10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended
AUGUST 31, 2006

Or

o Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Commission File
No. 33-94644

MINN-DAK FARMERS COOPERATIVE
(Exact name of registrant as specified in its charter)

North Dakota	23-7222188
(State of incorporation)	(I.R.S. Employer Identification Number)
7525 Red River Road
Wahpeton, North Dakota 58075	(701) 642-8411
(Address of principal executive offices)	(Registrant’s telephone number)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     YES o   NO x

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

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

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

          Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 2b-2 of the Act).     YES o   NO x

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

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

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

SHAREHOLDER STOCK VALUE

          Stock purchased by investors in the Company typically do not use valuation methods that are commonly used for stock bought or sold on the open market for personal or institutional investment purposes.

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

          As of November 21, 2006, 480 shares of the Company’s Common Stock and 72,200 “units” of the Registrant’s Preferred Stock, each consisting of 1 share of Class A Preferred Stock, 1 share of Class B Preferred Stock and 1 share of Class C Preferred Stock, were

outstanding. There is only a limited, private market for shares of the Company’s Common or Preferred Stock, as such shares may be held only by farmer-producers who are eligible for membership in the Company. The Company’s shares are not listed for trading on any exchange or quotation system. A number of stock transfers, representing approximately 6% of available stock, were not arms length (estate settlements, estate planning from one generation to the next, etc.) and an accurate value for that stock was not available. Management believes that less than 1% of the Company’s available stock was traded at arm’s length during the fiscal year ended August 31, 2006. Of the stock transferred at arms length, the transfers were made during the first, second and third quarters of the Company’s fiscal year and, to the best of our knowledge, ranged in price from $2,550 to $2,850 per unit. The fourth quarter did not have any arms length transactions.” The value of stock is highly dependent upon an individual stockholder’s ability to raise sugarbeets successfully both agronomically and financially. Prior to purchasing stock, a potential stockholder is advised to properly research the agronomic aspect of stock ownership.

DOCUMENTS INCORPORATED BY REFERENCE

          None

PART I
ITEM 1.	BUSINESS

GENERAL

          The Company is a North Dakota agricultural cooperative that was formed in 1972 and currently has 480 members. Membership in the Company is limited to sugarbeet growers located in those areas of North Dakota and Minnesota within an approximate fifty (50) mile radius of the Company’s offices and sugarbeet processing facilities in Wahpeton, North Dakota. The Company’s facilities allow the members to process their sugarbeets into sugar and other products. The products are pooled and then marketed through the services of a marketing agent under contract with the Company. The sugar-marketing agent, United Sugars Corporation, is a cooperative association owned by its members, the Company, American Crystal Sugar Company and United States Sugar Corporation. The Company’s sugarbeet molasses and sugarbeet pulp are also marketed through a marketing agent, Midwest Agri-Commodities Company. Midwest Agri-Commodities Company is a cooperative association owned by its members, the Company, American Crystal Sugar Company, Southern Minnesota Beet Sugar Cooperative and Michigan Sugar Company. The Company owns a 100% interest in Minn-Dak Yeast Company, Inc. (“Minn-Dak Yeast”), which has facilities located adjacent to the Company’s sugar production facilities, and which produces fresh baker’s yeast.

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

PRODUCTS AND PRODUCTION

          The Company is engaged primarily in the production and marketing of sugar from sugarbeets. The Company also produces and markets certain co-products, sugarbeet molasses and sugarbeet pulp pellets, of the sugar it produces. The Company’s subsidiary Minn-Dak Yeast uses the Company’s sugarbeet molasses as the growth medium in the production of fresh baker’s yeast. Minn-Dak Yeast provided revenues totaling approximately 5% of the Company’s total revenues for the fiscal year ended August 31, 2006.

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

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

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

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

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

RECENT CROPS

          The Company’s members harvested 3.0 million tons of sugarbeets from the 2006-crop, approximately 45% above the most recent 5-year average, due to increased yields per acre and higher than average harvested acres. Sugar content of the 2006-crop at harvest was 1% below the average of the five most recent years because of higher than normal rainfall the two months prior to harvest. Due to the higher harvested tons and slightly below average sugar content, the Company’s production of sugar from the 2006-crop sugarbeets is expected to be 34% more than the average of the five most recent years of sugar production. This forward-looking material is based on the Company’s expectations regarding the processing of the 2006 sugarbeet crop; the actual production results obtained by processing those sugarbeets could differ materially from the Company’s current estimate as a result of factors that include changes in production efficiencies and storage conditions for the Company’s sugarbeets. The Company’s initial sugarbeet payment estimate totals $40.21 per ton or $0.134844 per harvested /bonus extractible pound of sugar, with the final sugarbeet payment determined in October of 2007. This projected payment is slightly more than the final 2005-crop payment per ton and slightly less per pound of extractible sugar. The higher projected 2006-crop payment per ton results from higher sugar and co-product production, co-product prices and decreased operating and fixed costs per ton, offset by lower sugar prices versus the prior year.

          For a discussion of the 2005, 2004 and 2003 crops and results of operations for fiscal years 2006, 2005 and 2004, see “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”

MARKETING, CUSTOMERS AND PRICING

          The Company’s ability to market sugar each year under the current U.S. Farm Bill is highly dependent upon the U.S. Department of Agriculture’s (“USDA”) Overall Allotment Quantity (“OAQ”) announcements. Currently, the Company has allocation rights to market 5.8 million cwt of refined sugar based on the current USDA OAQ announcement of 8,750,000 short tons raw value (“STRV”). The USDA OAQ has varied from a high of 9,300,000 STRV to a low of 8,100,000 STRV over the past five years. Each 100,000 STRV of OAQ computes to 66,000 cwt of marketing allocations for the Company. Each 1,000 acres of planted sugarbeets is estimated to produce 55,000 cwt of sugar for sale from an average crop. To the extent the Company’s sugar production exceeds its marketing allocations, it must carry the additional sugar in inventory until the next year, sell sugar without allocations to another sugar processor, sell sugar to non-human consumption users, sell sugar for export or reduce future plantings of sugarbeet acres. The Company may find it necessary to reduce planted acreage in a future year, in order to balance production with available allocations.

          United Sugars Corporation (“United Sugars”), a common marketing agency operating on a cooperative basis, is the marketer for the Company’s sugar. The Company owns United Sugars along with two other sugar-producing companies (American Crystal Sugar Company

and United States Sugar Corporation) and exists to market sugar produced by the three member owners.

          As of this writing the Company has a 12% ownership interest in United Sugars with contributed capital totaling $1.3 million.

           The Company, as well as the other members of United Sugars, has entered into a “Uniform Member Marketing Agreement” with United Sugars. Under that agreement, the sugar produced by the Company is pooled with sugar produced by the other sugar-producing member owners and is then sold through the efforts of United Sugars. The Company receives payment for its sugar by receiving its pro rata share of the net proceeds from the sale of the pooled sugar. The net proceeds of such sales represent the gross proceeds of the sale of the sugar, adjusted for the various costs and expenses of marketing the pooled sugar, including the Company’s pro rata share of the marketing and sales expenses incurred by United Sugars. Any net proceeds from the operation of United Sugars are distributed to the various members on a patronage basis.

          United Sugars sells industrial bulk sugar, industrial bagged sugar, packaged sugar for retail and specialty sugars. It distributes both cane sugar and beet sugar, and distributes sugar to customers over a large geographical area. United Sugars markets the Company’s sugar primarily to industrial users such as confectioners, breakfast cereal manufacturers and bakeries. The customer base of United Sugars includes most of the large domestic industrial sugar users. The customer base also includes retail grocery companies and wholesalers. The Company has no single customer, which accounts for more than ten percent (10%) of its consolidated revenues. For the fiscal year ended August 31, 2006, 91% of the Company’s sugar was shipped in bulk form, mostly to industrial users, and 9% in bagged powdered sugar.

          The prices at which United Sugars sells the Company’s sugar fluctuates periodically based on changes in domestic sugar supply and demand. Bulk sugar, the largest portion of the Company’s sales, is contracted one or more quarters in advance, with the effect of stabilizing fluctuations in revenue from quarter to quarter. Retail (grocery) products are sold mostly on a quarterly basis. Current net selling prices for sugar are forecast to be lower than the prior year because of: (1) increased levels of domestic sugar availability, which is due to higher than average yields and/or planted acres in sugarbeets and sugarcane in the US; and (2) increased levels of imported sugar in amounts that the Company believes is in excess of market needs.

          The Company markets its co-products, dried sugarbeet pulp and sugarbeet molasses, through Midwest Agri-Commodities Company (“Midwest Agri”), a common marketing agency operating on a cooperative basis, whose members are the Company, American Crystal Sugar Company, Southern Minnesota Beet Sugar Cooperative and Michigan Sugar Company. Midwest Agri markets sugarbeet pulp, sugarbeet molasses and other liquid livestock feed for its member owners as well as non-members. Sugarbeet pulp is marketed to livestock feed mixers, livestock feeders and other animal feed sellers (pets, horses etc.) in the United States and foreign markets. Sugarbeet molasses is marketed to yeast and pharmaceutical manufacturers and for use in animal feeds in the United States.

          As of this writing the Company has a 25% ownership interest in Midwest Agri, and has contributed capital that totals 12% of all capital from members.

          A “Uniform Member Marketing Agreement” evidences the sales and marketing arrangement with Midwest Agri. Under that agreement, the sugarbeet pulp and sugarbeet molasses produced by the Company is pooled with sugarbeet pulp and sugarbeet molasses produced by the other producing member owners and is then sold through the efforts of Midwest Agri. The Company receives payment for its sugarbeet pulp and sugarbeet molasses by receiving its pro rata share of the net proceeds from the sale of the pooled sugarbeet pulp and sugarbeet molasses. The net proceeds of such sales represent the gross proceeds of the sale of the sugarbeet pulp and sugarbeet molasses, adjusted for the various costs and expenses of marketing the pooled sugarbeet pulp and sugarbeet molasses, including the Company’s pro rata share of the marketing and sales expenses incurred by Midwest Agri. Any net proceeds from the operation of Midwest Agri are distributed to the various members on a patronage basis.

          For the year ended August 31, 2006, approximately 49% of Midwest Agri’s sugarbeet pulp production was exported to Asia, Europe, and Africa and the remaining 51% was sold in North America. The market for sugarbeet pulp is affected by the worldwide supply of dried sugarbeet pulp, the availability and quality of competitive feedstuffs and by the strength of the U.S. dollar relative to local currencies in export markets. Dried sugarbeet pulp prices increased in FY 2006 due primarily to reduced production of dried sugarbeet pulp in the United States. Production of dried pulp in the United States was lower as a result of a reduction in sugarbeet acres planted, lower yields in the Red River Valley growing area, and high natural gas prices which reduced the amount of pulp that was dried and pelleted. Sugarbeet molasses prices increased in FY 2006 primarily due to the continued shortage of worldwide supplies of both cane and sugarbeet molasses in the market. Successive poor crops in Asia as well as the increased usage of cane molasses for ethanol production have resulted in lower supplies of cane molasses. The reduction of acreage combined with lower yields in some United States growing areas put additional pressure on the amount of sugarbeet molasses available for sale domestically.

          Co-product sales accounted for approximately 11% of the Company’s total consolidated net sales revenue during FY 2006. This relationship is primarily a function of the average market prices for sugar, sugarbeet pulp, sugarbeet molasses and fresh yeast and is not necessarily indicative of future relationships between co-product, fresh yeast and sugar revenues, because prices and production of these products fluctuate independently of each other.

          The Company’s subsidiary company Minn-Dak Yeast manufactures bagged and cream fresh baker’s yeast in a plant located adjacent to the Company’s sugar plant in Wahpeton, North Dakota. A portion of the Company’s sugarbeet molasses production is used in Minn-Dak Yeast’s process and is sold through a supply agreement between the two companies. Minn-Dak Yeast has a long-term marketing agreement with National Yeast LLC to market and sell all production of its yeast. That agreement will expire on May 31, 2011.

GROWERS’ AGREEMENTS

          The Company purchases virtually all of its sugarbeets from members under contract with the Company. All members have three-year contracts with the Company covering the growing seasons of 2006 through 2008 (the “Growers’ Agreements”). At the end of each year, the Growers Agreement automatically extends for an additional year, so that such agreements always have a remaining term of three years, unless the Company, prior to the automatic renewal, has given notice of termination. In that situation, the agreement will not renew, but will continue in effect for the two-year period then remaining under the agreement. Each Unit of Preferred Stock currently entitles a member to grow the maximum number of acres per share authorized by the Board of Directors for each farming year. The Company’s Board of Directors has the discretion to adjust the acreage that may be planted for each Unit of Preferred Stock held by the members. For the 2006-crop year the Company’s Board of Directors authorized members to plant 1.62 acres per unit. For the 2007-crop year, the Company’s Board of Directors has authorized members to plant 1.52 acres per unit, however, this authorization is subject to change by the board before the planting of the 2007-crop. The reduced authorized acres for planting is due in part to the large 2006-crop resulting in less sugar marketing allocations being available for the 2007-crop production. (For a discussion of the current farm bill sugar allocations, see Management’s Discussion on Government Programs and Regulations.)

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

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

expenditures and member sugarbeet payments, is distributed to the members on the basis of the pounds of extractable sugar obtained from each of the members’ sugarbeets; such amounts are distributed in either cash payments or allocated in the form of patronage credits to the member’s patronage account on the books of the Company.

COMPANY DISTRICTS

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

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

RESEARCH AND DEVELOPMENT

          The Company conducts very little research and development activity, but does participate in some sugar industry research and development activities. Any research findings are then shared by the entire sugar industry. Participatory research and development is accomplished through such organizations as the Beet Sugar Development Foundation, Sugar Association, and North Dakota/Minnesota Research and Education Board. The Company participates in the organizations listed above through the efforts of its representatives to the boards of directors of those entities. The Company’s representatives, either a member of the Company’s Board of Directors or a management employee of the Company, allow the Company to participate in and help direct agricultural and factory operations research and development activities carried out by the listed organizations. Those organizations also have established various committees on which the Company has placed certain of its employees. That practice is designed to provide the company with direct access to any research and development information available from the applicable committees. None of the Company’s

employees or directors devotes a significant portion of their time and energies to the activities described in this section.

          During the fiscal year ended on August 31, 2006, the Company contributed approximately $92,000 to the North Dakota/Minnesota Research and Education Board to fund that entity’s research and development activities. $21,000 was given to the Beet Sugar Development Foundation in connection with their research activities, and $115,000 to the Sugar Association for their research activities and membership dues. In addition, through the auspices of the Beet Sugar Development Foundation, the Company, together with other interested companies, is participating in the financing of a full commercial test project involving the growing, harvesting, processing and sale of sugar and co-products produced from bio-tech sugarbeet seed. The Company’s share of this project cost will total approximately $75,000 and is evidenced in the form of a loan that is intended to be repaid to the Company through the proceeds derived from the sale of sugar and co-products produced from the project. The balance owed to the Company at fiscal year end totaled approximately $34,000.

          The Company also has established a sugarbeet seed committee, which reviews the performance of new and existing sugarbeet seed varieties. The committee then advises the Board of Directors with regard to those sugarbeet seed varieties that should be approved for use by the Company’s shareholders.

ENVIRONMENTAL MATTERS

          The Company is subject to a broad range of evolving environmental laws and regulations. These laws and regulations include the Food Quality Protection Act of 1996, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Comprehensive Environmental Response, Compensation and Liability Act. Other than what is provided herein, the Company is not aware of any areas of non-compliance.

          The Company has been notified under new National Emission Standards for Hazardous Air Pollutants for Industrial Commercial and Institutional Boilers and Process Heaters Rules finalized on September 13, 2004, that it is listed as a major source of certain hazardous air pollutants and not in compliance with the new rules. The company has until September 13, 2007 to come into compliance with these regulations. At this time the Company believes that it will be compliant within the time period required under the regulations and does not anticipate the associated costs to become compliant will have a material impact on its cost structure.

          The Company has $0.1 million of environmental capital improvements budgeted for the fiscal year ending August 31, 2007.

          Compliance with these laws and related regulations is an ongoing process that, at the current levels of spending, is not expected to have a material effect on the Company’s capital expenditures, earnings or competitive position. Environmental concerns are, however, inherent in most major agricultural operations, including those conducted by the Company, and there

can be no assurance that the cost of compliance with environmental laws and regulations will not be material. Moreover, it is possible that future developments, such as increasingly strict environmental laws and enforcement policies there under, and further restrictions on the use of agricultural chemicals, could result in increased compliance costs.

MARKET AND COMPETITION

          After experiencing strong and steady growth during the 1990’s, U.S. demand for sugar was relatively flat to down until FY year 2004. Current U.S. Government statistics estimate total U.S. sugar deliveries for domestic food and beverage consumption at 189.7 million cwt refined for the fiscal year beginning October 1, 2005 and ending September 30, 2006. For the same period ending in 2005, total deliveries were 187.3 million cwt refined. Comparing the two years shows demand increased 1.3% for U.S. sugar sellers. FY 2007 deliveries are estimated by the U.S. Government to total 191.6 million cwt refined, or about 1% more than FY 2006. Determining total domestic deliveries has been complicated by the high proportion of deliveries constituted by sugar imports to entities that are not required to report to the USDA. These imports have totaled about 8.4 million cwt. refined for the first ten months of FY 2006 (5.4% of reported deliveries through that same time period). Unlike domestic deliveries from sugarbeet processors and cane refiners, there is no way to track direct consumption imports to end-users.

          Given the size of the domestic market, the Company’s sugar production and sales represent approximately 3% of the total domestic market for refined sugar in 2006. United Sugars Corporation, which sells the Company’s production through a sugar marketing pool, represents approximately 24% share of the FY2006 U.S. sugar market.

          The U.S. refined sugar market has grown over the past twenty-five plus years, despite a loss of demand to the substitution of high fructose corn syrups for sugar in beverages and certain food products. Non-nutritive sweeteners such as aspartame and sucralose have also been developed as a substitute for sugar. The substitution of non-sugar sweeteners for sugar not only reduced demand for sugar in the United States, but has also resulted in a high degree of sugar industry contraction. Since 1996 more than one third of all U.S. sugarbeet and sugarcane mills and refineries have closed, 33 plants in total. Also, sugar companies have been consolidating or closing as a result of marketplace conditions. Today there are seven sugar sellers, with approximately 90% of U.S. sugar market share concentrated in the top five sellers, most of which are fully integrated sugarbeet and sugarcane suppliers. The Company’s main competitors in the domestic market are Imperial Sugar Company, American Sugar Refining Company, Amalgamated Sugar Company and Cargill. Competition in the U.S. sugar industry, because sugar is a fungible commodity, is primarily based upon price, customer service and reliability as a supplier.

GOVERNMENT PROGRAMS AND REGULATION

          Domestic sugar prices are supported under a program administered by the United States Department of Agriculture (“USDA”). Under the current program, which was initiated in 1981 and extended under the Food Security Act of 1985, the Food, Agriculture, Conservation and Trade Act of 1990, the Federal Agriculture Improvement and Reform Act of 1996 and now

The Farm Security and Rural Investment Act of 2002 (the “Farm Bill”), the price of sugar is required to be maintained above the price at which producers could forfeit sugar to repay non-recourse loans obtained through the Commodity Credit Corporation (“CCC”). The USDA maintains sugar prices without cost to the U.S. Treasury by regulating the quantity of sugar imports. The U.S. currently imports approximately 22% of its domestic needs.

Farm Security and Rural Investment Act of 2002

          The Farm Bill was enacted on May 13, 2002. It contains several provisions related to the domestic sugar industry, with the ultimate goal of such provisions to achieve balance and stability in the U.S. sugar market while minimizing the cost to the Federal government. The Farm Bill applies to the 2002 through 2007 crop years. Generally, the Farm Bill restricts imports of foreign sugar, maintains the previous non-recourse loan program, and establishes a system of marketing allocations for sugarbeet and sugarcane producers in an attempt to balance the supply and demand for sugar in the U.S. domestic sugar market.

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

          The USDA has historically maintained sugar prices above the forfeiture price without cost to the U.S. Treasury by regulating the supply of sugar in the U.S. market through regulating the quantity of sugar imports. Under the Tariff Rate Quota (TRQ) implemented October 1, 1990, sugar-producing countries are allowed to export a fixed quantity of sugar into the United States duty-free or subject to minimal duties. Unlimited additional quantities may be exported to the United States upon payment of a tariff of 15.36 cents per pound prior to shipment. To date, only immaterial quantities of sugar have been imported under this higher tariff level.

          The Farm Bill sets an 18-cent per pound loan rate for raw cane sugar and a 22.9-cent per pound loan rate for refined beet sugar. Both loan rates are effective for the 2006-year crop.

          In order to reduce the risk of sugar forfeitures to the CCC and to provide balance in the marketplace, the Farm Bill establishes annual flexible marketing allotments for both cane and sugarbeet sugar processors. The USDA determines the overall allotment quantity (OAQ) for the U.S. domestic sugar market for each crop year by estimating sugar consumption, adding stocks expected to be carried into the succeeding year, and then subtracting 1,532,000 short tons, raw value of sugar (the maximum level of imports allowed before marketing allotments are expected to be suspended), and subtracting carry-in stocks of sugar, including CCC inventory. Once the USDA has determined the OAQ for a crop year, it then determines each allotment for sugarbeet and sugarcane sugar by multiplying the OAQ by 54.35 percent for beet and 45.65 percent for cane. An individual processor’s allocation of the allotment for a crop year is determined by formula set forth in the Farm Bill. Each domestic processor of sugar, which includes the Company, is provided an allocation whenever allotments are in effect,

based upon that formula. Sugarbeet processor allocations are based on each sugar processor’s sugar production history, while sugar cane processor allocations are based on past marketings, ability to market and past processings. The USDA annually establishes individual processor’s allocations.

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

          The marketing allotments and allocations set forth under the Farm Bill affect the sugar processed from the 2002 crop through the 2007 crop. On an annual basis, the marketing allotments, and the corresponding allocation to the Company, will determine the amount of sugar the Company can sell into the domestic market. The Company’s allocation may reduce the amount of sugar the Company can market for a given year, thus reducing the number of acres of sugarbeets required for processing. The Company anticipates that it may have to increase or reduce its authorized planted acres each year to more closely match its anticipated allocation of sugar sales. The Company also manages its allocation needs by selling non-allocation sugar to other sugar producers and for non-human consumption needs, which are not counted against allocation sales.

North American Free Trade Agreement

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

          The Company is concerned that low world sugar prices and a trade conflict between the United States and Mexico over sweeteners could permit de facto acceleration of the second tier

tariffs under the side letter agreement. Under the NAFTA tariff schedule, second tier sugar tariffs were set at approximately 12 cents for 2000 and decline by approximately 1.5 cents per year until reaching zero in 2008. Low world raw sugar prices and the current second tier tariff make it economically viable for Mexican sugar to enter the United States this year, if the Mexican interests so choose.

          In July 2006 the United States and Mexico announced an agreement that resolves these disputes that relate to each nation’s interpretation of the sweetener provisions in the NAFTA. Under the agreement, the United States provides for duty-free access to 250,000 metric tons raw value (MTRV) of Mexican sugar for fiscal year 2007, and duty-free access to between 175,000 and 250,000 MTRV of Mexican sugar for the period of October 1, 2007 and December 31, 2007. In turn, Mexico provides for duty-free access to equivalent amounts of United States high fructose corn syrup (HFCS) corresponding to the same periods. Also, the United States can ship 7,258 MTRV of sugar duty-free to Mexico for each of the marketing years 2006, 2007 and 2008. Effective on January 1, 2008, under NAFTA, there will be no duties or quantitative restraints between the two countries on all sugar and HFCS trade.

          It is possible that the passage of this announced agreement could have a material adverse effect on the Company through a reduction in acreage that can be planted by the Company’s shareholders, and/or a reduction in sugar selling prices, and a corresponding reduction in the sugarbeet payment to the shareholders and to the Company earnings. The magnitude of the impact cannot be determined at this time.

World Trade Organization

          Under the General Agreement on Tariffs and Trade Act o f 1990 (“GATT”), tariff rate quotas were implemented for certain sugar producing countries that provided for a fixed quantity of sugar imports duty-free or subject to minimal duties. Unlimited additional quantities may be imported upon payment of a tariff of 15.36 cents per pound of refined sugar prior to shipment (to date, very little sugar has been imported under this higher tariff level). Further, imports of sugar under the tariff rate quota are based upon the difference between domestic sugar consumption and domestic sugar production, with one exception. Under the terms of the GATT the minimum imports of sugar are established at 1,257,000 short tons, raw value. Therefore, even if the difference between domestic sugar consumption and production are less than 1,257,000 short tons, raw value, GATT will require that 1,257,000 short tons be imported into the United States from the quota holding foreign countries.

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

          The 147 members of the WTO reached an agreement July 31, 2004, on a framework for the final phase of the Doha Development Agenda of global trade talks. The original deadline

to complete talks by January 1, 2005, has been postponed a number of times. The latest deadline to complete the final phase of the WTO Doha talks has been established as the end of calendar year 2006. However talks have stalled and currently there appears to be little chance of WTO countries meeting this latest deadline date. The effect of any final WTO agreement on United States farm programs and the sugar program in particular and the Company will depend largely on the details of the agreement, which have not yet been fully negotiated.

Dominican Republic - Central American Free Trade Agreement

          The Dominican Republic - Central American Free Trade Agreement (DR-CAFTA) was signed into law on August 2, 2005 and was substantially implemented starting on January 1, 2006. As a result, the Company has seen an increase in the amount of sugar that will be imported into the United States as a result of this agreement. The impact of this trade agreement on the Company cannot be fully assessed at this time. It is possible, however, that the trade agreement could have a material adverse effect on the Company through a reduction in acreage that can be planted by the Company’s shareholders, and/or a reduction in sugar selling prices, and a corresponding reduction in the sugarbeet payment to the shareholders and the Company earnings. The magnitude of the impact cannot be determined at this time.

Regional and Bilateral Free Trade Agreements

          The United States government is pursuing an aggressive agenda on international trade. It is seeking to negotiate new free trade agreements with a number of countries and regions that are major producers of sugar. The Company believes these agreements, if they reach fruition, could negatively impact the Company’s profitability. The primary agreements under consideration, to the Company’s knowledge, are the Free Trade Area of the Americas; the Andean Free Trade Agreement; the Thailand Free Trade Agreement; the U.S.-Panama Free Trade Agreement; and the South African Customs Union Free Trade Agreement. Many of the countries included in these agreements are major sugar producers and exporters. If increases in guaranteed access or reductions in sugar tariffs are included in these agreements, excess sugar from these regions could enter the U.S. market and put pressure on domestic sugar prices. The U.S. sugar industry and the Company recognize the potential negative impact that would result if these agreements were entered into by the United States.

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

          The Farm Bill provides price support provisions for sugar. However, if the price support program including the Tariff Rate Quota system described above were eliminated in its entirety, or if the effectiveness that the United States’ price support program provides from foreign competitors were materially reduced, the Company could be materially and adversely

affected. In such a situation if the Company were not able to adopt strategies that would allow it to compete effectively in a greatly changed domestic market for sugar, the adverse affects could impact the Company’s continued viability and the desirability of grower sugarbeets for delivery to the Company.

EMPLOYEES

          As of November 3, 2006, the Company had 293 full-time employees, of whom 259 were hourly and 34 were salaried. It also employs approximately 459 additional hourly seasonal workers during the sugarbeet harvest and processing campaign. In June 2005 the Company concluded the negotiations for a collective bargaining agreement with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (AFL-CIO, CLC) for its factory employee group. The contract became effective June 1, 2005 and continues through May 31, 2011. Office, clerical, management and harvest employees are not unionized. Full time employees are provided with health, dental and vision insurance, a defined benefit pension retirement plan, a 401(k) retirement savings plan, a short and long-term disability plan, term life insurance, and vacation and holiday pay plans. Seasonal workers are also provided some of these same employee benefits. The Company considers its employee relations to be excellent.

ITEM 1A. RISK FACTORS

Regional and Bilateral Trade Agreements

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

Government Programs and Regulations; Legislation

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

Unregulated Foreign Competition

          Under the current terms of the NAFTA and other government regulations, imports of sugar from Mexico may enter the U.S. market. These imports could oversupply the U.S.

market and negatively affect the price of sugar. The Company, along with the domestic sugar industry, is seeking improvements to NAFTA and is pursuing legal remedies to address the matter. If the sugar industry is unsuccessful in these and any other endeavors it pursues to prevent the influx of Mexican sugar into the U.S. market, there could be adverse financial consequences to the Company and its members.

The Farm Bill

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

Weather and Other Factors

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

          There are no unresolved written SEC staff comments regarding our periodic or current reports under the Securities Exchange Act of 1934.

ITEM 2. PROPERTIES

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

          The properties are adequate to process normal and above normal crop sizes, and for the last three years have averaged a slice rate of 9,100 tons per day. The 2006-crop was the largest tonnage in the history of the Company, producing approximately 3,019,000 tons of sugarbeets. If the Company encounters normal weather patterns, which will in turn provide normal sugarbeet storage conditions, then it does not anticipate having material difficulties in processing the 2006-crop. As of the date of this report, the Company has set new records for daily slice (12,596 tons) and weekly slice (87,779 tons) rates and anticipates achieving above-average slice for the year. Achievement of the levels of slice and sugar production in the factory is due mostly to the quality of the 2006 crop and the Company’s effort to maximize the daily slice rate in order to finish processing of the crop in a timely fashion.

          Minn-Dak Yeast, of which the Company is a 100% owner, operates a single yeast manufacturing factory at Wahpeton, North Dakota. Minn-Dak Yeast owns the factory and the

land on which it is located. During fiscal 2006, fresh yeast was produced and sold into the domestic yeast marketplace.

          All properties are held subject to a mortgage by the Company’s primary lender.

