Minn Dak Farmers Cooperative 10-Q 2012 Q2 Quarterly report

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

FORM 10-Q

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: February 29, 2012

OR

o  TRANSITION REPORT PURSUANT TO SECTION 13 AND 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934

Commission file: No. 33-94644

MINN-DAK FARMERS COOPERATIVE

(Exact named 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)

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.

YESx NOo

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.

YESx NOo

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filero Accelerated Filero Non-Accelerated Filerx Smaller Reporting Coo

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

YESo NOx

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 13, 2012
$250 Par Value		480

Minn-Dak Farmers Cooperative (“The Company” or the “Registrant”) 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.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)

	Feb 29, 2012 (Unaudited)			Aug 31, 2011 (Audited)
ASSETS
CURRENT ASSETS
Cash	$	146		$	46
Current bond trust		—			1,644
Receivables
Trade accounts		14,723			19,288
Patrons		—			15,460
Receivable from affiliates		5,465			4,456
Other receivables		109			109
Total Receivables		20,297			39,313
Inventories
Refined sugar, in-process sugar, pulp and molasses to be sold on a pooled basis		132,708			38,834
Non-member refined sugar		2,409			4,730
Sugarbeet inventory		10,935			—
Yeast		177			157
Materials and supplies		13,149			15,761
Total Inventories		159,378			59,482
Deferred charges		847			1,693
Prepaid expenses		2,049			2,111
Prepaid beet seed		8,642			—
Current deferred income tax asset		27			11
Total Current Assets		191,386			104,300
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements		29,622			28,742
Buildings		37,964			37,883
Factory/Agricultural equipment		163,884			159,371
Other equipment		6,633			6,620
Capitalized leases		3,331			3,353
Construction in progress		11,120			13,917
Total Property, Plant and Equipment		252,554			249,886
Less accumulated depreciation		(149,176	)		(144,527	)
Net Property, Plant and Equipment		103,378			105,359
OTHER ASSETS
Investment in other cooperatives and other corporations		10,721			10,921
Investment in unconsolidated marketing subsidiaries		226			181
Beet chemicals		3,388			4,063
Bond trust		—			1,912
Bond financing costs - net of amortization		282			297
Other long-term assets		2,053			3,446
Total Other Assets		16,670			20,820
TOTAL ASSETS	$	311,434		$	230,479

See Notes to Consolidated Financial Statements.

3

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND PATRONS’ INVESTMENT
(In Thousands)

	Feb 29, 2012 (Unaudited)			Aug 31, 2011 (Audited)
LIABILITIES AND PATRONS’ INVESTMENT
CURRENT LIABILITIES
Short-term notes payable	$	76,812		$	40,646
Current portion of long-term debt and capital leases		2,991			3,012
Accounts payable:
Trade		7,734			18,459
Checks outstanding		1,009			928
Patrons		48,765			24,377
Total Accounts Payable		57,508			43,764
Income tax		69			—
Payable to affiliates		1,503			1,674
Accrued liabilities		9,190			3,788
Total Current Liabilities		148,073			92,884
LONG-TERM DEBT, CAPITAL LEASES, AND BONDS PAYABLE, NET OF CURRENT PORTION		40,997			42,901
LONG-TERM DEFERRED INCOME TAX LIABILITY		133			177
OTHER LONG-TERM LIABILITIES		657			753
LONG-TERM PENSION LIABILITY		16,115			17,050
COMMITMENTS AND CONTINGENCIES
Total Liabilities		205,975			153,765
PATRONS’ 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
Total Preferred stock		18,483			18,483
Common stock, 600 shares authorized, $250 par value; issued and outstanding, 476 shares at February 29, 2012 and 476 shares at August 31, 2011		119			119
Paid in capital in excess of par value		32,094			32,094
Unit retention capital		3,104			3,104
Nonqualified allocated patronage		57,004			28,299
Accumulated other comprehensive loss-interest swap		(951	)		(903	)
Accumulated other comprehensive loss-pension		(15,541	)		(15,571	)
Retained earnings		11,147			11,089
Total Patrons’ Investment		105,459			76,714
TOTAL LIABILITIES AND PATRONS’ INVESTMENT	$	311,434		$	230,479

See Notes to Consolidated Financial Statements.

