10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended August 31, 2005
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to          .

Commission file number: 0-50150

CHS Inc.

(Exact name of registrant as specified in its charter)

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

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

8% Cumulative Redeemable Preferred Stock

(Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ    NO o

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

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

YES o    NO þ

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

YES o    NO þ

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

None.

INDEX

		Page
		No.
PART I.
Item 1.	Business		1
	Cautionary Statement		1
	The Company		4
	Energy		6
	Ag Business		8
	Processing		13
	Corporate and Other		16
	Price Risk and Hedging		17
	Employees		17
	Membership in the Company and Authorized Capital		18
Item 2.	Properties		21
Item 3.	Legal Proceedings		22
Item 4.	Submission of Matters to a Vote of Security Holders		23
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		23
Item 6.	Selected Financial Data		24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		47
Item 8.	Financial Statements and Supplementary Data		48
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		48
Item 9A.	Controls and Procedures		48
Item 9B.	Other Information		49
PART III.
Item 10.	Directors and Executive Officers of the Registrant		49
	Board of Directors		49
	Executive Officers		53
	Section 16(a) Beneficial Ownership Reporting Compliance		54
	Code of Ethics		55
	Audit Committee Matters		55
Item 11.	Executive Compensation		55
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		64
Item 13.	Certain Relationships and Related Transactions		64
PART IV.
Item 14.	Principal Accountant Fees and Services		65
Item 15.	Exhibits and Financial Statements		66
SUPPLEMENTAL INFORMATION			71
SIGNATURES			72

PART I.

ITEM 1. BUSINESS

CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS

OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

      The information in this Annual Report on Form 10-K for the year ended August 31, 2005, includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company. In addition, the Company and its representatives and agents may from time to time make other written or oral forward-looking statements, including statements contained in its filings with the Securities and Exchange Commission and its reports to its members and securityholders. Words and phrases such as “will likely result,” “are expected to,” “is anticipated,” “estimate,” “project” and similar expressions identify forward-looking statements. We wish to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.

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

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

      We undertake no obligation to revise any forward-looking statements to reflect future events or circumstances.

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

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

•  levels of worldwide and domestic supplies;

•  capacities of domestic and foreign refineries;

•  the ability of the members of OPEC to agree to and maintain oil price and production controls, and the price and level of foreign imports;

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•  disruption in supply;

•  political instability or armed conflict in oil-producing regions;

•  the level of consumer demand;

•  the price and availability of alternative fuels;

•  the availability of pipeline capacity; and

•  domestic and foreign governmental regulations and taxes.

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

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

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

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

      WE INCUR SIGNIFICANT COSTS IN COMPLYING WITH APPLICABLE LAWS AND REGULATIONS. ANY FAILURE TO MAKE THE CAPITAL INVESTMENTS NECESSARY TO COMPLY WITH THESE LAWS AND REGULATIONS COULD EXPOSE US TO FINANCIAL LIABILITY. We are subject to numerous federal, state and local provisions regulating our business and operations and we incur and expect to incur significant capital and operating expenses to comply with these laws and regulations. We may be unable to pass on those expenses to customers without experiencing volume and margin losses. For example, capital expenditures for upgrading our refineries, largely to comply with regulations requiring the reduction of sulfur levels in refined petroleum products, are expected to be approximately $87.0 million for our Laurel, Montana refinery and $320.0 million for the National Cooperative Refinery Association’s (NCRA) McPherson, Kansas refinery, of which $86.4 million had been spent at the Laurel refinery and $258.9 million had been spent by NCRA at the McPherson refinery as of August 31, 2005. We expect all of these compliance capital expenditures at the refineries to be completed by December 31, 2005, and have funded these projects with a combination of cash flows from operations and debt proceeds.

      We establish reserves for the future cost of meeting known compliance obligations, such as remediation of identified environmental issues. However, these reserves may prove inadequate to meet our actual liability. Moreover, amended, new or more stringent requirements, stricter interpretations of existing requirements or the future discovery of currently unknown compliance issues may require us to make

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material expenditures or subject us to liabilities that we currently do not anticipate. Furthermore, our failure to comply with applicable laws and regulations could subject us to administrative penalties and injunctive relief, civil remedies including fines and injunctions, and recalls of our products.

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

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

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

•  our oil refineries and other facilities are potential targets for terrorist attacks that could halt or discontinue production;

•  our inability to negotiate acceptable contracts with unionized workers in our operations could result in strikes or work stoppages; and

•  the significant inventories that we carry or the facilities we own could be damaged or destroyed by catastrophic events, extreme weather conditions or contamination.

      We maintain insurance against many, but not all potential losses or liabilities arising from these operating hazards, but uninsured losses or losses above our coverage limits are possible. Uninsured losses and liabilities arising from operating hazards could have a material adverse effect on our financial position or results of operations.

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

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

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

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

      OPERATING RESULTS FROM OUR AGRONOMY BUSINESS COULD BE VOLATILE AND ARE DEPENDENT UPON CERTAIN FACTORS OUTSIDE OF OUR CONTROL. Planted acreage, and consequently the volume of fertilizer and crop protection products applied, is partially dependent upon government programs and the perception held by the producer of demand for production. Weather conditions during the spring planting season and early summer spraying season also affect agronomy product volumes and profitability.

      TECHNOLOGICAL IMPROVEMENTS IN AGRICULTURE COULD DECREASE THE DEMAND FOR OUR AGRONOMY AND ENERGY PRODUCTS. Technological advances in agriculture could decrease the demand for crop nutrients, energy and other crop input products and services that we provide. Genetically engineered seeds that resist disease and insects, or that meet certain nutritional requirements, could affect the demand for our crop nutrients and crop protection products. Demand for fuel that we sell could decline as technology allows for more efficient usage of equipment.

      WE OPERATE SOME OF OUR BUSINESS THROUGH JOINT VENTURES IN WHICH OUR RIGHTS TO CONTROL BUSINESS DECISIONS ARE LIMITED. Several parts of our business, including in particular, our agronomy operations and portions of our grain marketing, wheat milling and foods operations, are operated through joint ventures with third parties. By operating a business through a joint venture, we have less control over business decisions than we have in our wholly-owned or majority-owned businesses. In particular, we generally cannot act on major business initiatives in our joint ventures without the consent of the other party or parties in those ventures.

THE COMPANY

      CHS Inc. (referred to herein as “CHS”, “we” or “us”) is one of the nation’s leading integrated agricultural companies. As a cooperative, we are owned by farmers and ranchers and their local cooperatives from the Great Lakes to the Pacific Northwest and from the Canadian border to Texas. We also have preferred stockholders that own shares of our 8% Cumulative Redeemable Preferred Stock, which is listed on the NASDAQ National Market under the symbol CHSCP. On August 31, 2005, we had 4,951,434 shares of preferred stock outstanding. We buy commodities from and provide products and

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services to our members and other customers, both domestic and international. We provide a wide variety of products and services, from initial agricultural inputs such as fuels, farm supplies, crop nutrients and crop protection products, to agricultural outputs that include grains and oilseeds, grain and oilseed processing and food products. A portion of our operations are conducted through equity investments and joint ventures whose operating results are not fully consolidated with our results; rather, a proportionate share of the income or loss from those entities is included as a component in our net income under the equity method of accounting. For the fiscal year ended August 31, 2005, our total revenues were $11.9 billion, and net income was $250.0 million.

      On January 1, 2005, we realigned our business segments based on an assessment of how our businesses operate and the products and services they sell. As a result of this assessment, leadership changes were made, including the naming of a new executive vice president and chief operating officer, so that we now have three chief operating officers to lead our three business segments; Energy, Ag Business and Processing. Prior to the realignment, we operated five business segments; Agronomy, Energy, Country Operations and Services, Grain Marketing, and Processed Grains and Foods. Together our three business segments create vertical integration to link producers with consumers. Our Energy segment derives its revenues through refining, wholesaling and retailing of petroleum products. Our Ag Business segment derives its revenues through the origination and marketing of grain, including service activities conducted at export terminals, through the retail sales of petroleum and agronomy products, processed sunflowers, feed and farm supplies, and records equity income from investment in our agronomy joint ventures and other investments. Our Processing segment derives its revenues from the sales of soybean meal and soybean refined oil, and records equity income from two wheat milling joint ventures and a vegetable oil-based food manufacturing and distribution joint venture. We have moved other business operations previously included in our operating segments to Corporate and Other because of the nature of their products and services, as well as the relative revenue size of those businesses. These businesses primarily include our insurance, hedging and other service activities related to crop production that were previously included in our Country Operations and Services segment.

      In May 2005, we sold the majority of our Mexican foods business for proceeds of $38.3 million resulting in a loss on disposition of $6.2 million. Assets of $4.6 million (primarily property, plant and equipment) are still held for sale at August 31, 2005, but no material gain or loss is expected upon disposition of the remaining assets. The operating results of the Mexican Foods business have been reclassified and reported as discontinued operations for all periods presented.

      Only producers of agricultural products and associations of producers of agricultural products may be our members. Our earnings derived from cooperative business are allocated to patrons based on the volume of business they do with us. We allocate these earnings to our members in the form of patronage refunds (which are also called patronage dividends) in cash and patron’s equities, which may be redeemed over time. Earnings derived from non-members, which are not allocated patronage are taxed at regular corporate rates and are retained by us as unallocated capital reserve. We also receive patronage refunds from the cooperatives in which we are a member, if those cooperatives have earnings to distribute and we qualify for patronage refunds from them.

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

      Our international sales information and segment information in Notes 2 and 12 to the consolidated financial statements are incorporated by reference into the following business segment descriptions.

      The business segment financial information presented below may not represent the results that would have been obtained had the relevant business segment been operated as an independent business due to efficiencies in scale, corporate cost allocations and intersegment activity.

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ENERGY

Overview

      We are the nation’s largest cooperative energy company based on revenues and identifiable assets, with operations that include petroleum refining and pipelines; the supply, marketing and distribution of refined fuels (gasoline, diesel, and other energy products); the blending, sale and distribution of lubricants; and the wholesale supply of propane. Our Energy business segment processes crude oil into refined petroleum products at refineries in Laurel, Montana (wholly-owned) and McPherson, Kansas (an entity in which we have an approximate 74.5% ownership interest) and sells those products under the Cenex brand to member cooperatives and others through a network of approximately 1,600 independent retail sites, including approximately 800 that operate Cenex/ Ampride convenience stores.

Operations

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

      Our Laurel facility processes approximately 55,000 barrels of crude oil per day to produce refined products that consist of approximately 40% gasoline, 30% diesel and other distillates, and 30% asphalt and other residual products. During fiscal 2005 the Board of Directors approved the installation of a coker unit at Laurel, along with other refinery improvements, which will allow us to extract a greater volume of high value gasoline and diesel fuel from a barrel of crude oil and less relatively low value asphalt. Total cost for this project is expected to be approximately $325 million, with completion in about thirty months. Refined fuels produced at Laurel, Montana are available via the Yellowstone Pipeline to western Montana terminals and to Spokane and Moses Lake, Washington, south via common carrier pipelines to Wyoming terminals and Denver, Colorado, and east via our wholly-owned Cenex Pipeline, LLC to Glendive, Montana, and Minot and Fargo, North Dakota.

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

      The McPherson refinery processes approximately 80,000 barrels of crude oil per day to produce refined products that consist of approximately 53% gasoline, 39% diesel and other distillates, and 8% propane and other products. Approximately 90% of the refined fuels are shipped via NCRA’s proprietary products pipeline to its terminal in Council Bluffs, Iowa and to other markets via common carrier pipelines. The remaining refined fuel products are loaded into trucks at the McPherson refinery.

      Other Energy Operations. We own and operate a propane terminal, four asphalt terminals, five refined product terminals and three lubricants blending and packaging facilities. We also own and lease a fleet of liquid and pressure trailers and tractors, which are used to transport refined fuels, propane, anhydrous ammonia and other products.

Products and Services

      Our Energy business segment produces and sells (primarily wholesale) gasoline, diesel, propane, asphalt, lubricants, and other related products and provides transportation services. We obtain the petroleum products that we sell from our Laurel and McPherson refineries, and from third parties.

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Sales and Marketing; Customers

      We make approximately 70% of our refined fuel sales to members, with the balance sold to non-members. Sales are made wholesale to member cooperatives and through a network of independent retailers that operate convenience stores under the Cenex/ Ampride tradename. We sold approximately 1.4 billion gallons of gasoline and approximately 1.5 billion gallons of diesel fuel in fiscal year 2005. We also blend, package and wholesale auto and farm machinery lubricants to both members and non-members. In our fiscal year 2005, our lubricants operations sold approximately 21 million gallons of lube oil. We are one of the nation’s largest propane wholesalers based on revenues. In our fiscal year 2005, our propane operations sold approximately 784 million gallons of propane. Most of the propane sold in rural areas is for heating and agricultural usage. Annual sales volumes of propane vary greatly depending on weather patterns and crop conditions.

Industry; Competition

      Regulation. Governmental regulations and policies, particularly in the areas of taxation, energy and the environment, have a significant impact on our Energy business segment. Our Energy business segment’s operations are subject to laws and related regulations and rules designed to protect the environment that are administered by the Environmental Protection Agency, the Department of Transportation and similar government agencies. These laws, regulations and rules govern the discharge of materials to the environment, air and water; reporting storage of hazardous wastes; the transportation, handling and disposition of wastes; and the labeling of pesticides and similar substances. Failure to comply with these laws, regulations and rules could subject us (and, in the case of the McPherson refinery, NCRA) to administrative penalties, injunctive relief, civil remedies and possible recalls of products. We believe that we and NCRA are in compliance with these laws, regulations and rules in all material respects and do not expect continued compliance to have a material effect on capital expenditures, earnings or competitive position of either us or NCRA.

      Like many other refineries, our Energy business segment’s refineries are currently focusing their capital spending on reducing pollution and at the same time increasing production to pay for those expenditures. In particular, these refineries are currently working to comply with the Environmental Protection Agency low sulfur fuel regulations required by 2006, which are intended to lower the sulfur content of gasoline and diesel. We currently expect that the cost of compliance will be approximately $87.0 million for our Laurel, Montana refinery and $320.0 million for NCRA’s McPherson, Kansas refinery, of which $86.4 million had been spent at the Laurel refinery and $258.9 million had been spent by NCRA at the McPherson refinery as of August 31, 2005. We expect all of these compliance capital expenditures at the refineries to be complete by December 31, 2005, and have funded these projects with a combination of cash flows from operations and debt proceeds.

      The petroleum business is highly cyclical. Demand for crude oil and energy products is driven by the condition of local and worldwide economies, local and regional weather patterns and taxation relative to other energy sources which can significantly affect the price of refined fuels products. Most of our energy product market is located in rural areas, so sales activity tends to follow the planting and harvesting cycles. More fuel-efficient equipment, reduced crop tillage, depressed prices for crops, weather conditions, and government programs, which encourage idle acres may all reduce demand for our energy products.

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

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world. Our owned and non-owned retail outlets are located primarily in the northwestern, midwestern and southern United States.

Summary Operating Results

      Summary operating results and identifiable assets for our Energy business segment for the fiscal years ended August 31, 2005, 2004 and 2003 are shown below:

		2005			2004			2003
		(Dollars in thousands)
Revenues:
	Net sales	$	5,782,948		$	4,028,248		$	3,648,093
	Other revenues		10,085			9,193			5,655
			5,793,033			4,037,441			3,653,748
Cost of goods sold			5,489,425			3,784,260			3,470,726
Marketing, general and administrative			62,077			66,493			63,740
Operating earnings			241,531			186,688			119,282
Gain on sale of investments			(862	)		(14,666	)
Interest			13,947			13,819			16,401
Equity income from investments			(3,478	)		(1,399	)		(1,353	)
Minority interests			46,741			32,507			20,782
Income before income taxes		$	185,183		$	156,427		$	83,452
Intersegment sales		$	(170,642	)	$	(121,199	)	$	(94,209	)
Total identifiable assets — August 31		$	2,238,614		$	1,591,254		$	1,449,652

AG BUSINESS

      Our Ag Business segment includes Agronomy, Country Operations and Grain Marketing.

Agronomy

Overview

      We conduct our wholesale and some of our retail agronomy operations through our 50% ownership interest in Agriliance, LLC (Agriliance). Agriliance is one of North America’s largest wholesale distributors of crop nutrients, crop protection products and other agronomy products based upon annual sales. Our 50% ownership interest in Agriliance is treated as equity method investment, and therefore, Agriliance’s revenues and expenses are not reflected in our operating results. Agriliance has its own line of financing, without recourse to us.

      In August 2005, we sold 81% of our 20% ownership interest in CF Industries, Inc. (CF), a crop nutrients manufacturer and distributor, in an initial public offering. After the initial public offering, our ownership interest in the company was reduced to approximately 3.9%. Prior to the initial public offering, Agriliance entered into a multi-year supply contract with CF. As a result, given our small ownership interest in the company, we now consider the relationship to be as a supplier rather than a strategic joint venture.

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

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Operations

      Agriliance is one of the nation’s largest wholesale distributors of crop nutrients (fertilizers) and crop protection products (insecticides, fungicides and pesticides) based on sales, accounting for an estimated 14% of the U.S. market for crop nutrients and approximately 24% of the U.S. market for crop protection products. As a wholesale distributor, Agriliance has warehouse, distribution and service facilities located throughout the country. Agriliance also owns and operates retail agricultural units primarily in the southern United States. In addition, Agriliance blends and packages crop protection products under the Agri Solutions brand. Agriliance purchased approximately 31% of its fertilizer from CF during fiscal year 2005, and its other suppliers include Mosaic, PCS, PIC and Koch. Most of Agriliance’s crop protection products are purchased from Monsanto, Syngenta, Dow, Bayer, Dupont and BASF.

      Agriliance was formed in 2000 when CHS, Farmland Industries Inc. (Farmland) and Land O’Lakes, Inc. (Land O’Lakes) contributed our respective agronomy businesses to the new company in consideration for ownership interests in the venture. We hold our interests in Agriliance through United Country Brands, LLC (UCB), a wholly-owned holding company.

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

      On April 30, 2004, we purchased all of Farmland’s remaining interests in Agriliance and UCB for $27.5 million in cash. We now own 50% of the economic and governance interests in Agriliance. We continue to account for the investment using the equity method of accounting.

Products and Services

      Agriliance wholesales and retails crop nutrients that include nitrogen and potassium based products, and crop protection products that include insecticides, fungicides, and pesticides. In addition, Agriliance blends and packages 8% of the products it sells under the Agri Solutions brand. Agriliance also provides field and technical services, including soil testing, adjuvant and herbicide formulation, application and related services.

Sales and Marketing; Customers

      Agriliance distributes agronomy products through approximately 2,200 local cooperatives from Ohio to the West Coast and from the Canadian border south to Kansas. Agriliance also provides sales and services through 57 Agriliance Service Centers and other retail outlets. Agriliance’s largest customer is our country operations business, also included in our Ag Business segment. In 2005, Agriliance sold approximately $1.9 billion of crop nutrient products and approximately $1.8 billion of crop protection and other products.

Industry; Competition

      Regulation. The agronomy operations are subject to laws and related regulations and rules designed to protect the environment that are administered by the Environmental Protection Agency, the Department of Transportation and similar government agencies. These laws, regulations and rules govern the discharge of materials to the environment, air and water; reporting storage of hazardous wastes; the transportation, handling and disposition of wastes; and the labeling of pesticides and similar substances. Failure to comply with these laws, regulations and rules could subject Agriliance or us to administrative penalties, injunctive relief, civil remedies and possible recalls of products. We believe that Agriliance is in compliance with these laws, regulations and rules in all material respects and do not expect continued compliance to have a material effect on our capital expenditures, earnings or competitive position.

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

      Major competitors of Agriliance in crop nutrient distribution include Agrium, Mosaic, Koch, UAP and United Suppliers. Major competitors of Agriliance in crop protection products distribution include Helena, UAP, Tenkoz and numerous smaller distribution companies.

      At August 31, 2005 our equity investment in Agriliance was $177.9 million. We recognize earnings from Agriliance using the equity method of accounting, which results in us including our ownership percentage of Agriliance’s net earnings as equity income from investments.

Country Operations

Overview

      Our country operations purchases a variety of grains from our producer members and other third parties, and provides cooperative members and producers with access to a full range of products and services including farm supplies and programs for crop and livestock production. Country operations operates at 304 locations dispersed throughout Minnesota, North Dakota, South Dakota, Montana, Nebraska, Kansas, Colorado, Idaho, Washington and Oregon. Most of these locations purchase grain from farmers and sell agronomy products, energy products and feed to those same producers and others, although not all locations provide every product and service.

Products and Services

      Grain Purchasing. We are one of the largest country elevator operators in North America based on revenues. Through a majority of our elevator locations, the country operations business purchases grain from member and non-member producers and other elevators and grain dealers. Most of the grain purchased is either sold through our grain marketing operations or used for local feed and processing operations. For the year ended August 31, 2005, country operations purchased approximately 345 million bushels of grain, primarily wheat (174 million bushels), corn (90 million bushels) and soybeans (40 million bushels). Of these bushels, 316 million were purchased from members and 237 million were sold through our grain marketing operations.