ITEM 3. LEGAL PROCEEDINGS

          From time to time and in the ordinary course of its business, the Company is named as a defendant in legal proceedings related to various issues, including worker’s compensation claims, tort claims and contractual disputes. Other than as provided herein, the Company is not currently involved in legal proceedings that have arisen in the ordinary course of its business, and the Company is also unaware of certain other potential claims that could result in the commencement of legal proceedings. The Company carries insurance that provides protection against certain types of claims.

          The Company is subject to extensive federal and state environmental laws and regulations with respect to water and air quality, solid waste disposal and odor and noise control. The Company conducts an ongoing and expanding control program designed to meet these environmental laws and regulations. As disclosed under “ENVIRONMENTAL MATTERS” above, there currently are no pending regulatory enforcement actions and the Company believes that it is in substantial compliance with applicable environmental laws and regulations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          There were no matters submitted to a vote of the Company’s shareholders during the quarter ended August 31, 2006.

PART II

ITEM 5. MARKET FOR COMPANY’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

SHAREHOLDER STOCK VALUE

          Stock is not purchased in the Company using the traditional valuation methods used for stock commonly bought or sold for personal or institutional investment purposes.

          A requirement for owning the Company’s stock includes the shareholder being actively engaged in farming and having an active interest in the crop being produced.

          The Company believes a shareholder purchases the Company’s stock in order to secure acreage delivery rights, and therefore is based upon the purchaser’s ability to make a profit by delivering sugarbeets to the Company.

          The Company believes each individual shareholder will have a different financial model for its economic analysis of Company stock purchase. Estimates for direct input costs to raise a sugarbeet crop vary significantly from shareholder to shareholder. The Company has no direct knowledge of the total of the direct input costs.

          A shareholder is at risk for the size and quality of the sugarbeet crop to be raised. The ability of a shareholder to raise a quality crop of significant quantity to not only cover the shareholder’s input costs, but also provide for a return on stock ownership and stockholder management inputs is key to determining the economic value the Company’s stock holds for the shareholder or potential shareholder.

          A shareholder is able to insure the risk of growing a crop through the purchase of Federal Crop Insurance. The Federal Crop Insurance program is managed by RMA a branch of the United States Government. Changes in the Federal Crop Insurance program may have a significant impact on the level of financial risk that a shareholder may be able to insure.

          A shareholder is also at financial risk based on the ability of the Company to pay the shareholder a sugarbeet payment that provides him/her with a profit.

          Because the return to a shareholder is based upon the results of an entire year, the Company believes reliance upon one quarter of financial activity in comparison to a similar quarter of activity in a prior year is of limited value versus comparisons made at fiscal year end. Quarterly financial statements have significant management judgments regarding the final crop value.

          Because the Company and other sugar companies have different methods of describing and paying their shareholders for sugarbeets delivered, the publicly announced payments by companies need to be adjusted for quality, patronage, trucking, and re-hauling costs to arrive at a comparable payment to the shareholder/grower for the delivery of those sugar beets.

          There is only a limited, private market for shares of the Company’s Common or Preferred Stock, as such shares may be held only by farmer-producers who are eligible for membership in the Company and may only transfer with the consent of the Board of Directors of the Company. The Company’s shares are not listed for trading on any exchange or quotation system. A number of stock transfers, representing approximately 6% of available stock, were not arms length (estate settlements, estate planning from one generation to the next, etc.) and an accurate value for that stock was not available. Management believes that less than 1% of the Company’s available stock was traded at arm’s length during the fiscal year ended August 31, 2006. Of the stock transferred at arms length, the transfers were made during the first, second and third quarters of the Company’s fiscal year and ranged in price from $2,550 to $2,850 per unit. The fourth quarter did not have any arms length transactions.” The value of stock is highly dependent upon an individual stockholder’s ability to raise sugarbeets successfully both agronomically and financially. Prior to purchasing stock, a potential stockholder is advised to properly research the agronomic aspect of stock ownership.

ITEM 6. SELECTED FINANCIAL DATA

The following table summarizes selected financial data for each of the last five fiscal years. The selected financial data of the Company should be read in conjunction with the financial statements and related notes included in Item 8. of this report.

	Fiscal Year Ended August 31,
FINANCIAL DATA	2006		2005		2004		2003		2002
(in thousands)
Revenues	$	176,967	$	189,681	$	198,941	$	193,817	$	158,003
Distribution of net proceeds (1)		76,096		88,088		107,909		109,663		84,224
Total assets		163,129		158,996		168,563		171,254		171,573
Long-term debt, including current Maturities		42,008		44,455		50,215		55,920		61,580
Members’ investment (2)		83,951		83,410		82,150		81,647		76,912
Property and equipment additions, Net of retirements		4,395		4,754		5,487		9,148		4,582
Working capital		14,025		12,433		14,578		17,798		11,647
RATIOS
Ratio of long-term debt to equity (3)		.45		.47		.56		.63		.74
Ratio of net proceeds to fixed charges (4)		22.50		31.42		37.99		32.01		23.48
Current ratio		1.36		1.38		1.39		1.50		1.34
PRODUCTION DATA (5)
Acres harvested (members)		102,121		98,819		112,849		112,346		92,395
PIK acres		0		0		0		0		9,881
Tons of sugarbeets purchased (members)		1,810,269		2,295,904		2,264,154		2,383,936		1,666,663
Tons purchased per acre harvested		17.73		23.23		20.06		21.22		18.04
Payment to members per ton of sugarbeets delivered, plus allocated patronage and unit retains (6)	$	41.89	$	38.08	$	47.35	$	44.33	$	46.17
Sugar (cwts):
Produced (from member and purchased sugarbeets)		4,839,968		5,868,576		6,424,346		6,112,522		5,076,252	*
Sold (includes purchased sugar)		4,954,040		6,092,025		6,602,252		5,580,872		5,192,482
Beet pulp pellets (tons):
Produced		101,328		119,054		112,483		99,733		78,408
Sold		105,138		113,913		110,424		98,911		85,209
Beet molasses (tons):
Produced		79,599		89,797		104,883		100,585		72,123
Sold		47,007		73,824		92,852		86,616		75,090
Used for yeast production		25,537		23,045		20,095		19,270		15,164
Yeast (pounds, in thousands):
Produced		34,787		32,043		29,253		28,458		22,254
Sold		34,670		31,984		29,436		28,394		22,327
* Includes PIK sugar

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

(2)      Members’ investment includes preferred and common stock, unit retention capital, allocated patronage and retained earnings.

(3)      Calculated by dividing the Company’s long-term debt, exclusive of the current maturities of such debt, by equity.

(4)      Computed by dividing (i) the sum of Net Proceeds plus fixed charges, plus amortization of capitalized interest by (ii) the sum of interest expense and interest capitalized. The Company does lease certain items, such as some office equipment. Due to the proportionately small amounts involved, an interest factor on lease payments has not been included in the total of the Company’s fixed charges or the calculation of this ratio. See Exhibit 12.

(5)      Information for a fiscal year relates to the crop planted and harvested in the preceding calendar year (e.g., information for the fiscal year ended August 31, 2006, relates to the 2005 crop).

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

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

CRITICAL ACCOUNTING POLICIES

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

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

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

Inventory Valuation

          Sugar, pulp, molasses and other agri-product inventories are valued at estimated net realizable value. The Company derives its estimates from sales contracts, recent sales and evaluations of market conditions and trends. Changes in market conditions may cause management’s estimates to differ from actual results.

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

          Property and equipment, and property and equipment held for lease are depreciated for financial reporting purposes principally using straight-line methods with estimated useful lives ranging from 3 to 40 years. Economic circumstances or other factors may cause management’s estimates of expected useful lives to differ from actual.

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

Defined Benefit Pension Plan

          The Company maintains and administers a defined benefit pension plan. The annual cost of this plan can be significantly affected by changes in assumptions and differences between expected and actual experience. The Company utilizes actuarial methods required by SFAS No. 87, “Employers’ Accounting for Pensions,” (SFAS No 87) to account for it defined benefit pension plan. The actuarial methods require numerous assumptions to calculate the net periodic pension benefit expense and the related projected benefit obligations for our defined benefit pension plan. Two of the most significant assumptions are the discount rates and expected long-term rate of return on plan assets. In making these assumptions, we are required to consider current market conditions, including changes in interest assumptions.

          Key assumptions used to determine annual pension expense are as follows:

	2006			2005			2004
Discount Rate		6.50	%		6.50	%		6.75	%
Expected return on plan assets		8.0	%		8.0	%		8.0	%
Rate of total Compensation Increase		4.3	%		4.5	%		4.5	%

          Discount Rate: An assumed discount rate is required to be used in the pension plan actuarial valuation. The discount rate is a significant assumption. The Company’s methodology for selecting the discount rate for the company’s plan is to seek guidance from outside pension experts for an appropriate discount rate.

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

          In September of 2006, the FASB issued FAS No. 158 “Employers Accounting for Defined Benefit Pension Plans and other Post Retirement plans”. This pronouncement is anticipated by the Company to cause other comprehensive income/loss in future years. The Company believes, had this pronouncement been effective for this report, the Company would need to recognize $5.4 million in additional unfunded liabilities, $0.3 million in additional recognition of the period May 31, 2006 through August 31, 2006, offset by a $2.3 million deferred tax benefit for a net other comprehensive loss of $3.4 million. The Company expects to adopt this requirement for its fiscal year ending August 31, 2007. The additional requirement “to measure plan assets and benefit obligations as of the end of the fiscal year-end statement of financial position” is expected to be adopted by the Company’s for its fiscal year ending August 31, 2009.

Income Taxes

          Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment. The company calculates income taxes in each of the tax jurisdictions in which we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgements regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve.

LIQUIDITY AND CAPITAL RESOURCES

          Because the Company operates as a cooperative, payment for member-delivered sugarbeets, the principal raw material used in producing the sugar and agri-products it sells, are subordinated to all member business expenses. In addition, actual cash payments to members are spread over a period of approximately one year following delivery of sugarbeet crops to the Company and are net of unit retains and patronage allocated to them, both of which remain available to meet the Company’s capital requirements. This member financing arrangement

may result in an additional source of liquidity and reduced outside financing requirements in comparison to a similar business operated on a non-cooperative basis. However, because sugar is sold throughout the year (while sugarbeets are processed primarily between September and April) and because substantial amounts of equipment are required for its operations, the Company has utilized substantial outside financing on both a seasonal and long-term basis to fund such operations. The short and long-term financing has been primarily provided by Co-Bank (the “Bank”). The Company has a short-term line of credit with the Bank totaling $45.0 million, of which $30.6 million was available as of August 31, 2006. In addition, a $15.0 million supplemental seasonal line was offered by the Bank but was not activated by the Company due to a lack of need. The Company anticipates using the USDA Sugar Loan Provisions contained in the 2002 Farm Bill to provide an additional source of seasonal financing for the 2006 and future crops.

          Due to the anticipated size of the 2006 crop payment, the Company believes that an additional $30 million line of seasonal credit, or the use of USDA sugar loans (for a total of $75 million short-term line of credit) will be necessary. The Company believes it’s primary lender, will provide this additional line of credit.

          On May 30^th, 2006, the Company renewed, through May 31, 2007, the seasonal and term-debt lines of credit with the Bank. Changes to the loan agreements covering these lines of credit included the following:

•	$3.0 million of additional long-term debt was added to the loan agreement to fund investments of the Company;
•	The working capital covenant in the loan agreement was eliminated and replaced by a current ratio covenant;
•	The amortization schedule for the long-term debt was lengthened, which changed repayments to the Bank from $4.8 million per year to $3.3 million per year.
The loan agreements between the Bank and the Company obligate the company to maintain the following financial covenants, and in accordance with GAAP:
•	Maintain a current ratio of no less than 1.10 for the first quarter of a fiscal year and 1.15 for all other quarter and fiscal year ends;
•	Maintain a long-term debt and capitalized leases to equity ratio of not greater than .8:1;
•	Maintain available cash flow to current long-term debt ratio as defined in the agreement of not less than 1.25:1.

          As of August 31, 2006 the Company was in compliance with its loan agreement covenants with the Bank.

          Working capital increased $1.6 million for fiscal year 2006. The Company funds its capital expenditure and debt retirement needs primarily from operating activities. The Company has approximately 6-years of long-term debt remaining with the Bank and it has two tax exempt bond issues, one with $5.9 million remaining to be paid and one with $13.1 million remaining. The decision to restructure the Company’s long-term debt had been anticipated to be necessary if the Company were to acquire the non-controlling interest in its 80% owned

subsidiary, Minn-Dak Yeast. On April 30, 2006 the Company consummated the acquisition of the 20% non-controlling interest in Minn-Dak Yeast, which in turn triggered the restructuring of the Company’s long-term debt. As of August 31, 2006, the Company achieved its targeted working capital position.

          The company has protected itself from interest rate fluctuations through a strategy of using tax-exempt bond financing and a term debt portfolio that fixes rates and maturities into the future on set amounts of debt. The current term debt portfolio is expected to provide the company stable term debt interest rates over the next four years at approximately 90 basis points under current market rates for similar maturities. An increase or decrease in the interest rate market of approximately 100 basis points is expected to be immaterial on the profitability of the Company as a result of its interest rate strategy. Capital expenditures for fiscal year 2006 were $4.7 million, for fiscal year 2005, $4.9 million and for fiscal year 2004, $6.0 million. Capital expenditures for fiscal year 2007 are currently estimated at $4.9 million.

          The Bonds are secured by a letter of Credit from Wells Fargo Bank. The letter of credit is ultimately secured by the plant and property of the Company’s facility at Wahpeton, ND.

	Payments Due by Period
Contractual Obligations	Total		Less Than 1 Year		1 - 3 Years		4 –5 Years		After 5 Years
Long-term debt	$	22.9MM	$	2.6MM	$	10.2MM	$	6.8MM	$	3.3MM
Bonds Payable	$	19.1MM	$	1.7MM	$	6.0MM	$	3.2MM	$	8.2MM
Operating leases	$	3.6MM	$	1.2MM	$	2.4MM		0		0
Unconditional Purchase obligations		0		0		0		0		0
Other long-term Obligations		0		0		0		0		0
Total contractual cash Obligations	$	45.6MM	$	5.5MM	$	18.6MM	$	10.0MM	$	11.5MM

          The Company is not aware of any known trends, demands, commitments, events or uncertainties that will likely result in the Company’s liquidity increasing or decreasing materially.

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

RESULTS OF OPERATIONS

Comparison of the Years Ended August 31, 2006 and 2005

          Net payments to members for sugarbeets delivered by the shareholder/growers, decreased by $10.6 million or 13 percent in fiscal year 2006 and totaled $71.6 million. As of August 31, 2006, the board of directors authorized the payment of prior years’ member patronage and per unit retains (including equity payments to estates of deceased shareholders) totaling $3.6 million to shareholders compared to $4.6 million in the previous year. The payment of $3.6 million will leave approximately 4.9 years of prior years’ patronage and per unit retains still outstanding versus the prior year of 7.6 years outstanding.

          Revenues for the year ended August 31, 2006 were comprised of Sugar 84%, Pulp 7%, Yeast 5% and Molasses 4%.

          During the year ended August 31, 2006, the Company purchased 156,788 tons of sugarbeets from a sugarbeet processor due to a shorter than normal sugarbeet supply from the Company’s shareholder/growers. The purchase comprised 8% of all sugarbeets purchased by the Company for the year.

          On April 30, 2006, the Company acquired the non-controlling 20% interest in its Minn-Dak Yeast subsidiary from Sensient Technologies Corporation.

          Revenue for the year ended August 31, 2006, decreased 7 percent or $12.7 million from 2005. Revenue from total sugar sales decreased $16.1 million or 10 percent reflecting a 19 percent decrease in cwt. sold, and a 9 percent increase in the average net selling price per cwt. Revenue from co-products decreased 10 percent, reflecting a decrease of 22 percent in volume, offset by a 12 percent increase in the average selling price per ton. The decrease in volume of sugar and co-products sold from the 2005-crop is attributable to the lower crop size and quality when compared to the 2004 crop of sugarbeets delivered by shareholder/growers.

          Revenues from yeast sales increased 28 percent reflecting an increase in volume of 8 percent, and an increase of 20% in the price of yeast due to a change in the marketing arrangement. A different marketing arrangement changed the methodology used in the determination of the selling price for yeast.

          The value of finished product inventories in fiscal year 2006 increased $.5 million from fiscal year 2005.

          Cost of product sold, on a consolidated basis, exclusive of grower payments for sugarbeets and cost of outside purchased sugarbeets, remained the same. However, the Company’s costs decreased $1.5 million and Minn-Dak Yeast’s costs increased $1.5 million.

          Of the $1.5 million decrease in the Company’s cost of product sold, the cost of operations decreased due to a shorter processing season. Offsetting those costs somewhat were maintenance costs, which increased as a result of the late start (October rather than September) of the 2005-crop processing period. The offsetting increase of $1.5 million in cost of product sold by Minn-Dak Yeast was due to a $0.6 million increase in the cost of molasses (29% price increase and 10% volume increase), $0.6 million of purchased cream yeast (no purchases in prior fiscal year) and $0.3 million increase in the cost of chemicals, due primarily to the increase in volume of production.

          Sales and Distribution costs decreased $8.1 million or 22 percent. Decreases are mainly the result of lower costs of purchased sugar (less volume) and the lower cost of marketing allocations (less volume). General and Administrative expenses decreased $.4 million or 6 percent. Employee costs and trade association dues were the primary reasons for the decrease. Interest expense increased $.6 reflecting a lower level of debt and an increased rate of interest.

          Overall, the cost per cwt. of sugar produced increased 18 percent versus the prior year due to a 1 percent increase in costs and a 17 percent reduction in sugar produced.

          Other business income increased $.2 million in fiscal year 2006 due primarily to transactions related to the acquisition of 100% ownership in Minn-Dak Yeast, offset by less patronage dividends received from other cooperatives.

Comparison of the Years Ended August 31, 2005 and 2004

          Net payments to members for sugarbeets delivered by the shareholder/growers, decreased by $19.5 million or 19 percent in fiscal year 2005 and totaled $82.6 million. As of August 31, 2005, the board of directors authorized the payment of prior years’ member patronage and per unit retains (including equity payments to estates of deceased shareholders) totaling $4.6 million to shareholders compared to $4.5 million in the previous year. The payment of $4.6 million will leave approximately 7.6 years of prior years’ patronage and per unit retains still outstanding versus the prior year of 7.9 years outstanding.

          Revenues for the year ended August 31, 2005 were comprised of Sugar 85%, Pulp 8%, Yeast 4% and Molasses 3%.

          Revenue for the year ended August 31, 2005, decreased 5 percent or $9.3 million from 2004. Revenue from total sugar sales decreased $11.4 million or 7 percent reflecting an 8 percent decrease in cwt sold, and a 1 percent increase in the average net selling price per cwt. Revenue from co-products increased 1 percent, reflecting a decrease of 14 percent in volume, offset by a 15 percent increase in the average selling price per ton. The decrease in volume of sugar and co-products sold is attributable to the lower sugar content, less marc in the sugarbeets, and high purity in the 2004 crop of sugarbeets delivered by shareholder/growers.

          Revenues from yeast sales increased 2 percent reflecting an increase in volume of 9 percent, and a decrease in price of 7 percent.

          The value of finished product inventories in fiscal year 2005 decreased $2.9 million from fiscal year 2004, a result of lower sugar and molasses inventories at fiscal year end.

          Cost of product sold, exclusive of grower payments for sugarbeets, increased $3.3 million or 6.3 percent. Of the $3.3 million, $3.2 is attributed to the Company’s operation and $0.1 million is attributed to the Minn-Dak Yeast operation.

          Of the $3.2 million increase in the Company’s cost of product sold, the cost of operations and maintenance increased as a result of wet harvest conditions when compared to a crop with normal harvest conditions. Excess mud reduced pile storage effectiveness, total sugar available for extraction, and reduced the daily factory throughput. As a result, less sugar was extracted, while the Company encountered higher daily operating costs. Daily operating costs were negatively impacted due to the use of more chemicals, coal, coke, and limerock, which, in turn, were further compounded by a rise in energy costs associated with the production and shipment of those operating materials.

          Sales and Distribution costs increased $7.1 million or 24 percent. Increases are mainly the result of the cost of purchased sugar and the cost of marketing allocations. General and Administrative expenses increased $.2 million or 3 percent. Employee costs and trade association dues were the primary reasons for the increase. Interest expense decreased less than $.1 million reflecting a lower level of debt and an increased rate of interest.

          Overall, the cost per cwt of sugar produced increased 16 percent versus the prior year due to a 7 percent increase in costs and a 9 percent reduction in sugar produced.

          Other business income increased $.4 million in fiscal year 2005 due primarily to increased patronage dividends from other cooperatives.

Estimated Fiscal Year 2007 Information

          This discussion contains a summary of the Company’s current estimates of the financial results to be obtained from the Company’s processing of the 2006 sugarbeet crop. Given the nature of the estimates required in connection with the payments to members for their sugarbeets, this discussion includes forward-looking statements regarding the quantity of sugar to be produced from the 2006 sugarbeet crop, the net selling price for the sugar and co-products produced by the Company and the Company’s operating costs. These forward-looking statements are based largely upon the Company’s expectations and estimates of future events; as a result, they are subject to a variety of risks and uncertainties. Some of those estimates, such as the selling price for the Company’s products, the quantity of sugar produced from the sugarbeet crop, changes in plant production efficiencies and sugarbeet storage conditions are beyond the Company’s control. The actual results experienced by the Company could differ materially from the forward-looking statements contained herein.

          The Company’s members harvested 3.0 million tons of sugarbeets from the 2006 crop, the largest harvested crop in Company history. Sugar content of the 2006 crop at harvest was 1% below the average of the five most recent years. The Company is projecting the sugar production from the 2006-crop to be the largest in Company history. From the revenues generated from the sale of products produced from each ton of sugarbeets must be deducted the Company’s operating and fixed costs. Revenues for the crop-year 2006 are expected to be 49% above the 2005 crop-year due to increased sugar production, offset by lower prices. The deduction of operating costs results in an estimated 2006 crop gross payment to growers for sugarbeets of $121.4 million, which is $49.8 million more than that of the 2006 crop year of $71.6 million. The 2006 crop sugarbeet payment increased as a result of more harvested tons, more sugar per ton of sugarbeets harvested and higher molasses prices; and was decreased by higher operating costs and lower sugar and pulp prices. The Company does not expect to be able to repeat the record crop results in the future unless it can experience the same weather pattern and growing conditions as the 2006 crop.

          The Company’s initial sugarbeet payment estimate totals $40.21 per ton or $0.134844 per harvested/bonus pound of sugar, with the final sugarbeet payment determined in October of 2007. This projected payment per pound is 5% less than the final 2005 crop payment per pound, but 4% more than the original projected 2005 crop payment per pound. The projected 2006 crop payment per ton results from what management believes is a consistent approach to forecasting sugar production and sugar production costs. While the crop has been harvested, it is still at risk for adverse storage conditions, which may mean that actual results may differ from forecast.

          The Company anticipates challenges in the areas of refined sugar storage, and due to the much larger record crop, will need to take extraordinary steps to preserve the raw sugarbeet inventory for processing during the spring of 2007. The Company began processing the 2006-crop on September 1, 2006 in anticipation of a larger than normal crop and the need to process this crop prior to the deterioration of unprotected sugarbeets in storage during the spring of 2007. Business changes made to become more efficient in the re-hauling of the sugarbeets appears to be working well and which should result in the piled sugarbeets to be more timely processed, thereby reducing spoilage and increasing sugar production. The factory, during the current campaign, has set a number of new records for the most sugarbeets sliced in a day and week and the most sugar produced in a day and a week.

          Although the Company does not anticipate any difficulty in obtaining the necessary seasonal financing for this crop, the additional dollar volume will require the Company to either increase on a temporary basis its line of credit with Co-Bank, and/or utilize the USDA sugar loan program.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

          The Company’s long-term debt interest costs are stabilized through the use of multi-year interest rate locks on various amounts and terms through its primary lender Co-Bank. This strategy allows the Company to project future interest costs and cash flows with a reasonable degree of accuracy.

          The Company has long-term tax-exempt bonds using a variable interest rate. Borrowing levels have been $19.1 million for 2006, $21.0 million for 2005 and $22.0 million for 2004. The historic interest rates for these instruments have been under 5% with an anticipated fluctuation of less than 1% per year.

          The Company’s short-term debt will vary from year to year based on the short-term interest rate market. Average short-term debt borrowing levels have been $24.7 million for 2006, $26.3 million for 2005 and $25.0 million for 2004. Because each year’s short-term debt is closely associated with a crop year, the interest fluctuations will have a direct impact on the final grower sugarbeet payment.

          The Company will from time to time have a purchase obligation in foreign currency as a result of approved capital expenditure projects, and may reduce the risk of currency exchange by forward purchasing the applicable currency required for the expenditure.

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          The consolidated financial statements of the Company for the fiscal years ended August 31, 2006, 2005 and 2004 have been audited by Eide Bailly, LLP, independent registered public accounting firm. Such consolidated financial statements have been included herein in reliance upon the report of Eide Bailly, LLP. The consolidated financial statements of the Company are included in Appendix A to this annual report.

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

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

ITEM 9A. CONTROLS AND PROCEDURES

Sarbanes-Oxley Act: The Sarbanes-Oxley Act continues to have the interpretation of its rules reviewed and changed. The Company’s intent is to be in compliance with the rules and interpretations of these rules as they are promulgated. As of this writing, compliance with all applicable Sarbanes-Oxley rules for the Company has been deferred until August 31, 2008. The below listed areas of activity are not to be considered an all inclusive list, rather an indication of how the Company’s Board of Directors and Management are approaching future compliance requirements.

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

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

Internal Controls: The Company’s payments to growers are derived from crop pools with each year’s harvest creating a “Crop Pool”. It is the Company’s practice to use accounting methods to allocate revenues and costs in a manner that such revenues and expenses associated with each pool are consistently applied on a year-to-year and a pool-to-pool basis. The Company has formalized a process where-by the material risks associated with the Company are determined, documented as to how these risks are to be managed and, where appropriate, reviewed by the Audit Committee.

          Listed below are two internal control material weaknesses discovered by the Company’s Accounting staff during the fiscal year ended August 31, 2006:

1. During the review of the 2^nd quarter 10-Q for FY 2006, it was discovered the finished goods inventory was not properly reconciled prior to the filing of the 10-q, and it was corrected and controls put in place to prevent future errors. At the same time, management also re-evaluated how it was valuing finished goods inventory and thick juice inventory. It was determined that thick juice inventory should be recorded at net realizable value (“NRV”), instead of cost, for the interim financial statements in order to be consistent with accounting principles that would be applied at fiscal year end if any thick juice were present. It was also determined that the NRV for products should

take into account year to date activity and the most current estimate of sales price to arrive at a calculated NRV for any inventory to be valued at NRV.

2.

During the fiscal year ended August 31, 2006, reliance was made upon an improper schedule to calculate the final 2005-crop grower payment. This payment was improperly calculated to be $320,000 more than the calculation using the correct schedule. Although the Company considers the dollar amount of the error to be immaterial, it has determined the lack of proper controls was a material matter. The company has put into place new preventive measures to correct this internal control deficiency.

          The Company’s chief executive officer and chief financial officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934) as of a date within ninety days before the filing date of this annual report. Based on that review and evaluation, which included inquiries made to certain other employees of the Company and based solely upon the above two material weaknesses, the chief executive officer and chief financial officer have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, were ineffective as regards to material weakness. The evaluation has not revealed any fraud, intentional misconduct, or concealment on the part of Company personnel. These weaknesses have been remediated and new internal control procedures instituted whereby critical accounts are properly reconciled on a periodic and annual basis. The Company does not anticipate further difficulties in these areas.

ITEM 9B. OTHER INFORMATION

          None.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY IDENTIFICATION OF DIRECTORS

          The table below lists the current directors of the Company. The board of directors consists of one director from each district. Directors must be common shareholders or representatives of common shareholders belonging to the district they represent and are elected by the members of that district. In the case of a common shareholder who is other than a natural person, a duly appointed or elected representative of such common shareholder may serve as a director. The directors have been elected to serve three-year terms expiring in December of the years indicated in the table below. One director is elected each year from three selected districts. Brief biographies for each of the directors are included after the table.

Name and Address	Age	District	Director Since	Term Expires in December
Dale Blume 17668 CO RD 11 Norcross, MN 56274-3050	56	District #7 – Lehman	2005	2008
Dennis Butenhoff 12254 118th ST S Baker, MN 56580	60	District #9 – Peet	2004	2007
Brent Davison 7950 770th AV Tintah, MN 56583	55	District #5 – Hawes	2003	2008
Douglas Etten 3138 370th ST Foxhome, MN 56543	55	District #8 – Lyngaas	1997	2006(1)
Michael Hasbargen 2553 360th ST Breckenridge, MN 56520	61	District #4 – Factory East	1993	2008
Dennis Klosterman 7942 CTY RD 1 Mooreton, ND 58061	46	District #3 – Gorder	2004	2007
Russell Mauch 16305 Hwy 13 Barney, ND 58008	51	District #2 – Factory West	1998	2007
Charles Steiner 2851 310th AV Foxhome, MN 56543-9312	56	District #6 – Yaggie	2000	2006(2)
Alton Theede 609 3rd AV SE Hankinson, ND 58041	62	District #1 – Tyler	2003	2006(3)

1)	Mr. Etten’s term as a director of the Company from District #8-Lyngaas expires on December 5, 2006.
2)	Mr. Steiner’s term as a director of the Company from District #6-Yaggie expires on December 5, 2006.
3)	Mr. Theede’s term as director of the Company from District #1-Tyler expires on December 5, 2006.