4

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

	Three-Months Ended				Six-Months Ended
	Feb 29, 2012		Feb 28, 2011		Feb 29, 2012		Feb 28, 2011
REVENUE:
Sales of sugar, co-products and yeast, net of discounts	$	70,936	$	82,988	$	147,797	$	157,367
Changes in finished goods inventory and in-process sugar at NRV		63,500		19,346		93,874		69,863
Total Revenue		134,436		102,334		241,671		227,230
EXPENSES:
Production costs of sugar, in-process sugar, co-products and yeast sold		24,494		23,875		48,799		53,379
Sales and distribution costs		10,486		13,234		28,291		28,323
General and administrative		2,247		2,069		4,201		4,093
Interest		599		759		1,235		1,340
(Gain) loss on disposition of property and equipment		1		—		4		(1	)
Total Expenses		37,827		39,937		82,530		87,134
TOLLING & OTHER REVENUE		630		17		808		190
NET PROCEEDS RESULTING FROM PATRON AND NON-PATRON BUSINESS BEFORE INCOME TAXES		97,239		62,516		159,949		140,286
INCOME TAX BENEFIT (EXPENSE)		4		17		21		39
NET PROCEEDS RESULTING FROM PATRON AND NON-PATRON BUSINESS	$	97,243	$	62,533	$	159,970	$	140,325
DISTRIBUTION OF NET PROCEEDS
Credited to patrons’ investment
Components of net income
Income from non-patron business	$	31	$	21	$	58	$	44
Patronage income		21,288		10,100		28,706		19,810
Net income credited to patrons’ investment		21,319		10,121		28,764		19,854
Allocated costs of sugarbeets paid or payable to patrons for production to date	$	75,924	$	52,412	$	131,206	$	120,471
NET PROCEEDS RESULTING FROM PATRON AND NON-PATRON BUSINESS	$	97,243	$	62,533	$	159,970	$	140,325

See Notes to Consolidated Financial Statements.

5

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

	Six-Months Ended
	Feb 29, 2012			Feb 28, 2011
OPERATING ACTIVITIES
Net income credited to patrons’ investment	$	28,764		$	19,854
Accumulated other comprehensive (loss)-interest swap		(48	)		—
Add (deduct) noncash items:
Depreciation		4,812			4,341
Amortization		251			246
(Gain) loss on property and equipment disposals		4			(1	)
(Gain) Loss allocated from unconsolidated marketing subsidiaries		(14	)		1
Noncash portion of patronage capital credits		(212	)		(194	)
Deferred income taxes		(60	)		(55	)
Changes in operating assets and liabilities
Accounts receivable and advances		19,015			2,500
Inventory and prepaid expenses		(108,476	)		(110,098	)
Deferred charges and other assets		2,677			765
Accounts payable, accrued liabilities and other liabilities		24,125			35,015
Net cash (used in)/provided by operating activities		(29,162	)		(47,626	)
INVESTING ACTIVITIES
Proceeds from disposition of property, plant and equipment		—			1
Tax exempt bond trust draw		3,556			6,782
Capital expenditures		(2,849	)		(6,318	)
Patronage received from other coops		413			412
Net cash (used in)/provided by investing activities		1,120			877
FINANCING ACTIVITIES
Net proceeds from issuance of short-term debt		36,166			52,217
Checks outstanding		81			978
Payment of long-term debt and capital leases		(1,913	)		(1,901	)
Payment of financing fees		—			(390	)
Equity payment to estate		—			(10	)
Payment of allocated patronage		(6,192	)		(4,020	)
Net cash (used in)/provided by financing activities		28,142			46,874
NET INCREASE/(DECREASE) IN CASH		100			125
CASH, BEGINNING OF YEAR		46			129
CASH, END OF PERIOD	$	146		$	254
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for (Receipts from)
Interest	$	830		$	975
Income taxes, net of refunds	$	3		$	574
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Unit retain deductions from patron payable	$	—		$	3,108
Proceeds for bond issuance transferred to restricted investment	$	—		$	8,815

See Notes to Consolidated Financial Statements.