      Other Products. Our country operations manufactures and sells other products, both directly and through ownership interests in other entities. These include seed; crop nutrients; energy products; animal feed ingredients, supplements and products; animal health products; crop protection products; and processed sunflowers. We sell agronomy products at 166 locations, feed products at 123 locations and energy products at 110 locations.

      Fin-Ag, Inc. Through our wholly-owned subsidiary Fin-Ag, Inc. we provide seasonal cattle feeding and swine financing loans, facility financing loans and crop production loans to our members. Most of these loans were sold to ProPartners (an affiliate of CoBank) under a financing program in which we guarantee a portion of the loans. Our guarantee exposure on August 31, 2005, was approximately $33.4 million. Financing under this program is expected to decrease as future financing is done through our recently formed 49% owned joint venture, Cofina Financial, LLC (described in greater detail under “Corporate and Other” below).

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Industry; Competition

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

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

Grain Marketing

Overview

      We are the nation’s largest cooperative marketer of grain and oilseed based on grain storage capacity and grain sales, handling about 1.2 billion bushels annually. During fiscal year 2005, we purchased approximately 64% of our total grain volumes from individual and cooperative association members and our country operations, with the balance purchased from third parties. We arranged for the transportation of the grains either directly to customers or to our owned or leased grain terminals and elevators awaiting delivery to domestic and foreign purchasers. We primarily conduct our grain marketing operations directly, but do conduct some of our business through two 50% owned joint ventures.

Operations

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

      We own export terminals, river terminals, and elevators involved in the handling and transport of grain. Our river terminals at Savage and Winona, Minnesota, and Davenport, Iowa are used to load grains onto barges for shipment to both domestic and export customers via the Mississippi River system. Our export terminal at Superior, Wisconsin, provides access to the Great Lakes and St. Lawrence Seaway, and our export terminal at Myrtle Grove, Louisiana serves the Gulf market. In the Pacific Northwest, we conduct our grain marketing operations through United Harvest, LLC (a 50% joint venture with United Grain Corporation), and TEMCO, LLC (a 50% joint venture with Cargill, Incorporated). United Harvest, LLC, operates grain terminals in Vancouver and Kalama, Washington, and primarily exports wheat. TEMCO, LLC, operates an export terminal in Tacoma, Washington, and primarily exports corn and soybeans. These facilities serve the Pacific market, as well as domestic grain customers in the western

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United States. We also own two 110-car shuttle-receiving elevator facilities in Friona, Texas and Collins, Mississippi that serve large-scale feeder cattle, dairy and poultry producers in those regions. In 2003, we opened an office in Sao Paulo, Brazil, for the procurement of soybeans for our grain marketing operations international customers.

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

Products and Services

      The primary grains purchased by our grain marketing operations for the year ended August 31, 2005 were corn (415 million bushels), wheat (398 million bushels) and soybeans (296 million bushels). Of the total grains purchased by our grain marketing operations during the year ended August 31, 2005, 509 million bushels were purchased from our individual and cooperative association members, 237 million bushels were purchased from our country operations, and the remainder was purchased from third parties.

Sales and Marketing; Customers

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

Industry; Competition

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

      Competition. Our grain marketing operations compete for both the purchase and the sale of grain. Competition is intense and margins are low. Some competitors are integrated food producers, which may also be customers. A few major competitors have substantially greater financial resources than we have.

      In the purchase of grain from producers, location of the delivery facility is a prime consideration, but producers are increasingly willing to truck grain longer distances for sale. Price is affected by the capabilities of the facility; for example, if it is cheaper to deliver to a customer by unit train than by truck, a facility with unit train capabilities provides a price advantage. We believe that our relationships with individual members serviced by local country operations locations and with our cooperative members give us a broad origination capability.

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

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

Summary Operating Results

      Summary operating results and identifiable assets for our Ag Business segment for the fiscal years ended August 31, 2005, 2004 and 2003 are shown below (for each period below, the amounts have been reclassified to account for the change in our reportable segments described on page 5 of Item I of this Form 10-K):

		2005			2004			2003
		(Dollars in thousands)
Revenues:
	Net sales	$	5,556,923		$	6,219,917		$	5,228,267
	Other revenues		119,782			92,662			85,256
			5,676,705			6,312,579			5,313,523
Cost of goods sold			5,545,373			6,192,528			5,213,704
Marketing, general and administrative			85,570			86,202			70,193
Operating earnings			45,762			33,849			29,626
Gain on sale of investments			(11,358	)
Gain on legal settlements						(692	)		(10,867	)
Interest			20,535			18,812			16,343
Equity income from investments			(55,473	)		(47,488	)		(19,681	)
Minority interests			(41	)		(24	)		(27	)
Income before income taxes		$	92,099		$	63,241		$	43,858
Intersegment sales		$	(9,640	)	$	(18,372	)	$	(2,650	)
Total identifiable assets — August 31		$	1,604,571		$	1,590,337		$	1,529,211

PROCESSING

Overview

      Our Processing business segment converts raw agricultural commodities into ingredients for finished food products or into finished consumer food products. We have focused on areas that allow us to utilize the products supplied by our member producers. These areas are oilseed processing, wheat milling and foods.

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

Oilseed Processing

      Our oilseed processing operations convert soybeans into soybean meal, soyflour, crude soyoil, refined soybean oil and associated by-products. These operations are conducted at a facility in Mankato, Minnesota that can crush approximately 39 million bushels of soybeans on an annual basis, producing approximately 940,000 short tons of soybean meal and 460 million pounds of crude soybean oil. The same facility is able to produce approximately 1 billion pounds of refined soybean oil annually. Another crushing facility in Fairmont, Minnesota has a crushing capacity and crude soyoil output similar to our Mankato facility. The facility in Fairmont became operational in the first quarter of our fiscal year 2004.

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

      Our soy processing facilities are located in areas with a strong production base of soybeans and end-user market for the meal and soyflour. We purchase virtually all of our soybeans from members. Our oilseed crushing operations currently produce approximately 85% of the crude oil that we refine, and purchase the balance from outside suppliers.

      Our customers for refined oil are principally large food product companies located throughout the United States. However, over 50% of our customers are located in the Midwest due to relatively lower freight costs and slightly higher profitability potential. Our largest customer for refined oil products is Ventura Foods, LLC (Ventura Foods), in which we hold a 50% ownership interest and with which we have a long-term supply agreement to supply minimum quantities of edible soybean oils as long as we maintain a minimum 25.5% ownership interest and our price is comparative with other suppliers of the product. Our sales to Ventura Foods were $94.6 million in fiscal year 2005. We also sell soymeal to over 600 customers, primarily feed lots and feed mills in southern Minnesota. Commodity Specialists Company accounts for 20% of soymeal sold and Land O’Lakes/ Purina Feed, LLC accounts for 15% of soymeal sold. We sell soyflour to customers in the baking industry both domestically and for export.

      The refined soybean products industry is highly competitive. Major industry competitors include ADM, Cargill, Ag Processing Inc., and Bunge. These and other competitors have acquired other processors and have expanded existing plants, or have constructed new plants, both domestically and internationally. Price, transportation costs, services and product quality drive competition. We estimate that we have a market share of approximately 4% to 5% of the domestic refined soybean oil market and approximately 4% of the domestic soybean crushing capacity.

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

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Wheat Milling

      In January 2002, we formed a joint venture with Cargill named Horizon Milling, LLC (Horizon Milling), in which we hold an ownership interest of 24%, with Cargill owning the remaining 76%. Horizon Milling is the largest U.S. wheat miller based on output volume. We own five mills that we lease to Horizon Milling. Sales and purchases of wheat and durum by us to Horizon Milling during our fiscal year 2005 were $206.2 million and $2.9 million, respectively. Horizon Milling’s advance payments on grain to us were $7.1 million on August 31, 2005, and are included in Customer Advance Payments on our Consolidated Balance Sheet. We account for Horizon Milling using the equity method of accounting. At August 31, 2005 our equity investment in Horizon Milling was $23.2 million and our book value of assets leased to Horizon Milling was $87.9 million.

Foods

      Our primary focus in the foods area is Ventura Foods, LLC (Ventura Foods), which produces and distributes vegetable oil-based products such as margarine, salad dressing and other food products, and which is 50% owned by us.

      Ventura Foods manufactures, packages, distributes and markets bulk margarine, salad dressings, mayonnaise, salad oils, syrups, soup bases and sauces, many of which utilize soybean oil as a primary ingredient. Approximately 40% of Ventura Foods’ volume, based on sales revenues, comes from products for which Ventura Foods owns the brand, and the remainder comes from products that it produces for third parties. A variety of Ventura Foods’ product formulations and processes are proprietary to it or its customers. Ventura Foods is the largest manufacturer of margarine in the U.S. and is a major producer of many other products.

      Ventura Foods has 14 manufacturing and distribution locations across the United States. It sources its raw materials, which consist primarily of soybean oil, canola oil, cottonseed oil, peanut oil and various other ingredients and supplies, from various national suppliers, including our oilseed processing operations. It sells the products it manufactures to third parties as a contract manufacturer, as well as directly to retailers, food distribution companies and large institutional food service companies. Ventura Foods sales are approximately 60% in foodservice and the remainder split between retail and industrial customers who use edible oil products as ingredients in foods they manufacture for resale. During Ventura Foods’ 2005 fiscal year, Sysco accounted for 27% of its net sales. During our fourth quarter of fiscal year 2005, Ventura Foods purchased two Dean Foods businesses: Marie’s dressings and Dean’s dips. The transaction included a license agreement for Ventura Foods to use the Dean’s trademark on dips.

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

      Ventura Foods was created in 1996 and at that time was owned 40% by us and 60% by Wilsey Foods, Inc., a majority owned subsidiary of Mitsui & Co., Ltd. In March 2000, we purchased an additional 10% interest from Wilsey Foods, Inc. bringing our total equity investment in Ventura Foods to 50%. We account for the Ventura Foods investment under the equity method of accounting. At August 31, 2005 our equity investment in Ventura Foods was $117.6 million.

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Summary Operating Results

      Summary operating results and identifiable assets for our Processing business segment for the fiscal years ended August 31, 2005, 2004 and 2003 are shown below (for each period below, the amounts have been reclassified to account for the change in our reportable segments described on page 5 of Item I of this Form 10-K):

		2005			2004			2003
		(Dollars in thousands)
Revenues:
	Net sales*	$	610,006		$	731,311		$	417,863
	Other revenues		1,522			2,698			2,306
			611,528			734,009			420,169
Cost of goods sold			604,418			703,344			407,823
Marketing, general and administrative			18,292			19,166			15,256
Operating (losses) earnings			(11,182	)		11,499			(2,910	)
Gain on sale of investments			(457	)
Interest			12,287			12,399			10,427
Equity income from investments			(36,202	)		(29,966	)		(26,056	)
Income before income taxes		$	13,190		$	29,066		$	12,719
Intersegment sales		$	(502	)	$	(1,363	)	$	(698	)
Total identifiable assets — August 31		$	420,373		$	415,761		$	440,122

*  The 2004 net sales increase from 2003 is primarily due to the additional crushing capacity of our Fairmont, Minnesota facility which began operation in our first quarter of fiscal year 2004.

CORPORATE AND OTHER

Services

      Financial Services. We have provided open account financing to more than 130 of our members that are cooperatives (cooperative association members) in the past year. These arrangements involve the discretionary extension of credit in the form of term and seasonal loans and can also be used as a clearing account for settlement of grain purchases and as a cash management tool. A substantial part of the term and seasonal loans have in the past been sold to the National Bank for Cooperatives (CoBank), with CoBank purchasing up to 100% of any loan. Our guarantee exposure on these loans at August 31, 2005 was approximately $8.3 million. Our borrowing arrangements allow for us to retain up to $110.0 million of loans in aggregate for both this finance program and the Fin-Ag, Inc. finance program included in our Ag Business segment, or to sell the loans and extend guarantees up to $150.0 million in aggregate.

      During the fourth quarter of our fiscal year 2005, we contributed certain assets related to our financial services business and related to Fin-Ag Inc., along with cash, to form Cofina Financial, LLC (Cofina), a joint venture finance company in which we hold a 49% ownership interest. Cenex Finance Association, which prior to the formation of Cofina operated as an independent finance company, owns the other 51% of Cofina, however the governance of this joint venture is 50/50. We participated in the formation of Cofina for the purpose of expanding the size of our financing platform, to improve the scope of services offered to customers, to gain efficiencies in sourcing funds, and to achieve some synergistic savings through participation in larger customer-financing programs. We account for our Cofina investment using the equity method of accounting.

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

      Ag States Agency, LLC. Ag States Agency, LLC, is an independent insurance agency, and after the purchase of the minority owner’s interest during our fiscal year 2005, is now our wholly-owned subsidiary. It sells insurance, including group benefits, property and casualty, and bonding programs. Its approximately 1,600 customers are primarily agricultural businesses, including local cooperatives and independent elevators, petroleum outlets, agronomy, feed and seed plants, implement dealers, fruit and vegetable packers/warehouses, and food processors.

PRICE RISK AND HEDGING

      When we enter into a commodity purchase commitment we incur risks of carrying inventory, including risks related to price changes and performance (including delivery, quality, quantity and shipment period). We are exposed to risk of loss in the market value of positions held, consisting of inventory and purchase contracts at a fixed or partially fixed price in the event market prices decrease. We are also exposed to risk of loss on our fixed price or partially fixed price sales contracts in the event market prices increase.

      To reduce the price change risks associated with holding fixed price commitments, we generally take opposite and offsetting positions by entering into commodity futures contracts (either a straight futures contract or an options futures contract) on regulated commodity futures exchanges for grain, and regulated mercantile exchanges for refined products and crude oil. The crude oil and most of the grain and oilseed volume we handle can be hedged. Some grains cannot be hedged because there are no futures for certain commodities. For those commodities, risk is managed through the use of forward sales and various pricing arrangements and to some extent cross-commodity futures hedging. While hedging activities reduce the risk of loss from changing market values of inventory, such activities also limit the gain potential which otherwise could result from changes in market prices of inventory. Our policy is to generally maintain hedged positions in grain. Our profitability from operations is primarily derived from margins on products sold and grain merchandised, not from hedging transactions. Hedging arrangements do not protect against nonperformance by counterparties to contracts, and therefore, contract values are reviewed and adjusted to reflect potential non-performance.

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

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

EMPLOYEES

      At August 31, 2005, we had approximately 6,370 full, part-time and seasonal employees, which included approximately 590 employees of NCRA. Of that total, approximately 1,930 were employed in our

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Energy segment, 3,400 in the country operations business (including approximately 1,140 seasonal and temporary employees), 450 in our grain marketing operations, 240 in our Processing segment and 350 in Corporate and Other. In addition to those employed directly by us, many employees work for joint ventures in which we have a 50% or less ownership interest, and are not included in these counts. A portion of our Ag Business and Processing segments are employed in this manner.

      Employees in certain areas are represented by collective bargaining agreements. Refinery and pipeline workers in Laurel, Montana (186 employees), are represented by agreements with two unions (United Steel Workers of America (USWA) and Oil Basin Pipeliners Union (OBP)), for which agreements are in place through 2006 in regards to wages and benefits. The contracts covering the NCRA McPherson, Kansas refinery (267 employees in the USWA union) are also in place through 2006. There are approximately 166 employees in transportation and lubricant plant operations that are covered by other collective bargaining agreements that expire at various times. Production workers in our grain marketing operations (98 employees) are represented by agreements with three unions, which expire at various times in 2008, 2009 and 2010. Certain production workers in our oilseed processing operations are subject to collective bargaining agreements with the Bakery, Confectionary, Tobacco Worker and Grain Millers (BTWGM) (108 employees) and the Pipefitters’ Union (2 employees) for which agreements are in place through 2006. Finally, employees in our country operations are represented by collective bargaining agreements with two unions; the BTWGM (21 employees), with contracts expiring in December 2005 and June 2006, and the United Food and Commercial Workers (14 employees), with an expired contract that is currently being negotiated with expectations of a positive outcome.

MEMBERSHIP IN THE COMPANY AND AUTHORIZED CAPITAL

Introduction

      We are an agricultural membership cooperative organized under Minnesota cooperative law to do business with member and non-member patrons. Our patrons, not us, are subject to income taxes on income from patronage sources. We are subject to income taxes on non-patronage-sourced income. See “— Tax Treatment” below.

Distribution of Net Income; Patronage Dividends

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

      These distributions, referred to as “patronage dividends,” may be distributed in cash, patrons’ equities, revolving fund certificates, our securities, securities of others, or any combination designated by the Board of Directors. Since 1998, the Board of Directors has distributed patronage dividends in the form of 30% cash and 70% patrons’ equities (see “— Patrons’ Equities” below). The Board of Directors may change the mix in the form of the patronage dividend in the future. In making distributions, the Board of Directors may use any method of allocation that, in its judgment, is reasonable and equitable. Patronage dividends distributed during the years ended August 31, 2005, 2004 and 2003 were $171.3 million ($51.6 million in cash), $95.2 million ($28.7 million in cash) and $88.3 million ($26.5 million in cash), respectively.

Patrons’ Equities

      Patrons’ equities are in the form of a book entry and represent a right to receive cash or other property when we redeem them. Patrons’ equities form part of our capital, do not bear interest, and are not subject to redemption upon request of a member. Patrons’ equities are redeemable only at the discretion of

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the Board of Directors and in accordance with the terms of the redemption policy adopted by the Board of Directors, which may be modified at any time without member consent. A new policy was adopted effective September 1, 2004, whereby redemptions of capital equity certificates approved by the Board of Directors are divided into two pools, one for non-individuals (primarily member cooperatives) who may participate in an annual pro-rata program for equities older than 10 years, and another for individual members who are eligible for equity redemptions at age 72 or upon death. The amount that each non-individual member receives under the pro-rata program in any year will be determined by multiplying the dollars available for pro-rata redemptions that year as determined by the Board of Directors, by a fraction, the numerator of which is the amount of patronage certificates older than 10 years held by that member, and the denominator, of which is the sum of the patronage certificates older than 10 years held by all eligible non-individual members.

      Cash redemptions of patrons and other equities during the years ended August 31, 2005, 2004 and 2003 were $23.7 million, $10.3 million and $31.1 million, respectively. An additional $20.0 million and $13.0 million of equities were redeemed by issuance of shares of our 8% Cumulative Redeemable Preferred Stock during the years ended August 31, 2005 and 2004, respectively.

Governance

      We are managed by a Board of Directors of not less than 17 persons elected by the members at our annual meeting. Terms of directors are staggered so that no more than seven directors are elected in any year, and after our 2006 elections, if approved, the maximum number of directors elected in any year will be six. The Board of Directors is currently comprised of 17 directors. Our articles of incorporation and bylaws may be amended only upon approval of a majority of the votes cast at an annual or special meeting of our members, except for the higher vote described under “— Certain Antitakeover Measures” below.

Membership

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

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

Voting Rights

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

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

      Most matters submitted to a vote of the members require the approval of a majority of the votes cast at a meeting of the members, although certain actions require a greater vote. See “Certain Antitakeover Measures” below.

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Debt and Equity Instruments

      We may issue debt and equity instruments to our current members and patrons, on a patronage basis or otherwise, and to persons who are neither members nor patrons. Capital Equity Certificates issued by us are subject to a first lien in favor of us for all indebtedness of the holder to us. As of August 31, 2005, our outstanding capital included patrons’ equities (consisting of capital equity certificates and non-patronage earnings certificates), 8% Cumulative Redeemable Preferred Stock and certain capital reserves.

Distribution of Assets upon Dissolution; Merger and Consolidation

      In the event of our dissolution, liquidation or winding up, whether voluntary or involuntary, all of our debts and liabilities would be paid first according to their respective priorities. After such payment, the holders of each share or our preferred stock would then be entitled to receive out of available assets $25.00 per share plus all dividends accumulated and unpaid on that share, whether or not declared, to and including the date of distribution. This distribution to the holders of our preferred stock would be made before any payment is made or assets distributed to the holders of any security that ranks junior to the preferred stock but after the payment of the liquidation preference of any of our securities that rank senior to the preferred stock. After such distribution to the holders of equity capital, any excess would be paid to patrons on the basis of their past patronage. The bylaws provide for the allocation among our members and nonmember patrons of the consideration received in any merger or consolidation to which we are a party.

Certain Antitakeover Measures

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

      The approval of not less than two-thirds of the votes cast at a meeting is required to approve a “change of control” transaction which would include a merger, consolidation, liquidation, dissolution, or sale of all or substantially all of our assets. If the Board of Directors determines that a proposed change of control transaction involves a hostile takeover, the 80% approval requirement applies. The term “hostile takeover” is not further defined in the Minnesota cooperative law or our governing documents.

