Minn Dak Farmers Cooperative 10-Q 2007 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: February 28, 2007

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 AND 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 or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)

7525 Red River Road Wahpeton, North Dakota	58075
(Address of principal executive offices)	(Zip Code)

(701) 642-8411

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 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, and (2) has been subject to such filing requirements for the past 90 days.

YES x NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES o NO x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO x

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

Class of Common Stock	Outstanding at April 10, 2007
$250 Par Value	484

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.

PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

MINN-DAK FARMERS COOPERATIVE

CONSOLIDATED BALANCE SHEETS

ASSETS

(In Thousands)

	Feb 28, 2007 (Unaudited)			Aug 31, 2006 (Audited)
ASSETS
CURRENT ASSETS:
Cash	$	108		$	224
Receivables:
Trade accounts		15,426			15,141
Growers		2			4,552
Advances to affiliates		714			—
Other		3			110
		16,145			19,803
Inventories:
Refined sugar, in-process sugar, pulp and molasses to be sold on a pooled basis		92,603			20,223
Non-member refined sugar		16			35
Sugarbeets		27,530			2,018
Yeast		156			166
Materials and supplies		7,343			7,116
		127,648			29,558
Deferred charges		485			1,506
Prepaid expenses		4,873			575
Other		4,202			436
Deferred income tax asset		607			607
Total current assets		154,068			52,709
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements		24,637			24,637
Buildings		37,474			37,474
Factory equipment		134,604			134,313
Other equipment		3,650			3,954
Construction in progress		2,566			933
		202,931			201,311
Less accumulated depreciation		(107,899	)		(103,991	)
		95,032			97,320
OTHER ASSETS:
Investment in stock of other corporations, unconsolidated marketing subsidiaries and other cooperatives		10,788			11,017
Other		1,776			2,083
		12,564			13,100
TOTAL ASSETS:	$	261,664		$	163,129

See Notes to Consolidated Financial Statements.

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
(In Thousands)

	Feb 28, 2007 (Unaudited)		Aug 31, 2006 (Audited)
LIABILITIES AND MEMBERS’ INVESTMENT
CURRENT LIABILITIES:
Short-term notes payable	$	68,550	$	14,445
Current portion of long-term debt and capital leases		2,567		2,565
Current portion of bonds payable		1,725		1,665
		4,292		4,230
Accounts payable:
Trade		1,613		2,069
Growers		36,426		14,483
		38,039		16,552
Advances from affiliates		—		533
Accrued liabilities		3,394		2,924
Total current liabilities		114,275		38,684
LONG-TERM DEBT AND CAPITAL LEASES, NET OF CURRENT PORTION		18,663		20,363
BONDS PAYABLE		16,290		17,415
LONG TERM DEFERRED TAX LIABILITY		1,722		1,840
OTHER		877		877
COMMITMENTS AND CONTINGENCIES
Total liabilities		151,827		79,179
MEMBERS’ INVESTMENT:
Preferred stock:
Class A – 100,000 shares authorized, $105 par value;
72,200 shares issued and outstanding		7,581		7,581
Class B – 100,000 shares authorized, $75 par value;              72,200 shares issued and outstanding		5,415		5,415
Class C – 100,000 shares authorized, $76 par value;
72,200 shares issued and outstanding		5,487		5,487
		18,483		18,483
Common stock, 600 shares authorized, $250 par value;
issued and outstanding, 484 shares at February 28,
2007 and 480 shares at August 31, 2006		121		120
Paid in capital in excess of par value		32,094		32,094
Unit retention capital		—		—
Qualified allocated patronage		—		—
Nonqualified allocated patronage		51,955		26,077
Retained earnings		7,184		7,176
		109,837		83,950
	$	261,664	$	163,129

See Notes to Consolidated Financial Statements.