6

MINN-DAK FARMERS COOPERATIVE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
FEBRUARY 29, 2012 and FEBRUARY 28, 2011
(Unaudited)

1.	The consolidated financial statements of the Company and that of its wholly owned subsidiary companies Minn-Dak Yeast Company (“Minn-Dak Yeast”) and Link Acquisition Company LLC (“Link”) for the three-month and six-month periods ended February 29, 2012 and February 28, 2011 are unaudited and reflect all adjustments consisting 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 on Form 10-K for the fiscal year ended August 31, 2011. The results of operations for the three-month and six-month periods ended February 29, 2012 and February 28, 2011 are not necessarily indicative of the results for the entire fiscal year ending August 31, 2012.
2.	Inventories of refined sugar, in-process sugar, pulp and molasses to be sold on a pooled basis are valued at Net Realizable Value (“NRV”), while third-party purchased refined sugar to be sold on a pooled basis is valued at the lower of cost or market. Third-party refined sugar costs include product, delivery, poll adjustment, and refining fee costs. Inventory of yeast is valued at the lower of average cost or market. Materials and supplies (including conventional seed and chemicals) are valued at most recent purchase price that approximates cost. During the periods when sugarbeets are purchased from shareholder/patrons and/or non-members, but not yet converted into refined sugar or in-process sugar, that sugarbeet inventory is valued at patron and/or non-members payment cost. In valuing inventories at NRV, the Company, in effect sells the remaining inventory to the subsequent period’s 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.	In September 2011, and effective as of August 31, 2011, the Company revolved the remaining 76.0 percent of the allocated patronage for the fiscal year ended August 31, 2005 totaling $3,706,906 and 59.0 percent of the allocated patronage for the fiscal year ended August 31, 2006, totaling $2,485,193. In addition, for the fiscal period ending August 31, 2011 the Company revolved $23,830 of allocated patronage and $4,451 of unit retains to certain deceased members’ estates.
4.	In November 2011, the Company allocated to shareholders $6.2 million of patronage from the 2010-crop in the form of non-qualified allocated patronage credits.
5.	Short term credit capacity as of February 29, 2012 totaled $108.3 million; $41.6 million has been borrowed from CoBank (the “Bank”) and $35.2 million from the USDA Commodity Credit Corporation “CCC”. That leaves the Company with a remaining short-term credit capacity totaling $31.5 million. The increase in seasonal debt from August 31, 2011 to February 29, 2012 is due to normal seasonal operations for a 1.95 million ton crop.

Source	Capacity		Utilized		Unused Capacity
	(In Millions)
Co-Bank	$	65.0	$	41.6	$	23.4
CCC		43.3		35.2		8.1
Total	$	108.3	$	76.8	$	31.5

6.

On December 22, 2011, the Company and the Bank agreed to establish the seasonal line of credit from January 1, 2012 through December 31, 2012 at $65.0 million. The letters of credit were also renewed on December 22, 2011 through December 31, 2012.

7.

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

7

The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Includes the following inputs:
	•	Quoted prices in active markets for similar assets or liabilities
	•	Quoted prices for identical or similar assets or liabilities in markets that are not active
	•	Or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.
•	Long-Term Debt, Inclusive of Current Maturities - Based upon discounted cash flows and current borrowing rates with similar maturities, the book value of the Bank debt of approximately $14.1 million and $15.8 million compares to fair values of $14.1 million and $15.8 million respectively as of February 29, 2012 and August 31, 2011. Also included in the Company’s long-term debt was $28.1 million and $28.1 million in tax exempt bonds, in comparison to the fair value of $28.1 million and $28.1 million respectively as of February 29, 2012 and August 31, 2011.
•	Proceeds for Bond Issuance Transferred to Restricted Investment –included in the Company’s current bond trust and restricted long-term other assets was $0.0 million and $3.6 million in comparison to the fair value of $0.0 million and $3.6 million respectively as of February 29, 2012 and August 31, 2011.
•	Investments in Other Cooperatives and Other Corporations - The Company believes it is not practical to estimate the fair value of these investments without incurring excessive costs because there is no established market for these securities and equity interests, and it is inappropriate to estimate future cash flows which are largely dependent on future earnings of these organizations.
•	Investments in Unconsolidated Marketing Subsidiaries - The Company believes it is not practical to estimate the fair value of these investments without incurring excessive costs because there is no established market for these securities and equity interests, and it is inappropriate to estimate future cash flows which are largely dependent on future earnings of these organizations.
•	Interest Rate Contracts — Based on the zero coupon method in which the term, notional amount, and repricing date of the interest rate swap match the term, re-pricing date, and principal amount of the interest-bearing liability on which the hedging interest payments are due, the fair value of the interest rate contracts as of February 29, 2012 was a liability of $1.0 million and August 31, 2011 was a liability of $0.9 million. The current portion of the liability ($0.3 million as of February 29, 2012 and $0.2 million as of August 31, 2011) is included in accrued liabilities and the long-term portion of the liability ($0.7 million as of February 29, 2012 and $0.7 million as of August 31, 2011) is included in other long-term liabilities. Inputs used to measure the fair value of the interest rate swap contracts are quoted prices in active markets for similar assets or liabilities and therefore are contained within level 2 of the fair value hierarchy. Because the critical terms of the swap contracts and the notes payable are the same, the swap contracts effectively hedge the risk of changes in interest payments. Due to this, the changes in the fair value of the swap contracts have been excluded from the statement of operations. Financial instruments recorded at fair value on a recurring basis are as follows:

8

Interest Rate Swaps (In Millions)						Fair Value of Liabilities as of February 29, 2012
Fiscal Year	Notional Amt.		Ave Interest Rate			Level 1		Level 2		Level 3		Total
2012	$	45.0 Million		0.663	%	$	—	$	0.1	$	—	$	0.1
2013	$	40.0 Million		1.607	%		—		0.4		—		0.4
2014	$	30.0 Million		2.305	%		—		0.3		—		0.3
2015	$	5.0 Million		3.685	%		—		0.2		—		0.2
Total						$	—	$	1.0	$	—	$	1.0

Interest Rate Swaps (In Millions)						Fair Value of Liabilities as of August 31, 2011
Fiscal Year	Notional Amt.		Ave Interest Rate			Level 1		Level 2		Level 3		Total
2012	$	30.0 Million		0.853	%	$	—	$	0.2	$	—	$	0.2
2013	$	25.0 Million		1.870	%		—		0.3		—		0.3
2014	$	15.0 Million		2.879	%		—		0.3		—		0.3
2015	$	5.0 Million		3.685	%		—		0.1		—		0.1
Total						$	—	$	0.9	$	—	$	0.9

8.	The Company’s shareholder/patrons harvested 1,954,638 tons of sugarbeets from the 2011-crop, which created a revised (in March 2012) estimated payment liability of $142.1 million. As a result of increased net sales, the estimate was revised to $72.72 per ton (average quality beets) or $0.24643011 per harvested/bonus extractible pound of sugar.
9.	The sugar beet industry and the Company have been or are currently involved in various litigation concerning the approval of Roundup Ready® sugarbeets for planting in 2012 and forward. The legal proceedings to date have resulted in the finding that, for the 2012-crop, it is legal for the Company’s shareholder/patrons to plant Roundup Ready® sugarbeet seed. However, the Company believes that there will continue to be legal challenges to the USDA’s partial deregulation of the Roundup Ready® sugarbeet seed. The ability of shareholder/patrons to plant Roundup Ready® sugarbeets in subsequent years will be based upon actions by the USDA, which may be subject to further challenge by certain groups who oppose the partial deregulation.
	Environmental law restrictions on the use of Roundup Ready® sugarbeet seeds or other restriction relating to sugarbeet seeds or herbicides could have a significant, negative financial impact on the Company and its shareholder/patrons.
	The Company has incurred $4.1 million in costs related to the raising of conventional sugarbeet seed. $0.7 million of the $4.1 million in cost was expensed in fiscal year 2012. The remaining $3.4 million in cost is reflected as other assets and the method of allocating these costs to the 2012 or 2013 crop has yet to be determined. Management believes these assets are not impaired as of February 29, 2012 and August 31, 2011.

9

10. The following schedule provides the components of Net Periodic Benefit Cost for the Six-Months Ended, February 29, 2012 and February 28, 2011.