Tax Treatment

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

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

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

      NCRA is not consolidated for tax purposes.

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ITEM 2. PROPERTIES

      We own or lease energy, grain handling and processing, and agronomy related facilities throughout the United States. Below is a summary of these locations.

Energy

      Facilities in our Energy business segment include the following, all of which are owned except where indicated as leased:

Refinery		Laurel, Montana
Propane terminal		Glenwood, Minnesota
Transportation terminals/ repair facilities		12 locations in Iowa, Kansas, Minnesota, Montana, North Dakota, South Dakota, Texas, Washington and Wisconsin, 3 of which are leased
Petroleum & asphalt terminals/ storage facilities		9 locations in Montana, North Dakota and Wisconsin
Pump stations		11 locations in Montana and North Dakota
Pipelines:
	Cenex Pipeline, LLC	Laurel, Montana to Fargo, North Dakota
	Front Range Pipeline, LLC	Canadian border to Laurel, Montana
Convenience stores/ gas stations		41 locations in Iowa, Minnesota, Montana, North Dakota, South Dakota and Wyoming, 11 of which are leased
Lubricant plants/ warehouses		3 locations in Minnesota, Ohio and Texas, 1 of which is leased

      We have a 74.5% interest in NCRA, which owns and operates the following facilities:

Refinery	McPherson, Kansas
Petroleum terminals/ storage	2 locations in Iowa and Kansas
Pipeline	McPherson, Kansas to Council Bluffs, Iowa
Jayhawk Pipeline, LLC	Throughout Kansas, with branches in Oklahoma and Texas
Jayhawk stations	40 locations located in Kansas and Oklahoma

Ag Business

      Within our Ag Business business segment, we own or lease the following facilities:

Country Operations

      In our country operations, we own 304 agri-operations locations (of which some of the facilities are on leased land), 7 feed manufacturing facilities and 3 sunflower plants located in Minnesota, North Dakota, South Dakota, Montana, Nebraska, Kansas, Colorado, Idaho, Washington and Oregon.

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Grain Marketing

      We use grain terminals in our grain marketing operations at the following locations:

Collins, Mississippi (owned)

Davenport, Iowa (2 owned)

Friona, Texas (owned)

Kalama, Washington (leased)

Minneapolis, Minnesota (owned, idle)

Myrtle Grove, Louisiana (owned)

Savage, Minnesota (owned)

Spokane, Washington (owned)

Superior, Wisconsin (owned)

Winona, Minnesota (1 owned, 1 leased)

Processing

      Within our Processing business segment, we own and lease the following facilities:

Oilseed Processing

      We own a campus in Mankato, Minnesota, comprised of a soybean crushing plant, an oilseed refinery, a soyflour plant, a quality control laboratory and an administration office, and a crushing plant in Fairmont, Minnesota.

Wheat Milling

      We own five flour milling facilities at the following locations, all of which are leased to Horizon Milling:

Rush City, Minnesota

Kenosha, Wisconsin

Houston, Texas

Mount Pocono, Pennsylvania

Fairmount, North Dakota

Corporate Headquarters

      We are headquartered in Inver Grove Heights, Minnesota. We own a 33-acre campus consisting of one main building with approximately 320,000 square feet of office space and two smaller buildings with approximately 13,400 and 9,000 square feet of space.

      Our internet address is www.chsinc.com.

ITEM 3. LEGAL PROCEEDINGS

      We are involved as a defendant in various lawsuits, claims and disputes, which are in the normal course of our business. The resolution of any such matters may affect consolidated net income for any fiscal period; however, our management believes any resulting liabilities, individually or in the aggregate, will not have a material effect on our consolidated financial position, results of operations or cash flows during any fiscal year.

      In October 2003, we and NCRA reached agreement with the Environmental Protection Agency (EPA) and the State of Montana’s Department of Environmental Quality and the State of Kansas Department of Health and Environment, regarding the terms of settlements with respect to reducing air emissions at our Laurel, Montana and NCRA’s McPherson, Kansas refineries. These settlements are part of a series of similar settlements that the EPA has negotiated with major refiners under the EPA’s Petroleum Refinery Initiative. The settlements, which resulted from nearly three years of discussions, take

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the form of consent decrees filed with the U.S. District Court for the District of Montana (Billings Division) and the U.S. District Court for the District of Kansas. Each consent decree details specific capital improvements, supplemental environmental projects and operational changes that we and NCRA have agreed to implement at the relevant refinery over the next several years. The consent decrees also require us and NCRA to pay approximately $0.5 million in aggregate civil cash penalties. We and NCRA anticipate that the aggregate capital expenditures related to these settlements will range from approximately $20.0 million to $25.0 million over the next six years. We do not believe that the settlements will have a material adverse affect on us or NCRA.

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

      None.

PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

      We have approximately 54,300 members, of which approximately 1,700 are cooperative association members and approximately 52,600 are individual members. As a cooperative, we do not have any common equity that is traded.

      On August 31, 2005 we had 4,951,434 shares of 8% Cumulative Redeemable Preferred Stock outstanding, which is listed on the NASDAQ National Market under the symbol CHSCP.

      On April 25, 2003, we issued 298,099 shares of our 8% Cumulative Redeemable Preferred Stock (the “New Shares”) on conversion of 7,452,439 then-outstanding shares of our 8% Preferred Stock (the “Old Shares”). The New Shares were exchanged by us with our existing security holders (the holders of the Old Shares) exclusively and no commission or other remuneration was paid or given directly or indirectly for soliciting the exchange. Accordingly, we relied on the exemption from registration contained in Section 3(a)(9) of the Securities Act of 1933, as amended, for the issuance of the New Shares and did not file a registration statement with the Securities and Exchanges Commission with respect to that issuance.

      Other than the issuance of the New Shares, we have not sold any equity securities during the three years ended August 31, 2005 that were not registered under the Securities Act of 1933, as amended.

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ITEM 6. SELECTED FINANCIAL DATA

      The selected financial information below has been derived from our consolidated financial statements for the years ended August 31. The selected consolidated financial information for August 31, 2005, 2004, and 2003 should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this filing. In May 2005, we sold the majority of our Mexican foods business and have reclassified the Mexican foods business as discontinued operations.

Summary Consolidated Financial Data

			2005			2004			2003			2002			2001
			(Dollars in thousands)
Income Statement Data:
Revenues:
	Net sales		$	11,769,093		$	10,838,542		$	9,196,666		$	7,086,470		$	7,407,883
	Other revenues			171,963			141,165			122,473			107,351			117,378
				11,941,056			10,979,707			9,319,139			7,193,821			7,525,261
Cost of goods sold				11,458,432			10,539,198			8,994,696			6,885,450			7,136,013
Marketing, general and administrative				191,246			195,639			169,298			165,359			168,161
Operating earnings				291,378			244,870			155,145			143,012			221,087
Gain on sale of investments				(13,013	)		(14,666	)
Gain on legal settlements							(692	)		(10,867	)		(2,970	)
Interest				55,137			48,717			46,257			40,852			59,237
Equity income from investments				(95,742	)		(79,022	)		(47,299	)		(58,133	)		(28,494	)
Minority interests				47,736			33,830			21,950			15,390			35,098
Income from continuing operations before income taxes				297,260			256,703			145,104			147,873			155,246
Income taxes				30,434			29,462			16,031			19,881			(24,708	)
Income from continuing operations				266,826			227,241			129,073			127,992			179,954
Loss on discontinued operations, net of taxes				16,810			5,909			5,232			1,854			1,400
Net income			$	250,016		$	221,332		$	123,841		$	126,138		$	178,554
Balance Sheet Data (August 31):
		Working capital	$	758,703		$	493,440		$	458,738		$	249,115		$	305,280
		Net property, plant and equipment		1,359,535			1,249,655			1,122,982			1,057,421			1,023,872
		Total assets		4,726,937			4,031,292			3,807,968			3,481,727			3,057,319
		Long-term debt, including current maturities		773,074			683,818			663,173			572,124			559,997
		Total equities		1,757,897			1,628,086			1,481,711			1,289,638			1,261,153

      The selected financial information below has been derived from our three business segments, and Corporate and Other, for the fiscal years ended August 31, 2005, 2004 and 2003 (for each period below, the amounts have been reclassified to account for the change in our reportable segments described on page 5 of Item I of this Form 10-K). The intercompany sales between segments were $180.8 million, $140.9 million and $97.6 million for the fiscal years ended August 31, 2005, 2004 and 2003, respectively.

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Summary Financial Data by Business Segment

		Energy									Ag Business
		2005			2004			2003			2005			2004			2003
		(Dollars in thousands)
Revenues:
	Net sales	$	5,782,948		$	4,028,248		$	3,648,093		$	5,556,923		$	6,219,917		$	5,228,267
	Other revenues		10,085			9,193			5,655			119,782			92,662			85,256
			5,793,033			4,037,441			3,653,748			5,676,705			6,312,579			5,313,523
Cost of goods sold			5,489,425			3,784,260			3,470,726			5,545,373			6,192,528			5,213,704
Marketing, general and administrative			62,077			66,493			63,740			85,570			86,202			70,193
Operating earnings			241,531			186,688			119,282			45,762			33,849			29,626
Gain on sale of investments			(862	)		(14,666	)					(11,358	)
Gain on legal settlements															(692	)		(10,867	)
Interest			13,947			13,819			16,401			20,535			18,812			16,343
Equity income from investments			(3,478	)		(1,399	)		(1,353	)		(55,473	)		(47,488	)		(19,681	)
Minority interests			46,741			32,507			20,782			(41	)		(24	)		(27	)
Income before income taxes		$	185,183		$	156,427		$	83,452		$	92,099		$	63,241		$	43,858
Intersegment sales		$	(170,642	)	$	(121,199	)	$	(94,209	)	$	(9,640	)	$	(18,372	)	$	(2,650	)
Total identifiable assets — August 31		$	2,238,614		$	1,591,254		$	1,449,652		$	1,604,571		$	1,590,337		$	1,529,211

		Processing									Corporate and Other
		2005			2004			2003			2005			2004			2003
		(Dollars in thousands)
Revenues:
	Net sales	$	610,006		$	731,311		$	417,863
	Other revenues		1,522			2,698			2,306		$	40,574		$	36,612		$	29,256
			611,528			734,009			420,169			40,574			36,612			29,256
Cost of goods sold			604,418			703,344			407,823
Marketing, general and administrative			18,292			19,166			15,256			25,307			23,778			20,109
Operating (losses) earnings			(11,182	)		11,499			(2,910	)		15,267			12,834			9,147
Gain on sale of investments			(457	)								(336	)
Gain on legal settlements Interest			12,287			12,399			10,427			8,368			3,687			3,086
Equity income from investments			(36,202	)		(29,966	)		(26,056	)		(589	)		(169	)		(209	)
Minority interests												1,036			1,347			1,195
Income before income taxes		$	13,190		$	29,066		$	12,719		$	6,788		$	7,969		$	5,075
Intersegment sales		$	(502	)	$	(1,363	)	$	(698	)
Total identifiable assets — August 31		$	420,373		$	415,761		$	440,122		$	463,379		$	433,940		$	388,983

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

Overview

      The following discussions of financial condition and results of operations should be read in conjunction with the accompanying audited financial statements and notes to such statements and the cautionary statement regarding forward-looking statements found at the beginning of Part I, Item 1, of this Form 10-K. This discussion contains forward-looking statements based on current expectations, assumptions, estimates and projections of management. Actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, as more fully described in the cautionary statement and elsewhere in this Form 10-K.

      CHS Inc. (CHS, we or us) is a diversified company, which provides grain, foods and energy resources to businesses and consumers. As a cooperative, we are owned by farmers, ranchers and their local cooperatives from the Great Lakes to the Pacific Northwest and from the Canadian border to Texas. We also have preferred stockholders that own shares of our 8% Cumulative Redeemable Preferred Stock.

      We provide a full range of production agricultural inputs such as refined fuels, propane, farm supplies, animal nutrition and agronomy products, as well as services, which include hedging, financing and insurance services. We own and operate petroleum refineries and pipelines and market and distribute refined fuels and other energy products under the Cenex® brand through a network of member cooperatives and independents. We purchase grains and oilseeds directly and indirectly from agricultural producers primarily in the midwestern and western United States. These grains and oilseeds are either sold to domestic and international customers, or further processed into a variety of food products.

      On January 1, 2005, we realigned our business segments based on an assessment of how our businesses operate and the products and services they sell. As a result of this assessment, leadership changes were made, including the naming of a new executive vice president and chief operating officer, so that we now have three chief operating officers to lead our three business segments: Energy, Ag Business and Processing. Prior to the realignment, we operated five business segments: Agronomy, Energy, Country Operations and Services, Grain Marketing, and Processed Grains and Foods. Together, our three business segments create vertical integration to link producers with consumers. Our Energy segment produces and provides for the wholesale distribution of petroleum products and transportation. Our Ag Business segment purchases and resells grains and oilseeds originated by our country operations, by our member cooperatives and by third parties, and also serves as wholesaler and retailer of crop inputs. Our Processing segment converts grains and oilseeds into value-added products.

      Summary data for each of our business segments for the fiscal years ended August 31, 2005, 2004 and 2003 is provided in Item 6 “Selected Financial Data”. Except as otherwise specified, references to years indicate our fiscal year ended August 31, 2005 or ended August 31 of the year referenced.

      Corporate administrative expenses are allocated to all three business segments, and Corporate and Other, based on either direct usage for services that can be tracked, such as information technology and legal, and other factors or considerations relevant to the costs incurred.

      Many of our business activities are highly seasonal and operating results will vary throughout the year. Overall, our income is generally lowest during the second fiscal quarter and highest during the third fiscal quarter. Our business segments are subject to varying seasonal fluctuations. For example, in our Ag Business segment, agronomy and country operations businesses experience higher volumes and income during the spring planting season and in the fall, which corresponds to harvest. Also in our Ag Business segment, our grain marketing operations are subject to fluctuations in volume and earnings based on producer harvests, world grain prices and demand. Our Energy segment generally experiences higher volumes and profitability in certain operating areas, such as refined products, in the summer and early fall when gasoline and diesel fuel usage is highest and is subject to global supply and demand forces. Other energy products, such as propane, may experience higher volumes and profitability during the winter heating and crop drying seasons.

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

      While our sales and operating results are derived from businesses and operations which are wholly-owned and majority-owned, a portion of business operations are conducted through companies in which we hold ownership interests of 50% or less and do not control the operations. We account for these investments primarily using the equity method of accounting, wherein we record our proportionate share of income or loss reported by the entity as equity income from investments, without consolidating the revenues and expenses of the entity in our Consolidated Statements of Operations. These investments principally include our 50% ownership in each of the following companies: Agriliance, LLC (Agriliance), TEMCO, LLC (TEMCO) and United Harvest, LLC (United Harvest) included in our Ag Business segment; Ventura Foods, LLC (Ventura Foods) and our 24% ownership in Horizon Milling, LLC (Horizon Milling) included in our Processing segment; and our 49% ownership in Cofina Financial, LLC (Cofina) included in Corporate and Other.

      Agriliance is owned and governed by United Country Brands, LLC (50%) and Land O’Lakes, Inc. (50%). United Country Brands, LLC, was initially owned and governed 50% by us and 50% by Farmland Industries, Inc. (Farmland), and was formed solely to hold a 50% interest in Agriliance. Initially, our indirect share of earnings (economic interest) in Agriliance was 25%, which was the same as our ownership or governance interest. In April 2003, we acquired an additional 13.1% economic interest in the wholesale crop protection business of Agriliance (the “CPP Business”), which constituted only a part of the Agriliance business operations, for a cash payment of $34.3 million. After the transaction, the economic interests in Agriliance were owned 50% by Land O’Lakes, 25% plus an additional 13.1% of the CPP Business by us and 25% less 13.1% of the CPP Business by Farmland. The ownership or governance interests in Agriliance did not change with the purchase of this additional economic interest. Agriliance’s earnings were split among the members based upon the respective economic interests of each member. On April 30, 2004, we purchased all of Farmland’s remaining interest in Agriliance for $27.5 million in cash. We now own 50% of the economic and governance interests in Agriliance, held through our 100% ownership interest in United Country Brands, LLC, and continue to account for this investment using the equity method of accounting.

      In May 2005, we sold the majority of our Mexican foods business for proceeds of $38.3 million resulting in a loss on disposition of $6.2 million. Assets of $4.6 million (primarily property, plant and equipment) are still held for sale at August 31, 2005, but no material gain or loss is expected upon disposition of the remaining assets. The operating results of the Mexican Foods business have been reclassified and reported as discontinued operations for all periods presented.

      The consolidated financial statements include the accounts of CHS and all of our wholly-owned and majority-owned subsidiaries, including the National Cooperative Refinery Association (NCRA), which is in our Energy segment. All significant intercompany accounts and transactions have been eliminated.

Recent Events

      On November 17, 2005, we made a cash investment of $35 million in US BioEnergy Corporation for an approximate 28% interest in the company. US BioEnergy Corporation is an ethanol production and marketing firm which currently has two ethanol plants under construction in Albert City, Iowa and Lake Odessa, Michigan.

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Results of Operations

Comparison of the years ended August 31, 2005 and 2004

      General. We recorded income from continuing operations before income taxes of $297.3 million in fiscal 2005 compared to $256.7 million in fiscal 2004, an increase of $40.6 million (16%). These results reflected increased pretax earnings in our Ag Business and Energy segments, partially offset by decreased earnings in our Processing segment and Corporate and Other.

      Our Energy segment generated income from continuing operations before income taxes of $185.2 million for the year ended August 31, 2005 compared to $156.4 million in the prior year. This increase in earnings of $28.8 million (18%) is primarily attributable to higher margins on refined fuels, which resulted mainly from limited refining capacity and increased global demand. Earnings on our lubricants operations also improved compared to the previous year. These improvements were partially offset by decreased earnings in our propane and transportation businesses.

      Our Ag Business segment generated income from continuing operations before income taxes of $92.1 million for the year ended August 31, 2005 compared to $63.2 million in the prior year, an increase in earnings of $28.9 million (46%). All three operations that comprise this business segment generated improved earnings in fiscal 2005 compared to fiscal 2004 results. Our grain marketing operations improved earnings by $5.8 million in fiscal 2005 compared with fiscal 2004, of which $11.3 million of the increase is attributable to a situation in fiscal 2004 involving export contracts to China. During fiscal 2004, we, along with several other international grain marketing companies, experienced contract issues with Chinese customers for soybeans. Because the market value of soybeans had declined between the date of the contracts and the delivery date, certain Chinese customers indicated their intent of nonperformance on these contracts. At that time, based upon our assessment of the impact of default, we valued those contracts at $18.5 million less than current market value, which was recorded as an addition to cost of goods sold in 2004. Our country operations earnings increased $2.1 million, primarily as a result of improved margins. Strong export demand to Asia favored shuttle train movement to the west coast, and many of our country elevators were positioned to take advantage of that market. Our share of wholesale agronomy earnings generated through our agronomy ownership interests, primarily Agriliance, net of certain allocated internal expenses, increased $11.3 million. Strong grain prices during 2004 encouraged producers to increase planted acres and to purchase agronomy products to optimize yields in 2005.

      Also affecting the agronomy business of our Ag Business segment, during the first quarter of fiscal 2005 we evaluated the carrying value of our investment in CF Industries, Inc. (CF), a domestic fertilizer manufacturer in which we held a minority interest. Our carrying value at that time of $153.0 million consisted primarily of non-cash patronage refunds received from CF over the years. Based upon indicative values from potential strategic buyers for the business and through other analyses, we determined at that time that the carrying value of our CF investment should be reduced by $35.0 million, resulting in an impairment charge to our first quarter in fiscal 2005. The net effect to first fiscal quarter in 2005 income after taxes was $32.1 million.

      In February 2005, after reviewing indicative values from strategic buyers, the board of directors of CF determined that a greater value could be derived for the business through an initial public offering of stock in the company. The initial public offering was completed in August 2005. Prior to the initial public offering, we held an ownership interest of approximately 20% in CF. Through the initial public offering, we sold approximately 81% of our ownership interest for cash proceeds of approximately $140.4 million. Our book basis in the portion of our ownership interest sold through the initial public offering, after the $35.0 million impairment charge recognized in our first fiscal quarter results, was $95.8 million. As a result, we recognized a pretax gain of $44.6 million on the sale of that ownership interest during the fourth quarter of fiscal 2005. This gain, net of the impairment loss of $35.0 million recognized during the first quarter of fiscal 2005, resulted in a $9.6 million pretax gain recognized during fiscal 2005. The net effect to fiscal 2005 income, after taxes, is $8.8 million.