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)

	Three Months Ended February 28,						Six Months Ended February 28,
	2007			2006			2007			2006
REVENUE:
Sales of sugar, co-products and yeast, net of discounts	$	64,504		$	40,660		$	111,886		$	83,053
Changes in finished goods inventory and in-process sugar at NRV		28,873			29,490			72,380			37,083
Other income		29			53			53			99
		93,406			70,203			184,319			120,235
EXPENSES:
Production costs of sugar, in-process sugar,         co-products and yeast sold		21,650			19,685			40,389			34,245
Sales and distribution costs		10,339			6,999			18,713			15,330
General and administrative		1,853			1,636			3,124			3,127
Interest		1,550			979			2,319			1,661
Loss (Gain) on disposition of property and equipment		(2	)		27			(2	)		26
		35,390			29,326			64,543			54,389
NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS    BEFORE MINORITY INTEREST	$	58,016		$	40,877		$	119,776			65,847
MINORITY INTEREST IN INCOME OF SUBSIDIARIES		—			(33	)		—			(84	)
NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS	$	58,016		$	40,844		$	119,776		$	65,763
DISTRIBUTION OF NET PROCEEDS:
Credited to member’s investment:
Components of net income:
Income from non-member business	$	4		$	136		$	8		$	339
Patronage income		11,061			10,286			25,878			14,021
Net income credited to member’s investment		11,065			10,422			25,886			14,360
Allocated costs of sugarbeets paid or payable to growers for production to date		46,951			30,422			93,890			51,403
NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS	$	58,016		$	40,844		$	119,776		$	65,763

See Notes to Consolidated Financial Statements.

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

	Six Months Ended February 28,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Income allocated to members’ investment	$	25,886		$	14,360
Add (deduct) noncash items:
Depreciation and amortization		4,112			3,932
Equipment disposals – (gain)/loss		(2	)		26
Net income allocated from unconsolidated marketing subsidiaries		(8	)		(5	)
Minority interest in equity of subsidiaries		—			84
Changes in operating assets and liabilities:
Accounts receivable and advances		3,125			3,346
Inventory and prepaid expenses		(106,154	)		(58,987	)
Deferred charges and other assets		1,344			1,392
Accounts payable, accrued liabilities and other liabilities		25,576			13,890
Net cash used in operating activities		(46,121	)		(21,962	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of property, plant and equipment		2			2
Capital expenditures		(1,644	)		(2,070	)
Net proceeds from patronage refunds and equity revolvements		—			209
Issuance of notes receivable		(55	)		—
Restricted bond fund investment		—			67
Net cash used in investing activities		(1,697	)		(1,792	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of short-term debt		54,105			31,700
Payment of long-term debt and capital leases		(2,762	)		(3,410	)
Payment of financing fees		(261	)		(289	)
Payment of unit retains and allocated patronage		(3,380	)		(4,542	)
Dividends paid to minority shareholder		—			(250	)
Net cash provided by financing activities		47,702			23,209
NET DECREASE IN CASH		(116	)		(545	)
CASH, BEGINNING OF YEAR		224			651
CASH, END OF QUARTER	$	108		$	106
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest	$	2,117		$	1,516
Income taxes, net of refunds	$	112		$	93

MINN-DAK FARMERS COOPERATIVE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The consolidated financial statements of the Company and that of its subsidiary company Minn Dak Yeast Company (“Minn Dak Yeast”) for the six-month periods ended February 28, 2007 and 2006 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, contained in the Company’s Annual Report to Stockholders previously submitted in the Company’s Annual 10-K for the fiscal year ended August 31, 2006. The results of operations for the six months ended February 28, 2007 are not necessarily indicative of the results for the entire fiscal year ending August 31, 2007.

2. Inventories of refined sugar, in-process sugar, 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 in-process sugar, 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. Pooled product inventories will normally increase to a peak valuation at the end of the processing campaign and decrease to a low point of valuation at or near fiscal year end.

3. Prepaid expenses at February 28, 2007 total $4.9 million compared to $0.6 million at August 31, 2006. This increase of $4.3 million is attributable to prepayments for sugarbeet seed that will be received and resold to growers in April and May of 2007. Other Current Assets at February 28, 2007 total $4.2 million, an increase of $3.8 million over August 31, 2006. The increase consists entirely of the value of purchased sugar allocations acquired from other sugarbeet processors that will be used to cover sugar production during the allocation year ending September 30, 2007.

4. In September 2006, and effective as of August 31, 2006, the Company declared a revolvement of the remaining 55% of the unit retains and allocated patronage for the 1996 crop totaling $2,490,804, 100% of the unit retains and allocated patronage for the 1997 and 1998 crops totaling $867,847 and $2,243 respectively, and approximately 6% of the 2000 crop unit retains and allocated patronage totaling $259,452, (there were no unit retains or allocated patronage for the 1999 crop). These amounts were accrued as of August 31, 2006 and paid to the stockholders on September 29, 2006.