(In 000’s)	Pension Plan						Other Than Pension Plan
	FY 2012			FY 2011			FY 2012		FY 2011
Service Cost	$	653		$	640		$	—	$	—
Interest Cost		1,050			996			—		—
Expected return on plan assets		(986	)		(833	)		—		—
Amoritzation of prior service cost		16			16			—		—
Amortization of transition cost		—			—			—		—
Amoritzation of net (gain) loss		442			542			—		—
Net periodic benefit cost	$	1,175		$	1,361		$	—	$	—

	Through the six-months ended February 29, 2012, the Company has made $2.4 million of contributions as compared to $0.4 million through the six-months ended February 28, 2011. The Company anticipates contributing $1.9 million in additional funds to its pension plan in Fiscal Year 2012, for a total of $4.3 million. Contributions in Fiscal Year 2011 totaled $1.8 million.
11.	Recently Issued Accounting Pronouncements:
	In December 2011 the FASB issued ASU 2011-11. The amendments in this Update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact of this accounting standard update.
	In December, 2011 the FASB issued ASU 2011-12 deferring the effective date for amendments to the presentation and reclassification of items out of accumulated other comprehensive income in ASU 2011-05. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In June, 2011, the FASB issued ASU 2011-5. The objective of this amendment is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect that this authoritative guidance will have any material effect on the Company’s financial statements as it only requires a change the format of the Consolidated Statements of Changes in Members’ Investment and Comprehensive Income.
12.	Change in Accounting Standards:
	There were no changes to Accounting Standards for the quarter ending February 29, 2012.
13.	Certain reclassifications of amounts previously reported have been made to the accompanying financial statements to maintain consistency between periods presented. The reclassification had no impact on net income or member’s equity.
14.	Subsequent Events:
	The Company has considered subsequent events through the date the financial statements were issued.

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

This Discussion should be read in conjunction with information contained in the Consolidated Financial Statements and Notes thereto and in the Company’s Annual Report on Form 10-K for fiscal year ended August 31, 2011.

OVERVIEW

The following discussion and analysis relates to the financial condition and results of operations of Minn-Dak Farmers Cooperative (the “Company” or the “Registrant”) for the three-month and six-month periods ended February 29, 2012 (the second quarter of the Company’s 2012 fiscal year). The Company’s fiscal year runs from September 1 to August 31.

10

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 risks, including those set forth in the Company’s reports filed with the Securities and Exchange Commission, including Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended August 31, 2011. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. These forward-looking statements are made as of the date of this report and the Company assumes no obligation to update such forward-looking statements, or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.

Critical Accounting Policies and Estimates

There have been no material changes to the Company’s critical accounting policies and estimates since the filing of its Annual Report on form 10-K for the year ended August 31, 2011.

ESTIMATED FISCAL YEAR 2012/ CROP YEAR 2011 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 2011 sugarbeet crop. Given the nature of the estimates required in connection with the payments to shareholder/patrons for their sugarbeets, this discussion includes forward-looking statements regarding the quantity of sugar to be produced from the 2011 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 shareholder/patrons harvested 1.95 million tons of sugarbeets from the 2011-crop, approximately 20.0 percent less than the most recent 5-year average. Sugar content of the 2011-crop was 5.0 percent above the average of the five most recent years. Due to the lower harvested tons and higher sugar content, the Company’s production of sugar from the 2011-Crop sugarbeets, after processing, but prior to the completion of granulation from thick juice, is expected to be 16.0 percent less than the average of the five most recent years of sugar production.

The Company’s initial sugarbeet payment estimate totaled $64.72 per ton or $0.2196174 per harvested /bonus extractible pound of sugar. As a result of increased net sales, the estimate has been revised to $72.72 per ton (average quality beets) or $0.24643011 per harvested/bonus extractible pound of sugar. This revised projected payment is 25.2 percent more than the final 2010-crop payment per ton and 24.5 percent more per pound of extractible sugar. The higher projected 2011-crop payment per ton results from higher sugar content in the sugarbeets, improved sugar prices, offset by some degree by; increased operating and fixed costs per ton, less total tons of beets processed, offset by less beet discards, versus the prior year. The price per pound of extractible sugar was diluted by 0.7 percent due to bonus sugar for the 2011-crop vs. 6.5 percent for the 2010-crop. Bonus sugar is an incentive payment to shareholder/patrons to deliver sugarbeets prior to main harvest. Harvest for the 2011-crop began on September 21, 2011 vs. the 2010-crop beginning on August 18, 2010.

