ended May 31,
    2004.                                            
|          
|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

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, MN 55077                                      |  | (651) 355-6000                                          
|(Address of principal executive offices,
    including zip code)   |  | (Registrants telephone number,
    including area code)

Include 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 whether the Registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     YES o          NO þ

Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest
practicable date.

|      |  |                             
|----- |  | ----------------------------
|      |  | Number of Shares Outstanding
|Class |  | at May 31, 2004             
|      |  |                             
|NONE  |  | NONE                        









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INDEX

|                                          |  |                                                                                                                            |    |          |    | 
|----------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- | -- | -------- | -- | 
|                                          |  |                                                                                                                            |    | Page No.
|                                          |  |                                                                                                                            |    |         
|PART I. FINANCIAL
    INFORMATION        
|Item 1.                                   |  | Financial Statements                                                                                                       |    |          | 3  | 
|                                          |  | Consolidated Balance Sheets
    as of May 31, 2004, August 31, 2003 and May 31,
    2003 (unaudited)                       |    |          | 3  | 
|                                          |  | Consolidated Statements of
    Operations for the three months and nine months ended
    May 31, 2004 and 2003 (unaudited) |    |          | 4  | 
|                                          |  | Consolidated Statements of
    Cash Flows for the three months and nine months ended
    May 31, 2004 and 2003 (unaudited) |    |          | 5  | 
|                                          |  | Notes to Consolidated
    Financial Statements (unaudited)                                                                 |    |          | 6  | 
|                                         
|Item 2.                                   |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                                  |    |          | 16 | 
|                                         
|Item 3.                                   |  | Quantitative and Qualitative
    Disclosures about Market Risk                                                             |    |          | 34 | 
|                                         
|Item 4.                                   |  | Controls and Procedures                                                                                                    |    |          | 34 | 
|                                         
|PART II. OTHER
    INFORMATION           
|                                         
|Item 6.                                   |  | Exhibits and Reports on
    Form 8-K                                                                                       |    |          | 35 | 
|                                         
|SIGNATURE
    PAGE                        |  |                                                                                                                            | 36 |         
|First Amendment to Credit Agreement      
|Sixth Amendment to Credit Agreement      
|Note Purchase and Private Shelf Agreement
|Certification Pursuant to Section 302    
|Certification Pursuant to Section 302    
|Certification Pursuant to Section 906    
|Certification Pursuant to Section 906    



1



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PART I. FINANCIAL INFORMATION

SAFE HARBOR STATEMENT UNDER THE
PRIVATE

SECURITIES LITIGATION REFORM ACT OF
1995


This Quarterly Report on Form 10-Q contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements involve risks and
uncertainties that may cause the Companys actual results
to differ materially from the results discussed in the
forward-looking statements. These factors include those set
forth in Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations, under the
caption Cautionary Statement Regarding Forward-Looking
Statements to this Quarterly Report on Form 10-Q for
the quarterly period ended May 31, 2004.

2



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|        |                     
|------- | --------------------
|Item 1. | Financial Statements



CHS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


|                                   |                                   |                                |           |            |           |         |           |         |           |  |           |         |           | 
|---------------------------------- | --------------------------------- | ------------------------------ | --------- | ---------- | --------- | ------- | --------- | ------- | --------- |  | --------- | ------- | --------- | 
|                                   |                                   | May 31,                        |           | August 31, |           | May 31,
|                                   |                                   | 2004                           |           | 2003       |           | 2003   
|                                   |                                   |                                |           |            |           |        
|                                   |                                   |                               
|                                   |                                   | (dollars in thousands)        
|ASSETS                            
|Current assets:                    |                                   |                                |           |            |           |         |           |         |           |  |           |        
|                                   | Cash and cash equivalents         |                                | $         | 138,550    |           |         | $         | 168,249 |           |  | $         | 160,198 |          
|                                   | Receivables                       |                                |           | 954,440    |           |         |           | 763,780 |           |  |           | 741,047 |          
|                                   | Inventories                       |                                |           | 906,801    |           |         |           | 801,883 |           |  |           | 678,501 |          
|                                   | Other current assets              |                                |           | 392,714    |           |         |           | 178,661 |           |  |           | 194,274 |          
|                                   |                                   |                                |           |            |           |         |           |         |           |  |           |        
|                                   |                                   | Total current assets           |           |            | 2,392,505 |         |           |         | 1,912,573 |  |           |         | 1,774,020 | 
|Investments                        |                                   |                                | 575,154   |            |           |         | 532,893   |         |           |  | 528,505   |        
|Property, plant and equipment      |                                   |                                | 1,203,488 |            |           |         | 1,122,982 |         |           |  | 1,095,231 |        
|Other assets                       |                                   |                                | 244,222   |            |           |         | 239,520   |         |           |  | 185,543   |        
|                                   |                                   |                                |           |            |           |         |           |         |           |  |           |        
|                                   |                                   | Total assets                   |           | $          | 4,415,369 |         |           | $       | 3,807,968 |  |           | $       | 3,583,299 | 
|                                   |                                   |                                |           |            |           |         |           |         |           |  |           |        
|                                  
|LIABILITIES AND EQUITIES          
|Current liabilities:               |                                   |                                |           |            |           |         |           |         |           |  |           |        
|                                   | Notes payable                     |                                | $         | 446,500    |           |         | $         | 251,131 |           |  | $         | 321,131 |          
|                                   | Current portion of long-term debt |                                |           | 30,900     |           |         |           | 14,951  |           |  |           | 14,987  |          
|                                   | Customer credit balances          |                                |           | 100,405    |           |         |           | 58,417  |           |  |           | 71,527  |          
|                                   | Customer advance payments         |                                |           | 137,662    |           |         |           | 123,383 |           |  |           | 101,534 |          
|                                   | Checks and drafts outstanding     |                                |           | 91,542     |           |         |           | 85,239  |           |  |           | 65,291  |          
|                                   | Accounts payable                  |                                |           | 658,887    |           |         |           | 627,250 |           |  |           | 452,140 |          
|                                   | Accrued expenses                  |                                |           | 395,702    |           |         |           | 254,415 |           |  |           | 236,081 |          
|                                   | Dividends and equities payable    |                                |           | 84,485     |           |         |           | 39,049  |           |  |           | 43,287  |          
|                                   |                                   |                                |           |            |           |         |           |         |           |  |           |        
|                                   |                                   | Total current liabilities      |           |            | 1,946,083 |         |           |         | 1,453,835 |  |           |         | 1,305,978 | 
|Long-term debt                     |                                   |                                | 655,780   |            |           |         | 648,222   |         |           |  | 646,153   |        
|Other liabilities                  |                                   |                                | 132,604   |            |           |         | 111,555   |         |           |  | 117,404   |        
|Minority interests in subsidiaries |                                   |                                | 136,187   |            |           |         | 112,645   |         |           |  | 104,491   |        
|Commitments and contingencies      |                                   |                                |           |            |           |         |           |         |           |  |           |        
|Equities                           |                                   |                                | 1,544,715 |            |           |         | 1,481,711 |         |           |  | 1,409,273 |        
|                                   |                                   |                                |           |            |           |         |           |         |           |  |           |        
|                                   |                                   | Total liabilities and equities |           | $          | 4,415,369 |         |           | $       | 3,807,968 |  |           | $       | 3,583,299 | 
|                                   |                                   |                                |           |            |           |         |           |         |           |  |           |        

The accompanying notes are an integral part of
the consolidated financial statements (unaudited).

3



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CHS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

(Unaudited)


|                                      |                     |                            |           |                           |  |         |           |           |  |   |           |           |  |   |           |           | 
|------------------------------------- | ------------------- | -------------------------- | --------- | ------------------------- |  | ------- | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                                      |                     |                            |           |                          
|                                      |                     | For the Three Months Ended |           | For the Nine Months Ended
|                                      |                     |                            |           |                          
|                                      |                     | May 31,                    |           | May 31,                   |  | May 31, |           | May 31,  
|                                      |                     | 2004                       |           | 2003                      |  | 2004    |           | 2003     
|                                      |                     |                            |           |                           |  |         |           |          
|                                      |                     |                           
|                                      |                     | (dollars in thousands)    
|Revenues:                             |                     |                            |           |                           |  |         |           |           |  |   |           |           |  |   |           |          
|                                      | Net sales           |                            | $         | 2,817,529                 |  |         | $         | 2,220,455 |  |   | $         | 7,961,469 |  |   | $         | 6,949,205 | 
|                                      | Patronage dividends |                            |           | 1,809                     |  |         |           | 1,351     |  |   |           | 5,770     |  |   |           | 2,310     | 
|                                      | Other revenues      |                            |           | 41,392                    |  |         |           | 29,071    |  |   |           | 104,875   |  |   |           | 89,058    | 
|                                      |                     |                            |           |                           |  |         |           |           |  |   |           |           |  |   |           |          
|                                      |                     |                            | 2,860,730 |                           |  |         | 2,250,877 |           |  |   | 8,072,114 |           |  |   | 7,040,573 |          
|Cost of goods sold                    |                     |                            | 2,734,235 |                           |  |         | 2,152,467 |           |  |   | 7,776,864 |           |  |   | 6,792,462 |          
|Marketing, general and administrative |                     |                            | 54,174    |                           |  |         | 49,483    |           |  |   | 154,717   |           |  |   | 140,703   |          
|                                      |                     |                            |           |                           |  |         |           |           |  |   |           |           |  |   |           |          
|Operating earnings                    |                     |                            | 72,321    |                           |  |         | 48,927    |           |  |   | 140,533   |           |  |   | 107,408   |          
|Gain on sale of investment            |                     |                            | (14,666   | )                         |  |         |           |           |  |   | (14,666   | )         |  |   |           |          
|Gain on legal settlements             |                     |                            |           |                           |  |         | (178      | )         |  |   |           |           |  |   | (10,867   | )        
|Interest                              |                     |                            | 13,782    |                           |  |         | 12,284    |           |  |   | 38,804    |           |  |   | 36,533    |          
|Equity income from investments        |                     |                            | (32,406   | )                         |  |         | (30,003   | )         |  |   | (64,193   | )         |  |   | (32,396   | )        
|Minority interests                    |                     |                            | 16,417    |                           |  |         | 5,913     |           |  |   | 23,559    |           |  |   | 14,689    |          
|                                      |                     |                            |           |                           |  |         |           |           |  |   |           |           |  |   |           |          
|Income before income taxes            |                     |                            | 89,194    |                           |  |         | 60,911    |           |  |   | 157,029   |           |  |   | 99,449    |          
|Income taxes                          |                     |                            | 7,805     |                           |  |         | 8,738     |           |  |   | 16,390    |           |  |   | 11,020    |          
|                                      |                     |                            |           |                           |  |         |           |           |  |   |           |           |  |   |           |          
|Net income                            |                     | $                          | 81,389    |                           |  | $       | 52,173    |           |  | $ | 140,639   |           |  | $ | 88,429    |          
|                                      |                     |                            |           |                           |  |         |           |           |  |   |           |           |  |   |           |          

The accompanying notes are an integral part of
the consolidated financial statements (unaudited).

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CHS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(Unaudited)