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

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

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

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

          Michael Hasbargen has been a director since 1993 and is currently serving as board chairman. He has also served as vice chairman. Mr. Hasbargen has been farming near Breckenridge, MN since graduating from NDSU in Ag Economics in 1967. Mr. Hasbargen also serves on the board of directors of United Sugars Corporation, Midwest Agri-Commodities Company, and Minn-Dak Yeast. Mr. Hasbargen is the brother-in-law of Mr. Steven Caspers, Executive Vice President & Chief Financial Officer.

          Dennis Klosterman has been a director since 2004. Mr. Klosterman graduated from Wahpeton High School in Wahpeton in 1978. He began farming with his father and brother in the Mooreton, ND area in 1979 while attending North Dakota State College of Science and North Dakota State University. Mr. Klosterman has, and continues to, serve his community and church in several areas. He is a member and past chairman of the Company’s Political Action Committee. Mr. Klosterman is a member of various farm and commodity organizations.

          Russell Mauch has been a director since 1998 and currently serving as board treasurer. Mr. Mauch graduated from North Dakota State University in 1977 with a B.S. in agriculture. From 1979 to 1981 Mr. Mauch was a commercial and agriculture loan officer for First Bank Corporation in Valley City, ND. Mr. Mauch has been farming near Barney, ND since 1981. Mr. Mauch also serves on the board of directors for United Sugars Corporation and as one Minn-Dak’s representatives to the American Sugarbeet Growers Association in Washington, DC.

          Charles Steiner has been a director since 2000. Mr. Steiner has been farming near Foxhome, MN since 1969. Mr. Steiner graduated from the Northwest School of Agriculture, University of Minnesota at Crookston, MN. He also serves on the board of directors for Midwest Agri-Commodities Company and Minn-Dak Yeast.

          Alton Theede has been a director since 2003. Mr. Theede has been farming in the Fairmount, North Dakota area since 1966. He earned his B.S. degree in Business

Administration from the University of North Dakota, Grand Forks, ND in 1966. Mr. Theede currently serves on the board of directors for the local CHS (Cenex Harvest States) and is very involved in community service. Mr. Theede has been and continues to be active in serving the congregation of St. Phillips Catholic Church in Hankinson, ND. He serves on the board of directors for Minn-Dak Yeast.

          The Board of Directors meets monthly. The Company provides its directors with minimal compensation, consisting of (i) a payment of $250.00 per meeting for regular and special board meetings, (ii) the greater (a) $125.00 for any day in which directors partake in activities on the Company’s behalf that take less than five hours or (b) $250.00 for any day in which directors partake in activities on the Company’s behalf that take five hours or more. The Chairman of the Board of Directors also receives a flat $500.00 per month to compensate for the extra duties associated with that position.

Executive Officers

          The table below lists the senior management employees of the Company and Minn-Dak Yeast, none of whom owns any common or preferred shares. Brief biographies for each of the officers are included after the table.

Name	Age	Position
David H. Roche	59	President and Chief Executive Officer
Steven M. Caspers	56	Executive Vice President and Chief Financial Officer
Allen E. Larson	51	Controller and Chief Accounting Officer
Thomas D. Knudsen	52	Vice President Agriculture
Greg J. Schmalz	55	Director Human Resources
Dr. Jeffrey L. Carlson	51	Vice President Operations of Minn-Dak
Dr. Richard W. Ames	49	Operations Manager of Minn-Dak Yeast
John S. Nyquist	51	Purchasing Manager
Susan Johnson	59	Communications Manager
Kevin R. Shannon	52	Safety Director
John Haugen	54	Vice President Engineering

          David H. Roche is the Company’s third president and CEO. He joined the Wahpeton, ND based sugar cooperative on March 1, 2001. Mr. Roche began his sugar industry career as a controller for Michigan Sugar Company in 1976. Mr. Roche holds an MBA in Accounting from Michigan State University and became a Certified Public Accountant in 1974. He serves on the boards of United Sugars Corporation and Midwest Agri-Commodities. Mr. Roche is chairman of the board for Minn-Dak Yeast. In addition, he is a trustee of the United States Beet Sugar Association, and a member of the board of directors of The Sugar Association, Washington, D.C.

          Steven M. Caspers, the Company’s Executive Vice President and Chief Financial Officer, has held that position since January 1986. He has been employed with the Company

since May 5, 1974. Mr. Caspers is the President of Minn-Dak Yeast, and has held that position since 1994. He is a 1972 graduate of the University of North Dakota with a Bachelor of Science in Business Administration and a major in Accounting. Mr. Caspers is the brother-in-law of Mr. Michael Hasbargen, Director and Chairman.

          Allen E. Larson has been serving as the Company’s Controller since 1990. His employment with the Company began on October 26, 1981. Mr. Larson earned a Bachelor of Science degree in Business Administration with a major in Accounting from Minnesota State University Moorhead in 1977.

          Thomas D. Knudsen the Company’s Vice President of Agriculture, has held that position since January 1987. He began his employment with the Company on May 24, 1977. Mr. Knudsen graduated from the North Dakota State University with a Bachelor of Science in Horticulture in 1977 and has attended the Beet Sugar Institute at Fort Collins, Colorado.

          Greg J. Schmalz is the Company’s Director of Human Resources. He has held that position since beginning his employment with the Company on August 30, 2004. Prior to that date, Mr. Schmalz held the position of Vice President of Human Resources at Bobcat Company. Mr. Schmalz is a 1976 graduate of the University of North Dakota, Grand Forks, with a Bachelor of Arts Degree in Sociology and a Masters Degree in Guidance and Counseling. He is a member of the Society of Human Resources Management and the Agassiz Valley Human Resources Association.

          Dr. Jeffrey L. Carlson, the Company’s Vice President of Operations, has held that position since August 2002. Prior to his current position, Mr. Carlson was the Company’s Director of Technical Services. He began his employment with the Company on June 4, 1990. Mr. Carlson is a graduate of the University of Minnesota-Morris with a Bachelor of Arts in Chemistry and the University of North Dakota with a Ph.D. in Physical Chemistry. He received his MBA from North Dakota State University in 2001.

          Dr. Richard W. Ames has been serving as the Operations Manager of Minn-Dak Yeast since 1989. He began his employment with the Company in September 1986. Dr. Ames holds a Ph.D. in Chemistry from University of North Dakota, which he earned in 1986. He is an active member of the American Chemical Society.

          John S. Nyquist became the Company’s Purchasing Manager in 1994. He began his employment with the Company on September 15, 1975. Mr. Nyquist is active in, and is a past president of, the National Association of Purchasing Managers.

          Susan M. Johnson has been serving as the Company’s Communications Manager and Administrative Assistant since December 2003. Prior to that position, Ms. Johnson served as an Administrative Assistant. She began her employment with the Company on June 26, 1978. She has attended, and graduated from, a two-year leadership training program entitled “MARL” Minnesota Agricultural and Rural Leadership.

          Kevin R. Shannon has held the position of Safety Director for the Company since September of 1992. He began his employment with the Company on June 1, 1983.

          John R. Haugen was promoted to the position of Vice President of Engineering on August 1, 2002. Prior to that date, he served as Director of Engineering. Mr. Haugen began his employment with the Company in 1976. He earned a BS degree in Mechanical Engineering from the University of North Dakota in 1976.

ITEM 11. EXECUTIVE COMPENSATION

          The following table summarizes the amount of compensation paid for services rendered to the Company during the fiscal year ended August 31, 2006 and the two prior fiscal years to those persons serving as the Company’s Chief Executive Officer and to the other most highly compensated executive officers of the Company whose cash compensation exceeded $100,000 per annum.

Summary Compensation Table

Name and   Principal Position	Year	Salary		Bonus		Other Annual Compensation		All Other Comp	Total Compensation
						(1)		(2)
David H. Roche	2006	$	323,107	$	35,000	$	19,124		$	377,230
President & CEO	2005	$	303,585	$	80,000	$	16,791		$	400,376
	2004	$	294,616	$	105,000	$	16,663		$	416,278
Steven M. Caspers	2006	$	166,830	$	15,000	$	9,243		$	191,073
Executive Vice	2005	$	155,958	$	40,500	$	8,945		$	205,403
President / CFO	2004	$	151,002	$	48,500	$	10,373		$	209,875

1)       In addition to the salary and bonus described above, Mr. Roche and Mr. Caspers are provided with “Other Annual Compensation,” which includes the value of the excess life insurance cost, individual LTD plan, sold vacation, and Company match of the 401(k) plan. The company has a policy whereby Supervisory, Professional and Management employees are required to maintain their vacation and floating holiday hour combined carryover balance at two hundred and forty (240) hours or less. While not encouraged, the cash optioning of vacation and floating holiday accrued hours is allowable. Employees with account balances in excess of 240 hours may elect to cash option up to fifty percent (50%) of the number of hours exceeding 240. Employees at or below the 240 hour limit may elect to cash option fifty percent (50%) of their combined vacation and floating holiday annually accrued hours.

          Management employees are eligible for performance bonuses, which are partially based upon on the performance of the Company and partially on achievement of certain management performance objectives. The President/CEO determines those performance objectives for officers and significant other management employees of the Company and the Board of Directors determines performance objectives for the President/CEO.

          On a periodic basis, the Company undertakes a compensation review study to determine that its employees’ compensation is commensurate with responsibilities of the various Company positions, and that the compensation is equitable between jobs within the Company and externally competitive with other comparable jobs and responsibilities within the Company’s geographic region. A national compensation consultant called Hay Management consultants performs the compensation review study. This study is made of all management

employees, including the president, and non-union employees. From time to time individual employees have had a restudy based upon changes in their areas of responsibilities.

2)       Mr. Roche is eligible for payments into a supplemental executive retirement plan. The Company recorded obligations of $37,461, $32,000 and $15,731 for the fiscal years ended August 31 2006, 2005, and 2004, respectively. See the section below on Retirement Plans for further details on the supplemental executive retirement plan.

Retirement Plans

          Management employees are eligible to participate in the Company’s defined benefit retirement plan as well as its 401(k) retirement savings plan, each of which are described below.

          The Company has established a noncontributory, defined benefit retirement plan, which is available to all eligible employees of the Company. The benefits of the plan are funded by periodic contributions by the Company to a retirement trust that invests the contributions and earnings from such contributions to pay benefits to employees. The plan provides for the payment of a monthly retirement benefit determined under a formula based on years of service and each employee’s compensation level. See “Executive Compensation--Qualified Benefits Table.” Benefits are paid to the employees upon reaching early (age 55 or older) or normal (age 65) retirement age. The plan also provides for the payment of certain disability and death benefits.

Qualified Benefits Table

          The following table reflects the estimated annual benefits payable to a fully-vested executive officer of the Company under the defined benefit retirement plan upon retirement at age 65, after 15, 20, 25, 30, and 35 years of annual service at the compensation levels set forth hereon:

Years of Service
Pension Compensation		15		20		25		30		35
$	125,000	$	27,094	$	36,125	$	45,156	$	54,187	$	63,218
$	150,000	$	33,281	$	44,375	$	55,469	$	66,562	$	77,656
$	175,000	$	39,469	$	52,625	$	65,781	$	78,937	$	92,093
$	200,000	$	45,656	$	60,875	$	76,094	$	91,312	$	106,531
$	225,000	$	50,606	$	67,475	$	84,344	$	101,212	$	118,081
$	250,000	$	50,606	$	67,475	$	84,344	$	101,212	$	118,081
$	275,000	$	50,606	$	67,475	$	84,344	$	101,212	$	118,081
$	300,000	$	50,606	$	67,475	$	84,344	$	101,212	$	118,081
$	325,000	$	50,606	$	67,475	$	84,344	$	101,212	$	118,081
$	350,000	$	50,606	$	67,475	$	84,344	$	101,212	$	118,081
$	375,000	$	50,606	$	67,475	$	84,344	$	101,212	$	118,081

          Mr. Roche has 5 years of service under the plan.
          Mr. Caspers has 32 years of service under the plan.

          The Company maintains a Section 401(k) retirement savings plan that permits employees to elect to set aside, on a pre-tax basis, a portion of their gross compensation in trust to pay future retirement benefits. The Company provides a matching contribution of 100% of each employee’s first 4% of compensation that is set aside under the plan. The amounts set aside by each employee and the Company vests immediately and are paid to each employee upon the happening of certain events, all of which is more fully described in the master plan document. Federal law limited employee pre-tax income contributions to $15,000 in calendar year 2006 ($15,500 for 2007) for each participating employee age 49 and under, and $20,000 for each participating employee age 50 and older ($20,500 for 2007). Benefits under the 401(k) plan begin to be paid to the employee: (i) upon the attainment of normal retirement age (65), or if the employee chooses, any time after attaining early retirement date (age 55); (ii) the date the employee terminates employment with the Company; or (iii) a pre-retirement distribution equal to the value of the employees 401(k) account, provided the employee has attained age 59 1/2 and provided a written consent of the spouse (if married).

          Effective September 1, 1996 certain executive employees of the Company became eligible to participate in a “Supplemental Executive Retirement Plan.” The Company’s Board of Directors adopted that plan on January 21, 1997. Subject to the discretion of the Board of Directors, the plan provides for the Company to credit to the account of each executive eligible to participate in the Supplemental Plan amounts equal to the difference between the benefits actually payable to the executive under the provisions of the defined benefit retirement plan and the amounts which would have been payable under the defined benefit retirement plan if certain provisions of the Internal Revenue Code did not prohibit the payment of such benefits.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          Under state law and the Company’s Bylaws, each member of the cooperative is entitled to one vote, regardless of the number of shares the member holds. The Common Stock of the Company is voting stock and each member of the Company holds one share of Common Stock. The Preferred Stock of the Company is non-voting stock. The Company’s stock can only be held by individuals who are sugarbeet growers. To the Company’s knowledge, as of November 3, 2006, no person owned beneficially more than 5% of the Company’s outstanding shares and none of the principal officers listed above owned any such shares. As members of the cooperative, each director owns one share of Common Stock and is entitled to one vote. As a group, the directors own 5.37% of the outstanding Preferred Stock.

Name	Position with Company	No. of Shares	% of Shares
Dale Blume	Director	213	less than 1%
Dennis Butenhoff	Director	250	less than 1%
Brent Davison	Director	1,200	1.7%
Douglas Etten	Director	450	less than 1%
Michael Hasbargen	Director	350	less than 1%
Dennis Klosterman	Director	235	less than 1%
Russell Mauch	Director	474	less than 1%
Charles Steiner	Director	380.5	less than 1%
Alton Theede	Director	325	less than 1%
All Directors		3,877.5	5.37%

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          Each of the Company’s directors is also a sugarbeet grower or a shareholder member or representative of a shareholder member. By virtue of their status as such members of the Company, each director or the member he represents sells sugarbeets to the Company and receives payments for those sugarbeets. Such payments for sugarbeets often exceed $60,000. However, such payments are received by the directors, or the entities they represent, on exactly the same basis as payments are received by other members of the Company for the delivery of their sugarbeets. Except for the sugarbeet sales described in the preceding sentences, none of the directors or executive officers of the Company have engaged in any other transactions with the Company involving amounts in excess of $60,000.

ITEM 14.		PRINCIPAL ACCOUNTANT FEES AND SERVICES
1.	Audit Fees - paid to the Company’s principal accountant for the audit of annual financial statements and review of financial statements included in Forms 10-Q during the fiscal year ended August 31, 2006 totaled $71,000 (including a $2,500 progress billing for the 2006 audit) and $78,184 for the fiscal year ended August 31, 2005.
2.	Audit Related Fees – none
3.	Tax Fees – paid to the Company’s principal accountant for professional services rendered for tax compliance, tax advice, and tax planning totaled $15,225 for fiscal year ended August 31, 2006 and $18,660 for the fiscal year ended August 31, 2005.
4.	All Other Fees – paid to the Company’s principal accountant for services other

	than detailed in Items 1 thru 3 above total $12,550 for the fiscal year ended August 31, 2006 and $13,200 for the fiscal year ended August 31, 2005.
5.	It is part of the audit committee’s duties to appoint, compensate, and oversee the engagement of, retention, or replacement of, the independent auditors who audit the financial statements of the Company and its subsidiaries. The audit committee approves all audit services to be performed by the independent auditor. The committee ensures that the independent auditor is not engaged to perform any non-audit services that are considered “prohibited activities” by the Sarbanes-Oxley Act.
	The audit committee approves 100% of the services described in items 1 thru 4 above.
6.	The percentage of hours expended on the principal accountant’s engagement to audit the Company’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees is zero.

PART IV.

ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
	Documents filed as part of this report:
	a.	Consolidated Financial Statements
			-Report of Independent Registered Public Accounting Firm
			-Consolidated Statements of Operations for the Years Ended August 31, 2006, 2005 and 2004
			-Consolidated Balance Sheet as of August 31, 2006, 2005 and 2004
			-Consolidated Statements of Changes in Members’ Investments for the years ended August 31, 2006, 2005 and 2004
			-Notes to the Consolidated Financial Statements
	b.	Financial Statement Schedules – None
	c.	The exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index, Item 15d.

Item 15a. Report of Independent Registered Public Accounting Firm

The Audit Committee
Minn-Dak Farmers Cooperative
Wahpeton, North Dakota

We have audited the accompanying consolidated balance sheets of Minn-Dak Farmers Cooperative (a North Dakota cooperative association) as of August 31, 2006, 2005, and 2004, and the related consolidated statements of operations, changes in members’ investments and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we do not express such an opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Minn-Dak Farmers Cooperative as of August 31, 2006, 2005, and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Eide Bailly

Fargo, North Dakota
October 9, 2006

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2006, 2005, AND 2004

	2006		2005		2004
ASSETS
CURRENT ASSETS
Cash	$	223,593	$	651,141	$	270,482
Receivables
Trade accounts		15,141,356		9,404,653		13,361,588
Growers		4,551,852		4,102,800		3,958,717
Income tax		85,647		9,990		523,938
Other		24,169		27,430		107,689
		19,803,024		13,544,873		17,951,932
Inventories
Refined sugar, pulp and molasses to be sold on a pooled basis		20,222,901		19,730,432		22,637,988
Sugarbeets		2,017,662		—		—
Nonmember refined sugar		34,955		200,633		3,930
Yeast		165,856		114,845		93,516
Materials and supplies		7,116,506		7,037,784		6,625,424
		29,557,880		27,083,694		29,360,858
Deferred charges		1,506,495		1,444,959		1,252,038
Prepaid expenses and other assets		1,010,569		1,632,888		2,332,936
Current deferred income tax asset		607,000		541,000		502,000
Total current assets		52,708,561		44,898,555		51,670,246
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements		24,636,738		22,959,208		22,768,791
Buildings		37,474,147		37,263,990		37,114,568
Factory equipment		134,313,021		130,803,415		127,715,324
Other equipment		3,954,002		3,574,258		3,468,307
Construction in progress		933,339		2,315,654		1,095,974
		201,311,247		196,916,525		192,162,964
Less accumulated depreciation		103,991,337		97,088,389		89,882,430
		97,319,910		99,828,136		102,280,534
OTHER ASSETS
Investment in stock of other corporations, unconsolidated marketing subsidiaries and other cooperatives		11,017,442		11,038,556		10,073,518
Investment restricted for capital bond projects		600		1,491,930		2,472,142
Other		2,082,765		1,738,881		2,066,118
		13,100,807		14,269,367		14,611,778
	$	163,129,278	$	158,996,058	$	168,562,558

See Notes to Consolidated Financial Statements.

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2006, 2005, AND 2004

	2006		2005		2004
LIABILITIES AND MEMBERS’ INVESTMENT
CURRENT LIABILITIES
Short-term notes payable	$	14,445,000	$	9,800,000	$	10,145,000
Current portion of long-term debt and capital leases		2,564,630		3,600,000		3,600,000
Current portion of bonds payable		1,665,000		1,725,000		960,000
		4,229,630		5,325,000		4,560,000
Accounts payable
Trade		2,069,323		2,219,896		3,542,222
Growers		14,482,531		9,966,465		14,904,425
		16,551,854		12,186,361		18,446,647
Payable to affiliates - Midwest Agri-Commodities Co. and United Sugars Corporation		532,661		1,472,747		259,466
Accrued liabilities		2,923,978		3,681,747		3,681,285
Total current liabilities		38,683,123		32,465,855		37,092,398
LONG-TERM DEBT AND CAPITAL LEASES, NET OF CURRENT PORTION		20,362,925		19,900,000		24,700,000
BONDS PAYABLE		17,415,000		19,230,000		20,955,000
LONG-TERM DEFERRED INCOME TAX LIABILITY		1,840,000		1,300,000		1,242,000
OTHER		877,294		671,756		612,471
COMMITMENTS AND CONTINGENCIES (NOTE 11)		—		—		—
Total liabilities		79,178,342		73,567,611		84,601,869
NON-CONTROLLING INTEREST IN EQUITY OF SUBSIDIARY		—		2,018,551		1,810,234
MEMBERS’ INVESTMENT
Preferred stock
Class A - 100,000 shares authorized, $105 par value; 72,200 shares issued and outstanding		7,581,000		7,581,000		7,581,000
Class B - 100,000 shares authorized $75 par value; 72,200 shares issued and outstanding		5,415,000		5,415,000		5,415,000
Class C - 100,000 shares authorized, $76 par value; 72,200 shares issued and outstanding		5,487,200		5,487,200		5,487,200
		18,483,200		18,483,200		18,483,200
Common stock, 600 shares authorized, $250 par value; 480 shares issued and outstanding on 8-31-06, 477 shares outstanding on 8-31-05 and 488 shares outstanding on 8-31-04		120,000		119,250		122,000
Paid in capital in excess of par		32,094,407		32,094,407		32,094,407
Unit retention capital		—		1,379,798		3,048,825
Qualified allocated patronage		—		722,691		1,638,011
Nonqualified allocated patronage		26,077,023		23,694,526		20,510,179
Retained earnings		7,176,306		6,916,024		6,253,833
		83,950,936		83,409,896		82,150,455
	$	163,129,278	$	158,996,058	$	168,562,558

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 2006, 2005, AND 2004

	2006			2005			2004
REVENUE
From sales of sugar, sugar co-products, and yeast, net of discounts	$	176,966,668		$	189,681,378		$	198,941,297
EXPENSES
Production costs of sugar, co-products, and yeast sold		62,716,367			55,940,415			52,607,125
Sales and distribution costs		29,049,229			37,099,870			29,952,185
General and administrative		6,173,050			6,580,640			6,080,929
Interest		3,544,118			2,899,283			2,919,624
		101,482,764			102,520,208			91,559,863
OTHER INCOME (EXPENSE)		709,750			1,135,475			737,488
NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS BEFORE NON-CONTROLLING INTEREST		76,193,654			88,296,645			108,118,922
NON-CONTROLLING INTEREST IN INCOME OF SUBSIDIARIES		(97,233	)		(208,317	)		(209,458	)
NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS	$	76,096,421		$	88,088,328		$	107,909,464
DISTRIBUTION OF NET PROCEEDS
Credited to members’ investment Components of net income
Income from non-member business	$	260,282		$	662,191		$	703,836
Patronage income		4,220,538			5,191,808			5,128,308
Net income credited to member’s investment		4,480,820			5,853,999			5,832,144
Payments to members for sugarbeets, net of unit retention capital		71,615,601			82,234,329			102,077,321
NET PROCEEDS RESULTING FROM MEMBER AND NONMEMBER BUSINESS	$	76,096,421		$	88,088,328		$	107,909,464

See Notes to Consolidated Financial Statements.

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ INVESTMENTS
YEARS ENDED AUGUST 31, 2006, 2005, AND 2004

	Preferred Stock		Common Stock			Paid in Capital in Excess of Par Value		Unit Retention Capital			Qualified Allocated Patronage			Non-Qualified Allocated Patronage			Retained Earnings (Deficit)		Total
BALANCE, AUGUST 31, 2003	$	18,483,200	$	122,000		$	32,094,407	$	4,959,289		$	2,296,749		$	18,140,978		$	5,549,997	$	81,646,620
Stock -
Sales - common (12 shares)				3,000																3,000
Repurchases - common (12 shares)				(3,000	)															(3,000	)
Revolvement of unit retention capital									(1,910,464	)										(1,910,464	)
Revolvement of prior years’ allocated patronage												(658,738	)		(1,959,107	)				(2,617,845	)
Net income for the year ended August 31, 2004												800,000			4,328,308			703,836		5,832,144
Qualified dividends currently payable												(800,000	)							(800,000	)
BALANCE, AUGUST 31, 2004		18,483,200		122,000			32,094,407		3,048,825			1,638,011			20,510,179			6,253,833		82,150,455
Stock -
Sales - common (4 shares)				1,000																1,000
Repurchases - common (15 shares)				(3,750	)															(3,750	)
Revolvement of unit retention capital									(1,669,027	)										(1,669,027	)
Revolvement of prior years’ allocated patronage												(915,320	)		(2,007,461	)				(2,922,781	)
Net income for the year ended August 31, 2005															5,191,808			662,191		5,853,999
BALANCE, AUGUST 31, 2005		18,483,200		119,250			32,094,407		1,379,798			722,691			23,694,526			6,916,024		83,409,896
Stock -
Sales - common (14 shares)				3,500																3,500
Repurchases - common (11 shares)				(2,750	)															(2,750	)
Revolvement of unit retention capital									(1,379,798	)										(1,379,798	)
Revolvement of prior years’ allocated patronage												(722,691	)		(1,838,041	)				(2,560,732	)
Net income for the year ended August 31, 2006															4,220,538			260,282		4,480,820
BALANCE, AUGUST 31, 2006	$	18,483,200	$	120,000		$	32,094,407	$	—		$	—		$	26,077,023		$	7,176,306	$	83,950,936

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 2006, 2005, AND 2004

	2006			2005			2004
OPERATING ACTIVITIES
Income allocated to members’ investment	$	4,480,820		$	5,853,999		$	5,832,144
Add (deduct) noncash items
Depreciation and amortization		8,086,383			7,723,754			7,657,731
(Gain) Loss on disposal of equipment		(27,330	)		3,655			(53,766	)
Contributed asset		(620,000	)		—			—
Net (income) loss allocated from unconsolidated marketing subsidiaries		54,971			30,299			164,171
Noncash portion of patronage capital credits		(415,113	)		(964,916	)		(755,523	)
Deferred income taxes		474,000			19,000			464,000
Increase in cash surrender of officer life insurance		(27,308	)		(38,958	)		(13,131	)
Minority interest		97,233			208,317			209,458
Changes in assets and liabilities:
Accounts receivable and advances		(7,122,580	)		5,106,392			(1,154,281	)
Inventory and prepaid expenses		(1,677,147	)		2,977,212			2,205,094
Deferred charges and other		73,402			131,178			(1,043,006	)
Accounts payable, accrued liabilities, and other liabilities		5,029,349			(4,950,090	)		(3,158,268	)
NET CASH FROM OPERATING ACTIVITIES		8,406,680			16,099,842			10,354,623
INVESTING ACTIVITIES
Investments restricted for capital lease projects		1,491,330			980,212			928,507
Proceeds from disposition of property, plant and equipment		111,156			1,571			175,000
Capital expenditures		(4,720,891	)		(4,921,390	)		(6,036,406	)
Acquisition of Minn Dak Yeast non-controlling interest		(2,768,383	)		—			—
Investment in stock of other corporations, unconsolidated marketing subsidiaries and other cooperatives					—			—
Capital adjustment of marketing subsidiary		95,766			(248,239	)		37,667
Net proceeds from patronage refunds and equity revolvements		209,205			217,819			370,028
NET CASH FROM (USED FOR) INVESTING ACTIVITIES		(5,581,817	)		(3,970,027	)		(4,525,204	)
FINANCING ACTIVITIES
Sale (repurchase) of common stock, net		750			(2,750	)		—
Net proceeds from issuance of (payments on) short-term debt		4,645,000			(345,000	)		2,895,000
Proceeds from long term debt		3,523,633			—			—
Dividends paid to non-controlling shareholder		(250,000	)		—			—
Payment of financing fees		(288,664	)		(313,097	)		(325,476	)
Payment of long-term debt		(5,971,078	)		(5,760,000	)		(5,705,000	)
Payment of unit retains and allocated patronage		(4,912,052	)		(5,328,309	)		(4,007,469	)
NET CASH USED FOR FINANCING ACTIVITIES		(3,252,411	)		(11,749,156	)		(7,142,945	)
NET CHANGE IN CASH		(427,548	)		380,659			(1,313,526	)
CASH, BEGINNING OF YEAR		651,141			270,482			1,584,008
CASH, END OF YEAR	$	223,593		$	651,141		$	270,482

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASHFLOWS
YEARS ENDED AUGUST 31, 2006, 2005, AND 2004

	2006		2005			2004
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for (refunds from)
Interest	$	3,570,574	$	3,070,845		$	2,878,314
Income taxes	$	293,525	$	(450,463	)	$	1,711,643
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES
Contributed asset	$	620,000	$	—		$	—

See Notes to Consolidated Financial Statements.

NOTE 1 – PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

Principal Business Activity

Minn-Dak Farmers Cooperative (the Company) is a North Dakota cooperative association owned by its member-growers for the purpose of processing sugarbeets and marketing sugar and co-products. Minn-Dak Yeast Company, Inc. (Minn-Dak Yeast) is a North Dakota corporation engaged primarily in the production and marketing of bakers yeast.

The majority of the net proceeds from the Company are from member business, whereas Minn-Dak Yeast is considered non-member business.

Principles of Consolidation

The financial statements include the accounts of the Company and its subsidiary, Minn-Dak Yeast, which, as of May 1, 2006, is 100% owned by the Company.

Receivable and Credit Policy

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

Credit Risk

The Company and subsidiary grant credit to food processors located throughout the United States and limited Canadian provinces. In addition, the Company grants credit to members located in North Dakota and Minnesota, for sugarbeet seed and limited produced co-products.