As of the date of this report, the Company has taken into consideration key indicators of actual results vs. projections used for the revised sugarbeet payment estimate. Consideration has been given to beet inventory storage conditions, projected net selling prices, factory operation costs, and sugar, pulp and molasses production. No change in the revised estimated beet payment has resulted from this review. It is the Company’s policy to update its estimate of yearly crop payments only when a material change is sufficiently certain and the amount of such change is reasonably calculable.

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RESULTS OF OPERATIONS

Comparison of the three-months ended February 29, 2012 and February 28, 2011

In the Consolidated Statements of Operations, Distribution of Net Proceeds, allocated costs of sugarbeets paid or payable to shareholder/patrons for production to date totaled $75.9 million, an increase of $23.5 million or 44.9 percent from the prior year period. As of the date of this report, the Board of Directors has revised the estimated Fiscal 2012 payment to shareholder/patrons for sugarbeets to $142.1 million, which is $38.4 million or 21.3 percent less than the prior year.

The decrease in payments to shareholder/patrons is based upon (i) a total shareholder/patron sugarbeet crop to process of 1.95 million tons with no discarded sugarbeets which is a 37.1 percent decrease from the 2010-crop, (ii) an average delivered sugar-content of 17.61 percent, which is a 4.8 percent increase from the 2010-crop and (iii) the Company’s increased projected selling price for its sugar, pulp, molasses and yeast when compared to the previous year.

Sales for the three-month period ended February 29, 2012 were comprised of Sugar 79.8 percent, Pulp 11.0 percent, Molasses 4.5 percent and Yeast 4.7 percent.

Consolidated revenue for the three-month period ended February 29, 2012 from the sales of Sugar, Pulp, Molasses and Yeast as well as changes in finished goods inventory and in-process sugar at NRV, increased $32.1 million or 31.4 percent from the three-month period ended February 28, 2011. The table below reflects the percentage changes in product revenues, prices and volumes for the three-month period ended February 29, 2012.

	Revenue $ Million		Change vs. 2011			Revenue Percent Change			Selling Price Percent Change			Volume Percent Change
Sugar	$	56.6	$	(13.2	)		-18.8	%		7.7	%		-26.5	%
Pulp		7.8		2.9			58.0	%		64.4	%		-6.3	%
Molasses		3.2		(1.9	)		-37.4	%		10.2	%		-47.6	%
Yeast		3.3		0.2			4.9	%		3.7	%		1.2	%
Finished Goods/NRV		63.5		44.1
Total	$	134.4	$	32.1			31.4	%

The decrease in volume of sugar sold is attributable to a smaller 2011-crop, delivered by shareholder/patrons. The net decrease in volume of co-products sold is attributable to a smaller 2011-crop. Overall returns per ton for Pulp and Molasses are projected to be higher for the Fiscal Year ended August 31, 2012. Returns for Pulp and Molasses throughout the fiscal year will be impacted by prior period carry-over sales, inventory levels, product mix and timing of sales. Yeast sales volume increased due to existing customers’ increased demand for yeast in the 2012 period.

The value of finished product inventories for the three-month period ended February 29, 2012 increased $63.5 million, $44.1 million more than the three-month period ended February 28, 2011. The change in Sugar and Juice inventories accounted for substantially all of the change vs. 2011.

Expenses for the three-month period ended February 29, 2012 decreased $2.1 million. $0.7 million increased due to conventional seed costs, $2.7 million decreased due to Sales and Distribution Costs, and less than $0.1 million decreased due to other Production Costs, General, Administrative, and Interest costs.

Comparison of the six-months ended February 29, 2012 and February 28, 2011

In the Consolidated Statements of Operations, Distribution of Net Proceeds, allocated costs of sugarbeets paid or payable to shareholder/patrons for production to date totaled $131.2 million, an increase of $10.7 million or 8.9 percent from the prior year period. As of February 29, 2012, the Board of Directors has revised the estimated Fiscal 2012 payment to shareholder/patrons for sugarbeets to $142.1 million, which is $38.4 million or 21.3 percent less than the prior year.

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The decrease in payments to shareholder/patrons is based upon (i) a total shareholder/patron sugarbeet crop to process of 1.95 million tons with no discarded sugarbeets which is a 37.1 percent decrease from the 2010-crop, (ii) an average delivered sugar-content of 17.61 percent, which is a 4.8 percent increase from the 2010-crop and (iii) the Company’s increased projected selling price for its sugar, pulp, molasses and yeast when compared to the previous year.