|                                                         |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |          |         |         |          |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------- | ------------------------------------------------------- | ------- | -------- | -------- | ------- | ------- | ------- | ------- | -------- | ------- | -------- | -------- | -------- | ------- | ------- | -------- | -
|                                                         |                                                                                                 |                                                 |                                       |                                                        
|                                                         |                                                                                                 | For the Three                                   |                                       | For the Nine                                           
|                                                         |                                                                                                 | Months Ended                                    |                                       | Months Ended                                           
|                                                         |                                                                                                 |                                                 |                                       |                                                        
|                                                         |                                                                                                 | May 31,                                         |                                       | May 31,                                                 |         | May 31,  |          | May 31,
|                                                         |                                                                                                 | 2004                                            |                                       | 2003                                                    |         | 2004     |          | 2003   
|                                                         |                                                                                                 |                                                 |                                       |                                                         |         |          |          |        
|                                                         |                                                                                                 |                                                
|                                                         |                                                                                                 | (dollars in thousands)                         
|Cash flows from operating activities:                    |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |         
|                                                         | Net income                                                                                      |                                                 | $                                     | 81,389                                                  |         |          | $        | 52,173  |         |         | $       | 140,639  |         |          | $        | 88,429   |        
|                                                         | Adjustments to reconcile net income to net cash
    provided by (used in) operating activities: |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |          |        
|                                                         |                                                                                                 | Depreciation and amortization                   |                                       |                                                         | 26,668  |          |          |         | 25,498  |         |         |          | 80,528  |          |          |          | 77,132  |        
|                                                         |                                                                                                 | Noncash income from equity investments          |                                       |                                                         | (32,406 | )        |          |         | (30,003 | )       |         |          | (64,193 | )        |          |          | (32,396 | )      
|                                                         |                                                                                                 | Minority interests                              |                                       |                                                         | 16,417  |          |          |         | 5,913   |         |         |          | 23,559  |          |          |          | 14,689  |        
|                                                         |                                                                                                 | Noncash portion of patronage dividends received |                                       |                                                         | (884    | )        |          |         | (671    | )       |         |          | (3,714  | )        |          |          | (1,352  | )      
|                                                         |                                                                                                 | Gain on sale of property, plant and equipment   |                                       |                                                         | (1,051  | )        |          |         | (466    | )       |         |          | (910    | )        |          |          | (736    | )      
|                                                         |                                                                                                 | Gain on sale of investment                      |                                       |                                                         | (14,666 | )        |          |         |         |         |         |          | (14,666 | )        |          |          |         |        
|                                                         |                                                                                                 | Other, net                                      |                                       |                                                         | 247     |          |          |         | 455     |         |         |          | 787     |          |          |          | 2,915   |        
|                                                         |                                                                                                 | Changes in operating assets and liabilities:    |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |          |         |        
|                                                         |                                                                                                 |                                                 | Receivables                           |                                                         |         | (187,725 | )        |         |         | 24,766  |         |          |         | (175,927 | )        |          |         | 17,074  |         
|                                                         |                                                                                                 |                                                 | Inventories                           |                                                         |         | 94,466   |          |         |         | 183,252 |         |          |         | (94,647  | )        |          |         | 89,617  |         
|                                                         |                                                                                                 |                                                 | Other current assets and other assets |                                                         |         | 105,460  |          |         |         | 56,255  |         |          |         | (217,710 | )        |          |         | (61,753 | )       
|                                                         |                                                                                                 |                                                 | Customer credit balances              |                                                         |         | (26,248  | )        |         |         | (31,893 | )       |          |         | 39,358   |          |          |         | 45,066  |         
|                                                         |                                                                                                 |                                                 | Customer advance payments             |                                                         |         | 26,346   |          |         |         | (58,004 | )       |          |         | 14,267   |          |          |         | (67,589 | )       
|                                                         |                                                                                                 |                                                 | Accounts payable and accrued expenses |                                                         |         | 168,714  |          |         |         | (13,078 | )       |          |         | 152,451  |          |          |         | (57,276 | )       
|                                                         |                                                                                                 |                                                 | Other liabilities                     |                                                         |         | 1,099    |          |         |         | 6,103   |         |          |         | 12,817   |          |          |         | (875    | )       
|                                                         |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |         
|                                                         |                                                                                                 |                                                 |                                       | Net cash provided by (used in) operating
    activities |         |          | 257,826  |         |         |         | 220,300 |          |         |          | (107,361 | )        |         |         | 112,945  |  
|                                                         |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |         
|Cash flows from investing activities:                    |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |         
|                                                         | Acquisition of property, plant and equipment                                                    |                                                 |                                       | (66,185                                                 | )       |          |          | (45,092 | )       |         |         | (168,407 | )       |          |          | (122,467 | )      
|                                                         | Proceeds from disposition of property, plant and
    equipment                                  |                                                 |                                       | 2,005                                                   |         |          |          | 3,976   |         |         |         | 31,747   |         |          |          | 15,901   |        
|                                                         | Investments                                                                                     |                                                 |                                       | (47,750                                                 | )       |          |          | (36,449 | )       |         |         | (48,772  | )       |          |          | (40,624  | )      
|                                                         | Equity investments redeemed                                                                     |                                                 |                                       | 10,990                                                  |         |          |          | 3,341   |         |         |         | 54,493   |         |          |          | 31,434   |        
|                                                         | Investments redeemed                                                                            |                                                 |                                       | 1,158                                                   |         |          |          | 2,532   |         |         |         | 7,273    |         |          |          | 5,915    |        
|                                                         | Proceeds from sale of investment                                                                |                                                 |                                       | 25,000                                                  |         |          |          |         |         |         |         | 25,000   |         |          |          |          |        
|                                                         | Changes in notes receivable                                                                     |                                                 |                                       | (3,100                                                  | )       |          |          | (2,754  | )       |         |         | (8,996   | )       |          |          | (14,270  | )      
|                                                         | Acquisitions of intangibles                                                                     |                                                 |                                       |                                                         |         |          |          | (333    | )       |         |         |          |         |          |          | (767     | )      
|                                                         | Acquisitions of working capital, net                                                            |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          | (13,030  | )      
|                                                         | Distribution to minority owners                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         | (1,338   | )       |          |          | (463     | )      
|                                                         | Other investing activities, net                                                                 |                                                 |                                       | (74                                                     | )       |          |          | (34     | )       |         |         | 3,129    |         |          |          | 433      |        
|                                                         |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |         
|                                                         |                                                                                                 |                                                 |                                       | Net cash used in investing activities                   |         |          | (77,956  | )       |         |         | (74,813 | )        |         |          | (105,871 | )        |         |         | (137,938 | )
|                                                         |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |         
|Cash flows from financing activities:                    |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |         
|                                                         | Changes in notes payable                                                                        |                                                 |                                       | (154,335                                                | )       |          |          | (49,430 | )       |         |         | 195,370  |         |          |          | (11,383  | )      
|                                                         | Long-term debt borrowings                                                                       |                                                 |                                       | 35,012                                                  |         |          |          |         |         |         |         | 35,457   |         |          |          | 175,000  |        
|                                                         | Principal payments on long-term debt                                                            |                                                 |                                       | (4,094                                                  | )       |          |          | (48,710 | )       |         |         | (12,365  | )       |          |          | (85,989  | )      
|                                                         | Payments on derivative instruments                                                              |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          | (7,574   | )      
|                                                         | Changes in checks and drafts outstanding                                                        |                                                 |                                       | (10,762                                                 | )       |          |          | 9,541   |         |         |         | 5,528    |         |          |          | (18,960  | )      
|                                                         | Proceeds from sale of preferred stock, net of
    expenses                                      |                                                 |                                       | (98                                                     | )       |          |          | (96     | )       |         |         | (151     | )       |          |          | 82,484   |        
|                                                         | Redemption of preferred stock                                                                   |                                                 |                                       |                                                         |         |          |          | (2,002  | )       |         |         |          |         |          |          | (2,002   | )      
|                                                         | Preferred stock dividends paid                                                                  |                                                 |                                       | (2,113                                                  | )       |          |          | (1,327  | )       |         |         | (5,861   | )       |          |          | (1,701   | )      
|                                                         | Retirements of equities                                                                         |                                                 |                                       | (2,873                                                  | )       |          |          | (2,042  | )       |         |         | (5,724   | )       |          |          | (26,402  | )      
|                                                         | Cash patronage dividends paid                                                                   |                                                 |                                       | (563                                                    | )       |          |          | (109    | )       |         |         | (28,721  | )       |          |          | (26,474  | )      
|                                                         |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |         
|                                                         |                                                                                                 |                                                 |                                       | Net cash (used in) provided by financing
    activities |         |          | (139,826 | )       |         |         | (94,175 | )        |         |          | 183,533  |          |         |         | 76,999   |  
|                                                         |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |         
|Net increase (decrease) in cash and cash
    equivalents |                                                                                                 |                                                 | 40,044                                |                                                         |         |          | 51,312   |         |         |         | (29,699 | )        |         |          | 52,006   |         
|Cash and cash equivalents at beginning of period         |                                                                                                 |                                                 | 98,506                                |                                                         |         |          | 108,886  |         |         |         | 168,249 |          |         |          | 108,192  |         
|                                                         |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |         
|Cash and cash equivalents at end of period               |                                                                                                 | $                                               | 138,550                               |                                                         |         | $        | 160,198  |         |         | $       | 138,550 |          |         | $        | 160,198  |         
|                                                         |                                                                                                 |                                                 |                                       |                                                         |         |          |          |         |         |         |         |          |         |          |          |         

The accompanying notes are an integral part of
the consolidated financial statements (unaudited).

5



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##### Table of Contents






CHS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(Dollars in thousands)




|        |                    
|------- | -------------------
|Note 1. | Accounting Policies

The unaudited consolidated balance sheets as of
May 31, 2004 and 2003, and the statements of operations and
cash flows for the three and nine months ended May 31, 2004
and 2003 reflect, in the opinion of management of CHS Inc. (CHS
or the Company), all normal recurring adjustments necessary for
a fair presentation of the financial position and results of
operations and cash flows for the interim periods presented. The
results of operations and cash flows for interim periods are not
necessarily indicative of results for a full fiscal year because
of, among other things, the seasonal nature of the
Companys businesses. The consolidated balance sheet data
as of August 31, 2003 has been derived from the audited
consolidated financial statements but does not include all
disclosures required by accounting principles generally accepted
in the United States of America.

The consolidated financial statements include the
accounts of the Company and all of its wholly-owned and
majority-owned subsidiaries and limited liability companies. The
effects of all significant intercompany accounts and
transactions have been eliminated.

These statements should be read in conjunction
with the consolidated financial statements and notes thereto for
the year ended August 31, 2003, included in the
Companys Annual Report on Form 10-K, as amended,
filed with the Securities and Exchange Commission.



| |                                         
| | ----------------------------------------
| | Goodwill and Other Intangible
    Assets

The Company had $27.0 million of goodwill as
of May 31, 2004.

Intangible assets subject to amortization
primarily include trademarks, tradenames, customer lists and
non-compete agreements, and are amortized on a straight-line
basis over the number of years that approximate their respective
useful lives (ranging from 2 to 15 years). The gross
carrying amount of these intangible assets is $35.4 million
with total accumulated amortization of $12.3 million as of
May 31, 2004. Intangible assets of $0.2 million
(non-cash acquisitions) and $0.8 million were acquired
during the nine months ended May 31, 2004 and 2003,
respectively. Total amortization expense for intangible assets
during the three-month and nine-month periods ended May 31,
2004, was approximately $0.9 million and $3.0 million,
respectively, and $1.2 million and $3.5 million,
respectively, for the same periods in 2003. The estimated
amortization expense related to intangible assets subject to
amortization for the next five years will approximate
$2.6 million annually.



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In December 2003, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 132R,
Employers Disclosures about Pensions and Other
Postretirement Benefits. This statement requires
additional disclosures to be made by employers regarding
pensions and other postretirement benefit plans, but does not
change the measurement or recognition of those plans. Under this
Statement, the disclosure provisions regarding foreign plans and
estimated future benefit payments are effective for fiscal years
ending after December 15, 2003 and interim periods
beginning after December 15, 2003. The Company has adopted
the interim provisions of this Statement during the current
fiscal quarter ended May 31, 2004. The annual disclosure
provisions of this Statement will be included in the
August 31, 2004 annual report.

On May 19, 2004, the FASB issued a FASB
Staff Position (FSP) regarding
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions.
FSP 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 discusses the effect of the
Medicare Prescription Drug, Improvement and Modernization Act
(the Act) enacted on December 8, 2003.
FSP 106-2 considers the effect of the two new features

6



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)

introduced in the Act in determining accumulated
postretirement benefit obligation (APBO) and net
periodic postretirement benefit cost, which may serve to reduce
a companys post-retirement benefit costs. Companies may
elect to defer accounting for this benefit or may attempt to
reflect the best estimate of the impact of the Act on net
periodic costs currently. The Company has chosen to defer
accounting for the benefit until the FASB issues final
accounting guidance due to various uncertainties related to this
legislation and the appropriate accounting. The Companys
measures of APBO and net periodic postretirement benefit costs
as of and for the quarter ended May 31, 2004 do not reflect
the effect of the Act as permitted by the FSP.

In December 2003, the FASB revised FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities. The interpretation addresses
consolidation of certain entities in which equity investors do
not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. It also requires consolidation by
the primary beneficiary. For public entities the interpretation
applies to interests in variable interest entities for periods
ending after March 15, 2004, the Companys third
quarter. Adoption of this standard did not have a material
effect on the Company.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, which establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its
scope as a liability (or an asset in certain circumstances).
Many of those instruments were previously classified as equity.
SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period
beginning after June 15, 2003. The Statement is to be
implemented by reporting the cumulative effect of a change in an
accounting principle for financial instruments created before
the issuance date of the Statement and still existing at the
beginning of the interim period of adoption. Adoption of this
standard did not have a material effect on the Company.



| |                   
| | ------------------
| | Reclassifications:

Certain reclassifications have been made to prior
years amounts to conform to current year classifications.
In addition, the Company previously amended its Quarterly Report
on Form 10-Q for the period ended May 31, 2003 to
restate its financial statements for such period. The
restatement reduced previously reported net sales and cost of
goods sold to eliminate intercompany sales. These
reclassifications and restatement had no effect on previously
reported net income, equities and comprehensive income, or cash
flows.



|        |            
|------- | -----------
|Note 2. | Receivables

|                                      |  |         |         |            |  |         |         |  |  |   |         | 
|------------------------------------- |  | ------- | ------- | ---------- |  | ------- | ------- |  |  | - | ------- | 
|                                      |  | May 31, |         | August 31, |  | May 31,
|                                      |  | 2004    |         | 2003       |  | 2003   
|                                      |  |         |         |            |  |        
|Trade                                 |  | $       | 921,847 |            |  | $       | 748,398 |  |  | $ | 710,524 | 
|Other                                 |  |         | 66,832  |            |  |         | 47,000  |  |  |   | 59,743  | 
|                                      |  |         |         |            |  |         |         |  |  |   |         | 
|                                      |  |         | 988,679 |            |  |         | 795,398 |  |  |   | 770,267 | 
|Less allowances for doubtful accounts |  |         | 34,239  |            |  |         | 31,618  |  |  |   | 29,220  | 
|                                      |  |         |         |            |  |         |         |  |  |   |         | 
|                                      |  | $       | 954,440 |            |  | $       | 763,780 |  |  | $ | 741,047 | 
|                                      |  |         |         |            |  |         |         |  |  |   |         | 

7



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)



|        |            
|------- | -----------
|Note 3. | Inventories

|                            |  |         |         |            |  |         |         |  |  |   |         | 
|--------------------------- |  | ------- | ------- | ---------- |  | ------- | ------- |  |  | - | ------- | 
|                            |  | May 31, |         | August 31, |  | May 31,
|                            |  | 2004    |         | 2003       |  | 2003   
|                            |  |         |         |            |  |        
|Grain and oilseed           |  | $       | 478,951 |            |  | $       | 370,381 |  |  | $ | 278,480 | 
|Energy                      |  |         | 245,985 |            |  |         | 292,095 |  |  |   | 232,877 | 
|Feed and farm supplies      |  |         | 145,349 |            |  |         | 95,589  |  |  |   | 115,747 | 
|Processed grain and oilseed |  |         | 35,182  |            |  |         | 42,688  |  |  |   | 50,128  | 
|Other                       |  |         | 1,334   |            |  |         | 1,130   |  |  |   | 1,269   | 
|                            |  |         |         |            |  |         |         |  |  |   |         | 
|                            |  | $       | 906,801 |            |  | $       | 801,883 |  |  | $ | 678,501 | 
|                            |  |         |         |            |  |         |         |  |  |   |         | 



|        |                                  
|------- | ---------------------------------
|Note 4. | Derivative Assets and Liabilities

Included in other current assets on May 31,
2004, August 31, 2003 and May 31, 2003 are derivative
assets of $185.1 million, $54.5 million and
$51.6 million, respectively. Included in accrued expenses
on May 31, 2004, August 31, 2003 and May 31, 2003
are derivative liabilities of $182.4 million,
$46.5 million and $26.8 million, respectively.



|        |            
|------- | -----------
|Note 5. | Investments

Prior to the two transactions described below,
the Company had a 25% economic and governance interest in
Agriliance, LLC.

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

In March 2004, the Companys Board of
Directors approved the purchase of all of Farmlands
interests in Agriliance, LLC. The purchase was approved
April 20, 2004, by the U.S. District Court overseeing
Farmlands bankruptcy process and was finalized on
April 30, 2004. The purchase price was $27.5 million.
The Company now owns 50% of the economic and governance
interests in Agriliance. The Company continues to account for
this investment using the equity method of accounting.