5. In October 2006, the company allocated to members $4,220,538 of patronage from the 2005 crop in the form of non-qualified allocated patronage credits.

6. As of February 28, 2007, the Company had $113.4 million of seasonal credit capacity, with $68.6 million being utilized, leaving a remaining seasonal credit capacity of $44.8 million. As of August 31, 2006, the Company had $45.0 million of seasonal credit capacity, with $14.4 million being utilized, leaving a remaining seasonal credit capacity of $30.6 million. The increase in seasonal debt from August 31, 2006 to February 28, 2007 is due to normal seasonal operations and the funding necessary to cover crop payments to growers from an above average sized crop.

7. In October 2006, the Company made the final payment to shareholders for the 2005-crop sugarbeets. The Company’s shareholders harvested 3,019,475 tons of sugarbeets from the 2006 crop, which created an estimated payment liability of $121.4 million. The Company’s initial payment for the 2006-crop sugarbeets, made in November of 2006, totaled $61.1 million. Subsequent payments of $23.9 million have been made to shareholders, leaving an estimated balance payable to shareholders of $36.4 million.

8. The Financial Accounting Standards Board has issued an amendment to Financial Accounting Standards No. 158, Employer’s Disclosure about Pensions and Other Post-Retirement Benefits. Such amendment requires additional disclosures to interim and annual financial statements, which are effective and adopted for the interim period ending February 28, 2007, but does not change the recognition requirements related to pensions and post-retirement benefits.

Components of Net Periodic Benefit Cost for the Six Months Ended February 28, 2007    (In 000’s)
	Pension Plan						Other Than Pension Plan
	2007			2006			2007		2006
Service Cost	$	491		$	429		$	0	$	0
Interest Cost		769			701			0		0
Expected return on plan assets		(681	)		(622	)		0		0
Amortization of prior service cost		29			44			0		0
Amortization of transition cost		0			0			0		0
Amortization of net (gain) loss		121			109			0		0
Net periodic benefit cost	$	729		$	660		$	0	$	0

As of the six months ended February 28, 2007, the Company has made $0.6 million of contributions vs. $0.6 million through the six months ended February 28, 2006. The Company anticipates contributing an additional $0.5 million to fund its pension plan in FY 2007 for a total of $1.1 million. Contributions in FY 2006 totaled $1.1 million.

9. 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 projected benefit obligation in the financial statement.

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 fiscal year ending August 31, 2006, 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 is required to recognize, and will adopt the provisions of, FAS 158 for its fiscal year ending August 31, 2007. The Company currently measures its plan’s liabilities as of May 31, 2006. However, the new measurement date for liability would be August 31, 2006, which will result in a one-time addition to liability equal to approximately one fourth of the Company’s annual pension liability accrual. The Company is expecting to adopt the new measurement date for its fiscal year ending August 31, 2009.

FAS 109 (FIN 48) Accounting for Uncertainty in Income Taxes – In July 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in tax provisions. Under FIN 48, the tax effects of a position should be recognized only if it is “more likely-than-not” to be sustained based solely on its technical merits as of the reporting date. FIN 48 also requires significant new annual disclosures in the notes to the financial statements. Fin 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Retroactive application is prohibited under FIN 48. The Company is required to adopt FIN 48 at the beginning of fiscal 2008. While the Company is currently evaluating the provisions of FIN 48, the adoption is not expected to have a material impact on its consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS
AND FINANCIAL CONDITION

OVERVIEW

The following discussion and analysis relates to the financial condition and results of operations of Minn-Dak Farmers Cooperative (“the Company”) for the three months and six months ended February 28, 2007 (the second quarter of the Company’s 2006-2007 fiscal year). The Company’s fiscal year runs from September 1 to August 31.

Any statements regarding future market prices, anticipated costs, agricultural results, operating results and other statements that are not historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. The words “expect”, “project”, “estimate”, “believe”, “anticipate”, “plan”, “intend”, “could”, “may”, “predict” and similar expressions are also intended to identify forward-looking statements. 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.