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      Our Processing segment generated income from continuing operations before income taxes of $13.2 million for the year ended August 31, 2005 compared to $29.1 million in the prior year, a decrease in earnings of $15.9 million (55%). Oilseed processing earnings decreased $21.7 million, which was primarily the result of lower crushing margins, partially offset by improved oilseed refining margins. The lower crushing margins are due to higher raw material costs and crushing over-capacity in the geographical area around our plants. Higher demand for soybeans in foreign markets has increased the cost of soybeans used in our crushing operations, and lower-cost soybeans from areas less effected by export demand allowed soybean meal to be shipped into our trade area at costs competitive with our own. This basis difference in the price of soybeans in our geographical area compared to other areas of the country also impaired our ability to ship soybean meal to more distant markets with less local crushing capacity, which resulted in poor margins on soybean meal. We believe that this will be a continued problem in the near future, but may be at least partially mitigated by increased exports of soybeans from South America to Asia. Refined soybean oil, which has more of a national market, enjoyed improved margins over those generated in the prior fiscal year. Our share of earnings from Horizon Milling, our wheat milling joint venture, decreased $2.4 million for the year ended August 31, 2005 compared to the prior year. In addition, we recorded a loss of $2.4 million in fiscal 2005 on the disposition of wheat milling equipment at a closed facility. Partially offsetting these decreases in earnings was our share of earnings from Ventura Foods, our packaged foods joint venture, which increased $8.5 million compared to the prior year. Ventura Foods experienced rapidly increasing soybean oil costs in fiscal 2004 which could not be passed on to customers as quickly as the additional costs were incurred. During fiscal 2005, soybean oil costs were less volatile which allowed Ventura Foods to adjust sales prices and even increase market share for several categories of products.

      Corporate and Other generated income from continuing operations before income taxes of $6.8 million for the year ended August 31, 2005 compared to $8.0 million in the prior year, a decrease in earnings of $1.2 million (15%). The primary decrease in earnings was in our business solutions operations which reflected decreased earnings of $1.1 million, primarily as a result of reduced hedging and insurance income. Less volatility in grain prices affected hedging commissions and lower insurance premiums upon which we are paid a commission reduced insurance income.

      Net Income. Consolidated net income for the year ended August 31, 2005 was $250.0 million compared to $221.3 million for the year ended August 31, 2004, which represents a $28.7 million (13%) increase.

      Net Sales. Consolidated net sales of $11.8 billion for the year ended August 31, 2005 compared to $10.8 billion for the year ended August 31, 2004, which represents a $930.6 million (9%) increase.

      Our Energy segment net sales, after elimination of intersegment sales, of $5.6 billion increased $1,705.3 million (44%) during the year ended August 31, 2005 compared to the year ended August 31, 2004. During the year ended August 31, 2005 and 2004, our Energy segment recorded sales to our Ag Business segment of $170.6 million and $121.2 million, respectively. The net sales increase of $1,705.3 million is comprised of a net increase of $1,549.8 million related to price appreciation on refined fuels and propane products and $155.5 million related to a net increase in sales volume. Refined fuels net sales increased $1,360.6 million (48%), of which $1,112.5 million was related to a net average selling price increase and $248.1 million was related to increased volumes. The sales price of refined fuels increased $0.43 per gallon (39%) and volumes increased 6% when comparing the year ended August 31, 2005 with the same period a year ago. Higher crude oil costs, strong global demand and limited refining capacity contributed to the increase in refined fuels selling prices. Propane net sales increased by $154.7 million (30%), of which $140.3 million was related to a net average selling price increase and $14.4 million was due to increased volumes compared to the same period in the previous year. Propane prices increased $0.19 per gallon (28%) and sales volume increased 2% in comparison to the same period of the prior year. Propane prices tend to follow the prices of crude oil and natural gas, both of which increased during the year ended August 31, 2005 compared to the same period in 2004.

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      Our Ag Business segment net sales, after elimination of intersegment sales, of $5.5 billion decreased $654.3 million (11%) during the years ended August 31, 2005 compared to the year ended August 31, 2004. Grain net sales in our Ag Business segment totaled $4,613.6 million and $5,346.9 million during the year ended August 31, 2005 and 2004, respectively. The grain net sales decrease of $733.3 million (14%) is attributable to decreased average selling grain prices of $389.0 million, and $344.3 million was related to decreased volumes during the year ended August 31, 2005 compared to the same period last fiscal year. The average sales price of all grain and oilseed commodities sold reflected a decrease of $0.33 per bushel (7%). Commodity prices in general decreased following a strong fall 2004 harvest that produced good yields throughout most of the United States, with the quality of most grains rated as excellent or good. The large harvest assured domestic end users of grain that there would likely be adequate supply throughout the year, which had the effect of reducing nearby purchases and hence, our sales volume. The average market price per bushel of soybeans, spring wheat and corn were approximately $1.84, $0.50 and $0.70, respectively, less than the prices on those same grains as compared to the year ended August 31, 2004. Volumes decreased 7% during the year ended August 31, 2005 compared with the same period of a year ago. Corn and winter wheat reflect the largest volume decreases compared to the year ended August 31, 2004. It appears there will again be a large harvest in 2005, which is well underway in most of the geographical areas covered by our country elevator system, and in combination with grain still owned by producers from the 2004 harvest, has resulted in low grain prices for fall delivery and a carry market for delivery into the winter months. Our Ag Business segment non-grain net sales of $933.7 million increased by $79.0 million (9%) during the year ended August 31, 2005 compared to the year ended August 31, 2004, primarily the result of increased sales of energy and crop nutrient products, partially offset by decreased feed and processed sunflower sales. The average selling price of energy products increased due to overall market conditions while volumes were fairly consistent to the year ended August 31, 2004.

      Our Processing segment net sales, after elimination of intersegment sales, of $609.5 million decreased $120.4 million (17%) during the year ended August 31, 2005 compared to the year ended August 31, 2004. Because our wheat milling and packaged foods operations are operated through non-consolidated joint ventures, sales reported in our Processing segment are entirely from our oilseed processing operations. A lower average sales price reduced processed oilseed sales dollars by $109.2 million, and an 11% increase in volumes partially offset that variance by $31.7 million. Oilseed refining sales decreased $42.9 million (12%), of which $37.6 million was due to lower average sales price and $5.3 million due to a 2% net decrease in sales volume. The average selling price of processed oilseed decreased $68 per ton and the average selling price of refined oilseed products decreased $0.03 per pound compared to the same period of the previous year. These changes in the selling price of products are primarily driven by the price of soybeans. In 2004, the U.S. experienced a short soybean crop and strong export demand. That combination drove soybean prices to near record high levels. Soybean prices throughout most of fiscal 2005 were at more normal levels.

      Other Revenues. Other revenues of $172.0 million increased $30.8 million (22%) during the year ended August 31, 2005 compared to the year ended August 31, 2004. The majority of our other revenue is generated within our Ag Business segment and Corporate and Other. Our Ag Business segment’s country operations elevator and agri-service centers derives other revenues from activities related to production agriculture, which include grain storage, grain cleaning, fertilizer spreading, crop protection spraying and other services of this nature, and our grain marketing operations receives other revenues at our export terminals from activities related to loading vessels. Other revenues within our Ag Business segment increased $27.1 million (29%) primarily due to increased grain storage, grain marketing services and drying revenues, and revenues within Corporate and Other increased $4.0 million (11%) related to additional financing income as compared to the previous year.

      Cost of Goods Sold. Cost of goods sold of $11.5 billion increased $919.2 million (9%) during the year ended August 31, 2005 compared to the year ended August 31, 2004.

      Our Energy segment cost of goods sold, after elimination of intersegment costs, of $5.3 billion increased by $1,655.7 million (45%) during the year ended August 31, 2005 compared to the same period of the prior year, primarily due to increased average costs of refined fuels and propane products. On a

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more product-specific basis, the average cost of refined fuels increased by $0.43 (40%) per gallon and volumes increased 6% compared to the year ended August 31, 2004. We process approximately 55,000 barrels of crude oil per day at our Laurel, Montana refinery and 80,000 barrels of crude oil per day at NCRA’s McPherson, Kansas refinery. The average cost increase on refined fuels is reflective of higher input costs at our two crude oil refineries and higher average prices on the refined products that we purchased for resale compared to the year ended August 31, 2004. The average per unit cost of crude oil purchased for the two refineries increased 42% compared to the year ended August 31, 2004. The average cost of propane increased $0.20 (29%) per gallon and volumes increased by 2% compared to the year ended August 31, 2004. The average price of propane increased due to higher procurement costs.

      Our Ag Business segment cost of goods sold, after elimination of intersegment costs, of $5.5 billion decreased $638.4 million (10%) during the year ended August 31, 2005 compared to the same period of the prior year. Grain cost of goods sold in our Ag Business segment totaled $4,550.2 million and $5,279.4 million during the years ended August 31, 2005 and 2004, respectively. The cost of grains and oilseed procured through our Ag Business segment decreased $729.2 million (14%) compared to the year ended August 31, 2004, primarily the result of a $0.33 (7%) average cost per bushel decrease and a 7% decrease in volumes as compared to the prior year. Corn and winter wheat reflected the largest volume decreases compared to the year ended August 31, 2004. Commodity prices on soybeans, spring wheat and corn have decreased compared to the high prices that were prevalent during the majority of fiscal 2004. Our Ag Business segment cost of goods sold, excluding the cost of grains procured through this segment, increased during the year ended August 31, 2005 compared to the year ended August 31, 2004, primarily due to energy and crop nutrient products, partially offset by decreased cost of feed and processed sunflower products. The average cost of energy products increased due to overall market condition while volumes stayed fairly consistent to the year ended August 31, 2004.

      Our Processing segment cost of goods sold, after elimination of intersegment costs, of $603.9 million decreased $98.1 million (14%) compared to the year ended August 31, 2004, which was primarily due to decreased input costs of soybeans processed at our two crushing plants.

      Marketing, General and Administrative. Marketing, general and administrative expenses of $191.2 million for the year ended August 31, 2005 decreased by $4.4 million (2%) compared to the year ended August 31, 2004. The net decrease of $4.4 million primarily relates to reduced bad debt and technology expenses as compared to the prior year, mostly in our Energy segment.

      Gain on Sale of Investments. During the fourth quarter of fiscal 2005, we sold approximately 81% of our investment in CF Industries, Inc. through an initial public offering of our equity in that company. We received cash proceeds of $140.4 million and recorded a gain of $9.6 million, net of an impairment charge of $35.0 million recognized during the first quarter of fiscal 2005. This gain is reflected within the results reported for our Ag Business segment.

      During the second quarter of fiscal 2005, we sold stock representing a portion of our investment in a publicly-traded company for cash proceeds of $7.4 million and recorded a gain of $3.4 million.

      During the third quarter of fiscal 2004, we recorded a gain of $14.7 million within our Energy segment for the sale of a portion of a petroleum crude oil pipeline held by our 74.5% owned subsidiary, NCRA. NCRA exercised its right of first refusal to purchase a partial interest in this pipeline, and subsequently sold a 50% interest to another third party for cash proceeds of $25.0 million.

      Gain on Legal Settlements. Our Ag Business segment received cash of $0.7 million during the year ended August 31, 2004 from the settlement of a class action lawsuit alleging illegal price fixing against various feed vitamin product suppliers.

      Interest. Interest expense of $55.1 million for the year ended August 31, 2005 increased by $6.4 million (13%) compared to the year ended August 31, 2004. In September 2004, we increased our long-term debt by entering into a private placement with several insurance companies for long-term debt in the amount of $125.0 million with an interest rate of 5.25%, for the purpose of financing the final stages of the ultra-low sulfur upgrades at our energy refineries. In addition to the increased interest related to the

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private placement, the average short-term interest rate increased 1.50%. Partially offsetting the increases in interest expense was the average level of short-term borrowings, which decreased $211.7 million during fiscal 2005 compared to the year ended August 31, 2004. For the fiscal years ended August 31, 2005 and 2004, we capitalized interest of $6.8 million and $2.8 million, respectively, related to capitalized construction projects.

      Equity Income from Investments. Equity income from investments of $95.7 million for the year ended August 31, 2005 favorably changed by $16.7 million (21%) compared to the year ended August 31, 2004. We record equity income or loss from the investments in which we have an ownership interest of 50% or less and have significant influence, but not control, for our proportionate share of income or loss reported by the entity, without consolidating the revenues and expenses of the entity in our Consolidated Statements of Operations. The net increase in equity income from investments was attributable to improved earnings from investments within our Ag Business, Processing and Energy segments and Corporate and Other of $8.0 million, $6.2 million, $2.1 million and $0.4 million, respectively.

      Our Ag Business segment generated improved earnings of $8.0 million from equity investments. Our investments in a Canadian joint venture contributed improved earnings primarily from their joint ventures of $2.9 million. Our share of equity investment in Agriliance increased $3.8 million and primarily relates to improved margins in crop protection products, partially offset by reduced margins in retail operations. Our equity income from our investment in TEMCO, a joint venture, which exports primarily corn and soybeans contributed improved earnings of $0.3 million, and our wheat exporting investment in United Harvest contributed improved earnings of $0.3 million. Our country operations also had increases in equity investments of $0.6 million.

      Our Processing segment generated improved earnings of $6.2 million from equity investments. Ventura Foods, our vegetable oil-based products and packaged foods joint venture, recorded increased earnings of $8.5 million, partially offset by Horizon Milling, our wheat milling joint venture, which recorded decreased earnings of $2.4 million compared to the same period in the previous year. During fiscal 2004, Ventura Foods faced rapidly increasing costs for soybean oil which it was unable to pass through in the form of price increases to customers. This year, soybean prices were far less volatile so a more normal gross margin was maintained. Horizon Milling’s results are primarily affected by U.S. dietary habits. Although the preference for a low carbohydrate diet appears to have reached the bottom of its cycle, milling capacity which had been idled over the past few years because of lack of demand for flour products can easily be put back in production as consumption of flour products increases, which will continue to depress gross margins in the milling industry.

      Our Energy segment generated improved earnings of $2.1 million related to improved margins in an NCRA equity investment, and Corporate and Other generated improved earnings of $0.4 million from equity investments as compared to the year ended August 31, 2004.

      Minority Interests. Minority interests of $47.7 million for the year ended August 31, 2005 increased by $13.9 million (41%) compared to the year ended August 31, 2004. This increase was primarily a result of more profitable operations within our majority-owned subsidiaries compared to the prior year. Substantially all minority interests relate to NCRA, an approximately 74.5% owned subsidiary, which we consolidate in our Energy segment.

      Income Taxes. Income tax expense, excluding discontinued operations, of $30.4 million for the year ended August 31, 2005 compares with $29.5 million for the year ended August 31, 2004, resulting in effective tax rates of 10.2% and 11.5%, respectively. The federal and state statutory rate applied to nonpatronage business activity was 38.9% for the years ended August 31, 2005 and 2004. The income taxes and effective tax rate vary each year based upon profitability and nonpatronage business activity during each of the comparable years.

      Discontinued Operations. During the year ended August, 31, 2005, we reclassified our Mexican foods operations, previously reported in Corporate and Other, along with gains and losses recognized on sales of assets, and impairments on assets for sale, as discontinued operations that were sold or have met required

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criteria for such classification. In our consolidated statements of operations, all of our Mexican foods operations have been accounted for as discontinued operations. Accordingly, current and prior operating results have been reclassified to report those operations as discontinued. The loss amounts recorded for the years ended August 31, 2005 and 2004 were $27.5 million ($16.8 million, net of taxes) and $9.7 million ($5.9 million, net of taxes), respectively.

Comparison of the years ended August 31, 2004 and 2003

      General. We recorded income from continuing operations before income taxes of $256.7 million in fiscal 2004 compared to $145.1 million in fiscal 2003, an increase of $111.6 million (77%). These results reflected increased pretax earnings in each of our business segments and Corporate and Other.

      Our Energy segment generated income from continuing operations before income taxes of $156.4 million for the year ended August 31, 2004 compared with $83.5 million in the prior year. This increase in earnings of $72.9 million (87%) is primarily attributable to higher margins on refined fuels products, which resulted mainly from increased global demand. Earnings on our lubricants, propane and transportation operations also improved compared to the previous year.

      Our Ag Business segment generated income from continuing operations before income taxes of $63.2 million for the year ended August 31, 2004 compared to $43.9 million in the prior year. This increase in earnings of $19.3 million (44%) is primarily attributable to the acquisition of Farmland’s interests in Agriliance in April 2004, as previously discussed, which represents $7.3 million of the increase in earnings, and improved Agriliance earnings from operations of $6.7 million. Our country operations business generated pretax earnings of $27.2 million for the year ended August 31, 2004 compared to $26.6 million in the prior year. This increase in earnings of $0.6 million (2%) resulted primarily from strong operating margins in energy, seed, agronomy and processed sunflower products. During 2004 and 2003, our country operations business recorded $0.7 million and $10.9 million of earnings, respectively, from the cash settlements of a class action lawsuit alleging illegal price fixing against various feed vitamin product suppliers.

      Our grain marketing operations generated pretax earnings of $8.5 million for the year ended August 31, 2004 compared to $3.7 million in the prior year. This increase in earnings of $4.8 million (127%) includes improved earnings in our two exporting joint ventures, TEMCO and United Harvest. Short supplies that created strong demands for wheat, corn and soybeans along with favorable ocean freight spreads from the Pacific Northwest to Asia contributed to the improved earnings for these two joint ventures. During fiscal 2004, we, along with several other international grain marketing companies, experienced contract issues with Chinese customers for soybeans. Because the market value of soybeans had declined between the date of the contracts and the delivery date, certain Chinese customers indicated their intent of nonperformance on these contracts. At that time, based upon our assessment of the impact of default, we valued those contracts at $18.5 million less than current market value, which was recorded as an addition to cost of goods sold in 2004. We had established receivables for the expected proceeds, which approximated the valuation placed on the contracts on May 31, 2004, and therefore, there was no additional impact on our net income during the fourth quarter of 2004.

      Our Processing segment generated income from continuing operations before income taxes of $29.1 million for the year ended August 31, 2004 compared to $12.7 million in the prior year. This increase in earnings of $16.4 million (129%) was primarily the result of improved crushing and refining margins within our oilseed processing operations, accounting for $14.0 million of the improvement in earnings. A poor 2003 harvest of soybeans in the U.S. because of weather conditions coupled with strong export demand put soybeans in short supply, which widened soybean meal and oil margins throughout most of fiscal 2004. Earnings from our wheat milling joint venture, Horizon Milling, improved $3.0 million in fiscal 2004, partially offset by an impairment of $1.0 million related to idle equipment at a closed facility. Our share of earnings from Ventura Foods, our packaged foods joint venture, increased $0.9 million compared to the prior year.

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      Net Income. Consolidated net income for the year ended August 31, 2004 was $221.3 million compared to $123.8 million for the year ended August 31, 2003, which represents a $97.5 million (79%) increase.

      Net Sales. Consolidated net sales of $10.8 billion for the year ended August 31, 2004 compared to $9.2 billion for the year ended August 31, 2003, represents a $1,641.9 million (18%) increase.

      Our Energy segment net sales, after elimination of intersegment sales, of $3.9 billion increased $353.2 million (10%) during the year ended August 31, 2004 compared to the year ended August 31, 2003. During the years ended August 31, 2004 and 2003, our Energy segment recorded sales to our Ag Business segment of $121.2 million and $94.2 million, respectively. The net sales increase of $353.2 million is comprised of an increase of $578.9 million related to price appreciation and a decrease in sales of $225.7 million because of lower sales volume, primary on refined fuels and propane products. On a more product-specific basis, we own and operate two crude oil refineries from which we produce approximately 60% of the refined fuel products that we sell, and the balance is purchased from other U.S. refiners and distributors. Refined fuels net sales increased $317.9 million (13%), of which $444.4 million was related to a net average price increase, partially offset by a decrease of $126.5 million related to reduced volumes. Our price of refined fuels increased $0.17 per gallon (18%) and volumes decreased 4%, when comparing the year ended August 31, 2004 with the same period a year ago. Higher crude oil costs and global supply and demand forces contributed to the increase in our refined fuels selling prices. Our volume of refined fuels sales decreased primarily because of the non-renewal of a supply agreement with another refiner. Propane net sales increased by $33.1 million (7%), of which $84.6 million was related to a net average selling price increase, partially offset by a decrease of $51.5 million due to reduced volumes compared to the previous year. Our propane prices increased $0.10 per gallon (18%) and sales volume decreased 9% in comparison to the same period the prior year. Higher propane prices reflect lower industry stocks during the later part of 2003 as the result of a cold winter earlier in the calendar year. The lower sales volume for our propane during the year ended August 31, 2004 is primarily reflective of a dry autumn which offered minimal opportunity for sales related to crop drying and a relatively warm early winter, which reduced demand for home heating, as compared to the same period in 2003.