The following provides summarized unaudited
financial information for the Companys unconsolidated
significant equity investments in Ventura Foods, LLC (50% equity
ownership) and Agriliance, LLC, for the three-month and
nine-month periods as indicated below.



| |                   
| | ------------------
| | Ventura Foods, LLC

|                  |  |                            |         |                           |  |         |         |         |  |   |           |  |  |   |         | 
|----------------- |  | -------------------------- | ------- | ------------------------- |  | ------- | ------- | ------- |  | - | --------- |  |  | - | ------- | 
|                  |  |                            |         |                          
|                  |  | For the Three Months Ended |         | For the Nine Months Ended
|                  |  |                            |         |                          
|                  |  | May 31,                    |         | May 31,                   |  | May 31, |         | May 31,
|                  |  | 2004                       |         | 2003                      |  | 2004    |         | 2003   
|                  |  |                            |         |                           |  |         |         |        
|Net sales         |  | $                          | 370,293 |                           |  | $       | 296,298 |         |  | $ | 1,044,844 |  |  | $ | 858,715 | 
|Gross profit      |  |                            | 25,953  |                           |  |         | 39,779  |         |  |   | 131,275   |  |  |   | 119,150 | 
|Net (loss) income |  |                            | (6,679  | )                         |  |         | 12,018  |         |  |   | 40,633    |  |  |   | 34,421  | 

8



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)

|                        |  |         |         |            |  |         |         |  |  |   |         | 
|----------------------- |  | ------- | ------- | ---------- |  | ------- | ------- |  |  | - | ------- | 
|                        |  | May 31, |         | August 31, |  | May 31,
|                        |  | 2004    |         | 2003       |  | 2003   
|                        |  |         |         |            |  |        
|Current assets          |  | $       | 274,256 |            |  | $       | 193,632 |  |  | $ | 193,722 | 
|Non-current assets      |  |         | 255,457 |            |  |         | 231,649 |  |  |   | 232,678 | 
|Current liabilities     |  |         | 160,409 |            |  |         | 227,400 |  |  |   | 228,226 | 
|Non-current liabilities |  |         | 195,230 |            |  |         | 21,738  |  |  |   | 22,909  | 



| |                
| | ---------------
| | Agriliance, LLC

|             |  |                            |           |                           |  |         |           |         |  |   |           |  |  |   |           | 
|------------ |  | -------------------------- | --------- | ------------------------- |  | ------- | --------- | ------- |  | - | --------- |  |  | - | --------- | 
|             |  |                            |           |                          
|             |  | For the Three Months Ended |           | For the Nine Months Ended
|             |  |                            |           |                          
|             |  | May 31,                    |           | May 31,                   |  | May 31, |           | May 31,
|             |  | 2004                       |           | 2003                      |  | 2004    |           | 2003   
|             |  |                            |           |                           |  |         |           |        
|Net sales    |  | $                          | 1,424,747 |                           |  | $       | 1,402,646 |         |  | $ | 2,502,949 |  |  | $ | 2,548,766 | 
|Gross profit |  |                            | 148,541   |                           |  |         | 157,972   |         |  |   | 257,190   |  |  |   | 251,418   | 
|Net income   |  |                            | 78,121    |                           |  |         | 81,490    |         |  |   | 58,794    |  |  |   | 36,134    | 

|                        |  |         |           |            |  |         |           |  |  |   |           | 
|----------------------- |  | ------- | --------- | ---------- |  | ------- | --------- |  |  | - | --------- | 
|                        |  | May 31, |           | August 31, |  | May 31,
|                        |  | 2004    |           | 2003       |  | 2003   
|                        |  |         |           |            |  |        
|Current assets          |  | $       | 1,309,411 |            |  | $       | 1,249,941 |  |  | $ | 1,211,918 | 
|Non-current assets      |  |         | 123,519   |            |  |         | 119,615   |  |  |   | 126,874   | 
|Current liabilities     |  |         | 1,044,238 |            |  |         | 1,083,743 |  |  |   | 981,879   | 
|Non-current liabilities |  |         | 125,745   |            |  |         | 27,061    |  |  |   | 107,437   | 

During the three months ended May 31, 2004,
National Cooperative Refinery Association (NCRA), an approximate
74.5% owned subsidiary, exercised its right of first refusal to
purchase a partial interest in a crude oil pipeline and
subsequently sold a 50% interest in the same pipeline to another
third party. The purchase price was $16.0 million and the
sales price was $25.0 million, resulting in net proceeds
received of $9.0 million. NCRA recorded a gain on the sale
of $14.7 million.



|        |                                 
|------- | --------------------------------
|Note 6. | Notes Payable and Long-Term Debt

In May 2004, the Company renewed and expanded its
committed lines of revolving credit. The previously established
credit lines consisted of a $600.0 million 364-day revolver
and a $100.0 million three-year revolver. The new committed
credit facilities consist of a $750.0 million 364-day
revolver and a $150.0 million three-year revolver. The
terms of the new credit facilities are essentially the same as
the terms of the credit facilities they replaced.

In March 2004, the Company entered into a note
purchase and private shelf agreement with Prudential Capital
Group, primarily for the purpose of financing the purchase of
Farmlands interest in Agriliance, LLC, as discussed in
Note 5. In April, 2004, the Company borrowed
$30.0 million under this arrangement. One long-term note in
the amount of $15.0 million has an interest rate of 4.08%
and will be repaid in full at the end of the six-year term in
2010. Another long-term note in the amount of $15.0 million
has an interest rate of 4.39% and will be repaid in full at the
end of the seven-year term in 2011.

9



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)



|        |         
|------- | --------
|Note 7. | Equities

The following provides unaudited changes in
equity for the nine-month periods as indicated below:

|                                                        |  |      |           |      |  |   |           |  
|------------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                                        |  | 2004 |           | 2003
|                                                        |  |      |           |     
|Balances, September 1, 2003 and 2002                    |  | $    | 1,481,711 |      |  | $ | 1,289,638 |  
|Net income                                              |  |      | 140,639   |      |  |   | 88,429    |  
|Other comprehensive income (loss)                       |  |      | 2,091     |      |  |   | (5,465    | )
|Patronage distribution                                  |  |      | (95,218   | )    |  |   | (88,247   | )
|Patronage accrued 2003 and 2002                         |  |      | 90,000    |      |  |   | 92,900    |  
|Equities retired                                        |  |      | (5,724    | )    |  |   | (26,402   | )
|Equity retirements accrued 2003 and 2002                |  |      | 2,851     |      |  |   | 24,360    |  
|Equities issued in exchange for elevator
    properties |  |      | 13,355    |      |  |   |           |  
|Preferred stock issued, net of expenses                 |  |      | (151      | )    |  |   | 82,484    |  
|Preferred stock redemptions                             |  |      |           |      |  |   | (2,002    | )
|Preferred stock dividends                               |  |      | (5,861    | )    |  |   | (1,701    | )
|Preferred stock dividends accrued 2003                  |  |      | 1,249     |      |  |   |           |  
|Accrued dividends and equities payable                  |  |      | (79,409   | )    |  |   | (41,049   | )
|Other, net                                              |  |      | (818      | )    |  |   | (3,672    | )
|                                                        |  |      |           |      |  |   |           |  
|Balances, May 31, 2004 and 2003                         |  | $    | 1,544,715 |      |  | $ | 1,409,273 |  
|                                                        |  |      |           |      |  |   |           |  

In 2001 and 2002 the Company issued approximately
$9.5 million (9,454,874 shares) of 8% Preferred Stock
(Old Preferred). In late 2002, the Company suspended sales of
the Old Preferred, and on February 25, 2003 the Company
filed a post-effective amendment to terminate the offering of
the Old Preferred shares. In January 2003, the Company issued
3,450,000 shares of 8% Cumulative Redeemable Preferred
Stock (New Preferred) at a price of $25.00 per share, for
proceeds of $86.3 million, which are listed on the NASDAQ
National Market. The Board of Directors intent is to pay
quarterly dividends. Expenses related to the issuance of the New
Preferred were $3.8 million.

On March 5, 2003, the Companys Board
of Directors authorized the redemption and conversion of the Old
Preferred shares. A redemption notification and a conversion
election form were sent to holders of the Old Preferred shares
on March 21, 2003 explaining that on April 25, 2003
all shares of the Old Preferred would be redeemed by the Company
for $1.00 per share unless they were converted into shares
of the Companys New Preferred. The conversion did not
change the base liquidation amount or dividend amount of the Old
Preferred, since 25 shares of the Old Preferred converted
to 1 share of the New Preferred. The total Old Preferred
converted to the New Preferred was $7.5 million
(7,452,439 shares), and the balance of the Old Preferred
(2,002,435 shares) was redeemed in cash at $1.00 per
share.

In March 2004, $13.0 million of capital
equity certificates were redeemed in exchange for shares of the
Companys New Preferred pursuant to a registration
statement on Form S-2 filed with the Securities and
Exchange Commission. The amount of equities redeemed with each
share of preferred stock issued was $27.10, which was the
closing price per share of the stock on the NASDAQ National
Market on March 2, 2004. As of May 31, 2004 the
Company had $105.7 million (4,226,428 shares) of the
New Preferred outstanding.



|        |                     
|------- | --------------------
|Note 8. | Comprehensive Income

Total comprehensive income primarily consists of
net income, additional minimum pension liability and cash flow
hedges. For the three months ended May 31, 2004 and 2003,
total comprehensive income

10



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)

amounted to $81.2 million and
$53.3 million, respectively. For the nine months ended
May 31, 2004 and 2003, total comprehensive income amounted
to $142.7 million and $83.0 million, respectively.
Accumulated other comprehensive loss on May 31, 2004,
August 31, 2003 and May 31, 2003 was
$16.2 million, $18.3 million and $57.4 million,
respectively.



|        |                    
|------- | -------------------
|Note 9. | Non-Cash Activities

During the nine months ended May 31, 2004
and 2003 the Company accrued dividends and equities payable of
$79.4 million and $41.0 million, respectively.

During the nine months ended May 31, 2004
the Company issued capital equity certificates in the amount of
$13.4 million in exchange for elevator properties.



|         |                       
|-------- | ----------------------
|Note 10. | Employee Benefit Plans

Employee benefit information for the three months
and nine months ended May 31, 2004 and 2003 is as follows:

|                                                                        |  |                  |         |                  |  |                |         |      |  |      |       |      |  |   |       |  |  |   |       |   |  |   |       |  
|----------------------------------------------------------------------- |  | ---------------- | ------- | ---------------- |  | -------------- | ------- | ---- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | - |  | - | ----- | -
|                                                                        |  |                  |         |                  |  |                |         |     
|                                                                        |  | Qualified        |         | Non-Qualified    |  |               
|                                                                        |  | Pension Benefits |         | Pension Benefits |  | Other Benefits
|                                                                        |  |                  |         |                  |  |               
|                                                                        |  | 2004             |         | 2003             |  | 2004           |         | 2003 |  | 2004 |       | 2003
|                                                                        |  |                  |         |                  |  |                |         |      |  |      |       |     
|Components of net periodic benefit cost for
    the three months ended: |  |                  |         |                  |  |                |         |      |  |      |       |      |  |   |       |  |  |   |       |   |  |   |       |  
|Service cost                                                            |  | $                | 2,887   |                  |  | $              | 2,710   |      |  | $    | 150   |      |  | $ | 200   |  |  | $ | 189   |   |  | $ | 162   |  
|Interest cost                                                           |  |                  | 4,301   |                  |  |                | 4,376   |      |  |      | 206   |      |  |   | 258   |  |  |   | 439   |   |  |   | 431   |  
|Return on plan assets                                                   |  |                  | (6,872  | )                |  |                | (5,947  | )    |  |      |       |      |  |   |       |  |  |   |       |   |  |   |       |  
|Prior service cost amortization                                         |  |                  | 211     |                  |  |                | 202     |      |  |      | 132   |      |  |   | 141   |  |  |   | (43   | ) |  |   | (43   | )
|Actuarial loss (gain) amortization                                      |  |                  | 1,037   |                  |  |                | 656     |      |  |      | 26    |      |  |   | 40    |  |  |   | 27    |   |  |   | (54   | )
|Transition amount amortization                                          |  |                  |         |                  |  |                |         |      |  |      |       |      |  |   |       |  |  |   | 234   |   |  |   | 234   |  
|Other adjustments                                                       |  |                  |         |                  |  |                |         |      |  |      | 251   |      |  |   |       |  |  |   |       |   |  |   |       |  
|                                                                        |  |                  |         |                  |  |                |         |      |  |      |       |      |  |   |       |  |  |   |       |   |  |   |       |  
|Net periodic benefit cost                                               |  | $                | 1,564   |                  |  | $              | 1,997   |      |  | $    | 765   |      |  | $ | 639   |  |  | $ | 846   |   |  | $ | 730   |  
|                                                                        |  |                  |         |                  |  |                |         |      |  |      |       |      |  |   |       |  |  |   |       |   |  |   |       |  
|Components of net periodic benefit cost for
    the nine months ended:  |  |                  |         |                  |  |                |         |      |  |      |       |      |  |   |       |  |  |   |       |   |  |   |       |  
|Service cost                                                            |  | $                | 8,661   |                  |  | $              | 8,130   |      |  | $    | 451   |      |  | $ | 600   |  |  | $ | 566   |   |  | $ | 486   |  
|Interest cost                                                           |  |                  | 12,902  |                  |  |                | 13,127  |      |  |      | 617   |      |  |   | 775   |  |  |   | 1,318 |   |  |   | 1,292 |  
|Return on plan assets                                                   |  |                  | (20,617 | )                |  |                | (17,841 | )    |  |      |       |      |  |   |       |  |  |   |       |   |  |   |       |  
|Prior service cost amortization                                         |  |                  | 632     |                  |  |                | 605     |      |  |      | 395   |      |  |   | 423   |  |  |   | (130  | ) |  |   | (129  | )
|Actuarial loss (gain) amortization                                      |  |                  | 3,112   |                  |  |                | 1,967   |      |  |      | 77    |      |  |   | 119   |  |  |   | 81    |   |  |   | (161  | )
|Transition amount amortization                                          |  |                  |         |                  |  |                |         |      |  |      |       |      |  |   |       |  |  |   | 702   |   |  |   | 702   |  
|Other adjustments                                                       |  |                  |         |                  |  |                |         |      |  |      | 753   |      |  |   |       |  |  |   |       |   |  |   |       |  
|                                                                        |  |                  |         |                  |  |                |         |      |  |      |       |      |  |   |       |  |  |   |       |   |  |   |       |  
|Net periodic benefit cost                                               |  | $                | 4,690   |                  |  | $              | 5,988   |      |  | $    | 2,293 |      |  | $ | 1,917 |  |  | $ | 2,537 |   |  | $ | 2,190 |  
|                                                                        |  |                  |         |                  |  |                |         |      |  |      |       |      |  |   |       |  |  |   |       |   |  |   |       |  



| |                       
| | ----------------------
| | Employer contributions

As of May 31, 2004, the Company expected to
make contributions of $6.6 million to its pension plan
during the year ended August 31, 2004. These contributions
were made in June 2004.

11



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)



|         |                  
|-------- | -----------------
|Note 11. | Segment Reporting

The Company manages five business segments, which
are based on products and services, and are Agronomy, Energy,
Country Operations and Services, Grain Marketing, and Processed
Grains and Foods. The Agronomy segment consists of joint
ventures and other investments, from which the Company derives
investment income based upon the profitability of these
investments. The Energy segment derives its revenues through
refining, wholesaling and retailing of petroleum products. The
Country Operations and Services segment derives its revenues
through the origination and marketing of grain, through the
retail sales of petroleum and agronomy products, and processed
sunflower, feed and farm supplies. The Country Operations and
Services segment also derives revenues from service activities
related to crop production. The Grain Marketing segment derives
its revenues from the sale of grains and oilseeds and from
service activities conducted at its export terminals. Processed
Grains and Foods segment derives its revenues from the sales of
soybean meal, soybean refined oil and from the sale of Mexican
food products.

Reconciling Amounts represent the elimination of
sales between segments. Such transactions are conducted at
market prices to more accurately evaluate the profitability of
the individual business segments.

The Company assigns certain corporate general and
administrative expenses to its business segments, based on use
of such services and allocates other services based on factors
or considerations relevant to the costs incurred.

Expenses that are incurred at the corporate level
for the purpose of the general operation of the Company are
allocated to the segments based upon factors which management
considers to be non-asymmetrical. Therefore, due to efficiencies
in scale, cost allocations, and intersegment activity,
management does not represent that these segments, if operated
independently, would report the income before income taxes and
other financial information as presented.