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 judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions. As the difficulty 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 judgment 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,” 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
Discount Rate	6.50%	6.50%
Expected return on plan assets	8.0%	8.0%
Rate of total Compensation Increase	4.3%	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 fiscal year ending August 31, 2006, 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 is required to recognize and will adopt the provisions of FAS 158 for its fiscal year ending August 31, 2007. The Company currently measures its plan’s liabilities as of May 31, 2006. However, the new measurement date for liability would be August 31, 2006, which will result in a one-time addition to liability equal to approximately one fourth of the Company’s annual pension liability accrual. The Company is expecting to adopt the new measurement date 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 judgments regarding the recoverability of deferred tax assets.

In July 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in tax provisions. The Company is required to adopt FIN 48 at the beginning of fiscal 2008. While the Company is currently evaluating the provisions of FIN 48, the adoption is not expected to have a material impact on its consolidated financial statements.

There have been no material changes to the Company’s critical accounting policies since the filing of its Annual Report on form 10-K for the year ended August 31, 2006.

RESULTS OF OPERATIONS

Comparison of the three months ended February 28, 2007 and February 28, 2006

In the section Distribution of Net Proceeds, payments to members for sugarbeets, net of unit retention capital, totaled $47.0 million, an increase of $16.5 million or 54.3%. For fiscal year 2007 the Company is projecting a payment to growers for sugarbeets totaling $121.4 million, which is $49.8 million or 69.5% more than the prior fiscal year. The increase in payments to members is primarily due to an increase of 1.2 million additional tons of sugarbeets harvested or a 66.8% increase in the number of delivered tons of sugarbeets. The payment is based upon (i) an average delivered sugar content of 17.10%, (ii) a total sugarbeet crop to process of 3.0 million tons and (iii) the Company’s projected selling price for its sugar, which is currently estimated to be lower than the previous year.

Revenues for the quarter ended February 28, 2007 were comprised of Sugar 86%, Pulp 7%, Molasses 4% and Yeast 3%.

Revenue and inventory changes for the three months ended February 28, 2007 increased $23.2 million from the 2006 period. Revenue from the sale of finished goods increased $23.8 million and the change in the value of inventories decreased $0.6 million.

Revenue from the sale of sugar increased $19.0 million, or 57.7% reflecting a 45.2% increase in volume and a 12.5% increase in the sales price for sugar. The volume increase was due to the production of more sugar from the larger sugarbeet crop. In both periods, prices were higher than historical norms due to hurricane related supply shortages in late 2005. The three-month period ended February 28, 2007 contained a higher percentage of these higher priced, hurricane related sales than did the February 2006 period.

Revenue from dried pulp sales increased $2.0 million or 60.5%, reflecting a 65.5% increase in sales volume and a 5.0% decrease in the average gross selling price. The increase in volume is primarily the result of a larger crop. Volume to the domestic market increased by 50% and export volumes were also higher during the quarter. The decrease in average gross selling price was due to a higher percentage of the volume being sold in lower return markets for the three months ended February 28, 2007 versus the same period last year.

Revenue from molasses sales increased $1.7 million or 89.9%, reflecting a 62.5% increase in sales volume and a 27.4% increase in the average gross selling price. The increase in volume is primarily the result of a larger crop. Sugarbeet molasses prices continued to benefit from tight global supplies of cane and the reduction of sugarbeet molasses production in the European Union.

Revenues from yeast sales increased $0.9 million or 42.4%, reflecting a 27.1% increase in the average selling price and a 15.3% increase in the sales volume. The average selling price for the quarter ending February 28, 2006 was based upon a contract formula between Minn Dak Yeast and its marketing and equity partner, Sensient Technologies Corp., whereby average selling prices to customers along with average costs of production are taken into account in establishing the price Sensient pays Minn Dak Yeast for product. For the quarter ending February 28, 2007 the Company owned 100% of Minn Dak Yeast and the formula involving Sensient was terminated, and as a result, sales are recorded at the customer selling price (market price). Also, marketplace prices are somewhat higher, a reflection of much higher factory input and freight costs experienced by yeast suppliers, necessitating some pass-through of these costs to customers. Volume increases resulted from increased demand from existing customers.

The other contributing factor to the change in revenues results from the increase in finished goods inventories. The increase in the value of finished goods inventories for the three months ended February 28, 2007 amounted to $28.9 million or $0.6 million less than the increase in the value of finished goods inventories for the three months ended February 28, 2006.