Sales for the six-month period ended February 29, 2012 were comprised of Sugar 82.9 percent, Pulp 8.0 percent, Molasses 4.9 percent and Yeast 4.2 percent.

Consolidated revenue for the six-month period ended February 29, 2012 from the sales of Sugar, Pulp, Molasses and Yeast as well as changes in finished goods inventory and in-process sugar at NRV, increased $14.4 million or 6.4 percent from the six-month period ended February 28, 2011. The table below reflects the percentage changes in product revenues, prices and volumes for the six-month period ended February 29, 2012.

	Revenue $ Million		Change vs. 2011			Revenue Percent Change			Selling Price Percent Change			Volume Percent Change
Sugar	$	122.6	$	(9.5	)		-7.2	%		12.0	%		-19.2	%
Pulp		11.8		1.3			12.8	%		37.2	%		-24.4	%
Molasses		7.2		(1.1	)		-13.4	%		8.6	%		-22.0	%
Yeast		6.3		(0.2	)		-3.8	%		-0.3	%		-3.5	%
Finished Goods/NRV		93.8		23.9
Total	$	241.7	$	14.4			6.4	%

The decrease in volume of sugar sold is attributable to a smaller 2011-crop, delivered by shareholder/patrons. The net decrease in volume of co-products sold is attributable to a smaller 2011-crop. Overall returns per ton for Pulp and Molasses are projected to be higher for the Fiscal Year ended August 31, 2012. Returns for Pulp and Molasses throughout the fiscal year will be impacted by prior period carry-over sales, inventory levels, product mix and timing of sales. Yeast sales volume decreased due to existing customers’ decreased demand for yeast in the six-month period ending February 29, 2012.

The value of finished product inventories for the six-month period ended February 29, 2012 increased $93.8 million, $23.9 million more than the six-month period ended February 29, 2012. The change in Sugar and Juice inventories accounted for substantially all of the change vs. 2011.

Expenses for the six-month period ended February 2012 decreased $4.6 million. $5.2 million decreased due to fewer operating days, $0.7 million increased due to conventional seed costs, and less than $0.1 million decreased due to Sales and Distribution costs, General, Administrative, and Interest costs.

LIQUIDITY AND CAPITAL RESOURCES

Because the Company operates as a cooperative, payment for shareholder/patron-delivered sugarbeets, the principal raw material used in producing the sugar and co-products it sells, are subordinated to all Company business expenses. In addition, actual cash payments to shareholder/patrons are spread over a period of approximately one year following delivery of sugarbeet crops to the Company and are net of per unit retains and patronage allocated to them, both of which remain available to meet the Company’s capital requirements. This shareholder financing arrangement may result in an additional source of liquidity and reduce 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-term financing has been primarily provided by Co-Bank (the Bank). Long-term financing has been a combination of conventional loans with the Bank and tax exempt bonds whose required letters of credit have been provided by The Bank. The Company also has the ability to borrow money on a short-term basis from the USDA Commodity Credit Corporation “CCC” using the Company’s sugar inventory as collateral.

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On December 22, 2011, the Company and the Bank agreed to establish the seasonal line of credit from January 1, 2012 through December 31, 2012 at $65.0 million.

February 29, 2012 Seasonal Debt Information:

Source	Capacity		Utilized		Unused Capacity
	(In Millions)
Co-Bank	$	65.0	$	41.6	$	23.4
CCC		43.3		35.2		8.1
Total	$	108.3	$	76.8	$	31.5

During the six-month period ended February 29, 2012 the Company was reimbursed from the bond trust for qualified capital expenditures in the amount of $3.6 million in accordance with the sale of $8.8 million in tax exempt bonds during fiscal 2011. The Company has now drawn all the available funds from the tax exempt bond activity.

The loan agreements between the Bank and the Company obligate the Company to maintain, “In accordance with GAAP”, the following financial covenants:

• 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 measured at fiscal year-end.

As of February 29, 2012 the Company was in compliance with its loan agreement covenants with the Bank.