12



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)

Segment information for the three months and nine
months ended May 31, 2004 and 2003 is as follows:

|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |           |  
|------------------------------------------- | ----------------------------------------- | -------- | --- | ------- | - | ------------ | --------- | --------- | - | ---------- | --------- | --------- | - | ----------- | --------- | --------- | - |  | ------- | ------- | - |  | ----- | ------- | - |  | -------- | -------- | - |  | --------- | --------- | -
|                                            |                                           |          |     |         |   | Country      |           |           |   | Processed  |           |           |   |             |           |          
|                                            |                                           |          |     |         |   | Operations   |           | Grain     |   | Grains and |           |           |   | Reconciling |           |          
|                                            |                                           | Agronomy |     | Energy  |   | and Services |           | Marketing |   | Foods      |           | Other     |   | Amounts     |           | Total    
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |          
|For the Three Months Ended May 31,
    2004 |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Net sales                                 |          |     |         |   |              | $         | 1,046,218 |   |            | $         | 697,097   |   |             | $         | 1,125,280 |   |  | $       | 240,692 |   |  |       |         |   |  | $        | (291,758 | ) |  | $         | 2,817,529 |  
|                                            | Patronage dividends                       |          | $   | (15     | ) |              |           | 270       |   |            |           | 1,139     |   |             |           | 136       |   |  |         | 249     |   |  | $     | 30      |   |  |          |          |   |  |           | 1,809     |  
|                                            | Other revenues                            |          |     |         |   |              |           | 3,343     |   |            |           | 27,678    |   |             |           | 6,891     |   |  |         | 915     |   |  |       | 2,565   |   |  |          |          |   |  |           | 41,392    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            |                                           |          | (15 | )       |   |              | 1,049,831 |           |   |            | 725,914   |           |   |             | 1,132,307 |           |   |  | 241,856 |         |   |  | 2,595 |         |   |  | (291,758 | )        |   |  | 2,860,730 |          
|                                            | Cost of goods sold                        |          |     |         |   |              |           | 964,696   |   |            |           | 686,114   |   |             |           | 1,143,302 |   |  |         | 231,881 |   |  |       |         |   |  |          | (291,758 | ) |  |           | 2,734,235 |  
|                                            | Marketing, general and administrative     |          |     | 1,703   |   |              |           | 16,772    |   |            |           | 17,908    |   |             |           | 5,717     |   |  |         | 9,928   |   |  |       | 2,146   |   |  |          |          |   |  |           | 54,174    |  
|                                            | Gain on sale of investment                |          |     |         |   |              |           | (14,666   | ) |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           | (14,666   | )
|                                            | Interest                                  |          |     | (111    | ) |              |           | 3,139     |   |            |           | 4,398     |   |             |           | 1,729     |   |  |         | 3,928   |   |  |       | 699     |   |  |          |          |   |  |           | 13,782    |  
|                                            | Equity (income) loss from investments     |          |     | (31,111 | ) |              |           | (522      | ) |            |           | (159      | ) |             |           | (3,071    | ) |  |         | 2,457   |   |  |       |         |   |  |          |          |   |  |           | (32,406   | )
|                                            | Minority interests                        |          |     |         |   |              |           | 16,063    |   |            |           | 354       |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           | 16,417    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Income (loss) before income taxes         |          | $   | 29,504  |   |              | $         | 64,349    |   |            | $         | 17,299    |   |             | $         | (15,370   | ) |  | $       | (6,338  | ) |  | $     | (250    | ) |  | $        |         |   |  | $         | 89,194    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Intersegment sales                        |          |     |         |   |              | $         | (31,909   | ) |            | $         | (248,040  | ) |             | $         | (11,809   | ) |  |         |         |   |  |       |         |   |  | $        | 291,758  |   |  | $         |          |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Capital expenditures                      |          |     |         |   |              | $         | 57,695    |   |            | $         | 5,831     |   |             | $         | 658       |   |  | $       | 1,183   |   |  | $     | 818     |   |  |          |          |   |  | $         | 66,185    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Depreciation and amortization             |          | $   | 312     |   |              | $         | 14,423    |   |            | $         | 5,225     |   |             | $         | 2,034     |   |  | $       | 3,913   |   |  | $     | 761     |   |  |          |          |   |  | $         | 26,668    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|For the Three Months Ended May 31,
    2003 |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Net sales                                 |          |     |         |   |              | $         | 873,187   |   |            | $         | 545,082   |   |             | $         | 895,493   |   |  | $       | 112,925 |   |  |       |         |   |  | $        | (206,232 | ) |  | $         | 2,220,455 |  
|                                            | Patronage dividends                       |          | $   | (27     | ) |              |           | 334       |   |            |           | 800       |   |             |           | 136       |   |  |         | 84      |   |  | $     | 24      |   |  |          |          |   |  |           | 1,351     |  
|                                            | Other revenues                            |          |     |         |   |              |           | 1,994     |   |            |           | 20,379    |   |             |           | 4,559     |   |  |         | 970     |   |  |       | 1,169   |   |  |          |          |   |  |           | 29,071    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            |                                           |          | (27 | )       |   |              | 875,515   |           |   |            | 566,261   |           |   |             | 900,188   |           |   |  | 113,979 |         |   |  | 1,193 |         |   |  | (206,232 | )        |   |  | 2,250,877 |          
|                                            | Cost of goods sold                        |          |     |         |   |              |           | 824,921   |   |            |           | 535,008   |   |             |           | 893,532   |   |  |         | 105,238 |   |  |       |         |   |  |          | (206,232 | ) |  |           | 2,152,467 |  
|                                            | Marketing, general and administrative     |          |     | 1,989   |   |              |           | 15,997    |   |            |           | 14,064    |   |             |           | 5,653     |   |  |         | 10,354  |   |  |       | 1,426   |   |  |          |          |   |  |           | 49,483    |  
|                                            | Gain on legal settlement                  |          |     |         |   |              |           |           |   |            |           | (178      | ) |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           | (178      | )
|                                            | Interest                                  |          |     | (204    | ) |              |           | 4,297     |   |            |           | 3,891     |   |             |           | 865       |   |  |         | 3,404   |   |  |       | 31      |   |  |          |          |   |  |           | 12,284    |  
|                                            | Equity (income) loss from investments     |          |     | (22,983 | ) |              |           | (386      | ) |            |           | (72       | ) |             |           | 429       |   |  |         | (6,990  | ) |  |       | (1      | ) |  |          |          |   |  |           | (30,003   | )
|                                            | Minority interests                        |          |     |         |   |              |           | 5,581     |   |            |           | 332       |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           | 5,913     |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Income (loss) before income taxes         |          | $   | 21,171  |   |              | $         | 25,105    |   |            | $         | 13,216    |   |             | $         | (291      | ) |  | $       | 1,973   |   |  | $     | (263    | ) |  | $        |         |   |  | $         | 60,911    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Intersegment sales                        |          |     |         |   |              | $         | (22,288   | ) |            | $         | (183,562  | ) |             | $         | (382      | ) |  |         |         |   |  |       |         |   |  | $        | 206,232  |   |  | $         |          |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Capital expenditures                      |          |     |         |   |              | $         | 22,677    |   |            | $         | 3,498     |   |             | $         | 1,062     |   |  | $       | 17,698  |   |  | $     | 157     |   |  |          |          |   |  | $         | 45,092    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Depreciation and amortization             |          | $   | 312     |   |              | $         | 14,475    |   |            | $         | 4,914     |   |             | $         | 1,610     |   |  | $       | 3,416   |   |  | $     | 771     |   |  |          |          |   |  | $         | 25,498    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|For the Nine Months Ended May 31,
    2004  |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Net sales                                 |          |     |         |   |              | $         | 2,868,509 |   |            | $         | 1,695,654 |   |             | $         | 3,698,320 |   |  | $       | 584,574 |   |  |       |         |   |  | $        | (885,588 | ) |  | $         | 7,961,469 |  
|                                            | Patronage dividends                       |          | $   | (15     | ) |              |           | 1,382     |   |            |           | 3,640     |   |             |           | 436       |   |  |         | 249     |   |  | $     | 78      |   |  |          |          |   |  |           | 5,770     |  
|                                            | Other revenues                            |          |     |         |   |              |           | 5,975     |   |            |           | 69,216    |   |             |           | 21,872    |   |  |         | 2,711   |   |  |       | 5,101   |   |  |          |          |   |  |           | 104,875   |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            |                                           |          | (15 | )       |   |              | 2,875,866 |           |   |            | 1,768,510 |           |   |             | 3,720,628 |           |   |  | 587,534 |         |   |  | 5,179 |         |   |  | (885,588 | )        |   |  | 8,072,114 |          
|                                            | Cost of goods sold                        |          |     |         |   |              |           | 2,717,030 |   |            |           | 1,670,844 |   |             |           | 3,717,233 |   |  |         | 557,345 |   |  |       |         |   |  |          | (885,588 | ) |  |           | 7,776,864 |  
|                                            | Marketing, general and administrative     |          |     | 5,471   |   |              |           | 48,054    |   |            |           | 49,730    |   |             |           | 18,031    |   |  |         | 28,361  |   |  |       | 5,070   |   |  |          |          |   |  |           | 154,717   |  
|                                            | Gain on sale of investment                |          |     |         |   |              |           | (14,666   | ) |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           | (14,666   | )
|                                            | Interest                                  |          |     | (289    | ) |              |           | 10,652    |   |            |           | 11,902    |   |             |           | 4,252     |   |  |         | 11,437  |   |  |       | 850     |   |  |          |          |   |  |           | 38,804    |  
|                                            | Equity income from investments            |          |     | (29,290 | ) |              |           | (811      | ) |            |           | (428      | ) |             |           | (7,777    | ) |  |         | (25,887 | ) |  |       |         |   |  |          |          |   |  |           | (64,193   | )
|                                            | Minority interests                        |          |     |         |   |              |           | 22,459    |   |            |           | 1,100     |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           | 23,559    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Income (loss) before income taxes         |          | $   | 24,093  |   |              | $         | 93,148    |   |            | $         | 35,362    |   |             | $         | (11,111   | ) |  | $       | 16,278  |   |  | $     | (741    | ) |  | $        |         |   |  | $         | 157,029   |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Intersegment sales                        |          |     |         |   |              | $         | (87,354   | ) |            | $         | (767,145  | ) |             | $         | (31,089   | ) |  |         |         |   |  |       |         |   |  | $        | 885,588  |   |  | $         |          |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Goodwill assets                           |          |     |         |   |              | $         | 3,185     |   |            | $         | 250       |   |             |           |           |   |  | $       | 23,605  |   |  |       |         |   |  |          |          |   |  | $         | 27,040    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Capital expenditures                      |          |     |         |   |              | $         | 126,173   |   |            | $         | 19,664    |   |             | $         | 4,828     |   |  | $       | 16,153  |   |  | $     | 1,589   |   |  |          |          |   |  | $         | 168,407   |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Depreciation and amortization             |          | $   | 935     |   |              | $         | 43,270    |   |            | $         | 16,237    |   |             | $         | 6,172     |   |  | $       | 11,586  |   |  | $     | 2,328   |   |  |          |          |   |  | $         | 80,528    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Total identifiable assets at May 31, 2004 |          | $   | 324,047 |   |              | $         | 1,499,135 |   |            | $         | 1,037,487 |   |             | $         | 727,313   |   |  | $       | 530,500 |   |  | $     | 296,887 |   |  |          |          |   |  | $         | 4,415,369 |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|For the Nine Months Ended May 31,
    2003  |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Net sales                                 |          |     |         |   |              | $         | 2,684,805 |   |            | $         | 1,464,980 |   |             | $         | 3,161,343 |   |  | $       | 355,049 |   |  |       |         |   |  | $        | (716,972 | ) |  | $         | 6,949,205 |  
|                                            | Patronage dividends                       |          | $   | (84     | ) |              |           | 397       |   |            |           | 1,646     |   |             |           | 162       |   |  |         | 111     |   |  | $     | 78      |   |  |          |          |   |  |           | 2,310     |  
|                                            | Other revenues                            |          |     |         |   |              |           | 3,831     |   |            |           | 61,364    |   |             |           | 17,395    |   |  |         | 2,826   |   |  |       | 3,642   |   |  |          |          |   |  |           | 89,058    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            |                                           |          | (84 | )       |   |              | 2,689,033 |           |   |            | 1,527,990 |           |   |             | 3,178,900 |           |   |  | 357,986 |         |   |  | 3,720 |         |   |  | (716,972 | )        |   |  | 7,040,573 |          
|                                            | Cost of goods sold                        |          |     |         |   |              |           | 2,570,063 |   |            |           | 1,452,667 |   |             |           | 3,155,182 |   |  |         | 331,522 |   |  |       |         |   |  |          | (716,972 | ) |  |           | 6,792,462 |  
|                                            | Marketing, general and administrative     |          |     | 4,707   |   |              |           | 43,759    |   |            |           | 41,999    |   |             |           | 17,636    |   |  |         | 28,499  |   |  |       | 4,103   |   |  |          |          |   |  |           | 140,703   |  
|                                            | Gain on legal settlement                  |          |     |         |   |              |           |           |   |            |           | (10,867   | ) |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           | (10,867   | )
|                                            | Interest                                  |          |     | (882    | ) |              |           | 12,308    |   |            |           | 11,895    |   |             |           | 3,747     |   |  |         | 9,069   |   |  |       | 396     |   |  |          |          |   |  |           | 36,533    |  
|                                            | Equity (income) loss from investments     |          |     | (12,953 | ) |              |           | (941      | ) |            |           | (542      | ) |             |           | 1,325     |   |  |         | (19,284 | ) |  |       | (1      | ) |  |          |          |   |  |           | (32,396   | )
|                                            | Minority interests                        |          |     |         |   |              |           | 13,786    |   |            |           | 903       |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           | 14,689    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Income (loss) before income taxes         |          | $   | 9,044   |   |              | $         | 50,058    |   |            | $         | 31,935    |   |             | $         | 1,010     |   |  | $       | 8,180   |   |  | $     | (778    | ) |  | $        |         |   |  | $         | 99,449    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Intersegment sales                        |          |     |         |   |              | $         | (69,234   | ) |            | $         | (646,522  | ) |             | $         | (1,216    | ) |  |         |         |   |  |       |         |   |  | $        | 716,972  |   |  | $         |          |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Goodwill assets                           |          |     |         |   |              | $         | 3,409     |   |            | $         | 262       |   |             |           |           |   |  | $       | 23,605  |   |  |       |         |   |  |          |          |   |  | $         | 27,276    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Capital expenditures                      |          |     |         |   |              | $         | 56,701    |   |            | $         | 16,849    |   |             | $         | 1,978     |   |  | $       | 45,662  |   |  | $     | 1,277   |   |  |          |          |   |  | $         | 122,467   |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Depreciation and amortization             |          | $   | 935     |   |              | $         | 43,523    |   |            | $         | 15,668    |   |             | $         | 4,820     |   |  | $       | 9,818   |   |  | $     | 2,368   |   |  |          |          |   |  | $         | 77,132    |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                            | Total identifiable assets at May 31, 2003 |          | $   | 281,597 |   |              | $         | 1,343,928 |   |            | $         | 861,220   |   |             | $         | 395,468   |   |  | $       | 486,447 |   |  | $     | 214,639 |   |  |          |          |   |  | $         | 3,583,299 |  
|                                            |                                           |          |     |         |   |              |           |           |   |            |           |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          

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##### Table of Contents



CHS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)



|         |                              
|-------- | -----------------------------
|Note 12. | Commitments and Contingencies



| |              
| | -------------
| | Environmental

The Company incurs capital expenditures related
to the Environmental Protection Agency low sulfur fuel
regulations required by 2006. These expenditures were started in
fiscal 2002, and are expected to be approximately
$87.0 million for the Companys Laurel, Montana
refinery and $324.0 million for NCRAs McPherson,
Kansas refinery, of which $30.8 million has been spent at
the Laurel refinery and $92.7 million has been spent by
NCRA at the McPherson refinery as of May 31, 2004. 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.



| |           
| | ----------
| | Guarantees

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The interpretation
addresses the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations
under guarantees. The interpretation also clarifies the
requirements related to the recognition of a liability by a
guarantor at the inception of the guarantee for obligations the
guarantor has undertaken in issuing the guarantee.