In the consolidated Statement of Operations, Expenses section, production costs of sugar, in-process sugar, co-products and yeast totaled $21.6 million, $2.0 million or 10.0% more than the prior year. The increase is mainly attributable to higher volumes of production. Marketing costs totaled $10.3 million, $3.3 million or 47.7% more than the prior year. The increase in marketing costs is primarily volume related.

Comparison of the six months ended February 28, 2007 and February 28, 2006

In the section Distribution of Net Proceeds, payments to members for sugarbeets, net of unit retention capital, totaled $93.9 million, an increase of $42.5 million or 82.7%. For fiscal year 2007 the Company is projecting a payment to growers for sugarbeets totaling $121.4 million, which is $49.8 million or 69.5% more than the prior fiscal year. The increase in payments to members is primarily due to an increase of 1.2 million additional tons of sugarbeets harvested or a 66.8% increase in the number of delivered tons of sugarbeets. The payment is based upon (i) an average delivered sugar content of 17.10%, (ii) a total sugarbeet crop to process of 3.0 million tons and (iii) the Company’s projected selling price for its sugar, which is currently estimated to be lower than the previous year.

Revenues for the six months ended February 28, 2007 were comprised of Sugar 88%, Pulp 6%, Molasses 3% and Yeast 3%.

Revenue and inventory changes for the six months ended February 28, 2007 increased $64.1 million from the 2006 period. Revenue from the sale of finished goods increased $28.8 million and the change in the value of inventories increased $35.3 million.

Revenue from the sale of sugar increased $21.8 million, or 31.5% reflecting a 16.1% increase in volume and a 15.4% increase in the sales price for sugar. The volume increase was primarily due to the production of more sugar from the larger sugarbeet crop. In both periods, prices were higher than historical norms due to hurricane related supply shortages in late 2005. The six-month period ended February 28, 2007 contained a higher percentage of these higher priced, hurricane related sales than did the February 2006 period.

Revenue from dried pulp sales increased $2.4 million or 38.4%, reflecting a 39.0% increase in sales volume and a 0.6% decrease in the average gross selling price. The increase in volume is primarily the result of a larger crop and the earlier start of processing. Volume to the domestic market increased by 47%, while export volumes increased by 80%. The modest decrease in gross selling price was due to slightly lower prices in Asia and Europe over the same period last year.

Revenue from molasses sales increased $2.6 million or 79.6%, reflecting a 50.1% increase in sales volume and a 29.5% increase in the average gross selling price. The increase in volume is primarily the result of a larger crop and the earlier start of processing. Sugarbeet molasses prices continued to benefit from tight global supplies of cane and the reduction of sugarbeet molasses production in the European Union.

Revenues from yeast sales increased $1.9 million or 45.5%, reflecting a 31.1% increase in the average selling price and a 14.4% increase in the sales volume. The average selling price for the six months ended February 28, 2006 was based upon a contract formula between Minn Dak Yeast and its marketing and equity partner, Sensient Technologies Corp., whereby average selling prices to customers along with average costs of production are taken into account in establishing the price Sensient pays Minn Dak Yeast for product. For the six months ending February 28, 2007 the Company owned 100% of Minn Dak Yeast and the formula involving Sensient was terminated, and as a result, sales are recorded at the customer selling price (market price). Also, marketplace prices are somewhat higher, a reflection of much higher factory input and freight costs experienced by yeast suppliers, necessitating some pass-through of these costs to customers. Volume increases resulted from increased demand from existing customers.

The other contributing factor to the change in revenues results from the increase in finished goods inventories. The increase in the value of finished goods inventories for the six months ended February 28, 2007 amounted to $72.4 million or $35.3 million more than the increase in the value of finished goods inventories for the six months ended February 28, 2006. The primary cause of change in finished goods inventories is volume related. The Company began its campaign September 1, 2006 vs. October 1, 2005; in addition, the daily throughput of the Company has been at a higher level than in previous years.

In the consolidated Statement of Operations, Expenses section, production costs of sugar, in-process sugar, co-products and yeast totaled $40.4 million, $6.1 million or 17.9% more than the prior year. The increase is mainly attributable to the September 1, 2006 plant start-up vs. the October 1, 2005 plant start-up. Marketing costs totaled $18.7 million, $3.4 million or 22.1% more than the prior year. The higher marketing costs are the result of higher sugar volumes and the change in marketing costs for Minn-Dak Yeast resulting from the termination of the Sensient marketing agreement.