Net Cash used in operations totaled $29.2 million for the six-month period ended February 29, 2012, compared to $47.6 million used for the six-months ended February 28, 2011. This decrease of $18.4 million in net cash used vs. the prior period was primarily due to the differences in the sugarbeet projected payments recorded liability, actual payments to shareholder/patrons, and the associated additional inventory needs for processing materials from the record 2010-crop vs. the 2011-crop.

The net cash provided by investing activities totaled $1.1 million for the six-month period ended February 29, 2012, compared to $0.9 million provided by for the six-month period ended February 28, 2011. The primary change was Tax Exempt Bond Trust draws exceeded Capital Expenditures.

The net cash provided by financing activities totaled $28.1 million for the six-month period ended February 29, 2012 compared to $46.9 million for the six-month period ended February 28, 2011. This decrease of $18.8 million was primarily due to a $16.1 million decrease in short term debt obligations required for the payment of sugarbeets from the record 2010-crop vs. 2011-crop. All other factors totaled $2.7 million.

The Company anticipates that the funds necessary for working capital requirements and future capital expenditures will be derived from operations, short-term borrowings, depreciation, patronage and long-term borrowings.

Working capital increased $31.9 million for the six-month period ended February 29, 2012. The Company funds its capital expenditure and debt retirement needs primarily from operating activities.

Cash increased $0.1 million for the six-month period ended February 29, 2012.

Capital expenditures for fiscal year 2012 have been approved at $9.0 million. The capital expenditures are for equipment to improve efficiency, improved beet storage, improved rail facilities and safety and replacement activities. Failure by the Company to make capital expenditures over a period of years could result in the Company being less competitive due to its failure to reduce costs, increase operating efficiencies or increase revenues.

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

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.

OTHER

Estimated Fiscal Year 2013 Information

The Company’s Board of Directors initial planting level for the 2012-crop has been established at a minimum of 140.0 percent and a maximum of 160.0 percent times units of stock. The Company’s Board of Directors is authorized to modify the Company’s planting level based upon changing facts and circumstances.

A substantial portion of the projected 2012-crop sugar production has been contracted for sale at average prices slightly lower than the projected 2011-crop sales prices, but higher than historic averages.

Environmental

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 control. The Company conducts an ongoing compliance program designed to meet these environmental laws and regulations. The Company believes that it is in substantial compliance with applicable environmental laws and regulations. From time to time, however, the Company may be involved in investigations or determinations regarding matters that may arise in the ordinary course of business. The Company works closely with all affected government agencies to resolve environmental issues that have arisen and believes such issues will be resolved without any material adverse effect on the Company.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the Company’s Quantitative and Qualitative Disclosures About Market Risk since the filing of the Company’s 10-K for the Fiscal Year ended August 31, 2011.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer (together the “Certifying Officers”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of February 29, 2012, the end of the period covered by this report. Based upon that evaluation, the Certifying Officers concluded that the Company’s disclosure controls and procedures were effective.

Inherent Limitations on Effectiveness of Controls

Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the management and the Board; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Company assets that could have a material effect on the financial statements.

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Management personnel, including the Certifying Officers, recognize that the Company’s internal control over financial reporting cannot prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control over Financial Reporting

There have been no material changes to the Company’s internal control over financial reporting since the filing of the Company’s Form 10-K for the period ended August 31, 2011 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Item 3. Legal Proceedings in the Company’s 2011 Annual Report on Form 10-K.

Item 1A. Risk Factors.

There have been no material changes from risk factors as previously disclosed in the Company’s Form 10-K. For a detailed discussion of certain risk factors that could affect the Company’s operations, financial condition or results for future periods, see Item 1 A, Risk factors in the Company’s 2011 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None.

Item 6. Exhibits

a) Exhibits

Item #31.1 Section 302 Certification of the President and Chief Executive Officer

Item #31.2 Section 302 Certification of the Vice President and Chief Financial Officer

Item #32.1 Section 906 Certification of the President and Chief Executive Officer
Item #32.2 Section 906 Certification of the Vice President and Chief Financial Office

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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, 2012	/s/ DAVID H. ROCHE
		David H. Roche
		President and Chief Executive Officer
Date:	APRIL 13, 2012	/s/ RICHARD J. KASPER
		Richard J. Kasper
		Vice President and Chief Financial Officer

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