The Company makes seasonal and term loans to
member cooperatives, and its wholly-owned subsidiary, Fin-Ag,
Inc., makes loans for agricultural purposes to individual
producers. Some of these loans are sold to CoBank, ACB, and the
Company guarantees a portion of the loans sold. In addition, the
Company also guarantees certain debt and obligations under
contracts for its subsidiaries and members.

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##### Table of Contents



CHS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)

The Companys obligations pursuant to its
guarantees as of May 31, 2004 are as follows:

|                                                                      |  |                        |        |             |  |                     |        |                 |  |                                                                                                                                                                                                                                     |  |                                                                                                                                                                                            |  |                                            |  |                                          |  |                                                                                                                      
|--------------------------------------------------------------------- |  | ---------------------- | ------ | ----------- |  | ------------------- | ------ | --------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------ |  | ---------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------
|                                                                      |  | Guarantee/             |        | Exposure on |  |                     |        |                 |  |                                                                                                                                                                                                                                     |  |                                                                                                                                                                                            |  |                                           
|                                                                      |  | Maximum                |        | May 31,     |  |                     |        |                 |  |                                                                                                                                                                                                                                     |  |                                                                                                                                                                                            |  | Assets Held as                            
|Entities                                                              |  | Exposure               |        | 2004        |  | Nature of Guarantee |        | Expiration Date |  | Triggering Event                                                                                                                                                                                                                    |  | Recourse Provisions                                                                                                                                                                        |  | Collateral                                
|                                                                      |  |                        |        |             |  |                     |        |                 |  |                                                                                                                                                                                                                                     |  |                                                                                                                                                                                            |  |                                           
|                                                                      |  |                        |        |             |  |                     |        |                 |  |                                                                                                                                                                                                                                     |  |                                                                                                                                                                                           
|                                                                      |  | (dollars in thousands) |        |             |  |                     |        |                 |  |                                                                                                                                                                                                                                     |  |                                                                                                                                                                                           
|The Companys financial services cooperative
    loans sold to CoBank |  |                        | *      |             |  | $                   | 11,666 |                 |  | 10% of the obligations of borrowers (agri-
    cultural cooperatives) under credit agreements for loans sold                                                                                                                        |  | None stated, but may be terminated by either
    party upon 60 days prior notice in regard to future
    obligations                                                                       |  | Credit agreement default                   |  | Subrogation against borrower             |  | Some or all assets of borrower are held as
    collateral and should be sufficient to cover guarantee exposure       
|Fin-Ag, Inc. agricultural loans sold to CoBank                        |  |                        | *      |             |  |                     | 27,978 |                 |  | 15% of the obligations of borrowers under credit
    agreements for some of the loans sold, 50% of the obligations of
    borrowers for other loans sold, and 100% of the obligations of
    borrowers for the remaining loans sold |  | None stated, but may be terminated by either
    party upon 90 days prior notice in regard to future
    obligations                                                                       |  | Credit agreement default                   |  | Subrogation against borrower             |  | Some or all assets of borrower are held as
    collateral and should be sufficient to cover guarantee exposure       
|Horizon Milling, LLC                                                  |  | $                      | 5,000  |             |  |                     |       |                 |  | Indemnification and reimbursement of 24% of
    damages related to Horizon Milling LLCs performance under
    a flour sales agreement                                                                                              |  | None stated, but may be terminated by any party
    upon 90 days prior notice in regard to future obligations                                                                              |  | Non-performance under flour sale agreement |  | Subrogation against Horizon Milling, LLC |  | None                                                                                                                 
|TEMCO, LLC                                                            |  | $                      | 15,000 |             |  |                     |       |                 |  | Obligations by TEMCO, LLC under credit agreement                                                                                                                                                                                    |  | None stated                                                                                                                                                                                |  | Credit agreement default                   |  | Subrogation against TEMCO, LLC           |  | None                                                                                                                 
|Third parties                                                         |  |                        | *      |             |  |                     | 1,476  |                 |  | Surety for, or indemnification of surety for
    sales contracts between affiliates and sellers of grain under
    deferred payment contracts                                                                                       |  | Annual renewal on December 1st in regard to
    surety for one third party, otherwise none stated and may be
    terminated by the Company at any time in regard to future
    obligations |  | Nonpayment                                 |  | Subrogation against affiliates           |  | Some or all assets of borrower are held as
    collateral but might not be sufficient to cover guarantee
    exposure
|                                                                      |  |                        |        |             |  |                     |        |                 |  |                                                                                                                                                                                                                                     |  |                                                                                                                                                                                            |  |                                            |  |                                          |  |                                                                                                                      
|                                                                      |  |                        |        |             |  | $                   | 41,120 |                 |  |                                                                                                                                                                                                                                     |  |                                                                                                                                                                                            |  |                                            |  |                                          |  |                                                                                                                      
|                                                                      |  |                        |        |             |  |                     |        |                 |  |                                                                                                                                                                                                                                     |  |                                                                                                                                                                                            |  |                                            |  |                                          |  |                                                                                                                      



---



|  |                                                                                                                                                                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The Companys bank covenants allow for
    guarantees of up to $150.0 million, but the Company is
    under no obligation to extend these guarantees. The maximum
    exposure on any given date is equal to the actual guarantees
    extended as of that date.

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking
Statements

The information in this Quarterly Report on
Form 10-Q for the quarterly period ended May 31, 2004,
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 of factors pursuant to the Act
should not be construed as exhaustive.

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

Changes in commodity
prices.Our revenues and earnings are
affected by market prices for commodities such as crude oil,
natural gas, grains, oilseeds, and flour. Commodity prices
generally are affected by a wide range of factors beyond our
control, including 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.

Grain and energy prices were volatile during the
quarter ending May 31, 2004 and the Company expects that
this volatility will continue throughout the balance of this
fiscal year. While the Company minimizes its risk to price
fluctuations through hedging transactions, the Company is
exposed to loss in the event of nonperformance by
counter-parties to forward purchase or sale contracts. Volatile
commodity prices increase the risk that counter-parties may
choose to default under the contracts when the market price has
changed to their disadvantage.

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;

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| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 the National Cooperative
Refinery Associations (NCRA) McPherson, Kansas
refinery, of which $30.8 million had been spent at the
Laurel refinery and $92.7 million had been spent by NCRA at
the McPherson refinery as of May 31, 2004. 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.

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

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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 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.

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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 and manufacturing
those 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
that 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 and foods
businesses, are operated through joint ventures with 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 those ventures.



| |        
| | -------
| | General

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, 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 members and other
customers. The Company provides a wide variety of

19



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products and services, from initial agricultural
inputs such as fuels, farm supplies and crop nutrients, to
agricultural outputs that include grains and oilseeds, grain and
oilseed processing, and food products.


The Company has five distinct business segments:
Agronomy, Energy, Country Operations and Services, Grain
Marketing and Processed Grains and Foods. Summary data for each
of these segments for the three months and nine months ended
May 31, 2004 and 2003 is shown in Note 11 to the
Consolidated Financial Statements.

Many of the Companys business activities
are highly seasonal, and as a result, operating results will
vary throughout the year. Overall, the Companys income is
generally lowest during the second fiscal quarter and highest
during the third fiscal quarter. Certain business segments are
subject to varying seasonal fluctuations. For example, the
Agronomy and Country Operations and Services segments experience
higher volumes and income during the spring planting season and
in the fall, which corresponds to harvest. The Grain Marketing
segment is subject to fluctuations in volumes and earnings based
on producer harvests, world grain prices and demand. The
Companys Energy segment generally experiences higher
volumes and profitability in certain operating areas, such as
refined fuels products, in the summer when gasoline and diesel
usage is highest. Other energy products, such as propane,
experience higher volumes and profitability during the winter
heating and fall crop drying seasons.

The Companys revenue can be significantly
affected by global market prices for commodities such as
petroleum products, natural gas, grains, oilseeds and flour.
Changes in market prices for commodities that the Company
purchases without a corresponding change in the selling prices
of those products can affect revenues and operating earnings.
Commodity prices are affected by a wide range of factors beyond
the Companys control, including weather, crop damage due
to diseases or insects, drought, the availability and adequacy
of supply, government regulation and policies, world events, and
general political and economic conditions.

While the Companys sales and operating
results are derived from businesses and operations which are
wholly-owned and majority-owned, a portion of business
operations are conducted through companies in which the Company
holds ownership interests of 50% or less and does not control
the operations. The Company accounts for these investments
primarily using the equity method of accounting, wherein CHS
records, as equity income from investments, its proportionate
share of income or loss reported by the entity, without
consolidating the revenues and expenses of the entity in the
Companys consolidated statements of operations. These
investments principally include the Companys 50% ownership
in Agriliance, LLC (Agriliance), the 50% ownership in TEMCO,
LLC, the 50% ownership in United Harvest, LLC, the 24% ownership
in Horizon Milling, LLC (Horizon) and the 50% ownership in
Ventura Foods, LLC (Ventura).

Prior to the two transactions described below,
the Company had a 25% economic and governance interest in
Agriliance.

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

In March 2004, the Companys Board of
Directors approved the purchase of all of Farmlands
interests in Agriliance. The purchase was approved
April 20, 2004, by the U.S. District Court overseeing
Farmlands bankruptcy process and was finalized on
April 30, 2004. The purchase price was $27.5 million.
The Company now owns 50% of the economic and governance
interests in Agriliance. The Company continues to account for
this investment using the equity method of accounting.

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Recent

Grain and energy prices were volatile during the
quarter ending May 31, 2004 and the Company expects that
this volatility will continue throughout the balance of this
fiscal year. Shortages of certain grain commodities due to poor
growing conditions last year, volatile ocean freight costs, and
strong world demand, along with the uncertainty of weather this
summer, has created sizable movements in grain prices. Energy
prices, driven primarily by uncertain world political conditions
and strong demand for gasoline in the U.S. have also
changed in a volatile manner. While the Company minimizes its
risk to price fluctuations through hedging transactions, the
Company is exposed to loss in the event of nonperformance by
counter-parties to forward purchase or sale contracts. Volatile
commodity prices increase the risk that counter-parties may
default under the contracts when the market price has changed.

Considering the risk of default, the Company has
valued certain sale contracts within its Grain Marketing segment
at less than the respective contract prices based upon our
appraisal of current fair market value on May 31, 2004. The
valuation at less than contract price had the effect of reducing
pre-tax income for the three months and nine months ended
May 31, 2004, in the aggregate by $18.5 million, and
net income by $11.3 million compared to the results which
would have been reported had these contracts been valued at the
contract price.

If a counter-party defaults on either a purchase
or sale contract, it is the policy of the Company to pursue the
matter aggressively in appropriate legal proceedings. The
Company is closely monitoring other customers and suppliers
where existing contracts are outside of current market values
and will react aggressively to enforce these obligations in the
event of a default by a counter-party.

Results of Operations



| |                                                               
| | --------------------------------------------------------------
| | Comparison of the three months ended
    May 31, 2004 and 2003

Net Income.Consolidated net income for the three months ended May 31,
2004 was $81.4 million compared to $52.2 million for
the three months ended May 31, 2003, which represents a
$29.2 million (56%) increase in earnings. Earnings
increased within the Companys Energy, Agronomy, and
Country Operations and Services segments, which was partially
offset by a decrease in earnings within the Grain Marketing and
Processed Grains and Foods segments when comparing the three
months ended May 31, 2004 with the same period of a year
ago. The Energy segment earnings increased $39.2 million,
primarily as a result of improved refining margins and a net
gain of $14.7 million from the sale of a portion of a
petroleum crude oil pipeline investment. The Agronomy segment
generated increased earnings of $8.3 million, of which
$6.0 million was the result of the purchase of additional
ownership and governance interests in Agriliance so that the
Company now owns 50%, and the remainder was primarily the result
of improved crop protection margins. The Country Operations and
Services segment earnings increased $4.1 million, primarily
due to strong operating performance. The Grain Marketing segment
reflected decreased earnings of $15.1 million, primarily
the result of market adjustments on soybean export contracts.
The Processed Grains & Foods segment reflected
decreased earnings of $8.3 million, which was primarily the
result of an equity loss of $9.4 million from its Ventura
investment, which recorded negative market adjustments on edible
oil futures contracts.

Net Sales.Consolidated net sales of $2.8 billion for the three months
ended May 31, 2004 increased $597.1 million (27%)
compared to the three months ended May 31, 2003.

Company-wide grain and oilseed net sales of
$1.2 billion increased $249.2 million (25%) during the
three months ended May 31, 2004 compared with the sales
activity during the three months ended May 31, 2003. Grain
Marketing segment sales to external customers totaled
$1,113.4 million and $895.1 million during the three
months ended May 31, 2004 and 2003, respectively. Grain
sales of the Country Operations and Services segment to external
customers during these same periods were $113.1 million and
$82.2 million, respectively. Sales of grain between the
Country Operations and Services segment and the Grain Marketing
segment during those periods were $259.8 million and
$183.9 million,

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respectively. These intersegment sales are
included for segment reporting purposes, but the Company
eliminates all intersegment sales on a consolidated basis. The
net sales increase of $249.2 million is attributable to
higher grain prices and increased volumes during the three-month
period ended May 31, 2004 compared to those prevailing
during the same period a year earlier. Grain sales volume
increased 15% during the three-month period ended May 31,
2004 compared with the same three-month period of a year ago,
and had the affect of increasing sales by $158.9 million.
The largest sales volume increases were primarily in wheat and
corn, which was partially offset by decreased soybean volumes.
The weighted average sales price of all grain and oilseed
commodities sold reflected an increase of $0.38 per bushel
(9%), which contributed $90.3 million to the increase.
Commodity prices in general increased; the average market price
of soybeans, corn and spring wheat increased $3.48, $0.69 and
$0.45 per bushel, respectively, compared to the three
months ended May 31, 2003.


Energy net sales of $1.0 billion increased
$163.4 million (19%) during the three months ended
May 31, 2004 compared with the sales activity during the
three months ended May 31, 2003. During the three months
ended May 31, 2004 and 2003, the Energy segment recorded
sales to the Country Operations and Services segment of
$31.9 million and $22.3 million, respectively. These
intersegment sales are eliminated in deriving consolidated sales
but are included for segment reporting purposes. The net sales
increase of $163.4 million is comprised of an increase of
$179.1 million related to price appreciation and a decrease
in sales of $15.7 million because of lower sales volume. On
a more product-specific basis, refined fuels prices increased
$0.25 per gallon (26%) and volumes decreased 2% when
comparing the three months ended May 31, 2004 with the same
period a year ago. Propane volumes decreased by 7% and prices
decreased $0.01 per gallon compared with the same period a
year ago. Overall energy markets are up, which caused price
increases on refined fuels products. Refined fuels volume
decreases reflect a cutback on unbranded sales during the third
quarter to offset the effects of the non-renewal of the supply
agreement with a Coffeyville, Kansas production facility.

Country operations non-grain net sales of
$336.0 million increased by $56.7 million (20%) during
the three months ended May 31, 2004 compared to the three
months ended May 31, 2003 primarily in crop nutrients, seed
and energy products. Overall, the average selling price on these
products have increased compared to the same period a year ago.
In addition, volumes are up due to acquisitions and an earlier
spring planting season compared to the previous year.