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, all three 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 financing has been provided by Co-Bank (the “Bank”). Due to the record size 2006 crop of sugarbeets, in November the Company increased its short-term line of credit with the Bank for the remaining calendar year 2006 through the scheduled renewal in May 2007. An 8-K filed December 11, 2006 inadvertently referred to the increased credit line as $70.0 million vs. the correct number of $75.0 million.

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 February 28, 2007 the Company was in compliance with its loan agreement covenants with the Bank.

Working Capital as of February 28, 2007 totals $39.8 million compared to $14.0 million at August 31, 2006, an increase of $25.8 million for the period. Increased working capital is a result of normal financing, operational and capital expenditure activities of the Company. The Company’s normal working capital position pattern is to increase during the first, second and third quarters of its fiscal year and decline during the fourth quarter. The fourth quarter decline is normally attributed to inter-campaign maintenance costs, a higher level of capital spending during the non-operating period, and the recording of shareholder equity revolvements.

The targeted working capital for August 31, 2007 is approximately $12.9 million dollars and, in the Company’s opinion, will be attained. The Company funds its capital expenditure and debt retirement needs primarily from operating activities. The Company has approximately six years of Bank long-term debt remaining and it has two tax-exempt bond issues, one with approximately four years remaining and one with approximately twelve years remaining.

The primary factor for the change in the Company’s financial condition for the six months ended February 28, 2007 was due to the seasonal needs of the 2006/2007 sugarbeet-processing season. The majority of the seasonal borrowing needs is the result of the scheduled $85.0 million in payments to growers for the 2006-crop.The cash used to provide for operations of $46.2 million and investing activities of $1.7 million was funded through financing activities of $47.9 million. The net cash provided through financing activities of $47.7 million was primarily provided through proceeds from the issuance of short-term debt of $54.1 million, offset by payment of long-term debt of $2.7 million, financing fees of $0.3 million and payment of unit retains and allocated patronage of $3.4 million.

Below is a table detailing the Company’s loan and lease payment obligations:

Contractual Obligations	Total		Less Than 1 Year		1 - 3 Years		4 –5 Years		After 5 Years
Long-Term Debt	$	20.8 MM	$	2.5 MM	$	10.0 MM	$	6.6 MM	$	1.7 MM
Bonds Payable	$	18.0 MM	$	1.7 MM	$	6.2 MM	$	1.9 MM	$	8.2 MM
Operating Leases	$	3.6 MM	$	1.2 MM	$	2.4 MM		0		0
Unconditional Purchase Obligations		0		0		0		0		0
Other Long-Term Obligations		0		0		0		0		0
Total Contractual Cash Obligations	$	42.4 MM	$	5.4 MM	$	18.6 MM	$	8.5 MM	$	9.9 MM

Capital expenditures for the six months ended February 28, 2007 totaled $1.6 million. Capital expenditures for fiscal year 2007 are currently estimated at $5.5 million.

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 17.10%, or 1% below the most recent five years’ average of 17.26%. Because of the high volume crop, the Company is projecting the sugar production from the 2006-crop to be 34% more than the most recent five years’ average. Very good growing conditions at the start of, and at the end of, the growing season resulted in the harvesting of the high-volume crop by the Company’s grower-shareholders. The Company’s initial sugarbeet payment estimate totals $40.21 per ton or $.13484408 per harvested/bonus pound of sugar, with the final sugarbeet payment to be determined in October of 2007.

Factory operations currently show an average daily sugarbeet slice rate well above long-term averages. All of the Company’s remaining unprocessed sugarbeets have been frozen through the use of forced air ventilation. As of the date of this report, the Company anticipates that it will be able to process all remaining sugarbeets. Sugar production for the year is expected to exceed the Company’s original operating plan. The Company estimates it will be slicing sugarbeets until May 15, 2007, which will make this the longest campaign on record.