Inventories

Inventories of refined sugar, thick juice, pulp and molasses to be sold on a pooled basis are valued at net realizable value, while third-party purchased refined sugar to be sold on a pooled basis is valued at the lower of cost or market. Inventory of yeast is valued at the lower of average cost or market. Materials and supplies are valued at most recent purchase that

approximates cost. During the periods when sugarbeets are purchased from growers, but not yet converted into bin sugar or thick juice, that inventory is valued at grower payment cost. In valuing inventories at net realizable value, the Company, in effect sells the remaining inventory to the subsequent periods sugar and co-product pool.

Deferred Charges

Agricultural development and labor procurement costs incurred in connection with the sugarbeet crop to be harvested in September and October are deferred and subsequently charged to expense during the ensuing processing period.

Property, Plant, Equipment and Depreciation

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

It is the policy of the Company to provide depreciation based on methods designed to amortize the cost of the properties over their estimated useful lives. Property, plant and equipment are depreciated for financial reporting purposes, principally using declining balance methods, with estimated useful lives ranging from 8 to 40 years. Statutory lives and methods are used for income tax reporting purposes.

Capitalized assets include indirect costs such as fringe benefits, interest, and engineering when appropriate. The indirect costs capitalized for the years ended August 31, 2006, 2005, and 2004 were $152,751, $112,067, and $67,824, respectively. There was no construction-period interest capitalized for the years end ended August 31, 2006, 2005 and 2004.

Goodwill and Other Intangible Assets

In accordance with SFAS 142, the Company does not amortize goodwill. The Company evaluates goodwill and other intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recovered.

Investments in Other Corporations, Unconsolidated Marketing Subsidiaries, and Other Cooperatives

Equity Value Investments in Unconsolidated Marketing Investments - The investments in United Sugars Corporation and Midwest Agri-Commodities Company are accounted for using the equity method, wherein the investment is recorded at the amount of the underlying equity in the net assets of the investments and adjusted to recognize the Company’s share of the undistributed earnings or losses.

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

Income Taxes

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

Revenue Recognition

During the 2005 fiscal year, the Company modified its accounting policy from recognizing revenue at the point of shipment to recognizing revenue at the point of customer receipt. This change in accounting policy was immaterial to the Statements of Operations.

Accounting Estimate

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Uninsured Cash Balance

The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. At times during the year, the Company’s balances exceeded this limit. The Company does not consider this a material risk.

Impairment and Disposal of Long-Lived Assets

The Company accounts for impairment or disposal of long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Long-lived assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less costs to sell, and will cease to be depreciated. SFAS No. 144 also requires long-lived assets to be disposed of other than by sale to be considered as held and used until disposed of, requiring the depreciable life to be adjusted as an accounting change.

Shipping and Handling Costs

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

Advertising

The Company’s advertising costs are expensed as incurred.

Reclassifications

Certain amounts have been reclassified in the fiscal 2005 financial statements to conform to the 2006 presentation. The reclassification has no effect on the results of operations for fiscal 2006.

Recently Issued Accounting Pronouncements

FAS 157 Fair Value Measurements - This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This statement does not require any new fair value measurements. However the application of this statement may change the accounting practice regarding future mergers and acquisitions at the Company.

FAS 158 Employers Accounting for Defined Benefit Pension Plans and other Post Retirement Plans - This statement requires an employer that is a business entity and sponsors one or more single-employer defined benefit plans to recognize the funded status of a benefit plan, measured as the difference between plan assets at fair value and the benefit obligation in the financial statement.

The Company has a defined benefit pension plan for its employees. This accounting pronouncement may cause the Company to report other comprehensive income in future years. The impact of this pronouncement may be material in nature for the Company.

Concentration and Sources of Labor

The Company’s total regular rated and vacation rated hourly and salaried workforce consists of 442 employees, of which 60% is covered by a collective bargaining agreement. The agreement expires on May 31, 2011.

Risks and Uncertainties

Interest costs - - The Company is at risk for interest rate changes in both seasonal and long-term debt. The Company has long-term variable and set rates on a substantial portion of its long-term debt. The variable rate has limited variability on its rate, therefore the Company

does not consider it’s interest rate risk for long-term debt to be material. Short-term debt risk is not expected to have a material impact on the Company’s annual return to its growers.

NOTE 2 – BUSINESS COMBINATIONS

The Company acquired the 20% non-controlling interest in Minn-Dak Yeast from Sensient Technologies Corp. (“Sensient”). The Company now owns 100% of Minn-Dak Yeast. The supplemental disclosure of non-cash investing and financing activities related to the acquisition of the non-controlling interest in Minn-Dak Yeast is shown below.

The acquisition cost for the non-controlling interest of Minn-Dak Yeast that was acquired from Sensient, including purchase price, legal fees and appraisal fees, was $2,768,383.

Items acquired are:
New working capital	$	1,011,804
Machinery and equipment		1,008,313
Land and buildings		276,576
Other assets		77,000
Customer relations		514,000
Non-compete agreement		62,000
Goodwill		110,152
Long-term liabilities		(291,462	)
	$	2,768,383

Intangible assets derived from the purchase of the non-controlling interest in Minn-Dak Yeast include Goodwill, which is not being amortized, and Customer Relations and a Non-Compete Agreement, which are being amortized on a straight-line basis over 15 years. The amortization of these intangible assets for the year ended August 31, 2006 was $12,800. There was no amortization expense for these assets for the years ended August 31, 2005 and 2004.

There are no contingent provisions or Research and Development assets purchased or written off in the purchase agreement between the Company and Sensient.

NOTE 3 – INVESTMENTS

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

	2006		2005		2004
United Sugars Corporation	$	1,287,943	$	1,457,058	$	1,234,411
Midwest Agri-Commodities		59,576		41,198		45,904
CoBank		4,575,738		4,488,197		4,298,150
Dakota Valley Electric Cooperative		5,036,016		4,998,379		4,444,871
Other		58,169		53,724		50,182
	$	11,017,442	$	11,038,556	$	10,073,518

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

Short-Term Debt

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

	2006		2005		2004
Seasonal loan with CoBank, due June 1, 2007, interest variable, currently at 6.31%	$	14,445,000	$	9,800,000	$	10,145,000

The Company has a $45,000,000 seasonal line of credit with CoBank, with $30,555,000 available on August 31, 2006. The line is secured with a first lien on substantially all property and equipment and current assets of the Company. The Company also utilizes the USDA’s CCC Sugar Loan Program to provide an additional source of seasonal financing.

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

	2006			2005			2004
Maximum borrowings	$	43,225,000		$	46,975,000		$	48,013,000
Average borrowing levels	$	24,655,769		$	26,325,769		$	25,027,077
Average interest rates		5.70	%		3.22	%		2.40	%

Long-Term Debt

On May 30, 2006, the Company renewed the seasonal and term-debt lines of credit with CoBank.

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

	2006			2005			2004
CoBank term loan, with fixed and variable rates, due in varying principal repayments through August 20, 2013, interest rate variable, variable currently at 6.31%, with a first lien on substantially all property, equipment, and current assets of the Company located in Wahpeton, ND	$	22,437,931		$	23,500,000		$	28,300,000
Less current maturities		(2,493,103	)		(3,600,000	)		(3,600,000	)
	$	19,944,828		$	19,900,000		$	24,700,000

The Company has complied with the terms of its loan agreement covenants for the years ended August 31, 2006, 2005, and 2004.

In addition, the Company can make special advance payments on its term loans with CoBank after its seasonal loans have been paid in full, with the understanding that the special advance payments will be re-advanced subject to the reinstatement provisions, prior to the granting of any new seasonal loans. Any such advance payments are subject to a commitment fee of .25% of the daily un-advanced commitment.

Interest expense totaled $3,544,118, $2,899,283, and $2,919,624 for 2006, 2005 and 2004, respectively.

Principal amounts due on the Company’s long-term debt are as follows:

Years ending August 31,
	2007	$	2,493,103
	2008		3,324,138
	2009		3,324,138
	2010		3,324,138
	2011		3,324,138
	Thereafter		6,648,276
		$	22,437,931

Capital Leases

The Company is the lessee of equipment under capital leases, with varying expiration dates. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. This equipment is being depreciated over its estimated useful life. Depreciation of assets under these capital leases is included in depreciation expense for 2006.

Minimum future lease payments under capital leases are as follows:

Years ending August 31,
2007	$	97,626
2008		134,927
2009		67,149
2010		67,149
2011		67,149
Thereafter		139,483
Total minimum lease payments	$	573,483
Less: Amount representing interest		83,859
Present value of net minimum lease payment	$	489,624

NOTE 5 - BONDS PAYABLE

The Company financed construction projects related to the processing facility through the sale of Solid Waste Disposal Revenue and Industrial Development Revenue Bonds, Series 1996 and 2002, by Richland County North Dakota. The Company has leased the property and equipment from the County for the sum of the annual principal and interest payments on the bonds. Under the terms of the lease, the Company is responsible for the real estate taxes, insurance, repairs and maintenance, and other costs incident to the ownership of the property. The leased property is included with property and equipment in the financial statements and the bonds have been recorded as a direct obligation of the Company. Ownership of the property and equipment will transfer to the Company when the bonds are repaid in full. The bonds are guaranteed by the Company. The Company has letter of credit arrangements with a bank that provide security for obligations under the bonds payable totaling approximately $19,810,000 at August 31, 2006. There were no outstanding advances under these letter of credit arrangements at August 31, 2006. Details relative to the Company’s obligations under the lease agreement are as follows:

	2006
Payee	Variable Interest Rate		Final Maturity		Current Portion		Total		2005 Total		2004 Total
Richland County, North Dakota		3.59%		Jan 2011	$	1,065,000	$	5,945,000	$	6,955,000	$	7,955,000
Richland County, North Dakota		3.49%		Jan 2019	$	600,000		13,135,000		14,000,000		14,000,000
					$	1,665,000	$	19,080,000	$	20,955,000	$	21,955,000

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

Years ending August 31,
2007	$	1,665,000
2008		1,915,000
2009		2,010,000
2010		2,120,000
2011		2,230,000
Thereafter		9,140,000
	$	19,080,000

Bond financing costs incurred in connection with the financing of the construction projects related to the processing facility have been capitalized. The Company is amortizing the bond financing costs over the terms of the financing obtained. The effective interest method of amortization is used.

Amortization of bond financing cost was $36,938 for each of the years ended August 31, 2006, 2005 and 2004.

NOTE 6 - MEMBERS’ INVESTMENT AND GROWER PAYMENTS

The ownership of non-dividend bearing common stock is restricted to a “member-producer,” as defined in the by-laws of the Company. Each member-producer shall own only one share of common stock and is entitled to one vote at any meeting of the members. Each member-producer is also required to purchase units of preferred stock and is entitled to grow the maximum acres per unit of preferred stock as is authorized by the Board of Directors each farming year. The Company’s board of directors authorized the members to plant 1.50, 1.45 and 1.57 acres per unit of preferred stock for the fiscal years 2006, 2005 and 2004 respectively. A unit consists of one share each of Class A, Class B and Class C preferred stock. The

preferred shares are nonvoting and non-dividend bearing. All transfers and sales of stock must be approved by the Company’s board of directors.

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

Under the terms of the Company sugarbeet growing contracts with each of its member-producers, the Company is obligated to pay the member-producers for sugarbeets delivered at a price per pound of extractable sugar. However, if, in the opinion of the Company’s primary lender, CoBank, the working capital position of the Company is insufficient, the Company shall retain from the price to be paid per pound of extractable sugar such amounts as are deemed by the bank to be necessary for operations, the deductions to be made at such time as the bank shall require. The amount so retained shall be evidenced in the records of the Company by equity credits in favor of the growers. The board of directors has the power to determine whether such retains shall be “qualified” or “nonqualified” for income tax purposes.

For the year ended August 31, 2006, the Company allocated patronage of $4,220,538 to the members. For the year ended August 31, 2005, the Company allocated patronage of $5,191,808 to the members. For the year ended August 31, 2004, the Company allocated patronage of $5,128,308 to the members.

During the year ended August 31, 2006, the Company revolved the remaining 55% of the unit retains and allocated patronage for the fiscal year ended August 31, 1997, totaling $2,490,804 and 100% of the unit retains and allocated patronage for the fiscal years ended August 31 1998 and 1999 totaling $870,090, and 6% of the unit retains and allocated patronage for the fiscal year ended August 31, 2001 totaling $259,452 for a grand total revolved of $3,620,346. There were no unit retains or equity withheld during the fiscal year ended August 31, 2000. In addition, during fiscal year 2006, although the grower payable was correctly stated on the August 31, 2005 balance sheet, a misclassification was relied upon to make the final 2004 crop grower payment, resulting in a payment that exceeded the amount that was required. The Company has corrected the grower payment by reducing the 2004 crop allocated patronage by $320,224.

During the year ended August 31, 2005, the Company revolved the remaining 92% of the unit retains and allocated patronage for the fiscal year ended August 31, 1996 and 40% of the unit retains and allocated patronage for the fiscal year ended August 31, 1997, totaling $2,533,592 and $2,008,115 in each respective year, for a total of $4,541,707. In addition, unit retains and allocated patronage owned by certain estates were redeemed at a discount. The discount represented the difference between the book value of these items, totaling $50,102, and the present value of the estimated future redemptions.

During the year ended August 31, 2004, the Company revolved the remaining 25% of the unit retains and allocated patronage for the fiscal year ended August 31, 1994, 100% of the unit

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

NOTE 7 - INVESTMENT IN MARKETING COOPERATIVES

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

The Company’s ownership requirement in United Sugars is calculated periodically and is based on the average volume of sugar produced during the five previous fiscal years. The investment is accounted for on the equity method and the amount of sales and related costs recognized by each member processor is allocated based on their pro-rata share of production for the year. The Company provided United Sugars with cash advances on an ongoing basis for operating and marketing expenses incurred. During the years ended August 31, 2006, 2005, and 2004, the Company had advanced $19,719,946, $23,769,970 and $19,899,596, respectively. The Company had outstanding advances due from United Sugars of $353,465 for the year ended August 31, 2006, $1,104,338 for the year ended August 31, 2005, and outstanding advances due to United Sugars of $364,698, for the year ended August 31, 2004.

The Company has a one-fourth ownership interest in Midwest. The amount of the investment is accounted for using the equity method. All sugarbeet pulp and a portion of the molasses produced are sold by Midwest as an agent for the Company. The amount of sales and related costs to be recognized by each owner is allocated based on their pro-rata share of production for the year. The owners provide Midwest with cash advances on an ongoing basis for operating and marketing expenses incurred by Midwest. The Company advanced Midwest $962,334, 1,060,826 and $1,887,774, respectively, during the years ended August 31, 2006, 2005, and 2004. The Company had outstanding advances due to Midwest of $179,196, $368,409 and $624,164, as of August 31, 2006, 2005, and 2004, respectively. The owners of Midwest are guarantors of the short-term line of credit Midwest has with CoBank.

NOTE 8 - INCOME TAXES

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

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

	2006			2005			2004
Deferred tax assets
Non-qualified unit retains and allocated patronage due to members	$	10,431,000		$	10,030,000		$	9,394,000
Net operating loss carryforwards		4,543,000			4,543,000			3,600,000
Other		1,013,000			945,000			828,000
Total deferred tax assets		15,987,000			15,518,000			13,822,000
Deferred tax liabilities
Depreciation		15,152,000			14,234,000			12,801,000
Other		2,068,000			2,043,000			1,761,000
Total deferred tax liabilities		17,220,000			16,277,000			14,562,000
Net deferred tax liability	$	(1,233,000	)	$	(759,000	)	$	(740,000	)
Classified as follows
Current asset	$	607,000		$	541,000		$	502,000
Long-term liability		(1,840,000	)		(1,300,000	)		(1,242,000	)
Net deferred tax liability	$	(1,233,000	)	$	(759,000	)	$	(740,000	)

The state and federal operating loss carryforwards totaling approximately $19,700,000 will expire in 2019 through 2025.

The provision for income taxes is as follows:
	2006		2005		2004
Current expense (benefit)	$	200,000	$	56,000	$	(173,000	)
Net change in temporary differences		472,000		19,000		464,000
Provision for income taxes	$	672,000	$	75,000	$	291,000

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

1.	When non-qualified unit retention capital and allocated patronage are elected by the board of directors, the Company is not allowed an income tax deduction until they are distributed in cash to the member-producers, whereas qualified unit retention capital and allocated patronage are deducted when declared.
2.	Depreciation - For financial reporting purposes, the companies use straight-line and accelerated methods of depreciation with lives of 8 to 40 years, while, for income tax purposes, the companies use required statutory depreciable lives and methods.
3.	Non-qualified patronage credits from investments in other cooperatives - For financial statement purposes, the companies recognize income when the patronage credit notification is received while, for income tax purposes, the companies recognize income when the patronage is received in cash.
4.	Inventory capitalization - For income tax reporting purposes, certain overhead costs are included as a part of inventory costs in accordance with inventory capitalization rules. These costs are charged to expense as incurred for financial reporting purposes.
5.	Recognition of vacation pay - For financial reporting purposes, vacation pay is charged to expense as accrued, whereas, for income tax purposes, vacation pay is deducted in accordance with IRS rules.
6.	Capital leases – For financial reporting purposes, equipment under a capital lease are included in fixed assets and depreciated using a straight line method, with a corresponding liability also recorded. For tax purposes, statutory depreciable lives and methods are used.
7.	As of August 31, 2006, the Company has $1,654,000 in non-member long-term tax liability. This liability resulted from the book to tax differences for Minn-Dak Yeast non-member activity. As of September 1, 2006, Minn-Dak Yeast activity will be classified as member activity. The Company will amortize the $1,654,000 long-term liability over the approximate remaining book life of the Minn-Dak Yeast assets.

NOTE 9 - DEPRECIATION

The Company’s depreciation expense for the years ended August 31, 2006, 2005 and 2004 was $7,750,601, $7,368,561 and $7,290,456, respectively.

NOTE 10 - ENVIRONMENTAL MATTERS

The Company is subject to extensive federal and state environmental laws and regulations with respect to water and air quality, solid waste disposal and odor and noise control. The Company conducts an ongoing and expanding control program designed to meet these environmental laws and regulations. While the Company will continue to have ongoing environmental compliance issues, currently there are no pending regulatory enforcement actions and the

Company believes that it is in substantial compliance with applicable environmental laws and regulations.

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

NOTE 11 - COMMITMENTS AND CONTINGENCIES

During 2000, the Company sold certain notes receivable with recourse. The Company’s contingent liability related to these notes totaled $370,295 as of August 31, 2006.

NOTE 12 - OPERATING LEASES

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

Years ending August 31,
2007	$	1,157,020
2008		1,037,932
2009		740,892
2010		670,800
2011		—
	$	3,606,644

Operating lease and contract expenses for the years ended August 31, 2006, 2005, and 2004, totaled $869,310, $1,005,937 and $972,504, respectively.

NOTE 13 - EMPLOYEE BENEFIT PLANS

401(k) Plan

The Company has a qualified 401(k) employee benefit plan that covers all employees meeting eligibility requirements. The Company’s matching contribution to the plan is at a level of 100 percent of employee contributions, with a maximum of 4 percent of compensation for the years ended August 31, 2006, 2005, and 2004. Employer contributions to the plan totaled $511,936, $499,862 and $466,114 for the years ended August 31, 2006, 2005, and 2004, respectively.

Pension Plan

The Company has a non-contributory defined benefit plan, which covers substantially all employees who meet certain requirements of age, length of service and hours worked per year.

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

	2006			2005			2004
Change in benefit obligation
Benefit obligation at beginning of year	$	21,732,459		$	18,713,083		$	16,578,586
Service cost		858,210			810,489			733,795
Interest cost		1,401,578			1,316,496			1,152,990
Experience (gain)/loss due to participant changes		537,767			1,498,023			865,585
Benefits paid		(1,004,751	)		(605,632	)		(617,873	)
Benefit obligation at end of year		23,525,263			21,732,459			18,713,083
Change in plan assets
Fair value of plan assets at beginning of year		15,469,222			13,632,176			11,404,853
Actual return on plan assets		1,377,080			1,232,678			1,821,766
Employer contribution		1,120,000			1,210,000			1,023,431
Benefits paid		(1,004,751	)		(605,632	)		(617,873	)
Fair value of plan assets at end of year		16,961,551			15,469,222			13,632,177
Funded status		(6,563,712	)		(6,263,237	)		(5,080,906	)
Unrecognized net actuarial loss		5,165,493			4,977,404			3,832,424
Unrecognized prior service cost		258,737			345,642			432,547
Unrecognized transition (asset) obligation		—			175			410
Accrued benefit cost liability	$	(1,139,482	)	$	(940,016	)	$	(815,525	)

	2006			2005			2004
Weighted-average assumptions as of August 31
Discount rate		6.50	%		6.50	%		6.75	%
Expected return on plan assets		8.0	%		8.0	%		8.0	%
Rate of total compensation increase		4.3	%		4.5	%		4.5	%

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

	2006			2005			2004
Components on net periodic benefit cost
Service cost	$	858,210		$	810,489		$	733,795
Interest cost		1,401,578			1,316,496			1,152,990
Expected return on plan assets		(1,244,528	)		(1,096,679	)		(931,309	)
Amortization of prior service cost		86,905			86,905			86,905
Amortization of transition amount		175			235			(8,827	)
Amortization of unrecognized net actuarial loss		217,126			219,096			227,279
Net periodic benefit cost	$	1,319,466		$	1,336,542		$	1,260,833

The Company’s pension plan weighted-average asset allocation at August 31, 2006, by asset category is as follows:

Equity securities	66.8	%
Debt securities	28.8	%
Other	4.4	%
Total	100	%

Contributions

The Company expects to contribute $1,120,000 to its pension plan in 2007.

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

2007	$	585,662
2008		614,920
2009		662,544
2010		685,057
2011		766,772
Thereafter, through 2016		5,005,403

NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is generally defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced liquidation sale. Quoted market prices are generally not available for the Company’s financial instruments. Accordingly, fair values are based on judgments regarding anticipated cash flows, future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. Changes in the assumptions could significantly affect the estimates.

The following methods and assumptions were used by the Company to estimate fair value of the financial instruments, and the estimated fair values of the Company’s financial instruments as of August 31, 2006, 2005, and 2004, are as follows:

Investments - The investments in CoBank, Dakota Valley Electric Cooperative, Inc. and all other cooperatives are stated at cost, plus the cooperative’s share of allocated patronage and

capital credits. The investments in United Sugars Corporation and Midwest Agri-Commodities are accounted for using the equity method, wherein the investments are recorded at the amount of the underlying equity in the net assets of the investments and adjusted to recognize the cooperative’s share of the undistributed earnings or losses. The Company believes it is not practicable to estimate the fair value without incurring excessive costs because there is no established market for this stock and it is inappropriate to estimate future cash flows, which are largely dependent on future patronage earnings of the investment.

Long-term debt and bonds payable - The fair value of obligations under long-term debt and bonds payable are estimated based on the quoted market prices for the same or similar issues or on the current rates offered for debt of similar maturities.

Item 15c. Exhibits

Index
3(i)	Articles of Amendment to the Articles of Incorporation of Minn-Dak Farmers Cooperative. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1996 as filed on November 21, 1996.
3(ii)	Articles of Incorporation of Minn-Dak Farmers Cooperative. Incorporated by reference from the Company’s Registration Statement on Form S-1 (File No. 33-94644), declared effective September 11, 1995.
3(iii)	Amended Bylaws of Minn-Dak Farmers Cooperative. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1997 as filed on November 25, 1997.
10(a)	Growers’ Agreement (three-year Agreement) (example of agreement which each Shareholder is required to sign). Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2003 as filed on November 26, 2003.
10(b)	Uniform Member Marketing Agreement by and between United Sugars Corporation and Minn-Dak Farmers Cooperative and related Amendments numbered 2, 3 and 5 (the Company is not a party to Amendment numbers 1, 4, and 6). Schedule A is incorporated by reference from the Company’s Annual Report on 10-K for the fiscal year ended August 31, 1998 as filed on November 24, 1998.
10(e)	Memorandum of Understanding and Uniform Member Agreement by and between Midwest Agri-Commodities Company and Minn-Dak Farmers Cooperative.
10(k)	Agreement for Electrical Service. Incorporated by reference from the Company’s Registration Statement on Form S-1 (File No. 33-94644), declared effective September 11, 1995.
10(l)	Master Coal Purchase and Sale Agreement and Railroad Equipment Lease Agreement (Confidential Treatment has been requested as to certain provisions).
10(m)*	Minn-Dak Farmers Cooperative Pension Plan. Incorporated by reference from the Company’s Registration Statement on Form S-1 (File No. 33-94644), declared effective September 11, 1995.
10(p)*	Amendment to Minn-Dak Farmers Cooperative Pension Plan. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1997 as filed on November 25, 1997.
10(q)*	Amendment to Minn-Dak Farmers Cooperative Pension Plan. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1998 as filed on November 24, 1998.
10(r)*	David H. Roche Employment Agreement. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2001 as filed on November 29, 2001 and Renewal Agreement, dated August 22, 2006.

12	Statement re Computation of Ratio of Net Proceeds to Fixed Charges.
21	Subsidiaries of the Registrant. Incorporated by reference from the Company’s Registration Statement on Form S-1 (File No. 33-94644), declared effective September 11, 1995.
31.1	Certification of the President/Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of the Executive Vice President/Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act.
31.3	Certification of the Controller/Chief Accounting Officer in accordance with Section 302 of the Sarbanes-Oxley Act.
32	Certification of the President/Chief Executive Officer and the Executive Vice President/Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act.
99.1	Audit Committee Charter. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2003 as filed on November 26, 2003.

*Management contract, compensatory plan or arrangement.

SIGNATURES

          PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

MINN-DAK FARMERS COOPERATIVE
BY	/S/	David H. Roche
DAVID H. ROCHE, PRESIDENT
AND CHIEF EXECUTIVE OFFICER

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

	SIGNATURE		TITLE		REPORT DATE
/s/ David H. Roche		President and		11-28-06
		Chief Executive Officer
David H. Roche
/s/ Steven M. Caspers		Executive Vice President and		11-28-06
		Chief Financial Officer
Steven M. Caspers
/s/ Allen E. Larson		Controller and		11-28-06
		Chief Accounting Officer
Allen E. Larson
/s/ Dale Blume				11-28-06
Dale Blume		Director
/s/ Dennis Butenhoff				11-28-06
Dennis Butenhoff		Director
/s/ Brent Davison				11-28-06
Brent Davison		Director
/s/ Doug Etten				11-28-06
Doug Etten		Director
/s/ Michael Hasbargen				11-28-06
Michael Hasbargen		Director
/s/ Dennis Klosterman				11-28-06
Dennis Klosterman		Director
/s/ Russell Mauch		Director		11-28-06
Russell Mauch
/s/ Charles Steiner				11-28-06
Charles Steiner		Director
/s/ Alton Theede				11-28-06
Alton Theede		Director

EX-10.B

Exhibit 10(b)

UNIFORM MEMBER SUGAR MARKETING AGREEMENT
POOL BASIS

          THIS AGREEMENT, made effective as of the 1st day of September 2001, by and between UNITED SUGARS CORPORATION, a cooperative association organized under the laws of the State of Minnesota (hereinafter referred to as “UNITED”), and MINN-DAK FARMERS COOPERATIVE, a cooperative association organized under the laws of the State of North Dakota (hereinafter referred to as “PROCESSOR”).

WITNESSETH

          WHEREAS, PROCESSOR is a producer-owned and a producer-operated agricultural cooperative which is organized and operated so as to adhere to the provisions of Section 15(a) of the Agricultural Marketing Act (12 U.S.C., Sec. 1141j(a)), as amended, and the Capper-Volstead Act of 1922 (7 U.S.C., Sec. 291, 292), and which is engaged in the operation of one or more sugar processing plants for the purpose of producing one or more forms of refined sugar; and

          WHEREAS, UNITED is organized and operated so as to adhere to the provisions of Section 15(a) of the Agricultural Marketing Act (12 U.S.C., Sec. 1141j(a)), as amended, and the Capper-Volstead Act of 1922 (7 U.S.C., Sec. 291,292), for the mutual help and benefit of its members (“Member” or “Members”) and for the purposes of acting as a marketing agency for its Members and of engaging in the business of marketing the refined sugar (whether sold in packages or in bulk) produced by its Members, including but not limited to, granulated, liquid, blends, and specialty products; and

          WHEREAS, PROCESSOR is a Member of UNITED and wishes to participate with other Members of UNITED in developing and maintaining a dependable market for certain products produced by PROCESSOR; and

          WHEREAS, UNITED and PROCESSOR desire to enter into a membership marketing agreement on a pool basis.

          NOW, THEREFORE, in consideration of the above, subject to the respective terms, conditions, and obligations of PROCESSOR and UNITED herein, UNITED and PROCESSOR agree as follows:

          1.        Definitions. As used in this Agreement, the following terms shall have the following meanings:

                    “Allocation” means the amount of sugar PROCESSOR is authorized to market if Allotments are implemented pursuant to the Allotment Statute.

                    “Allotments” means an overall allotment of sugar processed from domestically produced sugarcane and sugar beets, as defined and contemplated by the Allotment Statute.

                    “Allotment Statute” means 7 USC § 1359aa, et. seq. (1991) and amendments thereto, or subsequent statutes providing for marketing allotments.

                    “Assets Costs” shall mean carrying costs of assets associated with Product shipping, packaging, warehousing (including all costs historically included by UNITED as warehousing costs), and storage functions, including depreciation and interest.

                    “Beet Processing Season” means the period of time generally from September through August during which a Beet Producer processes beets, thick juice and extract into refined sugar.

                    “Beet Producer” means a Member that processes beets and thick juice into refined sugar.

                    “Buyer” is a third party purchaser of Finished Product from UNITED.

                    “Co-Mingle” means (i) Finished Product of PROCESSOR that is stored by UNITED in a warehouse or stationary storage facility that is owned or leased by UNITED; or (ii) Product which has been further processed by UNITED.