      Our Ag Business segment net sales, after elimination of intersegment sales, of $6.2 billion increased $975.9 million (19%) during the year ended August 31, 2004 compared to the year ended August 31, 2003. Grain net sales in our Ag Business segment totaled $5,346.9 million and $4,479.8 million during the years ended August 31, 2004 and 2003, respectively. The grain net sales increase of $867.1 million (19%) is attributable to increased average selling grain prices of $484.5 million, and $382.6 million was related to increased volumes during the year ended August 31, 2004 compared to the same period the previous fiscal year. The average sales price of all grain and oilseed commodities sold reflected an increase of $0.44 per bushel (11%) and our volumes increased 8% during the year ended August 31, 2004 compared with the same period of a year ago. Commodity prices in general increased due to a poor 2003 harvest in the U.S. because of weather conditions which caused a shortage of grains and oilseeds. The average market price per bushel of soybeans, corn and spring wheat was $2.34, $0.37 and $0.25 greater than the prices on those same grains as compared to the year ended August 31, 2003. Wheat, corn and soybeans reflected our largest volume increases. Demand from Chinese customers increased international exports of soybeans. Our Ag Business segment non-grain net sales of $854.6 million increased by $108.9 million (15%) during the year ended August 31, 2004 compared to the year ended August 31, 2003, primarily the result of increased average selling prices on energy, crop nutrients, seed and processed sunflower products. In addition, our country operations volumes are up due to acquisitions.

      Our Processing segment net sales, after elimination of intersegment sales, of $729.9 million increased $312.8 million (75%) during the year ended August 31, 2004 compared to the year ended August 31, 2003. Sales in processing are entirely our oilseed sales, of which $159.6 of the increase was due to price appreciation and $153.2 million was due to higher sales volumes. The average selling price of processed and refined oilseed products increased $77 per ton and $0.08 per pound, respectively, compared to the previous year. The volume increase is primarily due to the additional volumes from our crushing plant in

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Fairmont, Minnesota which began operations during the first quarter of fiscal year 2004. The price increase is primarily related to overall global market conditions for soybean oil.

      Other Revenues. Other revenues of $141.2 million increased $18.7 million (15%) during the year ended August 31, 2004 compared to the year ended August 31, 2003. The majority of our other revenue is generated within our Ag Business segment and Corporate and Other. Our Ag Business segment’s country operations elevator and agri-service centers derives other revenues from activities related to production agriculture which include grain storage, grain cleaning, fertilizer spreading, crop protection spraying and other services of this nature, and our grain marketing operations receives other revenues at our export terminals from activities related to loading vessels. Other revenues within our Ag Business segment increased $7.4 million (9%), which includes grain marketing services revenues and delivery income increases of $4.5 million compared to the year ended August 31, 2003. Our Energy segment received $2.1 million of sulfur allotment recovery for the sale of a portion of its sulfur credits. In addition, we received patronage refunds of $7.7 million during the year ended August 31, 2004, an increase of $4.5 million (137%) compared to the previous year. The increase in patronage refunds is primarily the result of a patronage distribution in one of our cooperative investments, which was related to gains on legal settlements and on the sale of a warehouse facility. Other revenues within Corporate and Other improved $7.4 million (25%) related to increased revenue from commodity hedging and insurance services as compared to the previous year.

      Cost of Goods Sold. Cost of goods sold of $10.5 billion increased $1,544.5 million (17%) during the year ended August 31, 2004 compared to the year ended August 31, 2003.

      Our Energy segment cost of goods sold, after elimination of intersegment costs, of $3.8 billion increased by $286.5 million (8%) during the year ended August 31, 2004 compared to the same period of the prior year, primarily due to increased average costs, which was partially offset by reduced volumes. On a more product-specific basis, the average cost of refined fuels increased by $0.16 (17%) per gallon, which was partially offset by a 4% decrease in volumes compared to the year ended August 31, 2003. The average cost increase on refined fuels is reflective of higher input costs at our two crude oil refineries and higher average prices on the refined products that are purchased for resale compared to the year ended August 31, 2003. The average per unit cost of crude oil purchased for our two refineries increased 15% compared to the previous fiscal year. The average cost of propane increased $0.11 (19%) per gallon, which was partially offset by a 9% decrease in volumes compared to the year ended August 31, 2003. Propane volumes were reduced due to a dry autumn and relatively warm early winter, which was partially offset by an average cost increase due to higher procurement costs compared to the year ended August 31, 2003.

      Our Ag Business segment cost of goods sold, after elimination of intersegment costs, of $6.2 billion increased $963.1 million (18%) during the year ended August 31, 2004 compared to the same period of the prior year. Grain cost of goods sold in our Ag Business segment totaled $5,279.4 million and $4,421.8 million during the years ended August 31, 2004 and 2003, respectively. The cost of grains and oilseed procured through our Ag Business segment increased $857.6 million (19%) compared to the year ended August 31, 2003, primarily the result of a $0.43 (11%) average cost per bushel increase and an 8% increase in volumes compared to the prior year. In addition to higher commodity prices, increased shipping costs and the $18.5 million net effect of the Chinese contract defaults, previously discussed, contributed to the net increase in cost of goods sold. Our Ag Business segment cost of goods sold, excluding the cost of grains procured through this segment, increased $105.5 million (13%) during the year ended August 31, 2004 compared to the year ended August 31, 2003, primarily due to an increased average cost per unit on energy products and crop nutrients, and additional volumes from acquisitions.

      Our Processing segment cost of goods sold, after elimination of intersegment costs, of $702.0 million increased by $294.9 million (72%) compared to the year ended August 31, 2003, which was primarily due to additional volumes of soybeans processed at our crushing plant in Fairmont, Minnesota and increased cost of raw materials in oilseed processing.

      Marketing, General and Administrative. Marketing, general and administrative expenses of $195.6 million for the year ended August 31, 2004 increased by $26.3 million (16%) compared to the year

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ended August 31, 2003. The net increase includes additional expenses due to increased retiree benefit expenses of $4.9 million, higher healthcare costs and other employee related benefits, and $5.4 million of additional bad debt expenses in our Ag Business segment and Corporate and Other.

      Gain on Sale of Investments. During the year ended August 31, 2004, we recorded a gain of $14.7 million within our Energy segment from the sale of a portion of a petroleum crude oil pipeline investment. NCRA exercised its right of first refusal to purchase a partial interest in the pipeline, and subsequently sold a 50% interest to another third party for proceeds of $25.0 million.

      Gain on Legal Settlements. Our Ag Business segment received cash of $0.7 million and $10.9 million during the years ended August 31, 2004 and 2003, respectively, from the settlement of a class action lawsuit alleging illegal price fixing against various feed vitamin product suppliers.

      Interest. Interest expense of $48.7 million for the year ended August 31, 2004 increased by $2.5 million (5%) compared to the year ended August 31, 2003. Our average level of short-term borrowings increased by $93.2 million primarily due to financing higher working capital needs and was partially offset by an average short-term interest rate decrease of 0.4% during the year ended August 31, 2004 compared to the year ended August 31, 2003. For the fiscal years ended August 31, 2004 and 2003, we capitalized interest of $2.8 million and $3.9 million, respectively, related to capitalized construction projects.

      Equity Income from Investments. Equity income from investments of $79.0 million for the year ended August 31, 2004 increased by $31.7 million (67%) compared to the year ended August 31, 2003. The net increase in equity income from investments was attributable to improved earnings from investments within our Ag Business and Processing segments of $27.8 million and $3.9 million, respectively.

      Our Ag Business segment generated improved earnings of $27.8 million from equity investments. Our agronomy joint ventures generated increased earnings of $15.0 million. In April 2004, we finalized the purchase of additional ownership in Agriliance so that we now own 50%, which accounted for $7.3 million of the increase. In addition, Agriliance recorded increased earnings from operations, primarily in wholesale crop protection operations which primarily consists of herbicides and pesticides, compared to the same period of a year ago, due to increased market share. However, the price of these products continued to decline as many come off patent and are replaced by cheaper generic brands. Crop nutrient volumes, which primarily consist of fertilizers and micronutrients, were down 20% over the previous year, which partially reduced Agriliance earnings. Consistently high and volatile domestic prices for crop nutrient products have created a competitive, global supply environment. Our grain marketing operations recorded increased earnings of $13.1 million, primarily in two exporting joint ventures, due to increased export demand and favorable ocean freight spreads from the Pacific Northwest, where the exporting facilities are located, to the Pacific Rim. These factors contributed to a $6.8 million increase in equity income from our investment in TEMCO, a joint venture which exports primarily corn and soybeans. Similar conditions contributed to a $5.2 million improvement in equity income from our wheat exporting investment in United Harvest.

      Our Processing segment showed increased earnings of $3.9 million, of which $3.0 million was from Horizon Milling, our wheat milling joint venture, due to increased operating efficiencies and demand growth for whole-grain wheat products. Ventura Foods, an oilseed based products and packaged foods joint venture, recorded increased earnings of $0.9 million compared to the previous year.

      Minority Interests. Minority interests of $33.8 million for the year ended August 31, 2004 increased by $11.9 million (54%) compared to the year ended August 31, 2003. This increase was primarily a result of more profitable operations within our majority-owned subsidiaries compared to the prior year and the minority interest net effect of the gain on the sale of the NCRA investment. Substantially all minority interests relate to NCRA, an approximately 74.5% owned subsidiary, which we consolidate in our Energy segment.

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      Income Taxes. Income tax expense, excluding discontinued operations, of $29.5 million for the year ended August 31, 2004 compares with $16.0 million for the year ended August 31, 2003, resulting in effective tax rates of 11.5% and 11.0%, respectively. The federal and state statutory rate applied to nonpatronage business activity was 38.9% for the years ended August 31, 2004 and 2003. The income taxes and effective tax rate vary each year based upon profitability and nonpatronage business activity during each of the comparable years.

      Discontinued Operations. During the year ended August, 31, 2005, we reclassified our Mexican foods operations, previously reported in Corporate and Other, along with gains and losses recognized on sales of assets, and impairments on assets for sale, as discontinued operations that were sold or have met required criteria for such classification. In our consolidated statements of operations, all of our Mexican foods operations have been accounted for as discontinued operations. Accordingly, current and prior operating results have been reclassified to report those operations as discontinued. The loss amounts recorded for the years ended August 31, 2004 and 2003 were $9.7 million ($5.9 million, net of taxes) and $8.6 million ($5.2 million, net of taxes), respectively.

Liquidity and Capital Resources

      On August 31, 2005, we had working capital, defined as current assets less current liabilities, of $758.7 million and a current ratio, defined as current assets divided by current liabilities, of 1.4 to 1.0 compared to working capital of $493.4 million and a current ratio of 1.3 to 1.0 on August 31, 2004. Working capital increased during fiscal 2005 by $265.3 million despite capital expenditures of $257.5 million, primarily because of strong earnings and the addition of $125.0 million in long-term debt during this period. We anticipate that working capital will be drawn down to a level that is more consistent with prior years’ levels through capital expenditures related to the completion of the ultra-low sulfur project at the NCRA refinery, and the coker unit project at our Laurel, Montana refinery over the next thirty months, as described below in “Cash Flows from Investing Activities”.

      During May 2005, we renewed and expanded our committed lines of revolving credit which are used primarily to finance inventories and receivables. The previously established credit lines consisted of a $750 million 364-day revolver and a $150 million three-year revolver. The current committed credit facilities consist of a $700 million 364-day revolver and $300 million five-year revolver. These credit facilities are established with a syndicate of domestic and international banks, and the inventories and receivables financed with these loans are highly liquid. The terms of the current credit facilities are the same as the terms for the credit facilities they replaced in all material respects, except interest rate spreads over the LIBOR rate were reduced under the current credit facilities. On August 31, 2005, we had $60.0 million outstanding on these lines of credit compared with $115.0 million on August 31, 2004. In September 2004, we borrowed $125.0 million from a group of insurance companies on a long-term basis and used the proceeds to pay down the revolving lines of credit. We believe that we have adequate liquidity to cover any increase in net operating assets and liabilities in the foreseeable future.

Cash Flows from Operations

      Cash flows from operations are generally affected by commodity prices. These commodity prices are affected by a wide range of factors beyond our control, including weather, crop conditions, drought, the availability and the adequacy of supply and transportation, government regulations and policies, world events, and general political and economic conditions. These factors are described in the cautionary statement at the beginning of Part I, Item 1 of this Form 10-K, and may affect net operating assets and liabilities, and liquidity.

      Cash flows provided by operating activities were $209.2 million, $333.3 million and $216.5 million for the years ended August 31, 2005, 2004 and 2003, respectively. Volatility in cash flows from operations between fiscal 2005 and 2004 is primarily the result of an increase in net operating assets and liabilities as a result of increased crude and refined oil prices and an increase in grain and oilseed inventory quantities. Volatility in cash flows from operations between fiscal 2004 and 2003 is primarily the result of increased

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earnings of $97.5 million (79%) during fiscal 2004 compared to 2003, as well as a decrease in net operating assets and liabilities as a result of decreased grain and oilseed inventory quantities.

      Our operating activities provided net cash of $209.2 million during the year ended August 31, 2005. Net income of $250.0 million and net non-cash expenses of $72.5 million were partially offset by an increase in net operating assets and liabilities of $113.3 million. The primary components of net non-cash expenses included depreciation and amortization of $110.3 million, minority interests of $47.7 million and deferred tax expense of $26.4 million, which were partially offset by income from equity investments of $95.7 million, and a pretax gain on the sale of investments of $13.0 million. The increase in net operating assets and liabilities was caused primarily by an increase in crude oil prices of $26.82 per barrel (64%) on August 31, 2005 when compared to August 31, 2004, and an increase in grain and oilseed inventories in our Ag Business segment of 36.1 million bushels (64%) when comparing those same fiscal year-end dates.

      Our operating activities provided net cash of $333.3 million during the year ended August 31, 2004. Net income of $221.3 million, net non-cash expenses of $54.0 million, and a decrease in net operating assets and liabilities of $58.0 million, provided this net cash from operating activities. The primary components of net non-cash expenses included depreciation and amortization of $108.4 million and minority interests of $33.8 million, which were partially offset by income from equity investments of $79.0 million and a pretax gain on the sale of an investment of $14.7 million. The decrease in net operating assets and liabilities was caused primarily by a decrease in grain and oilseed inventories of 20.4 million bushels (26%) in our Ag Business segment.

      Our operating activities provided net cash of $216.5 million during the year ended August 31, 2003. Net income of $123.8 million and net non-cash expenses of $98.0 million were partially offset by a small increase in net operating assets and liabilities of $5.3 million. The primary components of net non-cash expenses included depreciation and amortization of $111.3 million and minority interests of $22.0 million, which were partially offset by income from equity investments of $47.3 million. Grain and oilseed prices on August 31, 2003 remained at the approximate levels prevailing on August 31, 2002, as market conditions were similar at the end of both fiscal years. Consequently, net operating assets and liabilities at August 31, 2003 changed only slightly compared with those at the prior year-end.

      Crude oil prices are expected to be volatile in the foreseeable future, and although crude oil prices have recently been at historical highs, related inventories and receivables are turned in a relatively short period, thus somewhat mitigating the effect on operating assets and liabilities. Grain prices have not changed materially since the 2005 fiscal year-end, and are influenced significantly by global projections of grain stocks available until the next harvest. With a projected large harvest in 2005, and inventory carried forward from 2004 by producers, we anticipate relatively low grain prices at least through the end of calendar year 2005.

Cash Flows from Investing Activities

      For the years ended August 31, 2005, 2004 and 2003, the net cash flows used in our investing activities totaled $57.0 million, $181.3 million and $173.3 million, respectively.

      The acquisition of property, plant and equipment comprised the primary use of cash totaling $257.5 million, $245.1 million and $175.7 million for the years ended August 31, 2005, 2004 and 2003, respectively. These acquisitions of property, plant and equipment included $8.5 million acquired as part of a business acquisition during the year ended August 31, 2003. Capital expenditures primarily related to the U.S. Environmental Protection Agency (EPA) low sulfur fuel regulations required by 2006 that were made during the years ended August 31, 2005, 2004 and 2003 were $165.1 million, $135.0 million and $45.2 million, respectively. Total expenditures for these projects are expected to be approximately $87.0 million for our Laurel, Montana refinery and $320.0 million for NCRA’s McPherson, Kansas refinery, of which $86.4 million has been spent at the Laurel refinery and $258.9 million has been spent by NCRA at the McPherson refinery as of August 31, 2005. We expect all of these compliance capital expenditures at the refineries to be complete by December 31, 2005, and have funded these projects with a combination of cash flows from operations and debt proceeds. Capital expenditures during the year ended

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August 31, 2003 included $46.0 million for the construction of our oilseed processing facility in Fairmont, Minnesota. Our Fairmont facility was essentially complete and operational during the first quarter of fiscal 2004. Also during the first quarter of fiscal 2004, we entered into a sale-leaseback transaction for the Fairmont facility equipment and received cash proceeds of $19.8 million from the sale.

      For the year ending August 31, 2006, we expect to spend approximately $243.3 million for the acquisition of property, plant and equipment. Included in our projected capital spending during the next three fiscal years is a coker project at our Laurel, Montana refinery for approximately $325.0 million that will allow us to produce more refined fuels and less asphalt. We expect to complete the project in fiscal 2008, and anticipate funding it with a combination of cash flows from operations and debt proceeds.

      In October 2003, we, and NCRA, reached agreement with the EPA and the State of Montana’s Department of Environmental Quality and the State of Kansas Department of Health and Environment regarding the terms of settlements with respect to reducing air emissions at our Laurel, Montana and NCRA’s McPherson, Kansas refineries. These settlements are part of a series of similar settlements that the EPA has negotiated with major refiners under the EPA’s Petroleum Refinery Initiative. The settlements, which resulted from nearly three years of discussions, take the form of consent decrees filed with the U.S. District Court for the District of Montana (Billings Division) and the U.S. District Court for the District of Kansas. Each consent decree details specific capital improvements, supplemental environmental projects and operational changes that we and NCRA have agreed to implement at the relevant refinery over the next several years. The consent decrees also require us, and NCRA, to pay approximately $0.5 million in aggregate civil cash penalties. We and NCRA anticipate that the aggregate capital expenditures related to these settlements will total approximately $20.0 million to $25.0 million over the next six years. We do not believe that the settlements will have a material adverse effect on us, or NCRA.

      Investments made during the years ended August 31, 2005, 2004 and 2003 totaled $25.9 million, $49.8 million and $43.5 million, respectively. During the year ended August 31, 2005, we contributed $19.6 million in cash (plus an additional $18.5 million in net assets, primarily loans) to Cofina for a 49% equity interest. Cofina was formed by us and Cenex Finance Association to provide financing for agricultural cooperatives and businesses, and to producers of agricultural products. During the year ended August 31, 2004 we purchased all of Farmland’s interest in Agriliance for a cash payment of $27.5 million, as previously discussed. During the year ended August 31, 2003, we purchased an additional 13.1% economic interest of the crop protection business of Agriliance for cash payment of $34.3 million, as previously discussed. Also during the year ended August 31, 2004, NCRA exercised its right of first refusal to purchase a partial interest in a crude oil pipeline for $16.0 million.

      Net working capital acquired in business acquisitions was $13.0 million during the year ended August 31, 2003.

      During the years ended August 31, 2005, 2004 and 2003, the changes in notes receivable resulted in decreases in cash flows of $23.8 million, $6.9 million and $6.6 million, respectively, primarily from related party notes receivables at NCRA from its minority owners, Growmark, Inc. and MFA Oil Company.

      Distributions to minority owners for the years ended August 31, 2005, 2004 and 2003 were $29.9 million, $15.9 million and $4.4 million, respectively, and were primarily related to NCRA. NCRA’s cash distributions to members were lower as a percent of earnings in 2004 and 2003 when compared to other years, due to the funding requirements for environmental capital expenditures previously discussed.

      Partially offsetting cash outlays in investing activities were proceeds from the disposition of property, plant and equipment of $21.1 million, $34.5 million and $26.9 million for the years ended August 31, 2005, 2004 and 2003, respectively, and during the year ended August 31, 2005, we sold the majority of our Mexican foods business for proceeds of $38.3 million. The proceeds from the sale of our Mexican foods business includes $13.8 million received for equipment that was used to buy out operating leases during the same period. During the year ended August 31, 2004, proceeds of $19.8 million were from a sale-leaseback transaction for equipment at our oilseed processing facility in Fairmont, Minnesota, as previously

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discussed. During the year ended August 31, 2003, proceeds were primarily from disposals of propane plants and non-strategic locations in our Energy segment, sales of equipment and non-strategic agri-operations locations in our Ag Business segment, and sales of wheat milling equipment in our Processing segment. Also partially offsetting cash usages were distributions received from joint ventures and investments totaling $78.4 million, $74.6 million and $44.4 million for the years ended August 31, 2005, 2004 and 2003, respectively. During the years ended August 31, 2005 and 2004, we also received proceeds of $147.8 million and $25.0 million, respectively, from the sale of investments. During the year ended August 31, 2005, we received proceeds of $140.4 million from the sale of our CF Industries, Inc. investment ($9.6 million pretax gain) in our Ag Business segment, and proceeds of $7.4 million ($3.4 million pretax gain) from another investment. During the year ended August 31, 2004, NCRA exercised its right of first refusal to purchase a partial interest in a crude oil pipeline as previously discussed, and subsequently sold a 50% interest in the same pipeline to another third party for proceeds of $25.0 million and recorded a pretax gain on the sale of $14.7 million.