Based on marketing information provided by United Sugars Corporation, the Company’s sugar marketing subsidiary, estimates of the average net selling price of the Company’s sugar will be less than that of the prior year because of the high volume available for sale (domestic production plus foreign imports) relative to the amount of estimated domestic consumption. The higher supply of sugar available to the domestic marketplace results from much higher levels of imported foreign sugar and a larger-than-average domestic beet sugar crop. The high levels of imported foreign sugar results from the United States Department of Agriculture’s (“USDA”) determination that the domestic marketplace was in need of these high levels of imports in order to have adequate sugar to meet consumption requirements. The domestic sugar industry made numerous attempts to encourage the USDA to announce lower, more reasonable levels of sugar quotas, but to no avail. This forward-looking material is based upon the Company’s results of the processing of the 2006 sugarbeet crop and the expected revenues and expenditures for the remainder of fiscal year 2007. Results from operations could differ materially from the Company’s current estimate as a result of various estimates, such as the cost to the Company of its inter-campaign maintenance and the final net selling prices for its finished goods.

The 2002 Farm Bill provides for marketing allocations for sugar that could potentially restrict the company’s ability to market all the sugar it produces. Because of the amount of sugar allocation available to the Company, and because of the expected amount of sugar to be produced from the 2006 sugarbeet crop, the Company believes it has obtained the majority of additional marketing allocations necessary to market all of its sugar domestically during the fiscal year. The Company is also studying other ways in which to handle any sugar produced that will exceed its marketing allocations for the current year and will ultimately choose the most viable option for the Company. The Company has sold sugar without allocations and repurchased sugar with allocations to/from another sugarbeet company for the allocation period ending September 30, 2007 in sufficient quantities to resolve the majority of the Company’s needs. The Company’s additional allocation needs will be highly dependent upon the final outcome of the 2006-crop production; the ability to acquire additional allocation capacity, independently from the USDA, is halted after April 30, 2007 for the 2006-crop. The USDA may provide additional allocations, reduce allocations or shift allocations from one sugarbeet processor to another sugarbeet processor prior to September 30, 2007.

Also, there are no assurances that the Company will be able to secure enough marketing allocations for crop year 2007 (the last crop year covered by the current Farm Bill) to market all of the production from the that crop. The Company will apply the same level of assessment to that crop in order to determine the correct direction for the Company should there be sugar produced above the marketing allocations available to it.

ESTIMATED FISCAL YEAR 2008 INFORMATION

On September 26, 2006, the Company’s Board of Directors determined that the planting level for the 2007 crop will be 150% of member preferred shares plus a 2% measuring tolerance for a total planting of 152% of member preferred shares. The 2006 crop planted acres were approved by the Board of Directors at the level of 162% of member-preferred shares.

OTHER INFORMATION

Federal programs, regulations and trade agreements

Provisions of the current Farm Bill and existing trade agreements between the United States (“U.S.”) and various foreign countries regulate domestic and imported sugar sales in the U.S. Currently imports provide, on average, about 22% of the total domestic consumption of sugar in the U.S., and it is the opinion of the Company and the sugar industry as a whole that any significant increase in the amount of imported sugar to the U.S. marketplace will result in serious adverse sugar pricing consequences. 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 are realized, could negatively impact the Company’s profitability. Many of the countries included in these agreements are major sugar producers and exporters. If increases in guaranteed access or reductions in sugar tariffs are included in these agreements, excess sugar from these regions could enter the U.S. market and put pressure on domestic sugar prices.

The current Farm Bill provides price support provisions for sugar. However, if that price support program, including the Tariff Rate Quota system for imported sugar, 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 may result in 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 beet payment to the shareholders and the Company earnings. This, in turn, could impact the Company’s continued viability and the desirability of growing sugarbeets for delivery to the Company.

North American Free Trade Agreement

The North American Free Trade Agreement (NAFTA) governs sweetener trade between the United States and Mexico. Under an agreement reached between the two countries on July 27, 2006, Mexico is eligible to ship, tariff-free, 250,000 metric tons of raw sugar to the United States in fiscal year 2007 and up to an additional 250,000 metric tons in the first quarter of fiscal year 2008. Reciprocal quantities of high fructose corn syrup may be shipped from the United States to Mexico during the respective time periods. Under the NAFTA, tariffs on over-quota imports of sugar from Mexico are set to expire by January 1, 2008. For 2007, the over-quota tariff for raw cane sugar stands at 1.51 cents per pound. Excessive imports of Mexican sugar could cause material harm to the U.S. sugar market. The Company does not know the extent to which Mexico will fulfill its tariff-free or over-quota export opportunities in 2007, or how much sugar it may export to the U.S. starting in 2008 and beyond.