                    “Cane Processing Season” means the period of time generally from mid-October through March during which time a Cane Producer processes cane into feedstock for a refinery.

                    “Cane Producer” means a Member that processes cane into refined sugar. “Crop Year” means the crop year established by the Beet Producers for their own business operations.

                    “Fiscal Year” means the fiscal year of UNITED, which begins on September 1 and ends on August 31.

                    “Force Majeure” means any (i) fire, freeze, accident, explosion, construction delay, hurricane, flood, act of God, inability to obtain electric power or fuel, inability to obtain any required permits or licenses, government law, directive or regulation; or the effect of the application of any governmental law, directive or regulation, or any like contingency, beyond a party’s reasonable ability to control or avoid; and (ii) labor dispute or strike, from whatever cause arising and regardless of whether the demands of the employees involved are reasonable and within the affected party’s power to concede.

                    “Finished Product” or “Finished Products” means those Products that have been granulated or otherwise made ready for marketing to third parties.

                    “Member” means a member or shareholder of UNITED who is entitled to vote.

                    “Net Selling Price” means the gross proceeds realized by UNITED from sales of Products produced by PROCESSOR and the other Members in the Primary Pool, less expenses directly attributable to the Primary Pool, including all costs, charges or expenses attributable to the marketing and sale of pooled Products, including without limitation salaries, wages and other benefits of UNITED’s employees, office expense and appropriate consulting fees, and all costs of transportation of the pooled Products.

                    “Operating Costs” means operating costs associated with Product shipping, packaging, warehousing (including all costs historically included by UNITED as warehousing costs) and storage functions including, without limitation, labor (including direct and indirect costs, such as employee benefits, insurance, etc.), supplies, and utilities.

                    “Pool Year” means the pool year of the Primary Pool, which coincides with the Fiscal Year of UNITED, which begins on September 1 and ends on August 31.

                    “Primary Pool” means Product of each Member that is pooled for each Fiscal Year with Products of other Members as agreed to in Section 6.1.

                    “Product” or “Products” means refined sugar produced by PROCESSOR during the term of this Agreement, including but not limited to, granulated, liquid, blends, specialty products, standard liquor, thick juice, extract and other forms of ungranulated sugar.

                    “Pro Rata Share” shall be equal to a fraction, with PROCESSOR’s estimated annual production of Product (on a sugar equivalent basis) included in the Primary Pool as the numerator and total estimated annual pool production of Product (on a sugar equivalent basis) for PROCESSOR and the Members included in the Primary Pool as the denominator.

                    “Purchased Sugar” means Product that is purchased by a Member from a third party or from another Member.

                    “Term” has the meaning set forth in Section 17.

                    “Transgenic Variety” means a variety of seed which will produce a plant that contains a gene or genes that have been artificially inserted instead of the plant acquiring the gene or genes through pollination.

          2.        Appointment of UNITED as Sales Agent.

          2.1      United Appointed Sales Agent. PROCESSOR appoints and designates UNITED to act as its sole worldwide agent in the sale and marketing of the Products. UNITED accepts such appointment and agrees to act as the sales agent and pool administrator in accordance with the terms of this Agreement. PROCESSOR agrees that UNITED may employ all such persons and agencies as it determines to be necessary to carry out its obligations under this Agreement. It is understood and agreed that UNITED may market Products under the various trademarks and trade names of PROCESSOR (if any) pursuant to a

royalty free license agreement with respect to such trademarks and trade names, the form of which agreement shall be mutually agreed upon by PROCESSOR and UNITED.

          2.2      United Authorized to Pass Title. UNITED agrees, and is hereby empowered by PROCESSOR, to sell in its own name, and pass title on behalf of PROCESSOR, all Product produced by PROCESSOR during the Term of this Agreement to such purchasers, at such time or times, at such place or places, in such manner and on such prices or terms as UNITED determines to be in the best interests of PROCESSOR and other Members of UNITED.

          2.3      Products not included in this Agreement. UNITED shall have no rights, and nothing herein contained shall be deemed to create rights in UNITED, in and to any other products produced by PROCESSOR (other than refined sugar).

          2.4      Procurement of Additional Product. It is understood and agreed that UNITED may from time to time procure certain Products from third parties in order to meet the requirements of sales contracts or as otherwise determined to be in the best interest of PROCESSOR and the other Members of UNITED. PROCESSOR and UNITED agree that UNITED shall act as an agent for PROCESSOR in connection with such purchases of Products and that the costs of acquiring such Products and revenues received from the sale of such Products shall be allocated to PROCESSOR and other Members of UNITED on the same basis as allocations from the pool for which the Products were purchased.

          3.        Packaging. PROCESSOR intends to have the capacity to sell Product in bulk as well as in packages. It is understood that production and packaging constraints will limit the volume and mix of packages that can be produced at any one time, and accordingly, UNITED agrees to coordinate orders for packaged Product taking into consideration PROCESSOR’s production and packaging limitations.

          4.        Production and Delivery.

          4.1      Timing of Production. It is anticipated that PROCESSOR will produce Finished Products during its campaign on an approximately even monthly schedule. However, PROCESSOR acknowledges that UNITED’s requirements may be greater in certain specified months and less in others. Accordingly, subject to mutual agreement of the parties, UNITED will endeavor to coordinate demands with PROCESSOR’s production and storage capacities. At UNITED’s request, PROCESSOR will attempt to maximize production in any month in order to accommodate customer demand.

          4.2      Product Production Schedules. PROCESSOR shall provide to UNITED by June 1 of each Fiscal Year during the Term a preliminary estimated production schedule (specifying volume and dates) of Product for the next following Fiscal Year and will provide a revised estimated production schedule of Product by July 1 of each such year, reflecting any changes from the June preliminary estimate. UNITED and PROCESSOR shall jointly develop a production and delivery schedule plan for each Fiscal Year that will attempt to accommodate, as much as reasonably possible, the dual goals of maximizing the price to be paid to

PROCESSOR and maximizing production efficiencies, with the objective of selling all of PROCESSOR’s production of Product each year.

          4.3      Weekly Delivery Amounts. Estimated weekly delivery schedules of Finished Product, including quantities, and bulk and packaging requirements for each week of each month, shall be agreed upon by the parties at least seven (7) days in advance of the month to which they apply. The parties shall use reasonable efforts, recognizing customer demand, to accommodate each other in setting such schedules.

          5.        Billing and Collection. All sales made by UNITED shall be billed on invoices of UNITED and all receipts shall be collected by UNITED.

          6.        Pooling of Product.

          6.1      Agreement to Pool Product. UNITED and PROCESSOR agree that the Products to be sold by UNITED hereunder shall be pooled for each Fiscal Year with Products of the other Members of UNITED in the Primary Pool. UNITED by action of its Executive Committee shall have the discretion to create additional pools as deemed reasonably necessary for the equitable treatment of all Members and to create accounting standards for such additional pools.

          6.2      Adjustments for Beet Producers. In order to include sales of carry-over Product produced by a Beet Producer in a given Beet Processing Season in the Primary Pool applicable to the Fiscal Year in which the Beet Processing Season occurred, even though delivery may occur following August 31 of such year, the Product to be included in calculating UNITED’s Primary Pool in each Fiscal Year shall be the amount of Product (on a sugar equivalent basis) produced by the Beet Producer during the applicable Fiscal Year.

          6.3      Adjustments for Cane Producers. In order to coordinate the Cane Processing Season with the Beet Processing Season, the amount of cane Product for a Cane Producer to be included in calculating the Primary Pool for the Fiscal Year ending August 31, 2001 shall be the amount of cane Product (on a sugar equivalent basis) produced by the Cane Producer during the Fiscal Year ending August 31, 2001, less the cane Product (on a sugar equivalent basis) produced by the Cane Producer that was allocated to the prior Fiscal Year, with the difference multiplied by 1.141. The amount of cane Product for a Cane Producer to be included in calculating the Primary Pool for each succeeding Fiscal Year shall be the amount of cane Product (on a sugar equivalent basis) produced by the Cane Producer during the applicable Fiscal Year, less the cane Product (on a sugar equivalent basis) produced by the Cane Producer that was allocated to the prior Fiscal Year, with the difference multiplied by 1.141.

          7.        Price for Product.

          7.1      Price. UNITED shall pay to PROCESSOR the PROCESSOR’s Pro Rata Share of the Net Selling Price for all Products sold by UNITED hereunder.

          7.2      Timing of Payment to Members. As sales of Finished Product are made by UNITED from the Primary Pool, the gross cash receipts received by UNITED from the sale of such Finished Products shall be paid daily to PROCESSOR and the other Primary Pool participants on the basis of their estimated proportionate share of the Finished Product to be produced by PROCESSOR and each of the other participants in the Primary Pool during that Fiscal year. Because gross cash receipts are distributed daily, UNITED shall borrow from its line of credit in order to cover its monthly operating costs, subject to prompt reimbursement by PROCESSOR of PROCESSOR’s Pro Rata Share of the expenses (such expenses are set forth in the definition of Net Selling Price) that are incurred by UNITED during the month.

          7.3      Adjustments for Changes to Production Estimates. The determination of PROCESSOR’s proportionate share of gross cash receipts shall be based on UNITED’s best estimate of the amount of Finished Products anticipated to be produced in such year by PROCESSOR and each other participant in the Primary Pool, and shall be adjusted by UNITED periodically as production figures are more precisely determined. Such adjustments shall reflect an interest charge to be paid by any Primary Pool participant who has received excess distributions based on the preliminary production estimates and such interest shall be paid to the Primary Pool participant(s) who received less than full distributions. For purposes of this paragraph, interest charges shall be the prime rate as published in the Wall Street Journal for the period in question. As soon as exact information and production figures are available, UNITED shall determine PROCESSOR’s final proportionate share of the gross cash receipts for the Primary Pool during the Fiscal Year, and appropriate adjustments, together with interest charges as provided above, shall be made. The final accounting for the Primary Pool shall be made no later than the ninetieth day following the last day of each Fiscal Year.

          8.        UNITED’s Books and Records. UNITED shall keep accurate records of costs, sales, and distributions of Primary Pool proceeds in accordance with sound and generally accepted accounting practices. Said records shall be at all reasonable times fully available for inspection and copying by PROCESSOR or its certified public accountants. All records of the Primary Pool and any special pool that is created shall be audited annually by UNITED’s regular Independent Certified Public Auditors and the audit report made available to PROCESSOR.

          9.        Budget of Marketing Costs. UNITED shall prepare an annual budget or estimate of all direct and indirect marketing costs for the Primary Pool. It is the intention of UNITED to secure independent financing for costs associated with the marketing of Products as reflected in the budget.

          10.       Product Specifications, Quality Standards, and Handling of Products of Substandard Quality.

          10.1     Specifications. PROCESSOR agrees to comply with UNITED’s Specifications for Products, which specifications prescribe standards and procedures for quality control, storage, and shipment of Products, and which are attached hereto as Schedule A. In addition, PROCESSOR agrees to comply with UNITED’s Quality Assurance Policy that is attached

hereto as Schedule B. Any changes to the specifications or Quality Assurance Policy shall be mutually agreed upon by UNITED and the Members.

          10.2     State and Federal Regulations. All Products delivered to or at the order of UNITED shall conform to quality and other standards prescribed by applicable state and federal rules and regulations.

          10.3     Substandard Product. Product that fails to meet the specifications or the Quality Assurance Policy and which cannot be sold without discounting, shall be considered substandard for purposes of this Agreement. Product of substandard quality shall be withheld from the Primary Pool and marketed by UNITED, with proceeds of the sale of such Product, less all direct and indirect selling expenses, distributed to PROCESSOR; in the alternative, PROCESSOR and UNITED may mutually agree that Product of substandard quality may remain in the Primary Pool and be charged with the additional costs relating to the substandard quality of the Product, including any necessary discounts.

          11.       Storage of Product. PROCESSOR shall store its Product as the parties shall mutually agree; provided however, that with respect to storage by either PROCESSOR or UNITED, the parties shall utilize reasonably available storage methods that result in the lowest total cost to the Primary Pool. At the earliest reasonable time after processing commences in each Fiscal Year and as soon as Product has begun to be placed in storage, PROCESSOR shall deliver daily Product inventory reports to UNITED. All Product included in the daily inventory shall be included in the Primary Pool for the appropriate Fiscal Year even though the Product remains on the premises of PROCESSOR.

          12.       Risk of Loss and Insurance.

          12.1     Risk of Loss. PROCESSOR covenants and agrees that it shall bear the risk of loss of any Product produced by PROCESSOR until the Product is delivered to the Buyer; provided however, that risk of loss shall pass to UNITED before delivery to the Buyer if the Product is Co-Mingled. Regardless of which party bears the risk of loss, the PROCESSOR shall continue to be the owner of the Product until the Product is sold to the Buyer. Whenever UNITED shall have possession or control over the Product prior to sale to the Buyer, UNITED shall act strictly as custodian thereof in accordance with the provisions of this Agreement.

          12.2     Processor to Maintain Insurance. PROCESSOR covenants and agrees, at its sole cost and at all times during the Term of this Agreement, to maintain in force an insurance policy or policies covering loss, theft or damage to the Products from any cause whatsoever until the shipment of the same to the Buyer, in amounts not less than the full insurable value thereof, and product liability insurance in amounts required by UNITED from time to time, which product liability insurance shall name UNITED as an additional or a named insured.

          12.3     UNITED to Maintain Insurance. UNITED covenants and agrees, at all times during the Term of this Agreement, to maintain in force during the period for which it bears the risk of loss, an insurance policy or policies covering loss, theft or damage to the Products from any cause whatsoever in amounts not less than the full insurable value thereof, and product

liability insurance in amounts deemed reasonable by UNITED, which product liability insurance shall name PROCESSOR as an additional or named insured.

          12.4     Certificates of Insurance. Insurance policies shall be taken out with responsible insurance companies licensed to write insurance in Minnesota, in the case of UNITED, and in the appropriate state, in the case of PROCESSOR, and each shall not be canceled or altered without ten days’ written notice to UNITED and PROCESSOR. Each party shall furnish the other party with certificates of insurance for policies required hereunder, together with a summary of the terms and conditions of the policy or policies, and the date on which the same expire.

          13.       Orders. Regardless of factory or warehouse designation, the proceeds from sales orders shall be credited to the Primary Pool for the appropriate Fiscal Year. UNITED shall consider car loadings, points of destination, capacity of tanks or warehouses, size of inventories stored therein and other pertinent factors in selecting the factory, warehouse or warehouses from which delivery shall be made.

          14.       Logistics Function. UNITED shall be responsible for performing all normal logistics functions relating to the shipment of all Products produced at PROCESSOR’s plant. Direct or indirect costs of UNITED associated with the performance of the logistics functions related to Products shall be a marketing expense of the Primary Pool.

          15.       Information from PROCESSOR. PROCESSOR shall, whenever requested by UNITED, furnish to UNITED production and related statistical data for Products prepared on a daily basis, and shall make its books and records related thereto available at all reasonable times for inspection by UNITED. PROCESSOR shall not be required to release information concerning PROCESSOR’s proprietary processes or costs (other than reimbursable Asset Costs and Operating Costs) which costs shall be provided in sufficient detail to satisfy UNITED’s reasonable requirements in connection with the reimbursements provided for in Section 16 hereof), or other confidential financial information. PROCESSOR further agrees, upon request of UNITED, to furnish UNITED with samples of Products for grading or selling purposes.

          16.       Pool Expenses Incurred By PROCESSOR.

          16.1     PROCESSOR shall be reimbursed out of the Primary Pool for its Asset Costs and its Operating Costs; provided however, that storage costs of thick juice from beets or raw cane refinery feedstock shall only be reimbursable pursuant to the Storage Reimbursement Guidelines set forth in Schedule C.

          16.2     UNITED shall credit the PROCESSOR for Asset Costs and Operating Costs within thirty (30) days of submission of PROCESSOR’s written cost breakdown. In the event there is a dispute regarding the amount of such reimbursement, UNITED shall credit the undisputed amount and if the parties are unable to resolve the disputed amounts within thirty (30) days from the date payment is due, the controversy shall be resolved in the manner provided in Section 21 hereof.

          16.3     PROCESSOR shall, prior to the construction or installation of any new assets to be charged to the Primary Pool, obtain approval from UNITED for such construction or installation.

          17.       Term of Agreement: Termination.

          17.1     Term. The term of this Agreement shall commence on the date hereof and shall continue through August 31, 2003 (the “Initial Term”) and from Fiscal Year to Fiscal Year thereafter (the “Renewal Terms”) until terminated as provided herein. “Term” shall mean the initial term and any Renewal Terms, as provided herein.

          17.2     Termination by Producer by Reason of Dissent. During the Term, PROCESSOR shall have the right to terminate this Agreement, without penalty, by Notice delivered to UNITED twelve months prior to the effective date of termination, if the PROCESSOR dissents from any of the following actions taken by UNITED:

17.2.1.	Changes in UNITED’s strategic plan;
17.2.2.	Merger of or acquisition by UNITED;
17.2.3.	Amendment to the Articles of Incorporation or By-Laws of UNITED; or
17.2.4.	Admission of a new member into UNITED.

          17.3     Termination by Either Party After the Initial Term. Either party has the right to terminate this Agreement at the end of the Initial Term and thereafter by giving written notice by registered mail to the other party of such termination as follows:

17.3.1.	Notice of termination to be effective at the conclusion of the Initial Term shall be given prior to May 1, 2002.
17.3.2.	Notice of termination to be effective at the conclusion of a Renewal Term shall be given prior to May 1 of a given year to be effective on August 31 of the subsequent year (e.g., notice given on April 30, 2004 is effective August 31, 2005).

          17.4     Termination Pursuant to the By-Laws of the UNITED. In the event membership in UNITED is terminated pursuant to the provisions of the By-Laws of UNITED, this Agreement shall terminate effective the date of termination of membership; provided, however, that UNITED shall have the obligation to purchase from PROCESSOR and the PROCESSOR shall have the obligation to sell Products in the quantities and under the payment terms provided in this Agreement for the next succeeding twelve (12) month period following termination; further provided, that in no event shall UNITED or PROCESSOR be required to

take any actions that could jeopardize UNITED’s status as a common marketing agent under Capper-Volstead Act.

          17.5     Performance Following Termination.

17.5.1.	Following termination of this Agreement, as provided in Sections 17.1, 17.2, or 17.3 above, PROCESSOR shall have the obligation to sell its Pro Rata Share of any Product for which UNITED has, as of the date of notice of termination, made commitment to deliver to a third party Buyer under the payment terms provided for in this Agreement.
17.5.2.	The rights and obligations with respect to the marketing of PROCESSOR’s Products shall continue in effect until all of such pooled Products have been sold by UNITED and PROCESSOR’s pro-rata share of the Net Selling Price from sales of Primary Pool Products produced by UNITED’s Members during such years and reimbursable costs and expenses have been distributed to PROCESSOR and UNITED’s Members.

          18.       Representations, Warranties, and Indemnifications.

          18.1     Representations By Processor. PROCESSOR represents and warrants that it is not under contract or obligation to sell, market, consign or deliver any of the Products committed to the pools under this Agreement to any other person, firm, association, corporation or other entity. Further, PROCESSOR shall defend and hold harmless UNITED from any costs, claims, liabilities, suits or other proceedings or actions of any nature or kind whatsoever arising from or connected with any such prior agreement, contract or arrangement or the termination or cancellation of any prior agreements, contracts or arrangements.

          18.2     Representations By UNITED. UNITED represents and warrants that it has the power and authority to enter into this Agreement, sell the Products committed to the pools and otherwise to fulfill its obligations under this Agreement. Further, UNITED shall defend and hold harmless PROCESSOR and its employees, agents and shareholders, from any costs, claims, liabilities, suits or other proceedings or actions of any nature or kind whatsoever arising from or connected with any sales by UNITED of Products hereunder.

          18.3     Indemnification By PROCESSOR. PROCESSOR hereby agrees to indemnify and hold harmless, UNITED, its Members, and their respective employees, from and against any claims, losses or liabilities arising out of, or resulting from, the production, on-site storage or loading of any Products which are marketed by UNITED pursuant to this Agreement.

          18.4     Transgenic Variety. PROCESSOR warrants and represents that it will not, without the prior written consent of UNITED, knowingly deliver any Product to UNITED or to a Buyer that is grown using a Transgenic Variety. UNITED and PROCESSOR further agree that any consent provided by UNITED under this Section 18.4 shall not be effective until

UNITED also delivers to PROCESSOR the unanimous written consent of all Members of UNITED to the delivery by the PROCESSOR of Product that is grown using a Transgenic Variety. PROCESSOR shall indemnify, defend and hold UNITED and each of its Members and their respective directors, officers, employees, representatives and agents (each an “Indemnitee”) harmless from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, attorneys’ fees and expenses, product recall and/or re-routing expenses and other incidental, consequential, special and punitive damages) (collectively, the “Liabilities”) imposed upon, incurred by or asserted against the Indemnitee that result directly from the knowing delivery by PROCESSOR of any Product that is grown using a Transgenic Variety pursuant to this Agreement. UNITED and PROCESSOR agree that the other Members of UNITED are third party beneficiaries to the representations and warranties contained in this Section 18.4.

          18.5     Indemnification By UNITED. UNITED hereby agrees to indemnify and hold harmless, PROCESSOR, and its employees, agents and shareholders from and against any claims, losses or liabilities arising out of, or resulting from, the actions or omissions of UNITED, its employees or agents with respect to the Product, from and after the time risk of loss of PROCESSOR’s Product transfers.

          18.6     Conformance with Articles and Bylaws. PROCESSOR accepts and agrees to conform to and abide by the provisions of the Articles of Incorporation and Bylaws of UNITED and all amendments thereto during the Term of this Agreement.

          18.7     Non-Waiver of Rights. PROCESSOR agrees that UNITED shall have all rights and remedies provided by law and in the Bylaws of UNITED in the event of a breach or threatened breach by PROCESSOR of this Agreement. UNITED represents that all other Members either have entered into or will be required to enter into identical Member marketing agreements for the marketing of pooled Products produced by the other Members.

          19.       Marketing Allotments and Allocations.

          19.1     Allocation is Property of PROCESSOR. In the event Allotments and Allocations are implemented pursuant to the Allotment Statute, any Allocation attributable to PROCESSOR shall be the property of PROCESSOR.

          19.2     Product in Excess of Allocation.

19.2.1.	Products in excess of PROCESSOR’s Allocation shall not be included in the Primary Pool but will be marketed as follows:
	19.2.1.1.	By PROCESSOR, to a non-Member processor, and not to a domestic user or consumer of sugar; provided however, that UNITED shall be reimbursed for all direct costs relating to the storage or handling of any such Product by UNITED;

	19.2.1.2	In the alternative, PROCESSOR and UNITED may mutually agree that Products in excess of PROCESSOR’s Allocation shall be marketed by UNITED as part of an alternative or separate pool that is created for each affected PROCESSOR. If UNITED markets the Product that is in excess of the PROCESSOR’s allocation, PROCESSOR may elect to have Product in excess of its Allocation marketed by UNITED in the current year (in the export market or other markets that do not violate the Allotment Statute) or carried over by UNITED to the next Fiscal Year;
	19.2.1.3	Nothing in this Section 19.2.1 shall preclude PROCESSOR from selling Product in excess of its Allocation to another Member.
19.2.2	In the event PROCESSOR has Product in excess of its Allocation that is being stored by UNITED, any additional incremental costs incurred as a result of such storage shall be charged to PROCESSOR as part of the operation of the separate pool and shall not be shared by other participants in the Primary Pool.

          19.3     Net Selling Price When Allocations Implemented. In the event of Allotments and Allocations, Net Selling Price of Primary Pool and net selling price of non-Primary Pool Product shall be determined in a manner consistent with the provisions of Section 7 of this Agreement; provided that (i) in the case of the Primary pool, shall be based upon the volume of PROCESSOR’S actual production that is not in excess of PROCESSOR’S Allocation, and (ii) in the case of a non-Primary Pool, shall be based upon the volume of PROCESSOR’S Product that is in the non-Primary Pool. Purchased Sugar shall be included in the Pro Rata Share (subject to adjustment pursuant to Section 7.2) and included in the Primary Pool, but the sum of PROCESSOR’S actual production and the quantity of Purchased Sugar shall not exceed the Allocation of the PROCESSOR.

          20.       Force Majeure.

          20.1     Notification and Efforts to Minimize. Neither party shall be liable to the other for failure to perform any part of this Agreement if such failure results from the occurrence of an event of Force Majeure, provided that the party affected by the event (i) notifies the other party of such event promptly upon learning of the occurrence of the event, such Notice (as hereinafter defined) to include the anticipated effect of such event on the performance of such party under this Agreement and (ii) uses its best efforts to minimize delays and/or non-performance caused by such event.

          20.2     Release from Liability. Each party shall be completely released from all liability to the other arising as a consequence of any excused performance caused by an event

of Force Majeure, including, but not limited to, all claims for incidental, special or consequential damages.

          21.       Dispute Resolution.

          21.1     Agreement to Arbitrate. Any dispute, controversy or claim arising out of or relating to this Agreement that cannot be resolved amicably between the parties shall be finally resolved by arbitration in Chicago, Illinois, or such other location as may be mutually agreed upon, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”); provided however, that the plaintiff in any claim for damages exceeding $10,000,000 may seek judicial resolution in any court of competent jurisdiction and shall not be subject to this Section. Any arbitration shall be held before a panel of three (3) arbitrators mutually agreed to between the parties, one of whom shall be familiar with the sugar industry. If the parties are unable to agree upon the selection and appointment of arbitrators within thirty (30) days of a written demand for arbitration, then arbitrators shall be appointed by the AAA pursuant to its Commercial Arbitration Rules.

          21.2     Discovery. In connection with any such arbitration, the parties further agree to participate in the exchange of information and documentation through discovery pursuant to the rules established by the arbitrators.

          21.3     Authority of Arbitrators. The arbitrators shall have full authority to render any form of legal or equitable relief to address the parties’ dispute, including an award of monetary damages and/or injunctive relief; provided, however, that in no event shall the arbitrators have the power to include any element of punitive or exemplary damages in the arbitration award. Judgment upon any award for any legal or equitable relief so rendered by the arbitrators shall be considered final and binding and may be entered in any state or federal court of competent jurisdiction.

          22.       Complete Agreement. The parties agree that this Agreement constitutes the complete agreement of the parties with respect to the subject matter hereto and there are no oral or other conditions, promises, representations or inducements in addition to oral variance with any of the terms hereof, and that this contract represents the voluntary and clear understanding of both parties fully and completely.

          23.        Assignment. Neither PROCESSOR nor UNITED may assign this Agreement without prior written consent of the other party and the other Members who have entered into identical pool marketing agreements with UNITED.

          24.       Waiver of Breach. No waiver of a breach of any of the agreements or provisions contained in this Agreement shall be construed to be a waiver of any subsequent breach of the same or of any other provision of this Agreement.

          25.       Notices. Whenever notice is required by the terms hereof, it shall be given in writing by delivery or by certified or registered mail addressed to the other party at the following address or such other address as a party shall designate by appropriate notice:

If to UNITED:
	UNITED SUGARS CORPORATION
	7801 E. Bush Lake Road
	Bloomington, Minnesota 55439
	Attn: President
	With a copy to:
	Robert G. Hensley, Esq.
	Dorsey & Whitney LLP
	220 South 6th Street
	Minneapolis, Minnesota 55101
If to PROCESSOR:
	MINN-DAK FARMERS COOPERATIVE
	7525 Red River Road
	Route 1, Box 10
	Wahpeton, ND 58075
	Attention: CEO

If notice is given by mail, it shall be effective two (2) days after mailing.

          26.       Construction of Terms of Agreement: Modification. The language in all parts of this Agreement shall be constructed as a whole according to its fair meaning and not strictly for or against any party hereto. Headings in this Agreement are for convenience only and are not construed as a part of this Agreement or in any defining, limiting or amplifying the provisions hereof. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and shall not be modified in any manner except by an instrument in writing executed by the parties hereto. In the event any term, covenant, or condition herein contained is held to be invalid or void by any court of competent jurisdiction, the invalidity of any such term, covenant or condition shall in no way affect any other term, covenant or condition herein contained.

          27.       Successors and Assigns. Subject to the other provisions of this Agreement, all of the terms, covenants and conditions of this Agreement shall inure to the benefit of and shall bind the parties hereto and their successors and assigns.

          IN WITNESS WHEREOF, UNITED and PROCESSOR have executed this Agreement effective the day and year first above written.

UNITED SUGARS CORPORATION
By:	/s/ Tom McKenna
Its:	President
MINN-DAK FARMERS COOPERATIVE
By:	/s/ David H. Roche
Its:	President and CEO

Schedule A
{Section 10.1}

Specifications for Products
(Attached)

THIS SECTION IS INCORPORATED BY REFERENCE FROM THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 31, 1998 AS FILED ON NOVEMBER 24, 1998.

Schedule B

{Section 10.1}

Quality Assurance Policy

PURPOSE:

The purpose of the Quality Assurance function at UNITED is to provide guidance and direction to operational groups in the development, implementation and maintenance of Quality Systems. Quality Systems are those systems designed to assure products and services of the Member companies meet the expectations of the targeted customer segments.

The Quality Assurance group will accomplish this through development, implementation and audit of systems and standards that will be developed and implemented that define customer expectations as well as documenting the performance of the Member companies against those standards.

STRATEGY:

The vehicle through which the above will be accomplished will be a system of documented policies and procedures defining the activities that will occur within each of the operational groups providing product for sale.

The basis for those policies and procedures will be a combination of FDA requirements as well as standards communicated by UNITED’s primary customer segments.

Policies and procedures that will be defined, include but are not limited to:

Product Safety/Regulatory (FDA):

*	Good Manufacturing Practices (21 CFR Part 110 of the Food Drug and Cosmetic Act).
*	HACCP (Hazards Analysis and Critical Control Points)
	(The two systems noted above are made up of a number of audit and process management activities designed to assure the safety of the product that is produced, stored and distributed by internal facilities as well as outside agents of the company [i.e. copack facilities, facilities that produce and ship product under agreement with UNITED and Outside Distribution Facilities/Public Warehouses]).