Processed Grains and Foods segment net sales of
$240.7 million increased $127.8 million (113%) during
the three months ended May 31, 2004 compared to the three
months ended May 31, 2003. Oilseed processing net sales
increased $128.2 million which is comprised of an increase
of $70.8 million related to price appreciation and
$57.4 million because of higher sales volume. The average
selling price of processed oilseed and refined oilseed products
increased $99 per ton and $0.17 per pound,
respectively, compared to the same period a year ago. The volume
increase is primarily due to the new soybean crushing plant in
Fairmont, Minnesota that began operations during the first
quarter of fiscal year 2004.

Patronage Dividends.Patronage dividends received of $1.8 million increased
$0.5 million (34%) during the three months ended
May 31, 2004 compared to the three months ended
May 31, 2003.

Other Revenues.Other revenues of $41.4 million increased
$12.3 million (42%) during the three months ended
May 31, 2004 compared to the three months ended
May 31, 2003. The most significant increase was related to
additional services revenue within the Country Operations and
Services segment compared to the same period of a year ago.

Cost of Goods Sold.Cost of goods sold of $2.7 billion increased
$581.8 million (27%) during the three months ended
May 31, 2004 compared to the three months ended
May 31, 2003. The cost of all grains and oilseed procured
by the Company through its Grain Marketing and Country
Operations and Services segments increased 28% compared to the
three months ended May 31, 2003, primarily the result of an
$18.5 million market adjustment on soybean export
contracts, a $0.44 (11%) average cost per bushel increase and a
15% increase in volumes. Volatile commodity prices and increased
shipping cost contributed to the increased cost of goods sold.
The Energy segment cost of goods sold increased by
$139.8 million (17%) during the three months ended
May 31, 2004, compared to the same period of the prior year,

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primarily due to increased average costs, which
were partially offset by reduced volumes. On a more
product-specific basis, refined fuels average cost increased by
$0.23 per gallon (24%), which was partially offset by a 2%
decrease in volumes compared to the three months ended
May 31, 2003. The average cost increase on refined fuels is
reflective of higher crude oil prices purchased for the
Companys two refineries and higher prices on purchased
energy products compared to the three months ended May 31,
2003. Propane cost of goods sold decreased 7%, which is
reflective of a 7% decrease in volumes, while the average cost
of propane stayed relatively consistent compared to the three
months ended May 31, 2003. Country operations non-grain
cost of goods sold increased by 22% during the three months
ended May 31, 2004 compared to the three months ended
May 31, 2003, primarily due to increased average costs per
unit on crop nutrients, seed and energy products and increased
volumes from acquisitions. The Processed Grains and Foods
segment cost of goods sold increased by $126.6 million
(120%) compared to the three months ended May 31, 2003,
which was primarily due to additional volumes of soybeans
processed at the new crushing plant in Fairmont, Minnesota and
an increased average cost of raw materials in oilseed processing.


Marketing, General and
Administrative.Marketing, general and
administrative expenses of $54.2 million for the three
months ended May 31, 2004 increased by $4.7 million
(9%) compared to the three months ended May 31, 2003. The
primary increase during three months ended May 31, 2004
compared to the prior year is within the Country Operations and
Services and Energy segments.

Gain on Sale of
Investment.During the third quarter
of fiscal 2004, the Company recorded a gain of
$14.7 million within the Energy segment from the sale of a
portion of a petroleum crude oil pipeline investment. NCRA
exercised its right of first refusal to purchase a partial
interest in the pipeline, and subsequently sold a 50% interest
to another third party for proceeds of $25.0 million.

Gain on Legal
Settlements.The Country Operations
and Services segment received cash of $0.2 million during
the three months ended May 31, 2003 from a class action
lawsuit alleging illegal price fixing against various feed
vitamin product suppliers.

Interest.Interest
expense of $13.8 million for the three months ended
May 31, 2004 increased by $1.5 million (12%) compared
to the three months ended May 31, 2003. The average level
of short-term borrowings increased $244.0 million primarily
due to financing higher average working capital needs partially
offset by an average short-term interest rate decrease of 0.2%
during the three months ended May 31, 2004 compared to the
three months ended May 31, 2003.

Equity Income from
Investments.Equity income from
investments of $32.4 million for the three months ended
May 31, 2004 increased $2.4 million (8%) compared to
the three months ended May 31, 2003. This increase is
primarily attributable to improved earnings of $8.1 million
and $3.5 million in the Agronomy and Grain Marketing
segment investments, respectively. The income was partially
offset by a decrease in earnings of $9.4 million, in the
Processed Grains and Foods segment investments.

The Agronomy segment joint ventures generated
increased earnings of $8.1 million. In April 2004, the
company finalized the purchase of additional ownership interest
in Agriliance so that the Company now owns 50%, which accounts
for $6.0 million of the increase. The remainder was
primarily the result of improved crop protection margins, which
was partially offset by reduced crop nutrient margins.

The Grain Marketing segment also shows increased
earnings in two exporting joint ventures primarily due to
increased export demand and favorable ocean freight spreads from
the Pacific Northwest, where the exporting joint venture
facilities are located, to the Pacific Rim. These factors
contributed to a $1.3 million increase in equity income
from the Companys investment in TEMCO, LLC, a joint
venture, which exports primarily corn and soybeans. These same
conditions contributed to a $1.8 million improvement in
equity income from the Companys wheat exporting investment
in United Harvest, LLC.

The Processed Grains and Foods segment oilseed
based products and packaged foods joint venture (Ventura)
recorded decreased earnings of $9.4 million, which is
primarily the result of decreased margins and the effects of a
market value adjustment on edible oil futures contracts.

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Minority Interests.Minority interests of $16.4 million for the three months
ended May 31, 2004 increased by $10.5 million compared
to the three months ended May 31, 2003. The net change in
minority interests during the three months ended May 31,
2004 compared to the prior three-month period last year was
primarily a result of more profitable operations within the
Companys majority-owned subsidiaries and the minority
interest effect of the gain on the sale of an NCRA investment.
Substantially all minority interests relate to NCRA, an
approximately 74.5% owned subsidiary.

Income Taxes.Income
tax expense of $7.8 million for the three months ended
May 31, 2004 compares to $8.7 million for the three
months ended May 31, 2003, resulting in effective tax rates
of 8.8% and 14.3%, respectively. The $18.5 million market
adjustment on soybean contracts reduced income tax expense by
$7.2 million for the three months ended May 31, 2004.
The federal and state statutory rate applied to nonpatronage
business activity was 38.9% for the periods ended May 31,
2004 and 2003. The income taxes and effective tax rate vary each
period based upon profitability and nonpatronage business
activity during each of the comparable periods.



| |                                                              
| | -------------------------------------------------------------
| | Comparison of the nine months ended
    May 31, 2004 and 2003

Net Income.Consolidated net income for the nine months ended May 31,
2004 was $140.6 million compared to $88.4 million for
the nine months ended May 31, 2003, which represents a
$52.2 million (59%) increase in earnings. The most
significant increases in earnings, when comparing the nine
months ended May 31, 2004 with the same period of a year
ago, were generated within the Companys Energy, Agronomy
and Processed Grains and Foods segments, which was partially
offset by a decrease in earnings within the Grain Marketing
segment. The Energy segment earnings increased
$43.1 million, primarily as a result of improved refining
margins and a gain of $14.7 million on the sale of a
portion of a petroleum crude oil pipeline investment. The
Agronomy segment generated increased earnings of
$15.0 million, of which $6.0 million was the result of
the Company purchasing an additional ownership interest in
Agriliance so that the Company now owns 50% and the remainder
was primarily the result of improved crop protection margins.
The Processed Grains and Foods segment earnings increased
$8.1 million, primarily as a result of improved equity
income of $6.6 million in the Companys wheat milling
and packaged foods joint ventures and increased earnings of
$2.3 million in oilseed processing compared to the nine
months ended May 31, 2003. The Country Operations and
Services segment increased earnings of $3.4 million,
primarily the result of improved earnings within the services
group. The Grain Marketing segment decreased earnings of
$12.1 million, primarily the result of market adjustments
on soybean export contracts, partially offset by improved equity
income from its joint ventures. These earnings were also offset
by increased income tax expense of $5.4 million compared to
the nine months ended May 31, 2003 as a result of higher
non-patronage sourced earnings.

Net Sales.Consolidated net sales of $8.0 billion for the nine months
ended May 31, 2004 increased $1.0 billion (15%)
compared to the nine months ended May 31, 2003.

Company-wide grain and oilseed net sales of
$4.0 billion increased $527.7 million (15%) during the
nine months ended May 31, 2004 compared with the sales
activity during the nine months ended May 31, 2003. Sales
to external customers by the Grain Marketing segment totaled
$3,667.2 million and $3,160.1 million during the
periods ended May 31, 2004 and 2003, respectively. Grain
sales of the Country Operations and Services segment to external
customers during these same periods were $285.4 million and
$264.8 million, respectively. Sales of grain between the
Country Operations and Services segment and the Grain Marketing
segment during those periods were $798.2 million and
$647.7 million, respectively. These intersegment sales are
included for segment reporting purposes, but the Company
eliminates all intersegment sales on a consolidated basis. The
net sales increase of $527.7 million is attributable to
higher grain prices and increased volumes during the nine-month
period ended May 31, 2004 compared to those prevailing
during the same period a year earlier. The weighted average sale
price of all grain and oilseed commodities sold reflected an
increase of $0.34 per bushel (8%), which contributed
$284.7 million to the increase. Commodity prices in general
increased; the market price per bushel of soybeans, corn and
spring wheat were $2.14, $0.59 and $0.33 greater than the
respective prices for the nine months ended May 31, 2003.
Volumes increased 7% during the nine-month period ended
May 31, 2004 compared with the same

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nine-month period of a year ago, and contributed
$243.0 million to the increase. Wheat, corn and soybeans
reflected the largest volume increases.


Energy net sales of $2.8 billion increased
$165.6 million (6%) during the nine months ended
May 31, 2004 compared with the sales activity during the
nine months ended May 31, 2003. During the nine months
ended May 31, 2004 and 2003, the Energy segment recorded
sales to the Country Operations and Services segment of
$87.4 million and $69.2 million, respectively. Those
intersegment sales are eliminated in deriving consolidated sales
but are included for segment reporting purposes. The net sales
increase of $165.6 million is comprised of an increase of
$320.8 million related to price appreciation and a decrease
in sales of $155.2 million because of lower sales volume.
On a more product-specific basis, refined fuels prices increased
$0.12 per gallon (13%) and volumes decreased 4% when
comparing the nine months ended May 31, 2004 with the same
period a year ago. Propane prices increased $0.10 per
gallon (17%) and sales volume decreased 8% in comparison of the
same periods. Overall energy markets are up, which caused price
increases on refined fuels products. Higher propane prices
reflect lower industry stocks in 2003 as the result of a cold
winter earlier in the calendar year. The lower sales volume for
propane during the nine months ended May 31, 2004 is
primarily reflective of a dry autumn which offered minimal
opportunity for crop drying (propane is used as the fuel for
crop dryers) and a relatively warm early winter which reduced
demand for home heating as compared to the same period in 2003.

Country operations non-grain net sales of
$643.1 million increased by $89.5 million (16%) during
the nine months ended May 31, 2004 compared to the nine
months ended May 31, 2003 primarily in crop nutrients,
energy and seed products. Overall, the average selling price on
these products have increased compared to the previous year. In
addition, volumes are up due to acquisitions and an earlier
spring planting season compared to the previous year.

Processed Grains and Foods segment net sales of
$584.6 million increased $229.5 million (65%) during
the nine months ended May 31, 2004 compared to the nine
months ended May 31, 2003. Oilseed processing sales
increased $232.1 million of which, $116.1 million is
due to price appreciation and $116.0 is due to higher sales
volumes. The average selling price of processed oilseed and
refined oilseed products increased $69 per ton and
$0.08 per pound, respectively, compared to the previous
year. The volume increase is primarily due to the new crushing
plant in Fairmont, Minnesota that began operations during the
first quarter of fiscal year 2004.

Patronage Dividends.Patronage dividends received of $5.8 million increased
$3.5 million during the nine months ended May 31, 2004
compared to the nine months ended May 31, 2003. This
increase is primarily a result of a patronage distribution in
one of the Companys cooperative investments which is
primarily related to gains on legal settlements and on the sale
of a warehouse facility.

Other Revenues.Other revenues of $104.9 million increased
$15.8 million (18%) during the nine months ended
May 31, 2004 compared to the nine months ended May 31,
2003. The most significant increase was related to additional
services revenue within the Country Operations and Services
segment compared to the previous year. Safety and loss control
credits within the insurance business contributed
$2.0 million to the increase. Increased commodity hedging
activity within the Companys country hedging group
contributed $2.4 million to the increase.

Cost of Goods Sold.Cost of goods sold of $7.8 billion increased
$984.4 million (14%) during the nine months ended
May 31, 2004 compared to the nine months ended May 31,
2003. The cost of all grains and oilseed procured by the Company
through its Grain Marketing and Country Operations and Services
segments increased $545.0 million (16%) compared to the
nine months ended May 31, 2003, primarily the result of an
$18.5 million market adjustments on soybean export
contracts, a $0.37 (9%) average cost per bushel increase
and a 7% increase in volumes compared to the prior year.
Volatile commodity prices and increased shipping costs
contributed to the increase in cost of goods sold. The Energy
segment cost of goods sold increased by $147.0 million (6%)
during the nine months ended May 31, 2004 compared to the
same period of the prior year, primarily due to increased
average costs which was partially offset by reduced volumes. On
a more product-specific basis, the average cost of refined fuels
increased by $0.11 per gallon, which was partially offset
by a 4% decrease in volumes

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compared to the nine months ended May 31,
2003. The average cost increase on refined fuels is reflective
of higher crude oil prices purchased for the Companys
two refineries and higher prices on purchased energy
products compared to the nine months ended May 31, 2003.
The average cost of propane increased $0.10 per gallon,
which was partially offset by an 8% decrease in volumes
compared to the nine months ended May 31, 2003. Volumes of
propane products were reduced due to a dry autumn and relatively
warm early winter, which was partially offset by an average cost
increase due to higher input costs compared to the nine months
ended May 31, 2003. Country operations non-grain cost of
goods sold increased by 17% during the nine months ended
May 31, 2004 compared to the nine months ended May 31,
2003, primarily due to an increased average cost per unit on
crop nutrients, seed and energy products and additional volumes
from acquisitions. The Processed Grains and Foods segment cost
of goods sold increased by $225.8 million (68%) compared to
the nine months ended May 31, 2003, which was primarily due
to additional volumes of soybeans processed at the new crushing
plant in Fairmont, Minnesota and increased cost of raw materials
in oilseed processing.


Marketing, General and
Administrative.Marketing, general and
administrative expenses of $154.7 million for the nine
months ended May 31, 2004 increased by $14.0 million
(10%) compared to the nine months ended May 31, 2003. The
net increase includes additional expenses within the Energy and
Country Operations and Services segments.

Gain on Sale of
Investment.During the third quarter
of fiscal 2004, the Company recorded a gain of
$14.7 million within the Energy segment from the sale of a
portion of a petroleum crude oil pipeline investment. NCRA
exercised its right of first refusal to purchase a partial
interest in the pipeline, and subsequently sold a 50% interest
to another third party for proceeds of $25.0 million.

Gain on Legal
Settlements.The Country Operations
and Services segment received cash of $10.9 million during
the nine months ended May 31, 2003 from a class action
lawsuit alleging illegal price fixing against various feed
vitamin product suppliers.