Cash Flows from Financing Activities

      We finance our working capital needs through short-term lines of credit with a syndication of domestic and international banks. In May 2005, we renewed and expanded our committed lines of revolving credit. The previously established credit lines consisted of a $750.0 million 364-day revolver and a $150.0 million three-year revolver. The new committed credit facilities consist of a $700.0 million 364-day revolver and a $300.0 million five-year revolver. The terms of the current credit facilities are the same as the terms of the credit facilities they replaced in all material respects, except interest rate spreads over the LIBOR rate were reduced under the current credit facilities. In addition to these lines of credit, we have a two-year revolving credit facility dedicated to NCRA, with a syndication of banks in the amount of $15.0 million committed. On August 31, 2005 and 2004, we had total short-term indebtedness outstanding on these various facilities and other short-term notes payable totaling $61.1 million and $116.1 million, respectively. On August 31, 2005 interest rates on these facilities ranged from 3.86% to 3.93%. In September 2004 and October 2002, we received $125.0 million and $175.0 million, respectively, from private placement proceeds that were used to pay down our 364-day credit facilities. In January 2003, $83.0 million of proceeds received from the issuance of our preferred stock (net of brokers commissions of $3.2 million), was also used to pay down our 364-day credit facility.

      In November, 2005 we requested amendments to our 364-day and five-year revolving loan credit agreement, dated May 19, 2005 and to our term loan credit agreement, dated June 1, 1998, to allow for the expansion of our investment limit from $110 million to $175 million. We are currently well within that covenant, but requested the amendment to allow for potential investment opportunities in the future. The requested amendments were approved by the respective bank groups.

      In June 1998, we established a five-year revolving credit facility with a syndication of banks, with $200.0 million committed, which expired in May 2003. We had a previous outstanding balance on this facility of $75.0 million on August 31, 2002, of which repayments of $75.0 million were made during the year ended August 31, 2003.

      We finance our long-term capital needs, primarily for the acquisition of property, plant and equipment, with long-term agreements with various insurance companies and banks. In June 1998, we established a long-term credit agreement through the cooperative banks. This facility committed $200.0 million of long-term borrowing capacity to us, with repayments through fiscal year 2009. The amount outstanding on this credit facility was $114.8 million and $131.2 million on August 31, 2005 and 2004, respectively. Interest rates on August 31, 2005 ranged from 4.82% to 7.13%. Repayments of $16.4 million, $6.6 million and $6.6 million were made on this facility during the three years ended August 31, 2005, 2004 and 2003, respectively.

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

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      In January 2001, we entered into a note purchase and private shelf agreement with Prudential Insurance Company. The long-term note in the amount of $25.0 million has an interest rate of 7.9% and is due in equal annual installments of approximately $3.6 million, in the years 2005 through 2011. A subsequent note for $55.0 million was issued in March 2001, related to the private shelf facility. The $55.0 million note has an interest rate 7.43% and is due in equal annual installments of approximately $7.9 million, in the years 2005 through 2011. During the year ended August 31, 2005, repayments on these notes totaled $11.4 million.

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

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

      In September 2004, we entered into a private placement with several insurance companies for long-term debt in the amount of $125.0 million with an interest rate of 5.25%. The debt is due in equal annual installments of $25.0 million during the fiscal years 2011 through 2015.

      We, through NCRA, had revolving term loans outstanding of $9.0 million and $12.0 million for the years ended August 31, 2005 and 2004, respectively. Interest rates on August 31, 2005 ranged from 6.48% to 6.99%. Repayments of $3.0 million were made during each of the three years ended August 31, 2005, 2004 and 2003.

      On August 31, 2005, we had total long-term debt outstanding of $773.1 million, of which $133.3 million was bank financing, $623.6 million was private placement debt and $16.2 million was industrial development revenue bonds and other notes and contracts payable. On August 31, 2004, we had long-term debt outstanding of $683.8 million. Our long-term debt is unsecured except for other notes and contracts in the amount of $9.4 million; however, restrictive covenants under various agreements have requirements for maintenance of minimum working capital levels and other financial ratios. We were in compliance with all debt covenants and restrictions as of August 31, 2005. The aggregate amount of long-term debt payable as of August 31, 2005 was as follows (dollars in thousands):

2006	$	35,340
2007		59,856
2008		98,421
2009		117,285
2010		82,589
Thereafter		379,583
	$	773,074

      During the years ended August 31, 2005, 2004 and 2003, we borrowed on a long-term basis $125.0 million, $35.5 million and $175.0 million, respectively, and during the same periods repaid long-term debt of $36.0 million, $15.3 million and $89.5 million, respectively.

      In accordance with the bylaws and by action of the Board of Directors, annual net earnings from patronage sources are distributed to consenting patrons following the close of each fiscal year. Patronage refunds are calculated based on amounts using financial statement earnings. The cash portion of the patronage distribution is determined annually by the Board of Directors, with the balance issued in the

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form of capital equity certificates. The patronage earnings from the fiscal year ended August 31, 2004 were primarily distributed during the second quarter of the year ended August 31, 2005. The cash portion of this distribution deemed by the Board of Directors to be 30% was $51.6 million. During the years ended August 31, 2004 and 2003, we distributed cash patronage of $28.7 million and $26.5 million, respectively.

      Cash patronage for the year ended August 31, 2005, deemed by the Board of Directors to be 30% and to be distributed in fiscal year 2006, is expected to be approximately $60.9 million and is classified as a current liability on the August 31, 2005 consolidated balance sheet.

      Effective September 1, 2004, redemptions of capital equity certificates approved by the Board of Directors are divided into two pools, one for non-individuals (primarily member cooperatives) who participate in an annual pro-rata program for equities older than 10 years, and another for individual members who are eligible for equity redemptions at age 72 or upon death. The amount that each non-individual member receives under the pro-rata program in any year is determined by multiplying the dollars available for pro-rata redemptions that year as determined by the Board of Directors, by a fraction, the numerator of which is the amount of patronage certificates older than 10 years held by that member, and the denominator of which is the sum of the patronage certificates older than 10 years held by all eligible non-individual members. For the years ended August 31, 2005, 2004 and 2003, we redeemed in cash, patronage related equities in accordance with authorization from the Board of Directors in the amounts of $23.7 million, $10.3 million and $31.1 million, respectively. An additional $20.0 million and $13.0 million of capital equity certificates were redeemed in fiscal years 2005 and 2004, respectively, by issuance of shares of our 8% Cumulative Redeemable Preferred Stock (New Preferred) pursuant to registration statements on Forms S-2 filed with the Securities and Exchange Commission. The amount of equities redeemed with each share of preferred stock issued was $27.58 and $27.10, which was the closing price per share of the stock on the NASDAQ National Market on January 24, 2005 and March 2, 2004, respectively. On August 31, 2005, we had 4,951,434 shares of the New Preferred outstanding with a total redemption value of approximately $123.8 million, excluding accumulated dividends. The New Preferred is redeemable at our option beginning in 2008.

      We expect cash redemptions related to the year ended August 31, 2005 to be distributed in fiscal year 2006. The distribution is expected to be approximately $64.1 million and is classified as a current liability on the August 31, 2005 consolidated balance sheet. We intend to redeem an additional $24.0 million of capital equity certificates in fiscal year 2006 by issuing shares of our New Preferred, pending effectiveness of a registration statement with the Securities and Exchange Commission.

      In 2001 and 2002 we issued 9,454,874 shares of 8% Preferred Stock (Old Preferred). In late 2002, we suspended sales of the Old Preferred, and on February 25, 2003 we filed a post-effective amendment to terminate the offering of the Old Preferred shares. In January 2003, the Board of Directors authorized the sale and issuance of up to 3,500,000 shares of 8% Cumulative Redeemable Preferred Stock (New Preferred) at a price of $25.00 per share. We filed a registration statement on Form S-2 with the Securities and Exchange Commission registering 3,000,000 shares of the New Preferred (with an additional over-allotment option of 450,000 shares granted to the underwriters), which was declared effective on January 27, 2003. The shares were subsequently sold for gross proceeds of $86.3 million (3,450,000 shares). The New Preferred is listed on the NASDAQ National Market. Expenses related to the 2003 issuance of the New Preferred were $3.8 million.

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

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      The New Preferred accumulates dividends at a rate of 8% per year, and dividends are payable quarterly.

Off Balance Sheet Financing Arrangements

Lease Commitments:

      We have commitments under operating leases for various refinery, manufacturing and transportation equipment, rail cars, vehicles and office space. Some leases include purchase options at not less than fair market value at the end of the lease term.

      Total rental expense for all operating leases, net of rail car mileage credits received from the railroad and sublease income for the years ended August 31, 2005, 2004 and 2003, was $31.0 million, $35.3 million and $31.7 million, respectively.

      Minimum future lease payments required under noncancellable operating leases as of August 31, 2005, were as follows:

		Total
		(Dollars in millions)
	2006	$	28.3
	2007		24.0
	2008		21.0
	2009		12.9
	2010		10.8
Thereafter			6.0
Total minimum future lease payments		$	103.0

Guarantees:

      We are a guarantor for lines of credit for related companies of which $50.1 million was outstanding on August 31, 2005. Our bank covenants allow maximum guarantees of $150.0 million. In addition, our bank covenants allow for guarantees dedicated solely for NCRA in the amount of $125.0 million. All outstanding loans with respective creditors are current as of August 31, 2005.

Debt:

      There is no material off balance sheet debt.

Contractual Obligations

      We had certain contractual obligations at August 31, 2005 which require the following payments to be made:

	Payments Due by Period
			Less Than		1 - 3		3 - 5		More Than
Contractual Obligations	Total		1 Year		Years		Years		5 Years
	(Dollars in thousands)
Notes payable(1)	$	61,147	$	61,147
Long-term debt(1)		773,074		35,340	$	158,277	$	199,874	$	379,583
Interest payments(2)		237,246		47,508		84,084		59,405		46,249
Operating leases		103,037		28,312		44,996		23,768		5,961
Purchase obligations(3)		1,759,071		1,479,770		271,203		1,128		6,970
Other liabilities(4)		52,224				33,379		17,439		1,406
Total obligations	$	2,985,799	$	1,652,077	$	591,939	$	301,614	$	440,169

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(1)	Included on our consolidated balance sheet.
(2)	Based on interest rates and long-term debt balances as of August 31, 2005.
(3)	Purchase obligations are legally binding and enforceable agreements to purchase goods or services that specify all significant terms, including fixed or minimum quantities; fixed, minimum or variable price provisions; and time of the transactions. Of our total purchase obligations, $1,007.1 million is included in accounts payable and accrued expenses on our consolidated balance sheet.
(4)	Other liabilities include deferred compensation, deferred income taxes, accrued turnaround and contractual redemptions, and is included on the consolidated balance sheet. Of our total other liabilities on our consolidated balance sheet in the amount of $229.3 million, the timing of the payments of $177.1 million of such liabilities cannot be determined.

Critical Accounting Policies

      Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires the use of estimates as well as management’s judgments and assumptions regarding matters that are subjective, uncertain or involve a high degree of complexity, all of which affect the results of operations and financial condition for the periods presented. We believe that of our significant accounting policies, the following may involve a higher degree of estimates, judgments, and complexity.

Allowances for Doubtful Accounts

      The allowances for doubtful accounts are maintained at a level considered appropriate by our management based on analyses of credit quality for specific accounts, historical trends of charge-offs and recoveries, and current and projected economic, market and other conditions. Different assumptions, changes in economic circumstances or the deterioration of the financial condition of our customers could result in additional provisions to the allowances for doubtful accounts and increased bad debt expense.

Inventory Valuation and Reserves

      Grain, processed grains, oilseed and processed oilseeds are stated at net realizable values, which approximates market values. All other inventories are stated at the lower of cost or market. The cost of certain energy inventories (wholesale refined products, crude oil and asphalt), are determined on the last-in, first-out (LIFO) method; all other energy inventories are valued on the first-in, first-out (FIFO) and average cost methods. Estimates are used in determining the net realizable value of grain and oilseed and processed grains and oilseeds inventories. These estimates include the measurement of grain in bins and other storage facilities, which use formulas in addition to actual measurements taken to arrive at appropriate quantity. Other determinations made by management include quality of the inventory and estimates for freight. Grain shrink reserves and other reserves that account for spoilage also affect inventory valuations. If estimates regarding the valuation of inventories or the adequacy of reserves are less favorable than management’s assumptions, then additional reserves or write-downs of inventories may be required.

Derivative Financial Instruments

      We enter into exchange-traded commodity futures and options contracts to hedge our exposure to price fluctuations on energy, grain and oilseed transactions to the extent considered practicable for minimizing risk. We do not use derivatives for speculative purposes. Futures and options contracts used for hedging are purchased and sold through regulated commodity exchanges. Fluctuations in inventory valuations, however, may not be completely hedged, due in part to the absence of satisfactory hedging facilities for certain commodities and geographical areas and in part to our assessment of our exposure from expected price fluctuations. We also manage our risks by entering into fixed-price purchase contracts with pre-approved producers and establishing appropriate limits for individual suppliers. Fixed-price sales

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contracts are entered into with customers of acceptable creditworthiness, as internally evaluated. The fair value of futures and options contracts are determined primarily from quotes listed on regulated commodity exchanges. Fixed-price purchase and sales contracts are with various counterparties, and the fair values of such contracts are determined from the market price of the underlying product. We are exposed to loss in the event of nonperformance by the counterparties to the contracts, and therefore, contract values are reviewed and adjusted to reflect potential nonperformance.

Pension and Other Postretirement Benefits

      Pension and other postretirement benefits costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, health care cost trend rates, benefits earned, interest costs, expected return on plan assets, mortality rates, and other factors. In accordance with accounting principles generally accepted in the United States of America, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expenses and the recorded obligations in future periods. While our management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our pension and other postretirement obligations and future expenses.

Deferred Tax Assets

      We assess whether a valuation allowance is necessary to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. While we have considered future taxable income as well as other factors in assessing the need for the valuation allowance, in the event that we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to income in the period such determination was made.

Long-Lived Assets

      Depreciation and amortization of our property, plant and equipment is provided on the straight-line method by charges to operations at rates based upon the expected useful lives of individual or groups of assets. Economic circumstances or other factors may cause our management’s estimates of expected useful lives to differ from actual.

      All long-lived assets, including property plant and equipment, goodwill, investments in unconsolidated affiliates and other identifiable intangibles, are evaluated for impairment on the basis of undiscounted cash flows at least annually for goodwill, and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its estimated fair market value based on the best information available. Estimated fair market value is generally measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows and may differ from actual.

Environmental Liabilities

      Liabilities, including legal costs, related to remediation of contaminated properties are recognized when the related costs are considered probable and can be reasonably estimated. Estimates of these costs are based on current available facts, existing technology, undiscounted site-specific costs and currently enacted laws and regulations. Recoveries, if any, are recorded in the period in which recovery is considered probable. It is often difficult to estimate the cost of environmental compliance, remediation and potential claims given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternate cleanup methods. All liabilities are monitored and adjusted as new facts or changes in law or technology occur and our management believes adequate provisions have been made for environmental liabilities. Changes in facts or circumstances may have an adverse impact on our consolidated financial results.

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Revenue Recognition

      We record revenue from grain and oilseed sales after the commodity has been delivered to its destination and final weights, grades and settlement prices have been agreed upon. All other sales are recognized upon transfer of title, which could occur upon either shipment or receipt by the customer, depending upon the transaction. Amounts billed to a customer as part of a sales transaction related to shipping and handling are included in net sales. Service revenues are recorded only after such services have been rendered, and are included in other revenues.

Effect of Inflation and Foreign Currency Transactions

      We believe that inflation and foreign currency fluctuations have not had a significant effect on our operations.

Recent Accounting Pronouncements

      In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error Corrections”, which replaces Accounting Principles Board (APB) Opinion No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. Among other changes, SFAS No. 154 requires retrospective application of a voluntary change in accounting principle to prior period financial statements presented on the new accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires accounting for a change in method of depreciating or amortizing a long-lived nonfinancial asset as a change in accounting estimate (prospectively) affected by a change in accounting principle. Further, the Statement requires that corrections of errors in previously issued financial statements be termed a “restatement.” The new standard is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005. We do not expect the adoption of SFAS No. 154 to have a material impact on our consolidated financial statements.

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29”. SFAS No. 153 replaces the exception from fair value measurement in APB Opinion No. 29 for nonmonetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is to be applied prospectively, and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect the adoption of SFAS No. 153 to have a material impact on our consolidated financial statements.

      In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of Accounting Research Bulletin (ARB) No. 43, Chapter 4” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires those items to be recognized as current-period charges regardless of whether they meet the “abnormal” criterion outlined in ARB No. 43. It also introduces the concept of “normal capacity” and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Unallocated overheads must be recognized as an expense in the period in which they are incurred. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the adoption of SFAS No. 151 to have a material impact on our consolidated financial statements.

      We are required to apply SFAS No. 143, “Accounting for Asset Retirement Obligations”. This statement requires recognition of a liability for costs that an entity is legally obligated to incur associated with the retirement of fixed assets. Under SFAS No. 143, the fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the fixed asset and depreciated over its estimated useful life. We have legal asset retirement obligations for

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certain assets, including our refineries, pipelines and terminals. We are unable to measure this obligation because it is not possible to estimate when the obligation will be settled. In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB No. 143” (FIN 47). FIN 47 clarifies that SFAS No. 143 requires that an entity recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. We have not yet determined the impact that the adoption of this interpretation will have on our consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

COMMODITY PRICE RISK

      We utilize futures and options contracts offered through regulated commodity exchanges to reduce price risk. We are exposed to risk of loss in the market value of inventories and fixed or partially fixed purchase and sales contracts. In order to reduce that risk, we generally take opposite and offsetting positions using futures contracts or options.

      Certain commodities cannot be hedged with futures or options contracts because such contracts are not offered for these commodities by regulated commodity exchanges. Inventories and purchase contracts for those commodities are hedged with forward sales contracts, to the extent practical, in order to arrive at a net commodity position within the formal position limits set by us and deemed prudent for each of those commodities. Commodities for which futures contracts and options are available are also typically hedged first with forward contracts, with futures and options used to hedge within position limits the remaining portion. These futures and options contracts and forward purchase and sales contracts used to hedge against commodity price changes are effective economic hedges of price risk, but they are not designated as, or accounted for as, hedging instruments for accounting purposes.

      Unrealized gains and losses on futures contracts and options used as economic hedges of grain and oilseed inventories and fixed-price contracts are recognized in cost of goods sold for financial reporting using market-based prices. Inventories and fixed-price contracts are marked to fair value using market-based prices so that gains or losses on the derivative contracts are offset by gains or losses on inventories and fixed priced contracts during the same accounting period.

      Unrealized gains and losses on futures contracts and options used as economic hedges of energy inventories and fixed-price contracts are recognized in cost of goods sold for financial reporting using market-based prices. The inventories hedged with these derivatives are valued at the lower of cost or fair value, and the fixed-price contracts are marked to fair value using market-based prices. Certain fixed-price contracts related to propane in our Energy segment meet the normal purchase and sales exemption, and thus are not required to be marked to fair value.

      A 10% adverse change in market prices would not materially affect our results of operations, financial position or liquidity, since our operations have effective economic hedging requirements as a general business practice.

INTEREST RATE RISK

      We use fixed and floating rate debt to lessen the effects of interest rate fluctuations on interest expense. Short-term debt used to finance inventories and receivables is represented by notes payable with maturities of 30 days or less so that the blended interest rate to us for all such notes approximates current market rates. Long-term debt used to finance non-current assets carries various fixed interest rates and is payable at various dates to minimize the effect of market interest rate changes. The effective interest rate to us on fixed rate debt outstanding on August 31, 2005 was approximately 6.1%; a 10% adverse change in market rates would not materially affect our results of operations, financial position or liquidity.

      At various times we have entered into interest rate treasury lock instruments to fix interest rates related to a portion of our private placement debts. These instruments were designated and are effective as

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cash flow hedges for accounting purposes, and accordingly, the net loss on settlements was recorded as a component of other comprehensive income. Interest expense for the years ended August 31, 2005 and 2004, includes $0.9 million and $0.9 million, respectively, related to the interest rate derivatives. The additional interest expense is an offset to the lower actual interest paid on the outstanding debt instruments.