Product Quality/Functionality

*	Product Standards for each product sold and distributed through UNITED will be defined. Standards (for product as shipped) will typically be defined by any or all of the following:
		*Flavor/Odor
		*Color
		*Moisture
		*Ash
		*Sediment
		*Visible Specks
		*Floc
		*Invert
		*Specific Rotation
		*Granulation
		*Density
		*Flowability
		*Pesticides/heavy metals
		*Specific trace element analysis
		As defined by the customer segment (i.e. bottling and National Formulary)
		*Microbiology standards
*	Process Control Systems/Documentation
	Process Control Systems are those control systems by which each producing facility manages their process to produce product which meet the approved product standards as shipped.
	Each Member facility will document, through a Standard Operating Procedures format, the methods utilized to assure processes are operated in a consistent controllable manner.

Schedule C
{Section 16.1}

Parameters for Including Tanks as an Expense of the Primary Pool
UNITED SUGARS

The PROCESSOR’s shall be reimbursed out of the Primary Pool for its storage costs of thick juice from beets or raw cane refinery feedstock only if, in the judgment of UNITED, there is a benefit to the Primary Pool. The assets costs associated with the storage of thick juice in tanks and the storage of raw sugar will be an expense of the Primary Pool when the use/increased use of these assets at UNITED’s request will lower the overall costs to the Primary Pool. Generally, this would happen anytime UNITED forces increased use of the these tanks or raw storage over and above what is already incorporated into the member’s annual plant production schedule for that campaign.

In the event UNITED requests the use/increased use of assets for the storage of thick juice in tanks or the storage of raw sugar, the Primary Pool shall pay the PROCESSOR’s asset costs as follows:

For each month (regardless of the number of days of storage used by UNITED during such month) that UNITED requests use of tanks or raw storage, the PROCESSOR shall be reimbursed for 1/12^th of its annual asset cost for the utilized storage.

The storage requested by UNITED and the subsequent withdrawal from storage shall be on a first-in, first-out basis with respect to PROCESSOR’s total storage.

The storage rate charged by PROCESSOR for the use of tanks or raw storage shall be calculated based upon the percentage of storage utilized by UNITED multiplied by PROCESSOR’s average cost of all tanks or raw storage that are routinely utilized by PROCESSOR for storage of thick juice or raw cane refinery feedstock.

PROCESSOR shall be reimbursed for incremental refining costs that directly result from reimbursable storage covered by this Schedule C.

SECOND AMENDED
UNIFORM MEMBER SUGAR MARKETING AGREEMENT
POOL BASIS

          THIS SECOND AMENDED UNIFORM MEMBER SUGAR MARKETING AGREEMENT (“SECOND AMENDED AGREEMENT”), made effective as of the 17th day of May, 2002, by and between UNITED SUGARS CORPORATION, a cooperative association organized under the laws of the State of Minnesota (hereinafter referred to as “UNITED”), and MINN-DAK FARMERS COOPERATIVE, a cooperative association organized under the laws of the State of North Dakota, (hereinafter referred to as “PROCESSOR”), as follows:

WITNESSETH

          WHEREAS, PROCESSOR and UNITED entered into a Uniform Member Sugar Marketing Agreement effective September 1, 2001 (“Marketing Agreement”) regarding the marketing of certain Products (as defined in the Marketing Agreement);

          WHEREAS, UNITED STATES SUGAR COMPANY and UNITED entered into a First Amended Uniform Member Marketing Agreement effective January 15, 2002 that related only to UNITED STATES SUGAR COMPANY and the method of disbursing receipts to a cane processor under Section 7.2 of the Marketing Agreement¹; and

          WHEREAS, PROCESSOR and UNITED desire to enter into this Second Amended Agreement in order to clarify the disbursement of cash to Members under the Marketing Agreement.

          NOW, THEREFORE, in consideration of the above, subject to the respective terms, conditions, and obligations of PROCESSOR and UNITED herein, UNITED and PROCESSOR agree as follows:

          1.          Amendment to Section 7.2. Section 7.2 of the Marketing Agreement shall be deleted in its entirety and replaced with the following paragraph:

7.2       Timing of Payment to Members. As sales of Finished Product are made by UNITED from the Primary Pool, the gross cash receipts received by UNITED from the sale of such Finished Products shall be paid daily to PROCESSOR and the other Primary Pool participants on the basis of their estimated proportionate share of the Finished Product, reduced by in-process inventories on hand at the beginning of the year, to be produced by PROCESSOR and each of the other participants in the Primary Pool during that Fiscal year.     The formula set forth in Section 6.3 (Adjustments for Cane Producers) shall be utilized to adjust Cane Producer’s production during the

¹ There is not a First Amended Uniform Member Marketing Agreement for SMBSC, ACSC, or MDFC.

Fiscal Year for the purpose of determining Cane Producer’s estimated proportionate share, and the payment of gross cash receipts to Cane Producer shall be adjusted accordingly. Because gross cash receipts are distributed daily, UNITED shall borrow from its line of credit in order to cover its monthly operating costs. Such monthly operating costs shall be promptly reimbursed to UNITED by PROCESSOR on the same basis described above regarding daily cash distributions so that PROCESSOR pays its Pro Rata Share of the expenses that are incurred by UNITED during the Fiscal Year.

          2.          Complete Agreement. The parties agree that this Second Amended Agreement and the Marketing Agreement constitute the complete agreement of the parties with respect to the subject matter hereto and there are no oral or other conditions, promises, representations or inducements in addition to oral variance with any of the terms hereof, and that this contract represents the voluntary and clear understanding of both parties fully and completely.

          IN WITNESS WHEREOF, UNITED and PROCESSOR have executed this Second Amended Agreement effective the day and year first above written.

UNITED SUGARS CORPORATION
By:	/s/ Tom McKenna
Its:	President
MINN-DAK FARMERS COOPERATIVE
By:	/s/ David H. Roche
Its:	President and CEO

THIRD AMENDED
UNIFORM MEMBER SUGAR MARKETING AGREEMENT
POOL BASIS

          THIS THIRD AMENDED UNIFORM MEMBER SUGAR MARKETING AGREEMENT (“THIRD AMENDED AGREEMENT”), made effective as of the 27th day of September, 2002, by and between UNITED SUGARS CORPORATION, a cooperative association organized under the laws of the State of Minnesota (hereinafter referred to as “UNITED”), and MINN-DAK FARMERS COOPERATIVE, a cooperative association organized under the laws of the State of North Dakota, (hereinafter referred to as “PROCESSOR”), as follows:

WITNESSETH

          WHEREAS, PROCESSOR and UNITED entered into a Uniform Member Sugar Marketing Agreement effective September 1, 2001 (“Marketing Agreement”) regarding the marketing of certain Products (as defined in the Marketing Agreement);

          WHEREAS, UNITED STATES SUGAR CORPORATION and UNITED entered into a First Amended Uniform Member Sugar Marketing Agreement effective January 15, 2002 that related only to UNITED STATES SUGAR CORPORATION and the method of disbursing receipts to a cane processor under Section 7.2 of the Marketing Agreement²; and

          WHEREAS, PROCESSOR and the other Members of UNITED entered into a Second Amended Uniform Member Sugar Marketing Agreement effective May 17, 2002 that related to the method of disbursing receipts to Members; and

          WHEREAS, PROCESSOR and UNITED desire to enter into this Third Amended Agreement in order to modify the provisions of Section 12 of the Marketing Agreement.

          NOW, THEREFORE, in consideration of the above, subject to the respective terms, conditions, and obligations of PROCESSOR and UNITED herein, UNITED and PROCESSOR agree as follows:

1.       Amendment to Section 2.2. Section 2.2 of the Marketing Agreement shall be deleted in its entirety and replaced with the following paragraph:

UNITED agrees, and is hereby empowered by PROCESSOR, during the term of this Agreement, to sell all Product produced by PROCESSOR to such purchasers, at such time or times, at such place or places, in such manner, and on such prices or terms, as UNITED determines to be in the best interests of PROCESSOR and the other Members of UNITED.

² There is not a First Amended Uniform Member Sugar Marketing Agreement for SMBSC, ACSC, or MDFC.

2.       Amendment to Section 12. Sections 12.1 through 12.4 of the Marketing Agreement shall be deleted in their entirety and replaced with the following paragraphs:
	12.	Transfer of Title, Risk of Loss, and Insurance.
	12.1   Title and Risk of Loss. Effective with shipments made on or after October 1, 2002, with respect to Product that UNITED has requested to be shipped by PROCESSOR, title to such Product shall pass to United on the date the Product is shipped by PROCESSOR from PROCESSOR’s facility: (i) to UNITED; (ii) to a warehouse owned or leased by UNITED; (iii) to a party acquiring Product from UNITED, or (iv) to a customer of UNITED. PROCESSOR covenants and agrees that it shall bear the risk of loss of Product produced by PROCESSOR until title is transferred to UNITED. UNITED covenants and agrees that it shall bear the risk of loss of Product once title is transferred to UNITED. With the prior written consent of all Members of UNITED, PROCESSOR and UNITED may also mutually agree to: (i) transfer to UNITED the title to Product shipped from PROCESSOR’s facility before October 1, 2002, and in such event, risk of loss shall pass to UNITED upon the transfer of title to UNITED; or (ii) to transfer the title to Product to UNITED that has not been shipped by PROCESSOR, and in such event, risk of loss shall pass to UNITED as to be mutually agreed upon by PROCESSOR, UNITED, and the Members.
	12.2   Processor to Maintain Insurance. PROCESSOR covenants and agrees, at its sole cost and at all times during the Term of this Agreement, to maintain in force an insurance policy or policies covering loss, theft or damage to the Products from any cause whatsoever until the transfer of title to UNITED, in amounts not less than the full insurable value thereof, and product liability insurance in amounts required by UNITED from time to time, which product liability insurance shall name UNITED as an additional or a named insured.
	12.3   UNITED to Maintain Insurance. UNITED covenants and agrees, at all times during the Term of this Agreement, to maintain in force during the period it has title to Product, an insurance policy or policies covering loss, theft or damage to the Products from any cause whatsoever in amounts not less than the full insurable value thereof, and product liability insurance in amounts deemed reasonable by UNITED, which product liability insurance shall name PROCESSOR as an additional or named insured.
	12.4   Certificates of Insurance. Insurance policies shall be taken out with responsible insurance companies licensed to write insurance in Minnesota, in

the case of UNITED, and in the appropriate state, in the case of PROCESSOR, and each shall not be canceled or altered without ten days’ written notice to UNITED and PROCESSOR. Each party shall furnish the other party with certificates of insurance for policies required hereunder, together with a summary of the terms and conditions of the policy or policies, and the date on which the same expire.

3.       Complete Agreement and Counterparts. The parties agree that this Third Amended Agreement and the Marketing Agreement, as amended, constitute the complete agreement of the parties with respect to the subject matter hereto and there are no oral or other conditions, promises, representations or inducements in addition to oral variance with any of the terms hereof, and that this contract represents the voluntary and clear understanding of both parties fully and completely. This Third Amended Agreement may be executed in separate counterparts and, when taken together, shall constitute a fully executed agreement of the parties.

          IN WITNESS WHEREOF, UNITED and PROCESSOR have executed this Third Amended Agreement effective the day and year first above written.

UNITED SUGARS CORPORATION
By:	/s/ Tom McKenna
Its:	President
MINN-DAK FARMERS COOPERATIVE
By:	/s/ David H. Roche
Its:	President and CEO

FIFTH AMENDED
UNIFORM MEMBER SUGAR MARKETING AGREEMENT
POOL BASIS

          THIS FIFTH AMENDED UNIFORM MEMBER SUGAR MARKETING AGREEMENT (“FIFTH AMENDED AGREEMENT”), made effective as of the 19th day of November, 2002, by and between UNITED SUGARS CORPORATION, a cooperative association organized under the laws of the State of Minnesota (hereinafter referred to as “UNITED”), and MINN-DAK FARMERS COOPERATIVE, a cooperative association organized under the laws of the State of North Dakota, (hereinafter referred to as “PROCESSOR”), as follows:

WITNESSETH

          WHEREAS, PROCESSOR and UNITED entered into a Uniform Member Sugar Marketing Agreement effective September 1, 2001 (“Marketing Agreement”) regarding the marketing of certain Products (as defined in the Marketing Agreement);

          WHEREAS, UNITED STATES SUGAR CORPORATION and UNITED entered into a First Amended Uniform Member Sugar Marketing Agreement effective January 15, 2002 that related only to UNITED STATES SUGAR CORPORATION and the method of disbursing receipts to a cane processor under Section 7.2 of the Marketing Agreement³; and

          WHEREAS, PROCESSOR and the other Members of UNITED entered into a Second Amended Uniform Member Sugar Marketing Agreement effective May 17, 2002 that related to the method of disbursing receipts to Members; and

          WHEREAS, PROCESSOR and the other Members of UNITED entered into a Third Amended Uniform Member Sugar Marketing Agreement effective September 27, 2002 that related to the transfer of title to Product; and

          WHEREAS, SOUTHERN MINNESOTA BEET SUGAR COOPERATIVE and UNITED entered into a Fourth Amended Uniform Member Sugar Marketing Agreement⁴ effective September 27, 2002 regarding thick juice; and

          WHEREAS, on November 19, 2002 the Commodity Credit Corporation provided written clarification to USC concerning the transfer of title to Product and PROCESSOR and UNITED desire to enter into this Fifth Amended Uniform Member Sugar Marketing

3	There is not a First Amended Uniform Member Sugar Marketing Agreement for SMBSC, ACSC, or MDFC.
4	There is not a Fourth Amended Uniform Member Sugar Marketing Agreement for MDFC, ACSC, or USSC.

Agreement in order to rescind the Third Amended Uniform Member Sugar Marketing Agreement; and

          NOW, THEREFORE, in consideration of the above, subject to the respective terms, conditions, and obligations of PROCESSOR and UNITED herein, UNITED and PROCESSOR agree as follows:

1.       Rescission of Third Amended Uniform Member Sugar Marketing Agreement. The Third Amended Uniform Member Sugar Marketing Agreement is hereby rescinded effective November 19, 2002.

2.       Complete Agreement and Counterparts. The parties agree that this Fifth Amended Agreement and the Marketing Agreement, as amended, constitute the complete agreement of the parties with respect to the subject matter hereto and there are no oral or other conditions, promises, representations or inducements in addition to oral variance with any of the terms hereof, and that this contract represents the voluntary and clear understanding of both parties fully and completely. This Fifth Amended Agreement may be executed in separate counterparts and, when taken together, shall constitute a fully executed agreement of the parties.

          IN WITNESS WHEREOF, UNITED and PROCESSOR have executed this Fifth Amended Agreement effective the day and year first above written.

UNITED SUGARS CORPORATION
By:	/s/	John Doxsie
Its:		President
MINN-DAK FARMERS COOPERATIVE
By:	/s/	David H. Roche
Its:		President and CEO

EX-10.E

Exhibit 10(e)

UNIFORM MEMBER MARKETING AGREEMENT
POOL BASIS

          THIS AGREEMENT, made effective as of the 1^st day of September 2001, by and between MIDWEST AGRI-COMMODITIES COMPANY, a cooperative association organized under the laws of the State of North Dakota (hereinafter referred to as “MIDWEST”) and MINN-DAK FARMERS COOPERATIVE, a cooperative association organized under the laws of the State of North Dakota (hereinafter referred to as “PROCESSOR”).

WITNESSETH:

          WHEREAS, PROCESSOR is a producer-owned and producer-operated agricultural cooperative which is organized and operated so as to adhere to the provisions of Section 15(a) of the Agricultural Marketing Act (12 U.S.C., Sec. 1141j(a)), as amended, and the Capper-Volstead Act of 1922 (7 U.S.C., Sec. 291, 292), and which is engaged in the operation of one or more sugar beet processing plants for the purposes of producing sugar, beet pulp, molasses, and related products from sugar beets; and

          WHEREAS, MIDWEST is organized and operated so as to adhere to the provisions of Section 15(a) of the Agricultural Marketing Act (12 U.S.C., Sec. 1141j(a)), as amended, and the Capper Volstead Act of 1922 (7 U.S.C., Sec. 291,292), for the mutual help and benefit of its processor-members for the purposes of acting as a marketing agency for its members and of engaging in the business of marketing the beet pulp, molasses, and related products produced by its members; and

          WHEREAS, PROCESSOR wishes to participate with other members (collectively the “Members”) and pooled contract patrons (“Patrons”) of MIDWEST in developing and maintaining a dependable market for certain products produced by PROCESSOR; and

          WHEREAS, MIDWEST and PROCESSOR desire to enter into a membership marketing agreement on a pool basis.

          NOW, THEREFORE, in consideration of the above, subject to the respective terms, conditions, and obligations of the PROCESSOR and MIDWEST herein, MIDWEST and PROCESSOR agree as follows:

          1. Appointment of MIDWEST as Sales Agent. PROCESSOR appoints and designates MIDWEST to act as its sole worldwide agent in the sale and marketing of the following products (hereinafter collectively the “Co-Products”) produced by PROCESSOR during the term of this Agreement:

          (a) Beet pulp;
          (b) Molasses;
          (c) Separator Molasses Solubles;
          (d) Concentrated Separator By-Product; and
          (e) Any other product for which the Members of MIDWEST have, by unanimous vote, created a separate pool.

          MIDWEST accepts such appointment and agrees to act as the sales agent and pool administrator in accordance with the terms of this Agreement. PROCESSOR agrees that MIDWEST may employ all such persons and agencies as it determines to be necessary to carry out its obligations under this Agreement. MIDWEST agrees, and is hereby empowered by PROCESSOR, to sell in its own name, and pass title to, all Co-Products produced by PROCESSOR during the term of this Agreement to such third party purchasers (hereinafter “Purchaser” or “Purchasers”), in such markets, at such time or times, at such place or places, in such manner and on such prices or terms as MIDWEST determines to be in the best interests of PROCESSOR and the Members and Patrons of Midwest. It is understood and agreed that this Agreement applies to all Co-Products produced by PROCESSOR in any state or location.

          2. Billing and Collection. All sales made by MIDWEST shall be billed on invoices of MIDWEST and all receipts shall be collected by MIDWEST.

          3. Product Pools. MIDWEST and PROCESSOR agree that the Co-Products to be sold by MIDWEST hereunder shall be pooled for each crop year with products of the Members of MIDWEST. Separate pools shall be maintained for each of the Co-Products. Additional pools may be established by unanimous agreement of the Members of MIDWEST to market new or related products developed by the Members and Patrons. As sales are made, the proceeds received by MIDWEST from the sale of the Co-Products received from PROCESSOR shall be deposited into the appropriate pool, and shall be credited to PROCESSOR and the Members on the basis of their respective pro rata shares, as defined below in this Section 3 (the “Pro-Rata Shares”), of the net proceeds of each sale. PROCESSOR’s share of net proceeds as defined in Section 5 hereof and after adjustments for advances paid under Section 6 hereof shall be distributed to PROCESSOR by MIDWEST as rapidly as collection and accounting procedures permit.

          With respect to each pool year covered by this Agreement, distributions of the net proceeds shall initially be based on MIDWEST’S best estimate of the amount of Co-Product anticipated to be produced by each participant in the pool, and shall be adjusted by MIDWEST periodically as production figures are more precisely determined. Accordingly, the Pro-Rata Share of PROCESSOR for each product pool shall be initially equal to a fraction with PROCESSOR’s estimated annual production of that product to be pooled as the numerator and total estimated annual pool production of that product for PROCESSOR and the other MIDWEST Members and Patrons as the denominator. As soon as the processing campaigns are concluded, and exact production is determined, precise Pro-Rata Shares shall be established and any appropriate adjustments shall be made among the pool participants.

          4. MIDWEST’s Books and Records. MIDWEST shall keep accurate records of sales and distribution of pool proceeds in accordance with sound and generally accepted accounting practices. Said records shall be at all reasonable times fully available for inspection by PROCESSOR. All records of the pools shall be audited annually by MIDWEST’s regular Independent Certified Public Auditors and the Audit report made available to PROCESSOR.

          5. Definition of Net Proceeds. The net proceeds for each product pool shall be defined as the gross sales from such pool by MIDWEST, less:

          (a) All costs, charges or expenses directly attributable to the sale of the Co-Product;
          (b) All costs of transportation and handling of the Co-Product, including storage costs incurred by MIDWEST;
          (c) Insurance premiums paid by MIDWEST;
          (d) State feed inspection and all other fees and taxes incurred in the marketing of the Co-Product;
          (e) All other direct and indirect charges or expenses, including administrative and overhead, attributable to the sale of the Co-Product in the operation of the product pools; and
          (f) All losses incurred by MIDWEST as a result of uncollectible accounts receivable shall be allocated to the appropriate product pool and shall be regarded as a marketing expense in determining the net proceeds of that product pool.

          6. Budget and Advance of Marketing Costs. MIDWEST shall prepare a monthly budget or estimate of all direct and indirect marketing costs for each product pool. Each Member or Patron involved in the pool shall pay in advance its estimated Pro-Rata share of such marketing costs for the month. In the alternative, the PROCESSOR authorizes MIDWEST to borrow funds pursuant to its bank line of credit to pay direct and indirect marketing costs, provided that the Members and Patrons shall reimburse MIDWEST for the marketing expenses incurred during the previous month no later than the 8^th business day of the following month.

          7. Product Warranties and Quality Standards; Handling of Product of Substandard Quality. MIDWEST shall furnish to PROCESSOR from time to time with Purchaser specifications for Co-Products prescribing standards and procedures for quality control, storing and shipping of such product. Initially such standards shall be those set forth on Schedule “A” attached hereto. PROCESSOR shall observe and comply with any such specifications furnished by MIDWEST. In addition, all Co-Products delivered to or at the order of MIDWEST shall conform to quality and other standards that are prescribed by applicable state and federal rules and regulations.

          Co-Product of substandard quality, as determined by MIDWEST, shall, on the joint agreement of PROCESSOR and MIDWEST, or if no agreement has been reached, at the option of Midwest: (a) be withheld from the pool and marketed by Midwest with input from PROCESSOR on an individual agency basis with proceeds from the sale of such Co-Product, less all direct and indirect selling expenses, distributed to PROCESSOR, or (b) remain in the pool and be charged with the additional costs relating to the substandard quality of the Co-Product.

          8. Storage of Product. PROCESSOR shall store its Co-Products in tanks, bins, and warehouses that are approved in advance by MIDWEST. At the earliest reasonable time after processing commences each year and as soon as Co-Products are placed in storage, PROCESSOR shall deliver regular inventory reports to MIDWEST. All production included in the regular inventory report shall be included in the pool for the appropriate crop year even though the Co-Products remain on the property of the PROCESSOR. All on-site storage expenses and on-site labor, materials, and other expenses incurred at the PROCESSOR facilities for the preparation, loading and shipment of Co-Products produced by PROCESSOR shall be paid directly by PROCESSOR and shall not be a pool expense.

          9. Risk of Loss, Insurance, and Indemnification. PROCESSOR covenants and agrees that it shall bear the risk of loss of the Co-Products until the Co-Products are transferred from the various PROCESSOR facilities to a common carrier for delivery to MIDWEST or to the Purchaser. Until such time as the Co-Products are turned over to a common carrier for delivery to MIDWEST or to the Purchaser, PROCESSOR covenants and agrees, at its sole cost and at all times during the term of this Agreement, to maintain in force an insurance policy or policies covering loss, theft or damage to the Co-Products from any cause whatsoever, in amounts not less than the full insurable value thereof, and product liability insurance in amounts required by MIDWEST from time to time, which product liability insurance shall name MIDWEST as an additional or named insured. Said policies shall be taken out with responsible insurance companies, and shall not be canceled or altered without ten days’ written notice to MIDWEST. PROCESSOR shall furnish MIDWEST with certificates of insurance, together with a summary of the terms and conditions of the policy or policies, and the date on which they expire.

          From the time of the delivery of the Co-Products to a common carrier at the various PROCESSOR facilities, MIDWEST shall, to the extent not already covered by existing PROCESSOR insurance policies, maintain in force an insurance policy or policies covering product liability and loss, theft or damage to the Co-Products in amounts not less than the full insurable value of the Co-Products. Premiums paid for any such insurance shall be a pool expense under Section 5 of the Agreement.

          10. Logistics Function. MIDWEST shall be responsible for performing all normal logistics functions relating to the shipment of Co-Products from PROCESSOR’s plants. MIDWEST shall use its business judgment in determining the factory, warehouse, Member, or Patron from which to draw product, considering such factors as, but not limited to, car loadings, points of destination, capacity of tanks or warehouses, and size of inventories stored therein. Direct or indirect costs of MIDWEST associated with the performance of the logistics function shall be allocated to PROCESSOR in accordance with Section 5 of this Agreement.

          11. Information from PROCESSOR. PROCESSOR shall, whenever requested by MIDWEST, furnish MIDWEST product production and related statistical data related to the Co-Products, and shall make its books and records related to the Co-Products and statistics available at all reasonable times for inspection by MIDWEST. PROCESSOR further agrees, upon request of MIDWEST, to furnish MIDWEST with samples of the Co-Products for grading or selling purposes. MIDWEST shall furnish monthly performance reports of sales and operating costs against budget no later than 15 working days from the end of the month.

          12. Sales Promotion. MIDWEST agrees to do any and all things reasonably necessary and proper to stimulate demand for the Co-Products in efforts to improve the markets and proceeds related thereto.

          13. Term of Agreement: Termination.

          (a) Term. The term of this Agreement shall be for 2 (two) consecutive crop years commencing on September 1, 2001 and continuing through August 31, 2003 (the “Initial Term”) and from year to year thereafter until terminated as provided herein.

          (b) Termination. Either party has the right to terminate this Agreement at the end of the Initial Term and thereafter by giving written notice by registered mail to the other party of such termination as follows:

                    (i) Notice of termination to be effective at the conclusion of the Initial Term shall be given prior to May 1, 2002;

                    (ii) Notice of termination to be effective at the conclusion of a renewal term shall be given prior to May 1 of a given year to be effective on August 31 of the subsequent year (e.g., notice given on April 30, 2004 is effective August 31, 2005).

          (c) Breach by PROCESSOR. PROCESSOR agrees that MIDWEST shall have all rights and remedies provided by law and in the Bylaws of MIDWEST in the event of a breach or threatened breach by PROCESSOR of this Agreement.

          (d) Continuing Obligations. Following the termination of this Agreement or any reason, MIDWEST shall remain obligated to distribute the net proceeds of each pool to PROCESSOR as provided herein.

          14. Patronage Relationship. MIDWEST and PROCESSOR agree that the business to be transacted under this Agreement will be done on a cooperative basis. PROCESSOR agrees to treat the full amount of any patronage distribution, in excess of the net proceeds to be returned to PROCESSOR as provided herein, which is made in a written notice of allocation (as defined in 26 U.S.C. §1388) which it receives, as income received in the year in which such written notice of allocation is received at its stated dollar amount in the manner provided in 26 U.S.C. §1385(a).

          15. Compliance with MIDWEST’s Governing Instruments. PROCESSOR accepts and agrees to conform to and abide by the provisions of the Articles of Association and Bylaws of MIDWEST and all amendments thereto during the term of this Agreement.

          16. Representations by PROCESSOR. PROCESSOR hereby represents and warrants to MIDWEST that:

          (a) Cooperative Status. PROCESSOR is a grower-owned agricultural cooperative which is organized and operated so as to adhere to the provisions of Section 15(a) of the Agricultural Marketing Act (12 U.S.C., Sec. 1141j(a)), as amended, and the Capper-Volstead Act of 1922 (7 U. S. C., Sec. 291, 292);

          (b) Marketable Title. PROCESSOR has good and marketable title to the Co-Products, and all Co-Products which are delivered to MIDWEST or to Purchasers are free and clear of any liens, attachments, security interests, claims or encumbrances of any kind whatsoever; and

          (c) No Prior Obligation. PROCESSOR is not under contract or obligation to sell, market, consign or deliver any of the Co-Products to any other person, firm, association, corporation or other entity. GMO Product. PROCESSOR warrants and represents that it will not knowingly deliver, without the prior written consent of MIDWEST, any Product to MIDWEST that is produced in whole or in part from transgenic seed or other genetically modified organisms used by PROCESSOR, PROCESSOR’s growers, or which is in any manner acquired by PROCESSOR from another party (“GMO Product”). PROCESSOR shall indemnify, defend and hold MIDWEST and each of its Members and their respective directors, officers, employees, representatives and agents (each an “Indemnitee”) harmless from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, attorneys’ fees and expenses, product recall and/or re-routing expenses and other incidental, consequential, special and punitive damages) (collectively, the “Liabilities”) imposed upon, incurred by or asserted against the Indemnitee that result directly from the supply by PROCESSOR of any GMO Product to MIDWEST pursuant to this Agreement.

          17. Indemnification by PROCESSOR. PROCESSOR hereby agrees to indemnify and hold harmless, MIDWEST, its members, and their respective employees, from and against any claims, losses or liabilities, including attorneys fees incurred, arising out of, or resulting from, the production, on-site storage or loading of any product which is marketed by MIDWEST pursuant to this Agreement. In addition, PROCESSOR shall defend and hold harmless MIDWEST from any costs, claims, liabilities, suits or other proceedings or actions of any kind whatsoever, including attorney fees incurred, arising from or connected with a breach of any of the representations contained in Section 16 of this Agreement.

          18. Representations by MIDWEST.

          (a) Cooperative Status. MIDWEST is a grower-owned agricultural cooperative which is organized and operated so as to adhere to the provisions of Section 15(a) of the Agricultural Marketing Act (12 U.S.C. Sec. 1141j(a)), as amended, and the Capper-Volstead Act of 1922 (7. U.S.C., Sec. 291, 292).