Interest.Interest
expense of $38.8 million for the nine months ended
May 31, 2004 increased by $2.3 million (6%) compared
to the nine months ended May 31, 2003. The average level of
short-term borrowings increased $120.1 million, primarily
due to financing higher average working capital needs and was
partially offset by an average short-term interest rate decrease
of 0.3% during the nine months ended May 31, 2004 compared
to the nine months ended May 31, 2003.

Equity Income from
Investments.Equity income from
investments of $64.2 million for the nine months ended
May 31, 2004 increased $31.8 million (98%) compared to
the nine months ended May 31, 2003. This increase is
primarily attributable to improved earnings from investments
within the Companys Agronomy segment of
$16.3 million, Grain Marketing segment of $9.1 million
and Processed Grains and Foods segment of $6.6 million.

The Agronomy segment joint ventures generated
increased earnings of $16.3 million. In April 2004, the
Company finalized the purchase of additional ownership in
Agriliance so that the Company now owns 50%, which accounts for
$6.0 million of the increase. In addition, Agriliance
recorded increased earnings due to improved margins in both
retail and wholesale crop protection operations compared to the
same period of a year ago. However, the crop nutrient volumes
are down 18% over last year, which slightly reduced
Agriliances income.

The Grain Marketing segment showed increased
earnings in two exporting joint ventures primarily due to
increased export demand and favorable ocean freight spreads from
the Pacific Northwest, where the exporting facilities are
located, to the Pacific Rim. These factors contributed to a
$4.3 million improvement in equity income from the
Companys wheat exporting investment in United Harvest,
LLC. These same conditions contributed to a $4.0 million
increase in equity income from the Companys investment in
TEMCO, LLC, a joint venture which exports primarily corn and
soybeans.

The Processed Grains and Foods segment oilseed
based products and packaged foods joint venture (Ventura)
earnings increase is primarily due to increased sales and
improved gross profits compared to the previous nine-month
period.

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Minority Interests.Minority interests of $23.6 million for the nine months
ended May 31, 2004 increased by $8.9 million (60%)
compared to the nine months ended May 31, 2003. The net
change in minority interests during the nine months ended
May 31, 2004 compared to the prior nine-month period last
year was primarily a result of more profitable operations within
the Companys majority-owned subsidiaries and the gain on
sale of an NCRA investment. Substantially all minority interests
relate to NCRA, an approximately 74.5% owned subsidiary.

Income Taxes.Income
tax expense of $16.4 million for the nine months ended
May 31, 2004 compares to $11.0 million for the nine
months ended May 31, 2003, resulting in effective tax rates
of 10.4% and 11.1%, respectively. The $18.5 million market
adjustment on soybean export contracts reduced income tax
expense by $7.2 million for the three months and nine
months ended May 31, 2004. The federal and state statutory
rate applied to nonpatronage business activity was 38.9% for the
periods ended May 31, 2004 and 2003. The income taxes and
effective tax rate vary each period based upon profitability and
nonpatronage business activity during each of the comparable
periods.

Liquidity and Capital Resources

On May 31, 2004, the Company had working
capital, defined as current assets less current liabilities, of
$446.4 million and a current ratio, defined as current
assets divided by current liabilities, of 1.2 to 1.0
compared to working capital of $458.7 million and a current
ratio of 1.3 to 1.0 on August 31, 2003. On
May 31, 2003, the Company had working capital of
$468.0 million and a current ratio of 1.4 to 1.0,
compared to working capital of $249.1 million and a current
ratio of 1.2 to 1.0 on August 31, 2002. The increase
in working capital between August 31, 2002 and May 31,
2003 was primarily attributable to the issuance of
$175.0 million of long-term debt with a group of insurance
companies in October, 2002, and the sale of preferred stock to
the general public which generated net proceeds for the Company
of $82.5 million in January, 2003. This financing was
initiated in part to fund capital expenditures related to the
low sulfur fuel regulations discussed below in Cash Flows from
Investing Activities. Working capital on May 31, 2004
compared to August 31, 2003 has remained relatively
constant despite capital expenditures of $168.4 million
during the first nine months of fiscal 2004 due to strong
earnings during that period.

During May, 2004 the Company renewed and expanded
its committed lines of revolving credit which are used primarily
to finance inventories and receivables. The previously
established credit lines consisted of a $600 million
364-day revolver and a $100 million three-year revolver.
The new committed credit facilities consist of a
$750 million 364-day revolver and $150 million
three-year revolver. These credit facilities are established
with a syndicate of domestic and international banks, and the
inventories and receivables financed with these loans are highly
liquid. The terms of the new credit facilities are essentially
the same as the terms for the credit facilities they replace. On
May 31, 2004, $445.3 million was outstanding on these
lines of credit. Upon completion of the new and expanded
facilities, the Company and CoBank, ACB mutually agreed to
cancel two uncommitted credit facilities totaling
$100 million which had been established during the second
quarter of fiscal 2004 and a third facility totaling
$50 million which was established during the third quarter.
There were no outstanding balances on these facilities at the
time of cancellation.

In March, 2004, the Company borrowed
$30 million through a long-term facility established with
Prudential Capital Group, primarily for the purpose of financing
the purchase of Farmlands interest in Agriliance, as
previously discussed.



| |                           
| | --------------------------
| | Cash Flows from Operations

Cash flows from operations are generally affected
by commodity prices. These commodity prices are affected by a
wide range of factors beyond our control, including weather,
crop conditions, drought, the availability and the adequacy of
supply and transportation, government regulations and policies,
world events, and general political and economic conditions.
These factors are described in the preceding cautionary
statement above, and may affect net operating assets and
liabilities, and liquidity.

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Cash flows used in operating activities were
$107.4 million for the nine months ended May 31, 2004.
Cash provided by operating activities was $112.9 million
for the nine months ended May 31, 2003. Volatility in cash
flows from operations for these periods is primarily the result
of changing grain and crude oil prices. On May 31, 2004,
the market prices per bushel of spring wheat, soybeans and corn,
were $0.33 (9%), $2.14 (36%), and $0.59 (24%)
greater than their respective values on August 31, 2003.
Crude oil prices on May 31, 2004 increased $8.31 per
barrel (26%) when compared to August 31, 2003. These
increases in grain and crude oil prices had the affect of
contributing significantly to an increase in net operating asset
and liability values compared with those on August 31,
2003, thus using cash resources. In contrast, on May 31,
2003, the market prices per bushel of spring wheat and corn were
$1.58 (30%) and $0.16 (6%) lower than their respective
values on August 31, 2002. As of the same date, the market
prices per bushel of soybeans and barrel of crude oil were
$0.30 (5%) and $0.58 (2%) higher than their respective
values on August 31, 2002. These factors, when combined,
contributed to only a small increase in net operating assets and
liabilities when compared to those on August 31, 2002.

Operating activities of the Company used net cash
of $107.4 million during the nine months ended
May 31, 2004. Net income of $140.6 million and net
non-cash expenses of $21.4 million were offset by an
increase in net operating assets and liabilities of
$269.4 million. The primary components of net non-cash
expenses included depreciation and amortization of
$80.5 million, minority interest of $23.6 million and
a partial offset of income from equity investments of
$64.2 million. The increase in net operating assets and
liabilities was caused primarily by increases in the prices of
the three primary grain commodities handled by the Company, and
an increase in crude oil prices, as explained in the previous
paragraph. These and other less significant factors increased
net operating assets and liabilities by $269.4 million and
was the largest use of cash from operations. A major part of
this increase in net operating assets and liabilities was
financed with short-term notes payable. Because the change in
short-term notes payable is shown in cash flows from financing
activities, this source of cash does not offset the
corresponding use of cash as part of the cash flows from
operating activities in the Consolidated Statements of Cash
Flows.

Operating activities of the Company provided net
cash of $112.9 million during the nine months ended
May 31, 2003. Net income of $88.4 million and net
non-cash expenses of $60.2 million were partially offset by
an increase in net operating assets and liabilities
$35.7 million. The primary components of net non-cash
expenses included depreciation and amortization of
$77.1 million, minority interests of $14.7 million and
a partial offset of income from equity investments of
$32.4 million. Grain and crude oil prices on May 31,
2003 were comparable to the prices on August 31, 2002,
consequently, net operating assets and liabilities did not
change significantly on May 31, 2003 when compared to the
prior fiscal year-end.

Operating activities of the Company provided net
cash of $257.8 million during the three months ended
May 31, 2004. Net income of $81.4 million and a
decrease in net operating assets and liabilities of
$182.1 million were partially offset by net non-cash
expenses of $5.7 million. The primary components of net
non-cash expenses included depreciation and amortization of
$26.7 million, minority interests of $16.4 million and
an offset of income from equity investments of
$32.4 million. The decrease in net operating assets and
liabilities was caused primarily by lower grain prices on
May 31, 2004 compared to February 29, 2004, as well as
decreased seasonal inventories at the Companys country
operations locations, partially offset by increased receivables
from the sale of those inventories. These and other less
significant factors decreased net operating assets and
liabilities by $182.1 million and was the largest source of
cash from operations.

Operating activities of the Company provided net
cash of $220.3 million during the three months ended
May 31, 2003. Net income of $52.2 million, net
non-cash expenses of $0.7 million and a decrease in net
operating assets and liabilities of $167.4 million provided
the net cash from operating activities. The primary components
of net non-cash expenses included depreciation and amortization
of $25.5 million, minority interests of $5.9 million
and a partial offset of income from equity investments of
$30.0 million. The decrease in net operating assets and
liabilities was primarily due to lower crude oil and certain
grain prices on May 31, 2003 compared to February 28,
2003, as well as decreased seasonal inventories at the
Companys country operations locations, partially offset by
increased receivables from the sale of those

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inventories. These and other less significant
factors decreased net operating assets and liabilities by
$167.4 million and was the largest source of cash from
operations.


Grain and energy prices were volatile during the
quarter ending May 31, 2004 and the Company expects that
this volatility will continue throughout the balance of this
fiscal year. Shortages of certain grain commodities due to poor
growing conditions last year, volatile ocean freight costs, and
strong world demand, along with the uncertainty of weather this
summer, has created sizable movements in grain prices. Energy
prices, driven primarily by uncertain world political conditions
and strong demand for gasoline in the U.S. have also
changed in a volatile manner.



| |                                         
| | ----------------------------------------
| | Cash Flows from Investing
    Activities

For the three months ended May 31, 2004 and
2003, the net cash flows used in the Companys investing
activities totaled $78.0 million and $74.8 million,
respectively.

The acquisition of property, plant and equipment
comprised the primary use of cash totaling $66.2 million
and $45.1 million for the three months ended May 31,
2004 and 2003, respectively. For the year ended August 31,
2004 the Company expects to spend approximately
$252.7 million for the acquisition of property, plant and
equipment. Capital expenditures started in fiscal year 2002,
related to the U.S. Environmental Protection Agency
(EPA) low sulfur fuel regulations required by 2006, are
expected to be approximately $87.0 million for the
Companys Laurel, Montana refinery and $324.0 million
for NCRAs McPherson, Kansas refinery, of which
$30.8 million has been spent at the Laurel refinery and
$92.7 million has been spent by NCRA at the McPherson
refinery as of May 31, 2004. The Company expects all of
these compliance capital expenditures at the refineries to be
completed by December 31, 2005, and anticipates funding
these projects with a combination of cash flows from operations
and debt proceeds.

Investments made during the three months ended
May 31, 2004 and 2003 totaled $47.8 million and
$36.4 million, respectively. During the three months ended
May 31, 2003 the Company purchased an additional 13.1%
economic interest of the crop protection business of Agriliance
for a cash payment of $34.3 million, as previously
discussed. During the three months ended May 31, 2004 the
Company purchased all of Farmlands interest in Agriliance
for a cash payment of $27.5 million, as previously
discussed. Subsequent to purchasing Farmlands interest,
the Company owns 50% of the economic and governance interests in
Agriliance. Also during the three months ended May 31,
2004, NCRA exercised its right of first refusal to purchase a
partial interest in a crude oil pipeline for $16.0 million.

Partially offsetting cash outlays in investing
activities were proceeds from the disposition of property, plant
and equipment of $2.0 million and $4.0 million for the
three months ended May 31, 2004 and 2003, respectively.
Also partially offsetting cash usages were distributions
received from joint ventures and investments totaling
$12.1 million and $5.9 million for the three months
ended May 31, 2004 and 2003, respectively. During the three
months ended May 31, 2004, NCRA exercised its right of
first refusal to purchase a partial interest in a crude oil
pipeline as previously discussed, and subsequently sold a 50%
interest in the same pipeline to another third party for
proceeds of $25.0 million and recorded a gain on the sale
of $14.7 million.

For the nine months ended May 31, 2004 and
2003, the net cash flows used in the Companys investing
activities totaled $105.9 million and $137.9 million,
respectively.

The acquisition of property, plant and equipment
comprised the primary use of cash totaling $168.4 million
and $122.5 million for the nine months ended May 31,
2004 and 2003, respectively. For the nine months ended
May 31, 2003, the acquisitions of property, plant and
equipment included $8.5 million acquired as part of a
business. Construction of an oilseed processing facility in
Fairmont, Minnesota was essentially complete during the first
quarter of fiscal 2004 when the facility became operational.
Also during the first quarter of fiscal 2004, the Company
entered into a sale-leaseback transaction for the facility
equipment and received cash proceeds of $19.8 million from
the sale.

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Investments made during the nine months ended
May 31, 2004 and 2003 totaled $48.8 million and
$40.6 million, respectively. The Company purchased
additional interests in Agriliance during the nine months ended
May 31, 2004 and 2003, as previously described in the
three-month discussion. Also during the nine months ended
May 31, 2004, NCRA exercised its right of first refusal to
purchase a partial interest in a crude oil pipeline for
$16.0 million.

Acquisitions of intangibles were
$0.8 million for the nine months ended May 31, 2003,
and net working capital acquired in business acquisitions was
$13.0 million during the same period.

During the nine months ended May 31, 2004
and 2003, the changes in notes receivable resulted in decreases
in cash flows of $9.0 million and $14.3 million,
respectively, primarily from related party notes receivables at
NCRA from its minority owners, Growmark, Inc. and MFA Oil
Company.

Distributions to minority owners for the nine
months ended May 31, 2004 and 2003, were $1.3 million
and $0.5 million, respectively, and primarily relate to
NCRA. Cash distributions NCRA has made to its members decreased
since 2002, due to the funding requirements for environmental
capital expenditures previously discussed.