FOREIGN CURRENCY RISK

      We conduct essentially all of our business in U.S. dollars, except for grain marketing operations in Brazil and some purchases of products from Canada, and had minimal risk regarding foreign currency fluctuations during 2005 or in prior years. Foreign currency fluctuations do, however, impact the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of U.S. agricultural products compared to the same products offered by alternative sources of world supply.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The financial statements listed in 15(a)(1) are set forth beginning on page F-1. Supplementary financial information required by Item 302 of Regulation S-K for the years ended August 31, 2005 and 2004 is presented below. Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

			2005
	November 30,
	2004		February 28		May 31		August 31
	(Unaudited)
	(Dollars in thousands)
Net sales	$	2,919,891	$	2,392,442	$	3,088,403	$	3,368,357
Total revenues		2,964,408		2,427,190		3,137,493		3,411,965
Gross profit		108,736		88,758		152,595		132,535
Income from continuing operations		20,341		19,718		109,861		116,906
Net income		17,996		8,723		106,946		116,351

			2004
	November 30,
	2003		February 28		May 31		August 31
Net sales	$	2,471,265	$	2,637,821	$	2,799,127	$	2,930,329
Total revenues		2,504,293		2,672,222		2,842,292		2,960,900
Gross profit		103,529		56,966		123,652		156,362
Income from continuing operations		51,462		9,484		83,123		83,172
Net income (loss)		50,739		8,511		81,389		80,693

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

      None.

ITEM 9A. CONTROLS AND PROCEDURES

      Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of August 31, 2005. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of that date, our disclosure controls and procedures were effective.

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

ITEM 9B. OTHER INFORMATION

      We have filed all information which was required to be disclosed in a Form 8-K during our fourth quarter.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

BOARD OF DIRECTORS

      The table below lists our directors of as of August 31, 2005.

						Director
Name and Address		Age		District		Since
Bruce Anderson			53		3		1995
	13500 — 42nd St NE Glenburn, ND 58740-9564
Robert Bass			51		5		1994
	E 6391 Bass Road Reedsburg, WI 53959
David Bielenberg			56		6		2002
	16425 Herigstad Road NE Silverton, Oregon 97381
Dennis Carlson			44		3		2001
	3255 — 50th Street Mandan, ND 58554
Curt Eischens			53		1		1990
	2153 — 330th St North Minneota, MN 56264-1880
Robert Elliott			55		8		1996
	324 Hillcrest Alliance, NE 69301
Steve Fritel			50		3		2003
	2851 77th Street NE Barton, ND 58384
Robert Grabarski			56		5		1999
	1770 Highway 21 Arkdale, WI 54613
Jerry Hasnedl			59		1		1995
	12276 — 150th Avenue SE St. Hilaire, MN 56754 -9776
Glen Keppy			58		7		1999
	21316 — 155th Avenue Davenport, IA 52804
James Kile			57		6		1992
	508 W. Bell Lane St. John, WA 99171

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						Director
Name and Address		Age		District		Since
Randy Knecht			55		4		2001
	40193 — 112th Street Houghton, SD 57449
Michael Mulcahey			57		1		2003
	8109 360th Avenue Waseca, MN 56093
Richard Owen			51		2		1999
	PO Box 129 Geraldine, MT 59446
Duane Stenzel			59		1		1993
	62904 — 295th Street Wells, MN 56097
Michael Toelle			43		1		1992
	5085 St. Anthony Drive Browns Valley, MN 56219
Merlin Van Walleghen			69		4		1993
	24106 — 408th Avenue Letcher, SD 57359-6021

      Bruce Anderson, assistant secretary-treasurer (1995): Chairman of the Governance Committee and serves on the Government Relations Committee. Vice chairman of the North Dakota Agricultural Products Utilization Commission and past secretary of the board for North Dakota Farmers Union and Farmers Union Mutual Insurance Company. Served two two-year terms in the North Dakota House of Representatives. Raises small grains near Glenburn, N.D. Mr. Anderson’s principal occupation has been farming for the last five years or longer.

      Robert Bass, first vice chairman (1994): Chairman of Audit Committee. Member, CHS Foundation Finance and Investment Committee. Director and officer for Co-op Country Partners Cooperative and its predecessors for 15 years. Director for the Wisconsin Federation of Cooperatives. Holds a bachelor’s of science degree in agricultural education from the University of Wisconsin — Madison. Operates a crop and dairy operation near Reedsburg, Wis. Mr. Bass’ principal occupation has been farming for the last five years or longer.

      David Bielenberg (2002): Serves on Audit Committee and CHS Foundation Finance and Investment Committee. Director and former board president of Wilco Farmers Cooperative, Mt. Angel, Ore. Chair of the East Valley Water District. Holds a bachelor’s of science degree in agricultural engineering from Oregon State University, is a graduate of the Texas A&M University executive program for agricultural producers and has achieved accreditation from the National Association of Corporate Directors. Operates a diverse agricultural business near Silverton, Ore., which includes seed crops, vegetables, greenhouse plant production and timberland. Mr. Bielenberg’s principal occupation has been farming for the last five years or longer.

      Dennis Carlson (2001): Serves on Audit Committee and CHS Foundation Finance and Investment Committee. Director and past chairman of Farmers Union Oil Co., Bismarck/ Mandan, N.D. and active in a number of agricultural and cooperative organizations. Operates a diverse grain and livestock operation near Mandan, N.D. Mr. Carlson’s principal occupation has been farming for the last five years or longer.

      Curt Eischens (1990): Chairs Corporate Responsibility Committee. Served as a director and chairman of Farmers Co-op Association, Canby, Minn., and as chairman for the Minnesota Association of Cooperatives. Holds a certificate in farm management from Canby Vocational-Technical College. Operates a corn and soybean farm near Minneota, Minn. Mr. Eischens’ principal occupation has been farming for the last five years or longer.

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      Robert Elliott (1996): Serves on Audit and Government Relations committees. Former director of Western Cooperative Alliance and New Alliance Bean and Grain Company. President of Hemingford Scholarship Foundation and past president of Nebraska Wheat Growers Association. Holds bachelor’s and master’s degrees in agriculture from California Polytechnic University at San Luis Obispo. Raises wheat, corn, dry beans, sugar beets and confectionery sunflowers near Alliance, Neb. Mr. Elliott’s principal occupation has been farming for the last five years or longer.

      Steve Fritel (2003): Serves on Capital Committee. Director for Rugby (N.D.) Farmers Oil Co., former director and chairman for Rugby Farmers Union Elevator, and member of the former CHS Wheat Milling Defined Board. Director of North Central Experiment Station Board of Visitors, past member of the Adult Farm and Ranch Business Management Advisory Board and member of numerous agricultural and cooperative organizations. Earned a bachelor’s degree from North Dakota State College of Science, Wahpeton. Raises small grains, corn, soybeans and sunflowers near Barton, N.D. Mr. Fritel’s principal occupation has been farming for the last five years or longer.

      Robert Grabarski (1999): Chairman of the Government Relations Committee and serves on Capital Committee. Director and first vice-chairman of the Alto Dairy Cooperative Board of Directors and former interim president. Chairman of Wisconsin River Cooperative. Holds a certificate in production agriculture from the University of Wisconsin-Madison. Recipient of 2004 Wisconsin Federation of Cooperatives CO-op Builder Award. Operates a diversified dairy and crop farm near Arkdale, Wis. Mr. Grabarski’s principal occupation has been farming for the last five years or longer.

      Jerry Hasnedl (1995): Serves on Capital and Government Relations committees. Former chairman of CHS Wheat Milling Defined Member Board. Former director and secretary for St. Hilaire Cooperative Elevator and Northwest Grain. Member of American Coalition for Ethanol and the Minnesota Association of Cooperatives. Earned associate’s of arts degree in agricultural economics and has certification in advanced farm business from Northland College, Thief River Falls, Minn. Operates a diverse operation near St. Hilaire, Minn, which includes small grains, corn, soybeans, sunflowers, malting barley, canola and alfalfa. Mr. Hasnedl’s principal occupation has been farming for the last five years or longer.

      Glen Keppy (1999): Member of Governance and Government Relations committees. Chairman of advisory committee for Clean Water Foundation and executive committee of the U.S. Meat Export Federation. Received a presidential appointment to a national advisory council to the Small Business Administration and is chairman of the National Pork Trade Committee. Member of the Federal Reserve Bank Ag Committee and serves with the 25X25 Energy Coalition Committee. Previously served on boards of the Iowa and National Pork Producer Associations. Earned a bachelor’s degree in technical agriculture from the University of Wisconsin — Platteville. Drafted by the Pittsburgh Steelers football team and also played for the Detroit Lions and Green Bay Packers. Operates a diversified crop and hog operation near Davenport, Iowa. Mr. Keppy’s principal occupation has been farming for the last five years or longer.

      James Kile, second vice chairman (1992): Chairman of Capital Committee; member of the Government Relations Committee. Served nearly two decades as a director and chairman of St. John Grange Supply. Represents CHS on the Washington State Council of Farmer Cooperatives and the Idaho Cooperative Council. Director and secretary for the SJE High School Foundation. Holds a bachelor’s degree in agricultural economics from Washington State University. Employed in banking before returning to St. John to operate a dryland wheat farm. Mr. Kile’s principal occupation has been farming for the last five years or longer.

      Randy Knecht (2001): Serves on Governance and Government Relations committees. President of Four Seasons Cooperative and former director and chairman of Northern Electric Cooperative and Dakota Value Capture Cooperative organizations, as well as a wide range of agricultural and cooperative associations, including the American Coalition for Ethanol. Holds a bachelor’s of science degree in agriculture from South Dakota State University. Operates a diversified crop farm and cattle ranch near Houghton, S.D. Mr. Knecht’s principal occupation has been farming for the last five years or longer.

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      Michael Mulcahey (2003): Serves on Corporate Responsibility and Government Relations committees. Served for three decades as a director and officer for Crystal Valley CO-op and its predecessor organizations, has served as a director and chairman for South Central Federated Feeds and is active in numerous agricultural, cooperative and civic organizations. Attended Minnesota State University-Mankato and the University of Minnesota-Waseca. Operates a grain farm and raises beef near Waseca, Minn. Mr. Mulcahey’s principal occupation has been farming for the last five years or longer.

      Richard Owen (1999): Serves on the Corporate Responsibility and Government Relations committees. Director of Mountain View, LLC, president of the Montana Cooperative Development Center and president of ArmorAuto, LLC. Previously served as a director and officer of Central Montana Cooperative and its predecessor organization. Holds bachelor’s of science degree in agricultural economics from Montana State University. Raises small grains and specialty crops near Geraldine, Mont. Mr. Owen’s principal occupation has been farming for the last five years or longer.

      Duane Stenzel (1993): Serves on Governance Committee and CHS Foundation Finance and Investment Committee. Chairman of the former CHS Oilseed Processing and Refining Defined Member Board. Active in a wide range of agricultural and cooperative organizations. Member of WFS, Greenway Co-op and Wells Farmers Elevator, where he served as board president and secretary. Raises soybeans, corn and sweet corn near Wells, Minn. Mr. Stenzel’s principal occupation has been farming for the last five years or longer.

      Michael Toelle, chairman (elected in 1992; chairman since 2002): Chairman, CHS Foundation. Served 15 years as a director and chairman of Country Partners Cooperative of Browns Valley, Minn., and its predecessor companies. Serves as a CHS representative on the Nationwide Insurance sponsors committee, has served as a director and chairman with the Agriculture Council of America, and is active in a variety of cooperative and commodity organizations. Holds a bachelor’s of science degree in industrial technology from Moorhead (Minn.) State University. Operates a grain, hog and beef farm near Browns Valley, Minn. Mr. Toelle’s principal occupation has been farming for the last five years or longer.

      Merlin Van Walleghen, secretary-treasurer (1993): Chairman of the CHS Foundation Finance and Investment Committee and member of Corporate Responsibility Committee. Served 20 years as a director and officer of the Farmers Cooperative Elevator Association of Mitchell, S.D., and served as a member and president of the South Dakota Association of Cooperatives board. Advisory director for Fulton State Bank. Holds a bachelor’s of science degree from South Dakota State University. Operates a corn and soybean operation near Letcher, S.D. Mr. Van Walleghen’s principal occupation has been farming for the last five years or longer.

      Elections are for three-year terms and are open to any qualified candidate. The qualifications for the office of director are as follows:

•  At the time of declaration of candidacy, the individual (except in the case of an incumbent) must have the written endorsement of a locally elected producer board that is part of the CHS system and located within the Region from which the individual is to be a candidate.

•  At the time of the election, the individual must be less than the age of 68.

      The remaining qualifications set forth below must be met at all times commencing six months prior to the time of election and while the individual holds office.

•  The individual must be a member of this cooperative or a member of a Cooperative Association Member.

•  The individual must reside in the region from which he or she is to be elected.

•  The individual must be an active farmer or rancher. “Active farmer or rancher” means an individual whose primary occupation is that of a farmer or rancher, excluding anyone who is an employee of ours or of a Cooperative Association Member.

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•  The individual must currently be serving or shall have served at least one full term as a director of a Cooperative Association Member of CHS.

      The following positions on the Board of Directors will be elected at the 2005 Annual Meeting of Members:

Region	Current Incumbent
Region 1 (Minnesota)	Curt Eischens Jerry Hasnedl
Region 2 (Montana, Wyoming)	Richard Owen
Region 3 (North Dakota)	Bruce Anderson
Region 5 (Connecticut, Indiana, Illinois, Kentucky, Michigan, Ohio, Wisconsin)	Robert Grabarski
Region 6 (Alaska, Arizona, California, Idaho, Oregon, Washington, Utah)	David Bielenberg
Region 7 (Alabama, Arkansas, Florida, Iowa, Louisiana, Missouri, Mississippi)	Glen Keppy

EXECUTIVE OFFICERS

      The table below lists our executive officers as of August 31, 2005. Officers are appointed annually by the Board of Directors.

Name	Age		Position
John D. Johnson		57	President and Chief Executive Officer
Jay Debertin		45	Executive Vice President and Chief Operating Officer, Processing
Patrick Kluempke		57	Executive Vice President — Corporate Administration
Thomas D. Larson		57	Executive Vice President — Business Solutions
Mark Palmquist		48	Executive Vice President and Chief Operating Officer, Ag Business
John Schmitz		55	Executive Vice President and Chief Financial Officer
Leon E. Westbrock		58	Executive Vice President and Chief Operating Officer, Energy

      John D. Johnson, President and Chief Executive Officer, began his career with the former Harvest States in 1976 as a feed consultant in the GTA Feeds Division, later becoming regional sales manager, director of sales and marketing and general manager of GTA Feeds. Named group vice president of Harvest States Farm Marketing and Supply in 1992 and president and CEO of Harvest States 1995. Selected president and general manager of CHS upon its creation in 1998 and assumed the position of president and CEO in 2000. Serves on the board of CF Industries Holdings, Inc. and is chairman of Gold Kist Inc. Holds a degree in business administration from Black Hills State University, Spearfish, S.D.

      Jay Debertin, Executive Vice President and Chief Operating Officer — Processing, joined the former Cenex in 1984 in its petroleum division and held a variety of positions in energy marketing operations. Named vice president, crude oil supply, in 1998 and added responsibilities for raw material supply, refining, pipelines and terminals, trading and risk management, and transportation in 2001. Named to his current position in 2005 and is responsible for oilseed processing operations, as well as joint venture relationships in wheat milling through Horizon Milling, LLC, and in vegetable oil-based foods through Ventura Foods, LLC. Responsible for CHS strategic direction in renewable fuels. Serves on the boards of directors of the National Cooperative Refinery Association, Horizon Milling, LLC and Ventura Foods, LLC. Earned a bachelor’s degree in economics from the University of North Dakota in 1982 and a master’s of business administration degree from the University of Wisconsin — Madison in 1984.

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      Patrick Kluempke, Executive Vice President — Corporate Administration, is responsible for human resources, information technology, business risk control, and building and office services, along with board coordination, corporate planning and international relations. Served in the U.S. Army with tours in South Vietnam and South Korea, as Aide to General J. Guthrie. Began his career in grain trading and export marketing. Joined the former Harvest States in 1983, has held various positions within CHS in both the operations and corporate level, and was named to his current position in 2000. Serves on the board of Ventura Foods, LLC. Graduated with honors from St. Cloud (Minn.) State University.

      Thomas D. Larson, Executive Vice President — Business Solutions, began his career as a vocational agriculture teacher and later joined the former Cenex in agronomy sales. Managed a local cooperative in Hoffman, Minn., and then returned to Cenex in 1978 to hold positions in marketing, planning, agronomy services and retail operation management. Was named Executive Vice President — Member and Public Affairs in 1999 which included responsibility for communications, corporate giving, meeting and travel and governmental affairs. Named to his current position in 2005. Serves on the board of Cofina Financial, LLC. Holds a bachelor’s degree in agricultural education from South Dakota State University.

      Mark Palmquist, Executive Vice President and Chief Operating Officer — Ag Business, joined the former Harvest States in 1979 as a grain buyer, then moved into grain merchandising. Named vice president and director of grain marketing in 1990 and senior vice president in 1993. Assumed his current responsibilities for grain, agronomic and country operations businesses in 2005. Serves on the boards of Ventura Foods, LLC and National Cooperative Refinery Association. Graduated from Gustavus Adolphus College, St. Peter, Minn., and attended the University of Minnesota MBA program.

      John Schmitz, Executive Vice President and Chief Financial Officer, joined the former Harvest States in 1974 and has held a number of accounting and finance positions within CHS. Named vice president and controller of Harvest States in 1986 and had served in that position up to the time of the merger with Cenex in 1998, when he became vice president, finance. Appointed to the position of Chief Financial Officer in 1999. Serves as a director on the boards of National Cooperative Refinery Association, Ventura Foods, LLC and Cofina Financial, LLC. Earned a bachelor’s of science degree in accounting from St. Cloud (Minn.) State University, and is a member of the American Institute of Certified Public Accountants, the Minnesota Society of CPA’s and the National Society of Accountants for Cooperatives.

      Leon E. Westbrock, Executive Vice President and Chief Operating Officer — Energy, joined the former Cenex in 1976 in merchandising and managed local cooperatives in North Dakota and Minnesota. Returned to Cenex to hold various positions, including lubricants manager, director of retailing, and since 1987, executive vice president of energy for what is now CHS. Appointed to his current position in 2000. Serves as chairman of National Cooperative Refinery Association. Holds a bachelor’s degree from St. Cloud State University.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who beneficially own more than 10% of our 8% Cumulative Redeemable Preferred Stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. Such executive officers, directors and greater than 10% beneficial owners are required by the regulations of the Commission to furnish us with copies of all Section 16(a) reports they file.

      Based solely upon a review of copies of reports on Forms 3 and 4 and amendments thereto furnished to us during, and reports on Form 5 and amendments thereto furnished to us with respect to, the fiscal year ended August 31, 2005, and based further upon written representations received by us with respect to the need to file reports on Form 5, the following persons filed late reports required by Section 16(a) of the Exchange Act: Mr. Wendland was late in filing a report on Form 4 relating to a transaction in December 2004 and Mr. Elliott was late in filing a report on Form 4 relating to a transaction in August 2005.

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Code of Ethics

      We have adopted a code of ethics within the meaning of Item 406(b) of Regulation S-K of the Securities and Exchange Commission. This code of ethics applies to all of our officers and employees. We will provide to any person, without charge, upon request, a copy of such code of ethics. A person may request a copy by writing or telephoning us at the following address:

CHS Inc.

Attention: Dave Kastelic

5500 Cenex Drive

Inver Grove Heights, Minnesota 55077

(651) 355-6000

Audit Committee Matters

      The Board of Directors has a separately designated standing Audit Committee for the purpose of overseeing our accounting and financial reporting processes and audits of our financial statements. The Audit Committee is comprised solely of directors Mr. Bass, Mr. Bielenberg, Mr. Carlson and Mr. Elliot, each of whom is an independent director. The Audit Committee has oversight responsibility to our owners relating to our financial statements and the financial reporting process, preparation of the financial reports and other financial information provided by us to any governmental or regulatory body, the systems of internal accounting and financial controls, the internal audit function and the annual independent audit of our financial statements. The Audit Committee assures that the corporate information gathering and reporting systems developed by management represent a good faith attempt to provide senior management and the Board of Directors with information regarding material acts, events and conditions within the company. In addition, the Audit Committee is directly responsible for the appointment, compensation and oversight of the independent registered public auditors.

      We do not believe that any member of the Audit Committee of the Board of Directors is an audit committee “financial expert” as defined in the Sarbanes-Oxley Act of 2002 and rules and regulations thereunder. As a cooperative, our 17-member Board of Directors is nominated and elected by our members. To ensure geographic representation of our members, the Board of Directors represent eight (8) regions in which our members are located. The members in each region nominate and elect the number of directors for that region as set forth in our bylaws. To be eligible for service as a director, a nominee must (i) be an active farmer or rancher, (ii) be a member of CHS or a cooperative association member and (iii) reside in the geographic region from which he or she is nominated. Neither management nor the incumbent directors have any control over the nominating process for directors. Because of the nomination procedure and the election process, we cannot ensure that an elected director will be an audit committee “financial expert”.