          (b) Member Agreements. MIDWEST represents that all other Members either have or will be required to enter into identical pool marketing agreements for the marketing of the Co-Products.

          19. Complete Agreement. The parties agree that there are no oral or other conditions, promises, representations or inducements at variance with any of the terms hereof and that this contract represents the voluntary and clear understanding of both parties fully and completely.

          20. Assignment. Neither PROCESSOR nor MIDWEST may assign this Agreement without the prior written consent of the other party.

          21. Waiver of Breach. No waiver of any of the agreements or provisions contained in this Agreement shall be construed to be a waiver of any subsequent breach of the same or of any other provision of this Agreement.

          22. Notices. Whenever notice is required by the terms hereof, it shall be given in writing by delivery or by certified or registered mail to the other party at the address found at the end of this Agreement or such other address as a party shall designate by appropriate notice. If notice is given by mail, it shall be effective two (2) days after mailing.

          23. Construction of Terms of Agreement; Modification. The language in all parts of this Agreement shall be constructed as a whole according to its fair meaning and not strictly for or against any party hereto. Headings in this Agreement are for convenience only and are not to be construed as a part of this Agreement or as defining, limiting or amplifying the provisions hereof. This Agreement contains the entire agreement between the parties and shall not be modified in any manner except by an instrument in writing executed by the parties hereto. In the event any terms, covenant or condition herein contained is held to be invalid or void by any court of competent jurisdiction, the invalidity of any such term, covenant or condition shall in no way affect any other term, covenant or condition herein contained.

          24. Successors and Assigns. Subject to the other provisions of this Agreement, all of the terms, covenants and conditions of this Agreement shall inure to the benefit of and shall bind the parties hereto and their successors and permitted assigns.

                    IN WITNESS WHEREOF, MIDWEST and PROCESSOR have executed this Agreement effective the day and year first above written.

FOR MIDWEST:
MIDWEST AGRI-COMMODITIES COMPANY
100 Tamal Plaza, Suite 180
Corte Madera, CA 94925
By	/s/ V.C. Hufford
	Its	President
FOR PROCESSOR:
MINN-DAK FARMERS COOPERATIVE
7525 Red River Road
Route 1, Box 10
Wahpeton, ND 58075
By	/s/ David H. Roche
	Its	President and CEO

EX-10.L

Exhibit 10(l)

Master Coal Purchase and Sale Agreement

between

Minn-Dak Farmers Cooperative

and

Rio Tinto Energy America Inc.

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Master Coal Purchase and Sale Agreement Index

Article 1.	General Terms and Definitions
Article 2.	Term
Article 3.	Quantity
Article 4.	Delivery and Transportation
Article 5.	Title and Risk of Loss; Equipment Damage
Article 6.	Coal Quality Specifications
Article 7.	Sampling and Analysis
Article 8.	Weighing
Article 9.	Price and Price Adjustments
Article 10.	Invoices, Payments, Netting, Set off, and Credit Ratings
Article 11.	Force Majeure
Article 12.	Records, Audits, Access
Article 13.	Default, Remedies, and Termination
Article 14.	Notices
Article 15.	Cooperation
Article 16.	Warranty, Limitation on Liability, Duty to Mitigate & Indemnification
Article 17.	Limitation on Waiver
Article 18.	Confidentiality
Article 19.	Entirety, Amendments
Article 20.	Successors and Assigns

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Article 21.	Governing Laws
Article 22.	Interpretation
Article 23.	Resale to Local College
Article 24.	Survival

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MASTER COAL PURCHASE AND SALE AGREEMENT

This MASTER COAL PURCHASE AND SALE AGREEMENT (“Agreement”) is entered into and is effective as of the 31^st day of July 2006, between Rio Tinto Energy America Inc. (“RTEA”), a Delaware corporation, and Minn-Dak Farmers Cooperative (“Minn-Dak”), a North Dakota cooperative. Both RTEA and Minn-Dak may be individually referred to herein as a “Party” or collectively as “Parties”.

RECITALS

WHEREAS, each Party is engaged in the sale and/or purchase of Powder River Basin (“PRB”) Coal or other Coal. The Parties believe it will be mutually beneficial to set the terms and conditions under which such Coal sales and purchases may be made between them.

IN CONSIDERATION of the mutual covenants and promises set forth hereafter, the Parties to this Agreement, intending to legally bind themselves, agree now as follows:

ARTICLE 1. GENERAL TERMS AND DEFINITIONS

1.01 The terms of this Agreement shall govern all purchases and sales of Coal between the Parties (hereinafter “Transactions”) or options thereon during the term of this Agreement unless the Parties expressly indicate otherwise. All amendments, modifications, revisions and changes to this Agreement or any related Transaction or option must be in writing and signed by both Parties. If the Parties enter into an option concerning the purchase and/or sale of Coal, the terms and conditions of this Agreement and the Confirmation Letter shall govern the Transaction once the option has been exercised.

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1.02

For individual Transactions, the Parties shall enter into a written Confirmation Letter (hereinafter “Confirmation”) that sets forth and defines the following: the Buyer, the Seller, the price, price adjustments, quantity, term, quality specifications, mine(s), and any other Transaction-specific provisions mutually agreed upon by the Parties. All Confirmations shall be in writing, signed by both Parties. The Parties intend the provisions of each individual Confirmation and the provisions of this Agreement be construed as one single integrated agreement and that without a written Confirmation the Parties would not otherwise enter into a Transaction. Any inconsistency or conflict between provisions of the individual Confirmation and provisions of this Agreement shall be resolved in favor of any provisions of the Confirmation.

1.03

Each of the following terms when used in this Agreement will have the meaning given to it in this section:

a)	“Actual Btu” means the monthly ton-weighted average as-received calorific value (stated in Btu/lb.).
b)	“Buyer” means the Party to a Transaction who is obligated to purchase and receive Coal, or causes Coal to be received.
c)	“Claim” means all claims or actions threatened or filed that directly or indirectly relate to the subject matter of this Agreement, including but not limited to indemnity, the resulting losses, damages, expenses, reasonable attorneys’ fees and costs.
d)	“Coal” means any and all Coal to be sold by Seller and purchased by Buyer pursuant to the terms and conditions of this Agreement.
e)	“Electronic” means faxes, telegraphs, emails, and all other forms of electronic data transfer.
f)	“Standard Btu” means the standard calorific value as set forth in a Confirmation (stated in Btu/lb.) and is the basis for a price adjustment as described in Section 9.03.
g)	“Seller” means the Party to a Transaction who is obligated to sell and deliver Coal or causes Coal to be delivered.

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h)	“Ton” means 2,000 pounds avoirdupois.
i)	“Loading Provisions” means the terms and conditions of Buyer’s contracts or excerpts thereof that Seller has reviewed and approved. The Loading Provisions are further described in Section 4.04 and attached as Exhibit A.

ARTICLE 2. TERM

2.01 This Agreement shall begin on the date first set forth above and shall continue in effect until terminated by either Party upon sixty (60) days written notice to the other Party, which right of termination shall be each Party’s absolute right to exercise. Termination of this Agreement under this Article shall not affect either Party’s rights and obligations with respect to any Transactions that have been agreed to in writing in a Confirmation prior to termination.

ARTICLE 3. QUANTITY

3.01	Buyershall be obligated to purchase and pay for, and Seller shall be obligated to sell and tender for delivery, the amount of Coal agreed to in a Confirmation, except as may be limited by Article 11 of this Agreement.
3.02	Unless otherwise limited in the Confirmation, Buyer has the right to ship or use the Coal delivered under this Agreement at any of Buyer’s locations or for any such purpose Buyer designates.

ARTICLE 4. DELIVERY AND TRANSPORTATION

4.01 For each Transaction, Seller agrees to tender to Buyer and Buyer agrees to accept from Seller the quantity of Coal as provided in the relevant Confirmation. Seller shall tender the Coal to Buyer in accordance with reasonable monthly delivery schedules to be submitted by

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	Buyer in accordance with the Agreement and the Confirmation. Schedules shall be based on a ratable monthly basis unless otherwise agreed to by both Parties. In addition, Buyer shall provide Seller with monthly schedules at least sixty (60) days prior to the beginning of each applicable month. If the Seller objects to a schedule submitted by Buyer, Seller shall notify Buyer of its objections within fifteen (15) days of Seller’s receipt of such schedule and the Parties shall work together in good faith to agree on a reasonable and mutually acceptable schedule. The mine(s) used to source the Coal supplied under this Agreement shall be any mine set forth in the Confirmation.
4.02	Buyer shall supply the appropriate unit train railcars. Said railcars shall be of a size compatible with the loading requirements set forth in this Agreement. Unit train sizes will normally vary from 105 to 135 railcars per train; however, depending on railcar availability, shorter or longer trains may occasionally be operated by mutual agreement.
4.03	Unless excused by Article 11 of this Agreement, if Buyer fails over a quarterly basis to schedule the appropriate unit trains for delivery of an amount of Coal scheduled under a Transaction, Seller shall have the right at Seller’s sole option to reduce the annual quantities of that Transaction by the deficit from the scheduled amount. This right shall be in addition to any other rights available to Seller hereunder.
4.04	Seller shall cause Coal to be loaded and delivered at the loading facilities into railcars supplied by Buyer. Seller agrees to comply with the weighing and railcar Loading Provisions. Said Loading Provisions are subject to Seller’s ability to load the required net tonnages in Buyer’s railcar without significant risk of spillage or exceeding railcar limits and shall be in general compliance with industry standards for the applicable coal region. Seller shall have at least 48 hours notice of any changes to the Loading Provisions. If the changes to the Loading Provisions are inconsistent with Seller’s commitments as otherwise set forth in this Agreement and Seller’s then current operating practice, Seller shall not be liable for

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	noncompliance with such changes unless expressly accepted by Seller. Should the obligations as set forth in this Article 4 not be met, and as a result, Buyer incurs costs under its transportation agreement with the rail carrier as a direct result of Seller’s not meeting its obligation hereunder and such failure is not the fault of either Buyer or the railroad, then Seller shall reimburse Buyer for any such costs as set forth in Exhibit A.
4.05	The scheduled Coal shall be F.O.B. loaded in Buyer-provided railcars at the delivery point located at each individual mine (“Delivery Point”). Buyer’s railcars and unit train shall be compatible with Seller’s trackage, storage and loading facilities, and shall be ready to load upon arrival at the individual mine. Seller shall load each railcar at Seller’s expense and shall complete the loading of all railcars in each unit train within four hours after the first empty railcar is actually placed by the railroad under the Seller’s loading chute. Unless excused by Article 11 or due to actions of Buyer or Buyers rail carrier, Seller shall be responsible for demurrage or other charges invoiced to Buyer by Buyer’s rail carrier resulting directly from Seller’s failure to load Buyer’s trains as provided above.
4.06	Seller is required to load each railcar to the gross weight(s) designated in the Confirmation; however, under no circumstances will the gross weight exceed the maximum limit established by the rail carrier(s) for the railcar type and for the designated train routes. Should Seller load any railcar on Buyer’s behalf outside of these specified limits, the Seller assumes any and all reasonable costs which may be charged by the rail carrier(s) and paid by Buyer as a direct result of such underloading or overloading of these railcars.

ARTICLE 5. TITLE AND RISK OF LOSS; EQUIPMENT DAMAGE

5.01 Title to the Coal and all risk of loss shall pass to Buyer upon completion of loading all railcars in each unit train at the Delivery Point.

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5.02 Seller shall be responsible for, and shall indemnify Buyer for, any and all direct reasonable costs resulting from damage to: (i) Buyer’s equipment if such equipment is damaged while on Seller’s property except to the extent such damage is caused by the negligence or recklessness of Buyer or its contracted rail carrier; and (ii) Buyer’s equipment, including mobile railcars and stationary equipment at Buyer’s electric generating station, if said equipment is damaged as a result of non-Coal material having been interspersed with the tendered Coal prior to leaving Seller’s mine property.

ARTICLE 6. COAL QUALITY SPECIFICATIONS

If the Parties set forth coal quality specifications in a Confirmation, the following Sections 6.01 – 6.03 shall apply with respect to those specifications.

6.01

At the Delivery Point, all tendered Coal shall be raw, substantially free of magnetic material and other foreign material impurities, and crushed to a maximum size as set forth in the Confirmation as determined in accordance with applicable American Society of Testing and Materials (ASTM) standards.

6.02

If there are three (3) Non-Conforming Shipments as defined in Section 6.04, whether rejected or not, under a Transaction in any three (3) month period or, if two (2) out of four (4) consecutive shipments under a Transaction are Non-Conforming Shipments, Buyer may upon notice confirmed in writing and sent to Seller, suspend future shipments except those shipments already loaded into railcars. Seller shall, within sixty (60) days, provide Buyer with reasonable assurances that subsequent deliveries of Coal shall meet or exceed the specifications set forth in the Confirmation. If Seller fails to provide such assurances within that sixty (60) day period, Buyer shall have the right to terminate the Transaction without further obligation hereunder on the part of either party. Termination shall be the sole remedy of Buyer under this Section. Buyer’s waiver of this right for any one train shall not constitute a

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	waiver for subsequent trains. If Seller provides such assurances to Buyer’s reasonable satisfaction, deliveries hereunder shall resume and any tonnage deficiencies resulting from suspension may be made up at Buyer’s sole option subject to a mutually agreeable schedule. Buyer shall not unreasonably withhold its acceptance of Seller’s assurances, or delay the resumption of shipment.
6.03	The Parties recognize during the performance of a Transaction, legislative, regulatory bodies or the courts may adopt environmental laws, rules, and regulations that will make it impossible or commercially impracticable for Buyer to utilize or to remarket Coal purchased under this Agreement. If, as a result of the adoption of such laws, rules, and regulations or changes in the interpretation or enforcement thereof, Buyer, in good faith, decides it will be impossible or commercially impracticable for Buyer to utilize or to remarket such Coal, Buyer shall promptly notify Seller in writing. After receiving such notification, Buyer and Seller shall promptly consider whether corrective actions can be taken in the mining and preparation of the Coal, in the operation of Buyer’s generating station, or in Seller’s substituting different source Coal. If in the Parties’ reasonable judgment such actions will, make it impossible and commercially impracticable for Buyer to utilize or to remarket tendered Coal without violating any applicable law, regulation, policy, or order, Buyer shall have the right, upon sixty (60) days notice to Seller, to terminate the Transaction without further obligation on the part of either party. Termination shall be the sole remedy of Buyer and Seller under this section.
If Rejection Limits are specified in the Confirmation, this Section 6.04 shall apply.
6.04	If any Shipment of Coal triggers any of the Rejection Limits specified in the Confirmation for a Transaction (a “Non-Conforming Shipment”), Buyer shall have the option, within twenty-four (24) hours of Buyer’s receipt of the quality analysis of the Coal, of either (i) rejecting such Non-Conforming Shipment prior to unloading the Coal, or, (ii) accepting the Non-Conforming Shipment and in addition to any quality adjustments outlined in the Confirmation, reducing the

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price of Coal for such trainload by $0.50 per ton. If Buyer fails to timely exercise its rejection rights under this Section as to a Shipment, Buyer shall be deemed to have waived such rights to reject with respect to that Shipment only. Buyer’s failure to timely exercise such notice does not constitute a waiver of its right to any penalty adjustment provided for herein or in the relevant Confirmation. If Buyer timely rejects the Non-Conforming Shipment, Seller shall be responsible for promptly transporting the rejected Coal to an alternative destination determined by Seller and, if applicable, promptly unloading such Coal. Seller shall reimburse Buyer for all reasonable costs and expenses associated with the transportation, storage, handling and removal of the Non-Conforming Shipment. Buyer shall cooperate with Seller in minimizing Seller’s cost of redirecting the rejected Coal. Seller shall replace the rejected coal within a reasonable period of time.

ARTICLE 7. SAMPLING AND ANALYSIS

7.01 Seller shall cause, at its expense, the Coal in each unit train to be sampled and analyzed at the individual mine in accordance with applicable ASTM standards. Buyer shall have the right, at its own risk and expense, to have a representative present at any and all times to observe sampling and analysis procedures. All samples shall be divided into three (3) parts and put in suitable airtight containers. One part shall be furnished to Buyer or its designee for its analysis, one part shall be retained for analysis by Seller or its designee (which analysis shall be the basis for payment), and the third part shall be retained by Seller or its designee in one of the aforesaid containers properly sealed and labeled for a period thirty (30) days after the date of sample collection. Buyer’s samples are to be clearly labeled as to mine, date of sampling, date of preparation, and other identification as to shipment (such as train identification number) and are to be sent within forty-eight (48) hours of train loading to the address listed below unless a different address is provided by Buyer in the Confirmation or otherwise in writing. Seller shall cause the following data, subject to future adjustment, to be provided to Buyer by a mutually agreed upon method of electronic data transmission within

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	forty-eight (48) hours of train loading: tonnage (gross, net, and tare average for each railcar and the unit train in total), and the average calorific value, % moisture, % ash, % sulfur, and % Na2O in ash (if set forth in the Confirmation), (the “Short Proximate Analysis”). Any additional analysis requested by Buyer that exceeds the information provided in the Short Proximate Analysis shall be at Buyer’s expense.
		Mailing address for sample splits:
		Minn-Dak Farmers Cooperative
		Attn: Ron Ehlert
		7525 Red River Road
		Wahpeton, MN 58075-9698
7.02	In the event a dispute arises between Buyer and Seller within thirty (30) days of Seller’s analysis due to a difference between Buyer and Seller’s short proximate analyses of a sample that exceeds the ASTM interlab repeatability limits, an independent testing laboratory, mutually agreeable to Buyer and Seller, will be retained to analyze the third part of such sample. The Party whose calorific value analysis is closest to the independent analysis shall prevail and such Party’s calorific value analysis shall govern for the trainload in question. In such case, the cost of the analysis made by such independent testing laboratory will be borne by the Party whose calorific value analysis is furthest from the independent analysis and therefore, not used. In the event both Parties’ calorific value analyses differ from the independent testing laboratory’s result by the same amount, the independent testing laboratory’s result shall govern for the trainload in question and the Parties shall share equally the cost of the independent testing.
ARTICLE 8. WEIGHING
8.01	Certified commercial scales at Seller’s train loading facility at each individual mine will determine weights. Scales shall be calibrated and tested as customary in industry practice with copies of calibration and testing reports provided to Buyer upon request. If Seller’s scales are not available to determine the valid net weight of all of the railcars in a unit train

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	but valid weights are obtained for thirty (30) or more railcars in such train, the arithmetic average of all of the valid net weights of the thirty or more railcars in such train shall be used as the net weight for each railcar in such train for which a valid net weight was not determined by Seller’s scales. If Seller’s scales are inoperative or fail to determine the valid net weight of at least thirty (30) railcars in a unit train, the weighted arithmetic average of the net railcar weights of the previous ten (10) unit trainloads of Coal shipped to Buyer shall be used as the net weight for each of the unweighed railcars in such train. The calculation of the weighted arithmetic average net weight for the previous ten (10) unit trainloads shall exclude all bad-order railcars, which were not loaded, and any trainload of Coal for which the net weights were estimated on thirty (30) or more railcars. The Buyer shall be notified electronically immediately after the above instance occurs.
ARTICLE 9. PRICE AND PRICE ADJUSTMENTS
9.01	For all Coal delivered under this Agreement, Buyer shall pay Seller the base price as set forth in the Confirmation.
9.02	Seller shall be solely responsible for all assessments, fees, costs, expenses, and taxes relating to the mining, production, sale, use, loading and tender of Coal to Buyer or in any way accruing or levied prior to transfer of title to the Coal to Buyer and including, without limitation, severance taxes, royalties, ad valorem, black lung fees, reclamation fees and other costs, charges and liabilities. The base price includes reimbursement to Seller of all environmental, land restoration and regulatory costs, including without limitation any reclamation costs required under applicable federal, state or local law as of the date of the Transaction. Buyer shall be responsible for any sales and/or use tax unless Buyer provides Seller an appropriate exemption certificate or similar document. The base price shall be subject to adjustments for changes in existing laws and regulations (including changes in levies and rates), or new laws or regulations, or changes in interpretations thereof enacted

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	and in force during the term of sale set forth in the Confirmation that change Seller’s costs of producing Coal for delivery pursuant to any Confirmation. Notwithstanding the above, no price adjustment will occur under this Section until the cumulative effect of all such changes equals or exceeds $0.05 per ton for any calendar year under a Transaction. Seller shall use commercially reasonable best efforts to inform Buyer of any such change as soon as Seller becomes aware of such change and its effect on the base price of Coal hereunder.
9.03	The base price may also include an adjustment based upon the calorific value, sulfur content or other qualities of the Coal as the Parties may mutually agree upon and as set forth in the Confirmation.
ARTICLE 10. INVOICES, PAYMENTS, NETTING, SET OFF, AND CREDIT RATINGS
10.01	Based on Seller’s weights, Seller will invoice Buyer twice a month for all Coal delivered. Invoices for quality adjustment, as provided in a Transaction, shall be issued monthly, based on Seller’s analyses. Seller shall clearly indicate Buyer’s applicable purchase order number on all invoices. Each invoice shall state for each trainload of Coal: the quantity of Coal delivered, the Actual Btu and SO2, % Na2O in ash (if set forth in the Confirmation) and the invoice price and any other required quality adjustment. Invoices shall be mailed or electronically transmitted, as applicable, to:
		Invoices to Minn-Dak:
		Minn-Dak Farmers Cooperative Attn: Arland Anderson 7525 Red River Road Wahpeton, ND 58075-9698 Email: aanderson@minndak.coop
		Invoices to RTEA:
		Rio Tinto Energy America Inc. Attn: Revenue Accounting Caller Box 3017 (82717-3017) 405 West Boxelder Road, Suite D Gillette, WY 82718

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		Checks to RTEA:
		Rio Tinto Energy America Inc. Account Number 060-00298-13 Wells Fargo, N.A. P.O. Box 26094 Salt Lake City, UT 84126-0094
		ACH/Wires to RTEA:
		Rio Tinto Energy America Inc. Account # 060-00298-13 Wells Fargo Bank 41 East 100 South ACH ABA # 124000012 Wire ABA # 121000248
		Payment Detail:
		To ensure proper allocation of payments to appropriate invoice, e-mail invoice numbers and amounts to: Doreen.Heuck@Riotinto.com or information may be faxed to (307) 687-6010.
10.02	For all invoices, payment will be made within 5 business days of receipt of that invoice. Amounts shall be paid via check or electronic means (i.e., ACH or Federal Reserve wire transfer of funds). The wire transfer of funds shall be sent to Seller’s bank as indicated on the invoice.
10.03	In the event Buyer in good faith disputes part or all of an invoice, notice of the disputed portion, with reasons for dispute, must be given prior to the due date of the invoice and the undisputed portion shall be paid by the due date. If the disputed portion is determined to have been properly due and payable, interest on that portion in dispute and which has not been paid shall accrue from the date that portion was due and payable. If a disputed portion is paid and is later determined not to have been properly due and payable, interest will similarly be refunded from the date payment had been received. Interest shall be paid at one (1) percentage point over the then current U.S. prime rate as listed in the Money Rates section of The Wall Street Journal. All invoices will be final and not subject to further adjustments or correction unless objection to the accuracy thereof is made prior to the lapse of one (1) year after the termination of the applicable Transaction.

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10.04	If each Party or Party’s affiliate is required to pay an amount to the other Party in the same invoice period, then such amounts with respect to each Party may be aggregated and the Parties may discharge their obligations to pay through netting; in which case, the Party owing the greater aggregate amount shall pay to the other Party the difference between the amounts owed.
10.05	Each Party reserves to itself all rights, setoffs, counterclaims, and other remedies and defenses to the extent not expressly denied or waived herein which such Party has or may be entitled to arising from or out of this Agreement. All outstanding Transactions and the obligations to make payment in connection under this Agreement may be offset against each other, set off, or recouped therefrom.
10.06	If a Party fails to pay amounts under this Agreement within 5 business days after receipt of invoice, unless such amount is the subject of a dispute as provided above, or is excused by Article 11, in addition to the rights and remedies otherwise provided in this Agreement, the aggrieved Party shall have the right to suspend performance under any or all Transactions under this Agreement. If such failure to pay continues for an additional 5 business days, the aggrieved Party shall have the right to terminate this Agreement and all Transactions and shall be entitled to all other rights under this Agreement.
10.07	Should the creditworthiness or either Party’s ability to perform become unsatisfactory to the other Party, or if situations develop where either Party could reasonably conclude that a credit downgrade or protection under bankruptcy code is imminent, then the failing Party will provide satisfactory security or assurances.
10.08	Should Buyer’s creditworthiness, financial responsibility, or performance viability become unsatisfactory to the Seller at any time in Seller’s reasonably exercised discretion with regard to any Transaction pursuant to this Agreement, the Seller may request in writing that

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	the Buyer provide, reasonable assurance acceptable to Seller in the form of either (a) the posting of a Letter of Credit, (b) Cash, (c) a cash prepayment, (d) the posting of other acceptable collateral or security by the Buyer, (e) a guarantee agreement executed by a creditworthy entity; (f) compressed payment terms or (g) some other mutually agreeable method of satisfying the Seller (collectively, “Performance Assurance”). If the Seller’s request for Performance Assurance is made on a Business Day, Buyer shall have two (2) Business Days to provide such Performance Assurance.
ARTICLE 11. FORCE MAJEURE
11.01	The term “Force Majeure” as used herein shall mean an act or event that is not reasonably within the control and is without the fault of the party claiming Force Majeure including without limitation, acts of God; acts of the public enemy; insurrections; terrorism; riots; labor disputes; boycotts; fires; explosions; floods; breakdowns of or damage to major components or equipment of Buyer’s generating station, Seller’s mine, or transmission systems, or railcar transportation system; embargoes; acts of judicial or military authorities; acts of governmental authorities; inability to obtain necessary permits, licenses, and governmental approvals after applying for same with reasonable diligence; or other causes which prevent the producing, processing, and/or loading of Coal by Seller, or the receiving, accepting, unloading and/or utilizing of Coal by Buyer. Force Majeure includes the failure of a Party’s contractor(s) to furnish labor, services, Coal, materials or equipment in accordance with its contractual obligations (but solely to the extent such failure is itself due to Force Majeure).
11.02	If, because of Force Majeure, either Party fails to perform any of its obligations under this Agreement (other than the obligation of a Party to pay money), and if such Party shall promptly give to the other Party written notice of such Force Majeure, then the obligation of the Party giving such notice shall be suspended to the extent made necessary by such Force Majeure and during its continuance; provided, the Party giving such notice shall use good

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	faith efforts to eliminate such Force Majeure, insofar as reasonably possible, with a minimum of delay. Should the situation of Force Majeure exceed sixty (60) consecutive days, the Party not affected by the Force Majeure event may, at its option, terminate the Transaction in whole or in part and neither Party shall have any further obligation to the other Party; however, each Party shall be obligated to make any payments which had become due and payable prior to such termination. Any deficiencies in deliveries of Coal caused by an event of Force Majeure shall not be made up, except by mutual consent. The affected Party shall provide suitable proof to the other Party to substantiate any claim made under this Article 11.
11.03	Both Parties agree significant capital expenditures and settlement of strikes and lockouts shall be entirely within the discretion of the Party having the difficulty. The above requirement that any Force Majeure shall be remedied with all reasonable dispatch shall not require significant capital expenditure or settlement of strikes and lockouts by acceding to the demands of the opposing Party when such course is inadvisable in the discretion of the Party having difficulty.
11.04	The loss of Buyer’s markets or Buyer’s inability to economically use or resell Coal purchased hereunder, the loss of Seller’s supply or Seller’s ability to sell Coal to a market at a more advantageous price, the change in the market price of Coal or price of power, or regulatory or contractual disallowance of the pass-through of the costs of Coal or other related costs shall not constitute events of Force Majeure.
ARTICLE 12. RECORDS, AUDITS, ACCESS
12.01	Seller shall maintain books and records relating to the supply of Coal under this Agreement and the applicable Transaction for a period of not less than two (2) years after the end of each calendar year for all Coal tendered during such calendar year.

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12.02	Upon reasonable notice and during normal business hours, Buyer and/or Buyer’s independent auditors shall have the right to inspect Seller’s books and records relating to all provisions of this Agreement which include Coal quality, quantity shipped, and price adjustments or as may be necessary to satisfy inquiries from governmental or regulatory agencies, but only to the extent necessary to verify the accuracy of any statement, charges or computations made pursuant to this Agreement and/or a Transaction. Seller shall make a reasonable effort to facilitate Buyer’s inspection of such records in Seller’s possession. Buyer and its auditors, to the extent permitted by law or regulation, shall treat all such information as confidential.
ARTICLE 13. DEFAULT, REMEDIES, AND TERMINATION
13.01	The remedies set forth in this Section 13.01 shall cover the non-defaulting Party’s remedies for the defaulting Party’s failure to perform prior to any termination for default that may occur.
	a)	As an alternative to the damages provision below, if the Parties mutually agree in writing, the non-performing Party may schedule deliveries or receipts, as the case may be, pursuant to such terms as the Parties agree in order to discharge some or all of the obligation to pay damages. In the absence of such agreement, the damages provision of this Article shall apply.
	b)	Unless excused by Force Majeure, if Seller fails to deliver the quantity of Coal in accordance with the applicable Confirmation and this Agreement, Seller shall pay to Buyer an amount for each ton of Coal of such deficiency equal to (i) the lowest reasonable market price on an equivalent per mmBtu SO2 adjusted basis at which Buyer is able, or (ii) at the time of Seller’s breach, would be able to purchase or otherwise receive comparable supplies of Coal of comparable quality minus the base price agreed to for the specific Transaction; except that if such difference is negative,

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		then neither Party shall have any obligation to make any deficiency payment to the other.
	c)	Unless excused by Force Majeure, if Buyer fails to accept delivery of the quantity of Coal in accordance with the applicable Confirmation and this Agreement, Buyer shall pay to Seller an amount for each ton of Coal of such deficiency equal to (i) the base price agreed to for the specific Transaction minus the highest reasonable market price on an equivalent per mmBtu SO2 adjusted basis at which Seller is able, or (ii) would be able, to sell or otherwise dispose of the Coal at the time of Buyer’s breach; except that if such difference is negative, then neither Party shall have any obligation to make any deficiency payment to the other.
	d)	Buyer and Seller shall be subject to commercially reasonable good faith obligation to mitigate any damages hereunder.
13.02	The occurrence of any of the following shall constitute an “Event of Default”:
	a)	Failure by either Party to pay any amounts due.
	b)	Either Party materially breaches any contractual obligation under this Agreement.
	c)	Either Party (i) makes any general assignment or any general arrangement for the benefit of creditors, (ii) files a petition or otherwise commences, authorizes or acquiesces in the commencement of a proceeding or cause of action under any bankruptcy or similar law for the protection of creditors or has such a petition involuntarily filed against it and such petition is not withdrawn or dismissed within thirty (30) days after such filing, (iii) otherwise becomes bankrupt or insolvent (however evidenced), or (iv) is unable to pay its debts as they fall due.