Regional and Bilateral Free Trade Agreements

The United States government has negotiated or is currently negotiating free trade agreements with a number of countries and regions that are major producers of sugar. The primary agreements under consideration that affect sugar, to the Company’s knowledge, are the Colombia Free Trade Agreement; the Peru Free Trade Agreement; the Thailand Free Trade Agreement; the Panama Free Trade Agreement; the Free Trade Area of the Americas; and the South African Customs Union Free Trade Agreement. Portions of these agreements have been completed. The Peru Free Trade Agreement and the Colombia Free Trade Agreement have been completed and signed. The Company expects that these two trade agreements may be brought before Congress for a vote in 2007.

The Doha Round negotiations of the World Trade Organization have stalled and it is unclear at this time when they will be revived. If the negotiations begin again, the outcome of any negotiated arrangement could have adverse consequences for the Company.

The U.S. sugar industry and the Company recognize the potential negative impact that would result if these trade agreements are entered into by the United States and are taking steps to attempt to manage the situation. The Company and the sugar industry intend to continue to focus significant attention on trade issues in the future.

Audit Committee, Sarbanes Oxley regulations

The Company’s Audit Committee and management are working toward meeting all required SEC documentation, certification and best business practices as required by federal legislation (the Sarbanes Oxley law). As the SEC adopts new rules and proposes future rules, the Company is positioning itself to continue being in compliance. 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 Company’s Audit Committee and management have been seeking guidance from the SEC and experts in the appropriate areas as needed.

The Company considers its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer to be its disclosure committee, responsible to the Audit Committee for presenting material facts relative to the financial statements and how they are to be disclosed in the SEC filings prior to those filings.

ITEM 3.    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 use of multi-year interest rate locks on various amounts and terms through its primary lender CoBank. This strategy allows the Company to project future interest costs and cash flows with a reasonable degree of accuracy.

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 fluctuation by forward purchasing the applicable foreign 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. Also, the Company did not experience any material changes in market rate exposures for the period ended February 28, 2007, that affect the quantitative and qualitative disclosures presented in its Quarterly Report on 10-Q for the period ending November 30, 2006.

ITEM 4.    CONTROLS AND PROCEDURES

The Company has carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic SEC filings relating to the Company (including its consolidated subsidiary).

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these internal controls subsequent to the date of our most recent evaluation. During the quarter the Company enhanced its internal controls over financial reporting through a formalization of the reconciliation of key accounts in the financial statements.

EXTERNAL RISK FACTORS THAT MAY AFFECT THE COMPANY

The company does not believe its external risk factors have changed materially since the filing of its Quarterly Report on Form 10-Q for the period ended November 30, 2006.

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

None

Item 2.    Changes in Securities

None

Item 3.    Defaults upon Senior Securities

None

Item 4.    Submission of Matters to a Vote of Security Holders

None

Item 5.    Other Information

None

Item 6.    Exhibits and Reports on Form 8-K

a)	Exhibits	Item #31.1	Section 302 Certification of the President & Chief Executive Officer
		Item #31.2	Section 302 Certification of the Executive Vice President & Chief Financial Officer
		Item #31.3	Section 302 Certification of the Controller & Chief Accounting Officer
		Item #32.1	Section 906 Certification of the Chief Executive Officer and Chief Financial Officer

Reports on Form 8-K

December 11, 2006:    On November 28, 2006 the Company increased its short-term line of credit that it has with its primary lender from $45 million to $70 million. The increased line of credit, which will be in place from November 28, 2006 through May 31, 2007, was necessary to cover the Company’s cash flow requirements associated with the size of the 2006 sugarbeet crop. The Company does not anticipate difficulty in servicing the larger line of credit with its lender.

SIGNATURES

Pursuant to the requirement 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
		(Registrant)
Date:	April 13, 2007	/s/   DAVID H. ROCHE
		David H. Roche President and Chief Executive Officer
Date:	April 13, 2007	/s/   STEVEN M. CASPERS
		Steven M. Caspers Executive Vice President and Chief Financial Officer