Partially offsetting cash outlays in investing
activities were proceeds from the disposition of property, plant
and equipment of $31.7 million and $15.9 million for
the nine months ended May 31, 2004 and 2003, respectively.
During the nine months ended May 31, 2004, proceeds of
$19.8 million were from a sale-leaseback transaction
previously discussed. Also partially offsetting cash usages were
distributions received from joint ventures and investments
totaling $61.8 million and $37.3 million for the nine
months ended May 31, 2004 and 2003, respectively. During
the nine months ended May 31, 2004, NCRA sold a 50%
interest in a crude oil pipeline for proceeds of
$25.0 million, as previously described in the three-month
discussion.



| |                                         
| | ----------------------------------------
| | Cash Flows from Financing
    Activities

The Company finances its working capital needs
through short-term lines of credit with a syndication of
domestic and international banks. In May 2004, the Company
renewed and expanded its committed lines of revolving credit.
The previously established credit lines consisted of a
$600.0 million 364-day revolver and a $100.0 million
three-year revolver. The new committed credit facilities consist
of a $750.0 million 364-day revolver and
$150.0 million three-year revolver. The terms of the new
credit facilities are essentially the same as the terms of the
credit facilities they replaced. In addition to these lines of
credit, the Company has a two-year revolving credit facility
dedicated to NCRA, with a syndication of banks in the amount of
$15.0 million committed. On May 31, 2004,
August 31, 2003 and May 31, 2003, the Company had
total short-term indebtedness outstanding on these various
facilities and other short-term notes payable totaling
$446.5 million, $251.1 million and
$321.1 million, respectively. The increase in short-term
notes payable on May 31, 2004 was primarily due to
increased grain and crude oil prices on May 31, 2004
compared to August 31, 2003. Upon completion of the new and
expanded facilities, the Company and CoBank, ACB mutually agreed
to cancel two uncommitted credit facilities totaling
$100 million which had been established during the second
quarter of fiscal 2004 and a third facility totaling
$50 million which was established during the third quarter.
There were no outstanding balances on these facilities at the
time of cancellation. In October 2002, $175.0 million
received from private placement proceeds was used to pay down
the Companys 364-day credit facility. In January 2003,
$83.0 million of proceeds received from the issuance of the
Companys preferred stock (net of brokers commissions of
$3.2 million) was also used to pay down the 364-day credit
facility.

In June 1998, the Company established a five-year
revolving credit facility with a syndication of banks, with
$200.0 million committed. This credit facility expired in
May 2003 and had no outstanding balance on that date. Repayments
of $75.0 million were made on this facility during the nine
months ended May 31, 2003.

The Company finances its long-term capital needs,
primarily for the acquisition of property, plant and equipment,
with long-term agreements with various insurance companies and
banks. In June 1998, the

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Company established a long-term credit agreement
through the cooperative banks. This facility committed
$200.0 million of long-term borrowing capacity to the
Company, with repayments through fiscal year 2009. The amount
outstanding on this credit facility was $132.8 million,
$137.8 million and $139.4 million on May 31,
2004, August 31, 2003 and May 31, 2003, respectively.
Interest rates on May 31, 2004 ranged from 2.30% to 7.13%.
Repayments of $1.6 million and $4.9 million were made
on this facility during each of the three months and nine months
ended May 31, 2004 and 2003.


Also in June 1998, the Company completed a
private placement offering with several insurance companies for
long-term debt in the amount of $225.0 million with an
interest rate of 6.81%. Repayments will be made in equal annual
installments of $37.5 million each in the years 2008
through 2013.

In January 2001, the Company entered into a note
purchase and private shelf agreement with Prudential Insurance
Company. The long-term note in the amount of $25.0 million
has an interest rate of 7.9% and will be repaid in equal annual
installments of approximately $3.6 million, in the years
2005 through 2011. A subsequent note for $55.0 million was
issued in March 2001, related to the private shelf facility. The
$55.0 million note has an interest rate of 7.43% and will
be repaid in equal annual installments of approximately
$7.9 million, in the years 2005 through 2011.

In October 2002, the Company completed a private
placement with several insurance companies for long-term debt in
the amount of $175.0 million, which was layered into two
series. The first series of $115.0 million has an interest
rate of 4.96% and will be repaid in equal semi-annual
installments of approximately $8.8 million during the years
2007 through 2013. The second series of $60.0 million has
an interest rate of 5.60% and will be repaid in equal
semi-annual installments of approximately $4.6 million
during fiscal years 2012 through 2018.

In March 2004, the Company entered into a note
purchase and private shelf agreement with Prudential Capital
Group, primarily for the purpose of financing the purchase of
Farmlands interest in Agriliance, as previously discussed.
In April, 2004, the Company borrowed $30.0 million under
this arrangement. One long-term note in the amount of
$15.0 million has an interest rate of 4.08% and will be
repaid in full at the end of the six year term in 2010. Another
long-term note in the amount of $15.0 million has an
interest rate of 4.39% and will be repaid in full at the end of
the seven year term in 2011.

The Company, through NCRA, had revolving term
loans outstanding of $12.8 million, $15.0 million and
$15.8 million on May 31, 2004, August 31, 2003
and May 31, 2003, respectively. Interest rates on
May 31, 2004 ranged from 6.48% to 6.99%. Repayments of
approximately $0.8 million and $2.3 million were made
during each of the three months and nine months ended
May 31, 2004 and 2003.

On May 31, 2004, the Company had total
long-term debt outstanding of $686.7 million, of which
$158.2 million was bank financing, $510.0 million was
private placement proceeds and $18.5 million was industrial
development revenue bonds and other notes and contracts payable.
The aggregate amount of long-term debt payable presented in the
Managements Discussion and Analysis in the Companys
Annual Report on Form 10-K for the year ended
August 31, 2003 has not materially changed during the three
months and nine months ended May 31, 2004. The
Companys long-term debt is unsecured except for other
notes and contracts in the amount of $10.1 million;
however, restrictive covenants under various agreements have
requirements for maintenance of minimum working capital levels
and other financial ratios. The Company is in compliance with
all debt covenants and restrictions as of May 31, 2004.

During the three months ended May 31, 2004
and 2003, the Company borrowed on a long-term basis
$35.0 million and no dollars, respectively, and during the
same periods repaid long-term debt of $4.1 million and
$48.7 million, respectively.

During the nine months ended May 31, 2004
and 2003, the Company borrowed on a long-term basis
$35.5 million and $175.0 million, respectively, and
during the same periods repaid long-term debt of
$12.4 million and $86.0 million, respectively.

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In accordance with the bylaws and by action of
the Board of Directors, annual net earnings from patronage
sources are distributed to consenting patrons following the
close of each fiscal year. Patronage refunds are calculated
based on amounts using financial statement earnings. The cash
portion of the patronage distribution is determined annually by
the Board of Directors, with the balance issued in the form of
capital equity certificates. The patronage earnings from the
fiscal year ended August 31, 2003 were primarily
distributed during the second quarter of the current fiscal
year. The cash portion of this distribution deemed by the Board
of Directors to be 30% was $28.7 million. During the prior
fiscal year the Company distributed cash patronage of
$26.5 million from the patronage earnings of the fiscal
year ended August 31, 2002.

The current equity redemption policy, as
authorized by the Board of Directors, allows for the redemption
of capital equity certificates held by inactive direct members
and patrons and active direct members and patrons at age 72
or death that were of age 61 or older on June 1, 1998.
Such redemptions are at the discretion of the Board of
Directors. For active direct members and patrons who were of
age 60 or younger on June 1, 1998, and member
cooperatives, equities older than 10 years may be redeemed
annually based on a prorata formula where the numerator is
dollars available for such purpose as determined by the Board of
Directors, and the denominator is the sum of the patronage
certificates older than 10 years held by such eligible
members and patrons. Total cash redemptions related to the year
ended August 31, 2003, to be distributed in fiscal year
2004, are expected to be approximately $10.8 million, of
which $2.9 million was redeemed during the three months
ended May 31, 2004 compared to $2.0 million during the
three months ended May 31, 2003 and $5.7 million was
redeemed during the nine months ended May 31, 2004 compared
to $26.4 million during the nine months ended May 31,
2003. An additional $13.0 million of capital equity
certificates were redeemed in March 2004 in exchange for shares
of the Companys 8% Cumulative Redeemable Preferred Stock
(New Preferred) pursuant to a registration statement on
Form S-2 filed with the Securities and Exchange Commission.
The amount of equities redeemed with each share of preferred
stock issued was $27.10, which was the closing price per share
of the stock on the NASDAQ National Market on March 2,
2004. On May 31, 2004 the Company had $105.7 million
(4,226,428 shares) of the New Preferred outstanding.

In 2001 and 2002 the Company issued approximately
$9.5 million (9,454,874 shares) of 8% Preferred Stock
(Old Preferred). In late 2002, the Company suspended sales of
the Old Preferred, and on February 25, 2003 the Company
filed a post-effective amendment to terminate the offering of
the Old Preferred shares. In January 2003, the Company issued
3,450,000 shares of 8% Cumulative Redeemable Preferred
Stock (New Preferred) at a price of $25.00 per share, for
proceeds of $86.3 million, which are listed on the NASDAQ
National Market. The Board of Directors intent is to pay
quarterly dividends. Expenses related to the issuance of the New
Preferred were $3.8 million.

On March 5, 2003, the Companys Board
of Directors authorized the redemption and conversion of the Old
Preferred shares. A redemption notification and a conversion
election form were sent to holders of the Old Preferred shares
on March 21, 2003 explaining that on April 25, 2003
all shares of the Old Preferred would be redeemed by the Company
for $1.00 per share unless they were converted into shares
of the Companys New Preferred. The conversion did not
change the base liquidation amount or dividend amount of the Old
Preferred, since 25 shares of the Old Preferred converted
to 1 share of the New Preferred. The total Old Preferred
converted to the New Preferred was $7.5 million
(7,452,439 shares), and the balance of the Old Preferred
(2,002,435 shares) was redeemed in cash at $1.00 per
share.

Off Balance Sheet Financing
Arrangements



| |                   
| | ------------------
| | Lease Commitments:

The Companys lease commitments presented in
Managements Discussion and Analysis in the Companies
Annual Report on Form 10-K for the year ended
August 31, 2003 have not materially changed during the nine
months ended May 31, 2004. The largest new lease commitment
entered into during the nine months ended May 31, 2004 has
annual lease payments of approximately $3.0 million over
the next seven years.

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| |            
| | -----------
| | Guarantees:

The Company is a guarantor for lines of credit
for related companies of which $41.1 million was
outstanding on May 31, 2004. The Companys bank
covenants allow maximum guarantees of $150.0 million. In
addition, the Companys bank covenants allow for guarantees
dedicated solely for NCRA in the amount of $125.0 million.
All outstanding loans with respective creditors are current as
of May 31, 2004.



| |      
| | -----
| | Debt:

There is no material off balance sheet debt.

Critical Accounting Policies

The Companys Critical Accounting Policies
are presented in the Companys Annual Report on
Form 10-K, as amended, for the year ended August 31,
2003. There have been no changes to these policies during the
nine months ended May 31, 2004.

Effect of Inflation and Foreign Currency
Transactions

The Company believes that inflation and foreign
currency fluctuations have not had a significant effect on its
operations. During fiscal 2003, the Company opened a grain
marketing office in Brazil that impacts its exposure to foreign
currency fluctuations, but to date, there has been no material
effect.

Recent Accounting Pronouncements

In December 2003, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 132R,
Employers Disclosures about Pensions and Other
Postretirement Benefits. This statement requires
additional disclosures to be made by employers regarding
pensions and other postretirement benefit plans, but does not
change the measurement or recognition of those plans. Under this
Statement, the disclosure provisions regarding foreign plans and
estimated future benefit payments are effective for fiscal years
ending after December 15, 2003 and interim periods
beginning after December 15, 2003. The Company has adopted
the interim provisions of this Statement during the current
fiscal quarter ended May 31, 2004. The annual disclosure
provisions of this Statement will be included in the
August 31, 2004 annual report.

On May 19, 2004, the FASB issued a FASB
Staff Position (FSP) regarding
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions.
FSP 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 discusses the effect of the
Medicare Prescription Drug, Improvement and Modernization Act
(the Act) enacted on December 8, 2003.
FSP 106-2 considers the effect of the two new features
introduced in the Act in determining accumulated postretirement
benefit obligation (APBO) and net periodic
postretirement benefit cost, which may serve to reduce a
companys post-retirement benefit costs. Companies may
elect to defer accounting for this benefit or may attempt to
reflect the best estimate of the impact of the Act on net
periodic costs currently. The Company has chosen to defer
accounting for the benefit until the FASB issues final
accounting guidance due to various uncertainties related to this
legislation and the appropriate accounting. The Companys
measures of APBO and net periodic postretirement benefit costs
as of and for the quarter ended May 31, 2004 do not reflect
the effect of the Act as permitted by the FSP.

In December 2003, the FASB revised FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities. The interpretation addresses
consolidation of certain entities in which equity investors do
not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. It also requires consolidation by
the primary beneficiary. For public entities the interpretation
applies to interests

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in variable interest entities for periods ending
after March 15, 2004, the Companys third quarter.
Adoption of this standard did not have a material effect on the
Company.


In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, which establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its
scope as a liability (or an asset in certain circumstances).
Many of those instruments were previously classified as equity.
SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period
beginning after June 15, 2003. The Statement is to be
implemented by reporting the cumulative effect of a change in an
accounting principle for financial instruments created before
the issuance date of the Statement and still existing at the
beginning of the interim period of adoption. Adoption of this
standard did not have a material effect on the Company.






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    about Market Risk

Other than the nonperformance of contracts by
counter-parties mentioned below, the Company did not experience
any adverse changes in market risk exposures for the period
ended May 31, 2004, that materially affect the quantitative
and qualitative disclosures presented in the Companys
Annual Report on Form 10-K, as amended, for the year ended
August 31, 2003.

Grain and energy prices were volatile during the
quarter ending May 31, 2004 and the Company expects that
this volatility will continue throughout the balance of this
fiscal year. While the Company minimizes its risk to price
fluctuations through hedging transactions, the Company is
exposed to loss in the event of nonperformance by
counter-parties to forward purchase or sale contracts. Volatile
commodity prices increase the risk that counter-parties may
default under the contracts when the market price has changed.

Considering the risk of default, the Company has
valued certain sale contracts within its Grain Marketing segment
at less than the respective contract prices based upon our
appraisal of current fair market value on May 31, 2004. The
valuation at less than contract price had the effect of reducing
pre-tax income for the three months and nine months ended
May 31, 2004, in the aggregate by $18.5 million, and
net income by $11.3 million compared to the results which
would have been reported had these contracts been valued at the
contract price.

If a counter-party defaults on either a purchase
or sale contract, it is the policy of the Company to pursue the
matter aggressively in appropriate legal proceedings. The
Company is closely monitoring other customers and suppliers
where existing contracts are outside of current market values
and will react aggressively to enforce these obligations in the
event of a default by the counter-party.






|        |                        
|------- | -----------------------
|Item 4. | 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 May 31,
2004. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of that date our
disclosure controls and procedures were effective.

During the third quarter ended May 31, 2004,
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.

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PART II. OTHER INFORMATION






|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits

|        |    |             |  |                                                                                                                                                 
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    | Description
|        |    |            
|        | 10 | .1          |  | First Amendment to Credit Agreement dated as of
    May 20, 2004 between CHS Inc., CoBank, ACB, and the
    Syndication Parties                 
|        | 10 | .2          |  | Sixth Amendment to Credit Agreement (Term Loan)
    dated as of May 20, 2004 by and among CHS Inc., CoBank,
    ACB, and the Syndication Parties
|        | 10 | .3          |  | Note Purchase and Private Shelf Agreement dated
    as of April 13, 2004                                                                        
|        | 31 | .1          |  | Certification Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002                                                                     
|        | 31 | .2          |  | Certification Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002                                                                     
|        | 32 | .1          |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                  
|        | 32 | .2          |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                  

(b) Reports on Form 8-K

The Company filed a Current Report on
Form 8-K on June 10, 2004 to add a provision to its
existing code of ethics.

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SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                             
| | ----------------------------
| | CHS INC.                    
| | (Registrant)                
|
| | /s/ JOHN SCHMITZ            
| |                             
| | John Schmitz                
| | Executive Vice President and
| | Chief Financial Officer     

July 12, 2004

(Date)


36