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13.03	In addition to the non-defaulting Party’s remedies under this Article, in the Event of Default with respect to a specific Transaction, the non-defaulting Party shall have the same rights with respect to such specific Transaction as it has under this Agreement in addition to the right to exercise all other rights and remedies available under applicable law.
ARTICLE 14. NOTICES
14.01	Except as expressly provided otherwise, any notice, election or other correspondence required or permitted hereunder shall become effective upon receipt and, except invoices and payments, shall be deemed to have been properly given or delivered when made in writing and delivered personally to the Party to whom directed, or when sent by United States certified mail with all necessary postage prepaid and a return receipt requested, or by a nationally recognized overnight delivery service with charges fully prepaid and addressed to the Party at the below-specified address:
		Notices to RTEA:
		Rio Tinto Energy America Inc. Attn: Contract Administration 8000 E. Maplewood Ave., Suite 250 Greenwood Village, CO 80111 Phone: (720) 377-2065 Fax:     (303) 773-0235
		With a copy to:
		Rio Tinto Energy America Inc. Attn: Legal Department 505 So. Gillette Avenue Gillette, CO 82716
		Scheduling to RTEA:
		Rio Tinto Energy America Inc. Attn: Customer Service Department 8000 E. Maplewood Ave., Suite 250 Greenwood Village, CO 80111 Phone: (720) 377-2044 Fax:     (303) 773-0235

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		Notices to Minn-Dak:
		Minn-Dak Farmers cooperative Attn: John Nyquist 7525 Red River Road Wahpeton, MN 58075-9698 Phone: (701) 671-1310 Fax:     (701) 671-1369
	The addresses may be changed upon written notice in the manner provided above, and no amendment hereof shall be required for a change of address under this Article 14.
ARTICLE 15. COOPERATION
15.01	Each Party agrees to take all further action that may be reasonably necessary to perform and to effectuate the purposes and intent of the Agreement, the Confirmation, and any particular Transaction.
ARTICLE 16. WARRANTY, LIMITATION ON LIABILITY, DUTY TO MITIGATE & INDEMNIFICATION
16.01	In no event shall either Party be liable to the other Party for incidental, consequential or punitive damages however and wherever arising out of, or in connection with, this Agreement or any Transaction.
16.02	EXCEPT AS EXPRESSLY WARRANTED HEREIN, IT IS EXPRESSLY AGREED THAT SELLER MAKES NO WARRANTY EXPRESSED OR IMPLIED AS TO THE QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE COAL TO BE DELIVERED UNDER THIS AGREEMENT OR AS TO THE RESULTS TO BE OBTAINED FROM THE USE OF SUCH COAL. SELLER SHALL NOT BE LIABLE FOR ANY INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOSS OF PROFITS OR OVERHEAD, BY VIRTUE OF ITS BREACH OF ANY

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	OF ITS OBLIGATIONS UNDER THE AGREEMENT. NOTHING IN THIS ARTICLE SHALL BE CONSTRUED AS LIMITING BUYER’S RIGHT, SUBJECT TO THE TERMS OF THIS AGREEMENT, TO SEEK DIRECT DAMAGES FOR SELLER’S BREACH OF ANY OF ITS OBLIGATIONS HEREUNDER.
16.03	Each Party agrees it has a duty to mitigate damages and covenants. Each Party will use commercially reasonable efforts to minimize any damages it may incur as a result of the other Party’s performance or non-performance of the Agreement (except that neither Party shall be required to enter into a replacement transaction as provided under this Agreement).
16.04	Each Party shall indemnify, defend, and hold the other Party harmless from and against any and all Claims arising out of or resulting from the willful acts or negligence of such Party, its agents, and employees.
ARTICLE 17. LIMITATION ON WAIVER
17.01	No waiver by either Party of any one or more defaults of the other Party in the performance of this Agreement or any Transaction shall operate or be construed as a waiver of any future default, or defaults, whether of a like or different character.
ARTICLE 18. CONFIDENTIALITY
18.01	This Agreement and any Confirmation are deemed confidential. The Parties shall protect the confidentiality of the terms of this Agreement and neither this Agreement or any of its terms shall be disclosed to any other person unless such disclosure is: (i) agreed to in writing by the Parties prior to release, (ii) required by law, (iii) required by jurisdictional regulation pursuant to the request of any regulatory authorities (including, without limitation, state utility commissions or boards, the Federal Energy Regulatory Commission, the U.S. Securities and

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	Exchange Commission and tax authorities); to attorneys, auditors, consultants or other outside experts of the parties if said individuals are advised of the confidential nature of the information and said individuals agree to maintain the confidentiality of the information; or to generating unit co-owner(s). Where the law requires such disclosure, notice shall be given to the other Party, and to the extent possible, such notice shall be given in advance of disclosure.
ARTICLE 19. ENTIRETY, AMENDMENTS
19.01	This Agreement constitutes the entire agreement between the Parties. This Agreement may not be amended except in a written instrument making reference hereto signed by the Parties.
ARTICLE 20. SUCCESSORS AND ASSIGNS
20.01	This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective successors and assigns; provided, however, this Agreement may not be assigned by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed.
ARTICLE 21. GOVERNING LAWS
21.01	This Agreement shall be governed by and construed in accordance with the laws in the State of Wyoming.

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ARTICLE 22. INTERPRETATION
22.01	The Parties acknowledge that each Party and its counsel have reviewed this Agreement and that the rule of construction to the effect that any ambiguities are to be resolved against the drafting Party shall not be employed in the interpretation of this Agreement.
ARTICLE 23. RESALE TO LOCAL COLLEGE
23.01	Seller agrees to allow Buyer to re-sell the Coal in Buyer’s stockpile to North Dakota State College of Science.
ARTICLE 24. SURVIVAL
24.01	The provisions of Articles 12 through 22 and Article 24 shall survive the termination of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement by their respective, duly authorized representatives effective as of the date first written above.

Rio Tinto Energy America Inc.		Minn-Dak Farmers Cooperative
By:		By:
Jeffrey D. Price
Vice President, Marketing,		Title:	Purchasing Manager
Government Affairs & Communications
Date:	25 August 2006	Date:	6th August 2006

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RAILROAD EQUIPMENT LEASE

          THIS RAILROAD EQUIPMENT LEASE (the “Lease”) is entered into as of this the 1st day of August 2006, (the “Effective Date”) by and between Northern Coal Transportation Company, an Oregon corporation (hereinafter referred to as “Lessor”), and Minn-Dak Farmers Cooperative (hereinafter referred to as “Lessee”).

          WHEREAS, Lessee desires to lease from Lessor and Lessor desires to lease to Lessee certain coal hauling railcars (the “Units”) that make up a Unit Train so that Lessee may make deliveries of coal to its Wahpeton Sugar Beet Factory.

          NOW, THEREFORE, in consideration of the mutual premises, covenants and agreements set forth herein, the parties hereby agree as follows:

          1.      LEASE OF UNITS. Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the Units commencing on the Effective Date written above and ending for all Units on the last day of July 2010 or on the date Lessee has unloaded the last Unit Train, whichever occurs first (the “Expiration Date”).

          2.      BASE RENTAL. Lessee agrees to pay to Lessor the amount of the trip lease price of $X.XX per/ton for all tons hauled in the Units. Lessor shall invoice Lessee semimonthly for the base rental. Payment shall be due on each invoice within ten (10) days after the date of the invoice by check or wire transfer to Northern’s account, as follows:

Wire Transfer:
BANK:	First Security Bank of Utah
ABA No:	124000012
Account No:	060-00069-02
Account Name:	Northern Coal Transportation
Check:
Account Name:	Northern Coal Transportation
Account No.:	060-00069-02
Address:	P.O. Box 26094, Salt Lake City, Utah 84126-0094

          3.      DELIVERY OF UNITS. Lessor will cause each Unit to be tendered to the Lessee at the Spring Creek Mine in Decker Montana. Each Unit shall: (i) be empty, substantially free from debris, lading, residue of lading, and suitable for loading; (ii) meet the standards of the Interchange Rules of the Association of American Railroads, the Surface Transportation Board, the Department of Transportation, and any other legislative, administrative, judicial, regulatory or governmental body having jurisdiction in the matter.

          4.      MAINTENANCE AND REPAIRS.

          (a) Lessor shall have the right, but not the obligation, to inspect the Unit(s) and conduct preventative maintenance as Lessor deems necessary. If, as a result of such inspections, repairs that are Lessee’s responsibility under Sections 4(c) are found to be necessary, then Lessee will provide freight and switching services to and from any shop of Lessor’s choosing at no cost to Lessor. Lessor will undertake such maintenance when possible and in a manner that minimizes the interruptions of service to Lessee.

          (b) Lessee shall not make any alteration, improvement or addition to any Unit without Lessor’s prior written consent.

          (c) Lessee shall be responsible for all repairs necessary as a result of damage to a Unit, including but not limited to, damage caused by cornering, sideswiping, derailment, improper or abusive loading or unloading methods, unfair usage or similar occurrences while under this Lease, whether such damage to a Unit is direct, indirect, incidental or consequential, but excluding the maintenance and repairs made necessary by ordinary wear and tear which shall be the Lessor’s responsibility.

          (d) Notwithstanding anything herein contained, Lessor may notify Lessee that it is withdrawing from this Lease any Unit which, in the opinion of Lessor, has been destroyed, damaged or needs repairs in excess of its economic value, whereupon this Lease will terminate as to such withdrawn Unit; provided, however, Lessor may, with Lessee’s consent, substitute a Unit of like specifications, for such withdrawn Unit, in which case all of the terms and conditions of this Lease shall apply to the substituted Unit.

          5.      DISCLAIMER OF WARRANTIES. LESSOR, NOT BEING THE MANUFACTURER OF THE UNITS, NOR THE MANUFACTURER’S AGENT, HEREBY EXPRESSLY DISCLAIMS AND MAKES TO LESSEE NO WARRANTY OR REPRESENTATION, EXPRESSED OR IMPLIED, OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO; THE FITNESS FOR USE, DESIGN OR CONDITION OF THE UNITS; THE QUALITY OR CAPACITY OF THE UNITS; THE WORKMANSHIP IN THE UNITS; THAT THE UNITS WILL SATISFY THE REQUIREMENT OF ANY LAW, RULE, SPECIFICATION OR CONTRACT PERTAINING THERETO; AND ANY GUARANTEE OR WARRANTY AGAINST PATENT INFRINGEMENT OR LATENT DEFECTS, IT BEING AGREED THAT ALL SUCH RISKS, AS BETWEEN LESSOR AND LESSEE, ARE TO BE BORNE BY LESSEE. LESSOR IS NOT RESPONSIBLE OR LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGE TO OR LOSSES RESULTING FROM THE INSTALLATION, OPERATION OR USE OF THE UNITS OR ANY UNIT. Lessor acknowledges that any manufacturer’ and/or seller’s warranties are for the benefit of both Lessor and Lessee.

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          6.      USE OF THE UNITS. Lessee agrees to comply in with all laws or rules of the jurisdictions in which operations involving any Unit subject to this Lease may extend. Lessee shall indemnify and hold harmless Lessor from and against any and all liability that may arise from any infringement or violation of any such laws or rules by Lessee, its agents, employees, or any other person.

          Lessee agrees that the Units shall be used in a careful and prudent manner, solely in the use, service and manner for which they were designed. Lessee shall not use the Units, or any Unit, for the loading, storage or hauling of any ruminant protein products, corrosive, hazardous, toxic or radioactive substance or material. Specifically, Lessee intends to use the Units to transport Coal. Lessee is prohibited from using the Units to transport any other commodity without Lessor’s prior written consent.

          7.     FILINGS AND MARKS. Lessee will cause each Unit to be kept numbered with the identifying numbers and all other markings and stenciling required by the Interchange Rules and the Codes of Car Hire and Car Service Rules of the Association of American Railroads, as the same may be amended from time to time.

          8.     TAXES, LIENS AND OTHER ASSESSMENTS. Lessee will keep at all times all and every part of the Units free and clear of all Assessments which might in any way affect the title of Lessor to any Unit or result in a lien upon any Unit.

          9.     INDEMNIFICATION.

          (a) Lessee assumes all liability for and shall indemnify and hold harmless Lessor, its affiliates and subsidiaries together with its and their directors, officers, employees, agents, representatives, successors and assigns from and against any and all liabilities, obligations, losses, damages, injuries, claims, demands, penalties, actions, costs and expenses, including reasonable attorney’s fees, of whatsoever kind and nature, arising out of the possession, use, condition (including but not limited to, latent and other defects and whether or not discoverable by Lessee or Lessor), operation, ownership, selection, delivery, leasing or return of the Units or any Unit, regardless of where, how and by whom operated, and regardless of any failure on the part of Lessor to perform or comply with any conditions of this Lease. This Section 9 shall continue in full force and effect notwithstanding the expiration or other termination of this Lease. Lessee is an independent contractor and nothing contained in this Lease shall authorize Lessee or any other person to operate any of the Units so as to incur or impose any liability or obligation for or on behalf of Lessor.

          (b) Lessor shall not be liable for any loss of or damage to any commodities loaded or shipped in the Units. Lessee agrees to assume responsibility for and to indemnify and hold harmless Lessor, its affiliates and subsidiaries together with its and their directors, officers, employees, agents, representatives, successors and assigns from any claim in respect of such loss or damage caused to any Unit by such commodities.

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          10.      LESSOR’S PERFORMANCE OF LESSEE’S OBLIGATIONS. If Lessee shall fail to duly and promptly perform any of its obligations under this Lease with respect to the Units, and Lessor has given Lessee reasonable prior written notice of such nonperformance, then Lessor shall have the option, but not the obligation, to perform any act or make any payment which Lessor deems necessary for the maintenance and preservation of the Units and/or Lessor’s title thereto, and all sums so paid or incurred by Lessor shall be reimbursed by Lessee on demand. The performance of any act or payment by Lessor as aforesaid shall not be deemed a waiver or release of any obligation or default on the part of the Lessee, and Lessee shall continue to be liable for any such performance or payment by Lessor notwithstanding the expiration or earlier termination of this Lease.

          11.      INSURANCE.

          (a) Lessee shall procure and maintain prior to Lessor’s release of the Units, at its sole cost and expense, for all Units subject to this Lease: (1) comprehensive general liability insurance, including products liability and contractual coverage for the liabilities assumed herein, without exclusions related to railroad operations, punitive damages, hazardous materials transportation or otherwise, against liability and claims for injuries to persons (including injuries resulting in death), and property damage. Such coverage shall name Lessor as additional insured as the Lessor’s interest may appear and shall be in a combined single limit of not less than $2,000,000; and (2) all risk property insurance relating to loss of or damage to the Units in such amounts not less than $2,000,000. Such coverage shall name Lessor as loss payee. The Lessor is entitled, as loss payee, to act with Lessee in making, adjusting or settling any claims under any insurance policies insuring the Units leased by Lessee. Lessee shall furnish certificates, policies, or endorsements to Lessor as proof of such insurance. Notwithstanding anything herein to the contrary, Lessee may in its sole discretion self-insure for part or all of the insurance coverage required by this paragraph, in lieu of purchasing insurance.

          (b) The proceeds of any all risk property damage with respect to such Units shall be payable solely to Lessor and shall be applied by Lessor in accordance with Section 12 hereof. The proceeds of any comprehensive general liability insurance shall be payable first to Lessor to the extent of its liability, if any, and the balance to Lessee.

          12.      RISK OF LOSS. Lessee assumes all risk of loss, damage, theft, condemnation or destruction of the Units, whether direct, indirect, incidental or consequential, including, but not limited to, damages caused by or arising from cornering, sideswiping, derailment, improper or abusive loading or unloading methods, negligent or unfair usage, or similar occurrences while under this Lease.

          13.      LESSEE’S DEFAULT. Lessee shall be in default under this Lease upon the happening of any of the following events or conditions (hereinafter referred to as “Events of Default”): (i) if Lessee fails to pay any sum required to be paid hereunder on or before the due date and such failure continues for a period of three (3) consecutive days; (ii) if Lessee fails at any time to procure or maintain any insurance coverage

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required by this Lease; (iii) if Lessee fails to observe or perform any of the covenants, conditions or obligations contained in this Lease (other than those specified in (i) and (ii) above) and such failure continues for ten (10) days after receipt by Lessee of written notice from Lessor of such failure; (iv) the appointment of a receiver, trustee or liquidator of Lessee or of a substantial part of its property, or the filing by Lessee of a voluntary petition in bankruptcy or other similar insolvency laws or for reorganization; (v) if a petition against Lessee in a proceeding under bankruptcy laws or other similar insolvency laws shall be filed and shall not be withdrawn or dismissed within thirty (30) days thereafter; (vi) if an event of default shall occur under any other obligation Lessee owes to Lessor; or (vii) if an event of default shall occur under any indebtedness Lessee may now or hereafter owe to any affiliate or subsidiary of Lessor.

          14.      LESSOR’S REMEDIES. Upon the occurrence of any one or more of the Events of Default specified in Section 13 above, Lessor, may at its option and without any further notice: (i) terminate this Lease as to any or all Units without relieving Lessee of any of its obligations hereunder; (ii) take possession of the Units and for this purpose enter upon any premises of Lessee and remove the Units, without any liability or suit, action or other proceeding by Lessee and without relieving Lessee of any of its obligations hereunder; (iii) cause Lessee, at its sole expense, to promptly return the Units to Lessor in accordance with the terms and provisions of Section 15 hereof; (iv) proceed by appropriate action either at law or in equity to enforce performance by Lessee of the applicable covenants of this Lease or to recover damages for the breach thereof; or (v) exercise any other right available to Lessor at law or in equity.

          15.      RETURN OF UNITS. At the expiration of this Lease, or at the direction of Lessor pursuant to Section 14 of this Lease, Lessee shall at its own cost, expense and risk, deliver possession of the Units to Lessor at the Spring Creek Mine in Decker Montana. Each Unit returned to the Lessor pursuant to this Section 15 shall: (i) be empty, free from debris, lading, residue of lading, suitable for loading, and in the same or better operating order, repair and condition as when originally delivered to the Lessee, reasonable wear and tear excepted; (ii) meet the standards then in effect under the Interchange Rules of the Association of American Railroads, the Surface Transportation Board, the Department of Transportation, and any other legislative, administrative, judicial, regulatory or governmental body having jurisdiction in the matter; and (iii) be free from any damage due to the abuse of the Unit as specified in Section 4(c). If any Unit is not delivered to Lessor on or before the Expiration Date, or is so delivered, but not in compliance with this Section 15, each and every Unit shall remain subject to the terms and provisions of this Lease until the Unit or Units are returned to Lessor or until any non-compliance with this Section 15 is resolved. Nothing in this Section 15 shall be construed as Lessor’s authorization of the Lessee’s use of the Units, or any Unit, after the Expiration Date. Lessee’s obligations in this Section 15 shall survive the Expiration Date of this Lease.

          16.      NOTICES. Any notice required or permitted to be given by any party hereto to the other shall be in writing and shall be deemed given when sent by United States Certified or Registered Mail, Return Receipt Requested, postage prepaid,

5

delivered by personal or overnight courier, facsimile transmission, or e-mail addressed as follows:

TO LESSOR:	Northern Coal Transportation Company 505 South Gillette, Avenue Gillette, WY 82716 P.O. Box 3009 (82717) Attention: General Manager - NCTC Fax: (307) 685-6259
TO LESSEE:	Minn-Dak Farmers Cooperative 7525 Red River Road Wahpeton, ND 58075-9698 Attention: Purchasing Manager Fax: (701) 671-1369

or at such other place as the parties hereto may from time to time designate by notice, each to the other.

          17.      SEVERABILITY. Any provision of this Lease which is prohibited or unenforceable in any jurisdiction, shall be, as to such jurisdiction, ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

          18.      MISCELLANEOUS PROVISIONS.

          (a)      This Lease constitutes the entire agreement among the parties and exclusively and completely states the rights of the Lessor and the Lessee with respect to the Units and supersedes all other Leases, oral or written, with respect to the Units. No variation or modification of this Lease and no waiver of any of its provisions or conditions shall be valid unless in writing and signed by duly authorized officers of Lessor and Lessee.

          (b)      This Lease may be executed in several counterparts, each of which so executed shall be deemed to be an original, and such counterparts together shall constitute but one and the same instrument.

          (c)      The laws of the State of Wyoming shall govern this Lease.

          (d)      Lessee agrees to execute and deliver such other documents and instruments as may be reasonably necessary or required to further evidence the transaction contemplated by, or to carry out the intent of, this Lease.

6

          (e)      Nothing contained herein shall give or convey to Lessee any right, title or interest in and to the Units leased hereunder except as a lessee thereof, and the Units are and shall at all times be and remain the sole and exclusive property of Lessor.

          (f)      Lessee may not, by operation of law or otherwise, assign, transfer, pledge, or otherwise dispose of this Lease or any interest herein, or sublet any of the Units, without Lessor’s prior written consent.

          (g)      Any cancellation or termination of this Lease by Lessor, pursuant to the terms and provisions hereof shall not release Lessee from any then outstanding obligations and/or duties to Lessor hereunder.

          (h)      Notwithstanding anything contained in this Lease to the contrary, Lessor shall not be liable for its failure to perform any obligations of Lessor herein contained by reason of labor disturbances (including strikes and lockouts), war, riots or civil commotion, acts of God, acts of terrorism, fires, floods, explosions, storms, accidents, governmental regulations or interference, or any cause whatsoever beyond Lessor’s reasonable control.

          (i)      To the extent there exists any conflict between the terms and provisions of this Lease and the terms and provisions of the Interchange Rules or the Codes of Car Hire and Car Service Rules of the Association of American Railroads, this Lease shall control.

          (j)      Lessee hereby authorizes Lessor, and agrees that Lessor shall be entitled, to access UMLER and receive all information thereon with respect to the Units, or the use and operation thereof, together with all other information as may be available from the Association of American Railroads, and Lessee agrees to execute such instruments or consents as may be necessary or required in order to carry out the intent of this paragraph (j).

          (k)      Whenever approval of the originating line haul carrier(s) is required in order for the Units to be placed in service pursuant to AAR Circular OT-5 including any revisions, replacements, or substitutions thereto, Lessor shall, upon written request from Lessee, use its reasonable efforts to assist Lessee in obtaining such approval. In no event shall Lessor be responsible for obtaining such approval, and in the event that the OT-5 authority is withdrawn, modified or denied, Lessee’s obligations under this Lease shall continue in full force and effect.

7

IN WITNESS WHEREOF, the parties have caused this Lease to be executed as of the day and year first above written.

LESSOR:
NORTHERN COAL TRANSPORATION COMPANY
BY:
NAME:		Jeffrey D. Price
TITLE:		VP, Marketing, Government Affairs & Communication

LESSEE:
MINN-DAK FARMERS COOPERATIVE
BY:
NAME:		John S. Nyguist
TITLE:		Purchasing Manager

8

EX-10.R

EXHIBIT 10(r)

RENEWAL OF DAVID H. ROCHE EMPLOYMENT AGREEMENT

          THIS AGREEMENT, and Addendum to that certain Employment Agreement between the parties dated March 1, 2001, is made and entered into this 22^nd day of August, 2006 to be effective until September 1, 2006, by and between Minn-Dak Farmers Cooperative, a North Dakota Cooperative Association, with its principal office located at 7525 Red River Road, Wahpeton, North Dakota 58075, herinafter referred to as “Minn-Dak”, and David H. Roche of 702 East Lakeside Drive, Fergus Falls, Minnesota 56537, herinafter referred to as “Roche”.

          WHEREAS, the parties entered into an Employment Agreement dated March 1, 2001 with a term of 18 months, which expired on August 31, 2002; a Renewal Agreement dated August 27, 2002 with a term of 12 months, which expired August 31, 2003; a Renewal Agreement dated August 26, 2003 with a term of 12 months, which expired August 31, 2004; a Renewal Agreement dated August 24, 2004 with a term of 12 months, which expired August 31, 2005; and a Renewal Agreement dated August 23, 2005 with a term of 12 months, which expires August 31, 2006.

          WHEREAS, the parties wish to renew said Employment Agreement effective September 1, 2006 for a 12 month period with modification of salary and vacation provisions.

          NOW THEREFORE Minn-Dak does hereby employ and Roche does hereby accept such renewal of employment under the following terms and conditions:

1.	The term of this Renewal Agreement shall be from September 1, 2006 through August 31, 2007.
2.	Section Four A. of the Employment Agreement shall be amended to read as follows:
		Roche shall receive compensation during the term of this agreement as follows:
	A.	During the 12 month term of this Renewal Agreement, a base salary of $322,400.00/year payable bi-weekly pursuant to Minn-Dak’s current payroll program.
3.	Section Eight A. of the Employment Agreement shall be amended as follows:
	B.	During the initial 18 month employment term, Roche shall have 3 weeks vacation during the first year and 4 weeks per year after the first year. Roche shall have 5 weeks of vacation per year commending on September 1, 2006. Increases in vacation time over and above 5 weeks shall be at the discretion of the board of directors. Company policy encourages the use of vacation time from one

		anniversary date to the next anniversary date with a maximum carryover of 240 hours of vacation from one period to the next.
4.	All remaining relevant provisions contained in the Employment Agreement dated March 1, 2001, shall remain in full force and effect during this renewal term.

MINN-DAK FARMERS COOPERATIVE		ROCHE
BY	/s/ Michael Hasbargen	/s/ David H. Roche
	Michael Hasbargen,	David H. Roche
	Chairman of the Board of Directors

DATE: 8-22-06 DATE: 8-22-06

STATE OF NORTH DAKOTA	)
	)SS
COUNTY OF RICHLAND	)

          The foregoing instrument was acknowledged before me this 22^nd day of August, 2006 by Michael Hasbargen, Chairman of the Board of Directors of Minn-Dak Farmers Cooperative, on behalf of said cooperative, and David H. Roche.

(Notary Public Stamp)	/s/ Julie A. Langston
	Notary Public

EX-12

EXHIBIT 12

MINN DAK FARMERS COOPERATIVE
COMPUTATION OF RATIO OF NET PROCEEDS TO FIXED CHARGES
(IN THOUSANDS)

	Year Ended August 31,
	2006		2005		2004		2003		2002
Earnings:
Net proceeds before income taxes from continuing operations		76,096		88,088		107,909		109,663		84,224
Fixed charges, excluding capitalized interest, see below		3,544		2,899		2,920		3,326		3,742
Amortization of capitalized interest		106		106		106		94		94
Net Proceeds		79,746		91,093		110,935		113,083		88,060
Fixed Charges:
Interest Expense		3,544		2,899		2,920		3,326		3,742
Interest factor included in rentals (1)		0		0		0		0		0
Fixed charges, excluding capitalized interest		3,544		2,899		2,920		3,326		3,742
Interest capitalized		0		0		0		207		9
Fixed Charges		3,544		2,899		2,920		3,533		3,751
Ratio of net proceeds to fixed charges		22.50		31.42		37.99		32.01		23.48

(1) The company does lease certain items, such as office equipment. Due to the proportionately small amounts involved, interest on such lease payments has not been included in the total of the company’s fixed charges of the calculation of this ratio.

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, David H. Roche, certify that:

1. I have reviewed this annual report on Form 10-K of Minn-Dak Farmers Cooperative;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and Rule 15d-15(e)) for the Company and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in our internal control over financial reporting that occurred during our most recent fiscal quarter (fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting; and

5. the Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to our auditors and to the audit committee of our board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect our ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	11-28-06	/s/ David H. Roche
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Steven M. Caspers, certify that:

1. I have reviewed this annual report on Form 10-K of Minn-Dak Farmers Cooperative;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in our internal control over financial reporting that occurred during our most recent fiscal quarter (fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting; and

5. the Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to our auditors and to the audit committee of our board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect our ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	11-28-06	/s/ Steven M. Caspers
		Executive Vice President and Chief Financial Officer

EX-31.3

EXHIBIT 31.3

CERTIFICATION

I, Allen E. Larson, certify that:

1. I have reviewed this annual report on Form 10-K of Minn-Dak Farmers Cooperative;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in our internal control over financial reporting that occurred during our most recent fiscal quarter (fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting; and

5. the Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to our auditors and to the audit committee of our board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect our ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	11-28-06	/s/ Allen E. Larson
		Controller and Chief Accounting Officer

EX-32.1

EXHIBIT 32.1

906 CERTIFICATION

The undersigned certify pursuant to 18 U.S.C. § 1350, that:

(1) The accompanying Annual Report on Form 10-K for the period ended August 31, 2006, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the accompanying Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 28, 2006	/s/ David H. Roche
	President and
	Chief Executive Officer
	/s/ Steven M. Caspers
	Executive Vice President and
	Chief Financial Officer