      However, many of our directors, including all of the Audit Committee members, are financially sophisticated and have experience or background in which they have had significant financial oversight responsibilities. The current Audit Committee includes directors who have served as presidents or chairmen of local cooperative association boards. Members of the Board of Directors, including the Audit Committee, also operate large commercial enterprises requiring expertise in all areas of management, including financial oversight.

ITEM 11. EXECUTIVE COMPENSATION

      Summary Compensation. The following table sets forth the cash and noncash compensation earned by our President and Chief Executive Officer and each of our executive officers whose total salary and

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bonus or similar incentive payment earned during the year ended August 31, 2005, exceeded $100,000 (the “Named Executive Officers”):

Summary Compensation Table

		Annual Compensation										Long-Term
												Compensation
								Other Annual		All Other
		Year		Salary		Bonus		Compensation		Compensation		LTIP Payouts
Name and Principal Position		Ended		(1)		(1)		(2)		(3)		(1)
John. D. Johnson			8/31/05	$	850,000	$	850,000	$	25,800	$	141,126	$	467,500
	President and Chief		8/31/04		850,000		800,530		25,800		97,714		969,646
	Executive Officer		8/31/03		850,000		710,940		25,800		99,142		820,802
Jay Debertin			8/31/05		379,000		284,250		15,120		48,879		127,053
	Executive Vice President		8/31/04		300,000		186,662		15,120		31,820		230,175
	and Chief Operating		8/31/03		265,000		171,083		15,120		28,561		186,104
	Officer — Processing
Patrick Kluempke			8/31/05		326,400		269,800		15,120		48,747		115,088
	Executive Vice President —		8/31/04		287,600		212,680		15,120		29,805		211,562
	Corporate Administration		8/31/03		230,880		145,842		15,120		26,062		166,949
Thomas D. Larson			8/31/05		326,400		229,525		15,120		44,416		112,723
	Executive Vice President —		8/31/04		253,400		185,489		15,120		29,100		208,647
	Business Solutions		8/31/03		240,000		156,960		15,120		25,505		174,763
Mark Palmquist			8/31/05		522,300		391,725		15,120		75,877		205,563
	Executive Vice President		8/31/04		490,000		342,143		15,120		44,336		412,301
	and Chief Operating		8/31/03		482,400		145,323		15,120		49,611		348,215
	Officer — Ag Business
John Schmitz			8/31/05		464,622		384,450		15,120		71,047		182,229
	Executive Vice President		8/31/04		450,000		332,775		15,120		46,226		366,907
	and Chief Financial Officer		8/31/03		410,700		268,140		15,120		38,514		285,155
Leon E. Westbrock			8/31/05		522,300		391,725		15,120		77,242		205,563
	Executive Vice President		8/31/04		490,000		359,783		15,120		54,159		412,301
	and Chief Operating		8/31/03		482,400		344,148		15,120		49,349		348,215
	Officer — Energy

(1)	Includes amounts of salary and bonus deferred pursuant to deferred compensation plans.
(2)	Company vehicle allowance.
(3)	Other compensation includes our matching contributions under our 401(k) Plan, our nonqualified 401(k) match makeup and our profit sharing plan, and the portion of long-term disability premiums paid by us.

Report on Executive Compensation

      The Corporate Responsibility Committee of the Board of Directors, subject to the approval of the Board of Directors, makes recommendations for the compensation of our chief executive officer and oversees the administration of the executive compensation programs.

      Corporate Responsibility Committee Members,

Curt Eischens                     Michael Mulcahey

Richard Owen                     Merlin Van Walleghen

Executive Compensation Policies and Programs

      Our executive compensation programs are designed to attract and retain highly qualified executives and to motivate them to optimize member owner returns by achieving aggressive goals. The compensation program links executive compensation directly to our financial performance. A significant portion of each

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executive’s compensation is dependent upon value-added operations and meeting financial goals and other individual performance objectives.

      Each year, the Corporate Responsibility Committee reviews our executive compensation policies with respect to the correlation between executive compensation and the creation of member owner value, as well as the competitiveness of the executive compensation programs. The Committee, with input from a third party consultant, determines what, if any, changes are appropriate to our executive compensation programs. The Committee recommends to the Board of Directors, salary actions relative to our chief executive officer and determines the amount of annual variable pay and the amount of long-term incentive awards based on goal attainment.

      We intend, to the extent possible, to preserve the deductibility under the Internal Revenue Code of compensation paid to our executive officers while maintaining compensation programs to attract and retain highly qualified executives in a competitive environment. Accordingly, compensation paid under our share option, deferred compensation and incentive compensation plans is generally deductible.

Components of Compensation

      There are three basic components to our executive compensation plan: base pay; annual variable pay; and long-term incentive pay (awarded in the deferred compensation plan). Each component is designed to be competitive within the executive compensation market. In determining competitive compensation levels, we analyze information from several independent compensation surveys, which include information regarding comparable industry and industry specific markets and other companies that compete with us for executive talent.

      Base Pay: Base pay is designed to be competitive at the 50th percentile of other large companies for equivalent positions. The executive’s actual salary relative to this competitive benchmark varies based on individual performance and the individual’s skills, experience and background.

      Annual Variable Pay: Award levels, like the base pay levels, are set with reference to competitive conditions and are intended to motivate our executives by providing substantial incentive payments for the achievement of aggressive goals. The actual amounts paid for our fiscal year 2005 were determined based on two factors: first, profitability and financial performance of us and the executive’s business unit; and second, the individual executive’s performance against other specific management objectives such as revenue volume growth, value added performance or talent development. Financial objectives are generally given greater weight than individual performance objectives in determining individual awards. The types and relative importance of specific financial and other business objectives varied among executives depending upon their positions and the particular business unit for which they were responsible.

      Long-Term Variable Pay: The main purpose of the long-term incentive plan is to encourage our executives to increase the value of doing business with us by increasing and improving value-added business opportunities and therefore the value to member owners of doing business with us. The long-term incentive component of the compensation program (through extended vesting) is also designed to create an incentive for the individual to remain with us.

      The long-term incentive plan consists of awards to the deferred compensation plan sponsored by us. These awards vest over a multi-year period. Like annual variable pay, award levels are set with regard to competitive considerations and each individual’s actual award is based on our financial performance, collectively.

Compensation of the Chief Executive Officer

      In determining the compensation of our chief executive officer, the Committee considers three factors: the absolute and relative performance of our business, particularly as it relates to variable pay; the market for such positions; and our compensation strategy in determining the mix of base, annual, and long-term variable pay.

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      In general, our strategy is to distribute pay for the chief executive officer among the three basic components so that it effectively reflects the competitive market with major consideration for achievement of individual performance objectives.

      Mr. Johnson’s actual base salary for our fiscal year 2005 was $850,000. Based on our financial performance in terms of profitability and other individual goals related to achieving communications objectives, business partner accountability and other strategic objectives, Mr. Johnson received an annual variable pay award of $850,000 and will receive a long-term incentive award of $467,500 for our fiscal year 2005. These incentive payments were consistent with his achievement of performance standards set by the Board of Directors.

      The following summarizes certain benefits in effect as of August 31, 2005 to the Named Executive Officers.

Employment Agreement with John D. Johnson

      Our executive officers are employed on an at-will basis and, except as provided below, none of our executive officers has a written employment agreement. On November 6, 2003, we entered into an employment agreement with John D. Johnson, the President and Chief Executive Officer. The employment agreement provides for a rolling three-year period of employment effective September 1, 2003 at an initial base salary of at least $850,000, subject to annual review. Either party, subject to the rights and obligations set forth in the employment agreement, may terminate Mr. Johnson’s employment at any time. We are obligated to pay Mr. Johnson a severance allowance of 2.99 times his base salary and target bonus in the event Mr. Johnson’s employment is terminated for any reason other than for cause (as such term is defined in the employment agreement), death, disability or voluntary termination, and in the event of the consolidation of our business with the business of any other entity, if Mr. Johnson is not offered the position of Chief Executive Officer of the combined entity. The contract provides for a gross-up for any possible excise tax. Mr. Johnson has also agreed to a non-compete clause of two years, in the event of his termination.

Annual Variable Pay Plan

      Each Named Executive Officer is eligible to participate in our Annual Variable Pay Plan (the “Incentive Program”) for our fiscal year ended August 31, 2005. Our Incentive Program is based on company, group or division performance and individual performance and such amounts will be paid after August 31, 2005. The target incentive is 50% of salary range midpoint except for our President and Chief Executive Officer, where target incentive is 67% of salary range midpoint.

Long-Term Incentive Plan

      Each Named Executive Officer is eligible to participate in our Long-Term Incentive Plan. This plan consists of a three-year performance period. Award opportunities are expressed as a percentage of a participating employee’s average salary range mid-point. Our financial performance must meet a minimum level of pretax earnings per unit of sales volume and net income levels before any awards are made from this plan. The Board of Directors has discretion to increase or decrease an award up to 20%. Awards from this plan are contributed to our Deferred Compensation Plan after the end of each plan period. For each of our fiscal years ended August 31, 2005, 2004 and 2003, the Board of Directors increased the awards by an additional 10%.

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Long-Term Incentive Plans — Awards in Last Fiscal Year

		Award
Name and Principal Position		2003-2005		Maturation of Award		Threshold		Target		Maximum
John. D. Johnson		$	467,500		2003-2005	$	85,000	$	569,500	$	850,000
	President and Chief Executive Officer
Jay Debertin			127,053		2003-2005		23,101		154,774		231,006
	Executive Vice President and Chief Operating Officer — Processing
Patrick Kluempke			115,088		2003-2005		20,925		140,198		209,250
	Executive Vice President — Corporate Administration
Thomas D. Larson			112,723		2003-2005		20,495		137,316		204,950
	Executive Vice President — Business Solutions
Mark Palmquist			205,563		2003-2005		37,375		250,413		373,750
	Executive Vice President and Chief Operating Officer — Ag Business
John Schmitz			182,229		2003-2005		31,133		221,988		331,325
	Executive Vice President and Chief Financial Officer
Leon E. Westbrock			205,563		2003-2005		37,375		250,413		373,750
	Executive Vice President and Chief Operating Officer — Energy

Retirement Plan

      Each of the Named Executive Officers is entitled to receive benefits under our Cash Balance Retirement Plan (the Retirement Plan). An employee’s benefit under the Retirement Plan depends on credits to the employee’s account, which are based on the employee’s total salary each year the employee works for us, the length of service with us and the rate of interest credited to the employee’s account balance each year. Credits are made to the employee’s account from pay credits, special career credits and investment credits.

      The amount of pay credits added to an employee’s account each year is a percentage of the employee’s gross salary, including overtime pay, commissions, bonuses, any compensation reduction pursuant to the 401(k) Plan and any pretax contribution to any of our welfare benefit plans, paid vacations, paid leaves of absence and pay received if away from work due to a sickness or injury. The pay credits percentage received is determined on a yearly basis, based on the years of benefit service completed as of January 1 of each year. An employee receives one year of benefit service for every calendar year of employment in which the employee completed at least 1,000 hours of service.

      Effective January 1, 2005, pay credits are earned according to the following schedule:

	Pay Below Social Security			Pay Above Social Security
Years of Benefit Service	Taxable Wage Base			Taxable Wage Base
1 to 3 years		3	%		6	%
4 to 7 years		4	%		8	%
8 to 11 years		5	%		10	%
12 to 15 years		6	%		12	%
16 years and more		7	%		14	%

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      We credit an employee’s account at the end of the year with an investment credit based on the balance at the beginning of the year. The investment credit is based on the average return for one-year U.S. Treasury bills for the preceding 12-month period. The maximum investment credit may not exceed 12% for any year.

      As of December 31, 2004, the dollar value of the account and years of service for each of the Named Executive Officers was:

	Dollar Value		Years of Service
John D. Johnson	$	1,111,035		28
Jay Debertin		218,912		21
Patrick Kluempke		543,700		22
Thomas D. Larson		593,762		28
Mark Palmquist		607,625		25
John Schmitz		523,644		30
Leon E. Westbrock		1,179,990		24

      In addition, each of the Named Executive Officers may participate in our Deferred Compensation and Supplemental Retirement Plan (Supplemental Plan). Participants in the Supplemental Plan are select management or highly compensated employees who have been designated as eligible by our President to participate. Compensation waived under the Deferred Compensation Plan is not eligible for pay credits under the Retirement Plan or matching contributions under the 401(k) Plan. The Supplemental Plan is intended to replace the benefits lost under those plans due to Section 415 of the Internal Revenue Code of 1986, as amended (the Code) which cannot be considered for purposes of benefits due to Section 401(a)(17) of the Code under the qualified plans that we offer. Some of the Supplemental Plan benefits are funded by a rabbi trust, with a balance at August 31, 2005 of $7.0 million. No further contributions are being made to the trust and the Supplemental Plan, which is not being funded, and does not qualify for special tax treatment under the Code.

      Finally, our President and Chief Executive Officer is eligible to participate in our Special Supplemental Executive Retirement Plan (the Special Supplemental Plan). The Special Supplemental retirement benefit will be credited at the end of each plan year for which the participant completes a year of service. The amount credited shall be an amount equal to that set forth in a schedule of benefits stated in the Special Supplemental Plan. The Special Supplemental Plan is not funded and does not qualify for special tax treatment under the Code

      As of December 31, 2004, the dollar value of the accounts of each of the Named Executive Officers was approximately:

			Special
	Supplemental Plan		Supplemental Plan
John D. Johnson	$	2,440,149	$	701,490
Jay Debertin		231,910		N/A
Patrick Kluempke		179,214		N/A
Thomas D. Larson		743,425		N/A
Mark Palmquist		435,361		N/A
John Schmitz		404,193		N/A
Leon E. Westbrock		2,407,296		N/A

401(k) Plan

      Each Named Executive Officer is eligible to participate in the CHS Inc. Savings Plan (the 401(k) Plan). All benefit-eligible employees of ours are eligible to participate in the 401(k) Plan. Effective January 1, 2002, participants may contribute between 1% and 50% (not to exceed the IRS limits on

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benefits in the case of “highly compensated” employees) of their pay on a pre tax basis. Each of the Named Executive Officers is a “highly compensated” employee. We match 50% of the first 6% of pay contributed each year. The Board of Directors may elect to reduce or eliminate matching contributions for any year or any portion thereof. Participants are 100% vested in their own contributions and are fully vested after three years of service in our matching contributions made on the participant’s behalf.

Nonqualified Deferred Compensation Plans

      In October 1997, we adopted a plan entitled the Share Option Plan. Participants in the Share Option Plan include directors, officers and other employees who have been designated as provided in the Share Option Plan.

      In October 2004, Congress enacted the American Jobs Creation Act of 2004. This legislation will require significant changes to the Share Option Plan. As a result of this legislation, we adopted a new non-qualified deferred compensation plan that is intended to be compliant with the new regulations and have suspended contributions to the Share Option Plan. Effective November 4, 2005, we have adopted amendments to the terms of the outstanding options under the Share Option Plan and to the Deferred Compensation Plan. Under the terms of the amendments, each participant in the Share Option Plan will have the right to exercise all or any portion of that participant’s vested options under the Share Option Plan by December 9, 2005, and effective December 10, 2005, options under the Share Option Plan which are not exercised on or prior to December 9, 2005, will be converted into account balances under the Deferred Compensation Plan. As a result of these amendments, from and after December 10, 2005, we will no longer have any obligation under the Share Option Plan.

      The Share Option Plan provided for the grant of options both as awards and in exchange for future compensation. Electing to receive an option in exchange for future compensation had the effect of deferring receipt of that amount of base salary or annual variable pay. With respect to options granted as awards, we made all awards under our Long-Term Incentive Plan in the form of options under the Share Option Plan or deferred compensation plan. With respect to options granted in exchange for future compensation, a participant was able to elect to exchange up to 30% of his or her base salary and up to 100% of his or her annual variable compensation for options; this had to be done prior to the beginning of the fiscal year in which the compensation was earned. Options for foregone salary amounts were issued quarterly on or about March 31, June 30, September 30 and December 31; options for foregone annual and long-term variable compensation payments were issued as soon as practicable following determination of the relevant amount. If a participant’s employment with us terminated prior to the grant of an option to be issued in exchange for foregone compensation that had been earned, the amount of the compensation was paid to the participant in cash. During our fiscal year ended August 31, 2005, all of the Named Executive Officers participated in the elective deferral to the Share Option Plan, except Mr. Larson.

      Each option granted under the Share Option Plan has an exercise price equal to 25% of the amount of the award or the exchanged future compensation. Each option derives its value from the performance of one or more deemed investment alternatives selected by the recipient at the time of grant. The current investment options are investments in four funds in an investment company with different degrees of risk that are owned by us and managed for us by a third party investment manager. When a participant exercises an option, we pay the participant the amount that the participant would have received if the participant had made an investment in the selected investment on the option grant date in an amount equal to 125% of the amount of the award or exchanged future compensation, reinvested all dividends and other distributions on that investment from the grant date to the exercise date and then sold that investment on the exercise date. Options issued in exchange for foregone compensation become exercisable six months after the date of grant.

      Each time an option was granted under the Share Option Plan, we contributed an amount sufficient to purchase the investment or investments selected by the optionee in the relevant private investment company or companies. Our obligations with respect to options granted under the Share Option Plan are unsecured obligations of ours that rank equally with our other unsecured and unsubordinated obligations.

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      The new deferred compensation plan allows eligible executives to defer receipt of up to 30% of their base salary and up to 100% of their annual variable compensation. This must be done prior to the beginning of the calendar year in which the compensation will be earned. During the fiscal year ended August 31, 2005, all of the Named Executive Officers participated in the non-elective deferral plan and the following Named Executive Officers participated in the elective deferral portion of the plan: Mr. Debertin. With respect to options granted as awards, we have made all awards under our 2002-2004 Long-Term Incentive Plan to the new deferred compensation plan.

Change of Control Arrangements

      The Deferred Compensation Plan provides that the plan committee may at its sole discretion allow participants the ability to elect, at the time they commence participation in the plan, to:

•  receive payment of their accrued benefit under the plan at time of change of control;

•  allow their accrued benefit to remain in the plan and have the payment made in accordance with the terms and conditions of the plan.

      Under the Deferred Compensation Plan, “change in control”, except as otherwise provided in a written agreement executed by the participants and us prior to the change in control, is defined in accordance with Treasury Regulations promulgated pursuant to Code Section 409A, including such regulations as may be issued after the effective date of the plan.

      In addition, our employment agreement with John D. Johnson contains provisions that may be triggered in the case of a consolidation of our business with the business of another entity. See preceding section “Employment Agreement with John D. Johnson”.

Directors’ Compensation

      The Board of Directors met monthly during the year ended August 31, 2005. Through August 31, 2005, we provided each director with compensation of $42,000, paid in twelve monthly payments, with the Chairman of the Board receiving an additional annual compensation of $12,000, the First Vice Chairman receiving an additional annual compensation of $3,600, and the Secretary-Treasurer receiving an additional annual compensation of $1,800. Each director receives a per diem of $300 plus actual expenses and travel allowance for each day spent on our meetings (other than regular Board meetings and the Annual Meeting), life insurance and health and dental insurance. Each director has a retirement benefit of $175 per month per year of service, with a maximum benefit of $2,625 per month, for life, with a guarantee of 120 months (paid to beneficiary in the event of death). This benefit commences at age 60, or retirement, whichever is later. This retirement benefit may be converted to a lump sum. Some of the retirement benefits are funded by a rabbi trust, with a balance at August 31, 2005 of $0.8 million. The retired directors may also continue health benefits until eligible for Medicare and thereafter pay at their own expense for a Medicare supplemental policy.

      Directors are eligible to participate in the nonqualified deferred compensation plan and were eligible to participate in the Share Option Plan described above under “— Nonqualified Deferred Compensation Plans.” Each participating director may elect to exchange up to 100% of his or her monthly director fee; this must be done prior to the beginning of the fiscal year in which the fees will be earned. Electing to receive an option in exchange for future fees has the effect of deferring receipt of the amount of the fees exchanged.

Committees of the Board of Directors

      The Board of Directors appoints ad hoc committees from time to time to review certain matters and make reports and recommendations to the full Board of Directors for action. The entire Board of Directors determines the salaries and incentive compensation for the President and Chief Executive Officer using industry and compensation studies. The Board of Directors has a standing Audit Committee to review the results and scope of the annual audit and other services provided by our independent auditors, and another

62

standing committee to review the equity redemption policy and its application to situations believed by the equity holder or patrons’ equity department to be unusual.

Compensation Committee Interlocks and Insider Participation

      As noted above, the Board of Directors does not have a Compensation Committee. The Corporate Responsibility Committee recommends to the entire Board of Directors, salary actions relative to our chief executive officer. The entire Board of Directors determines the compensation of the President and Chief Executive Officer and the terms of the employment agreement with our President and Chief Executive Officer. Our President and Chief Executive Officer determines the compensation for all other executive officers.

      None of the directors are officers of CHS. See Item 13 for directors that were a party to related transactions.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

      Beneficial ownership of equity securities as of August 31, 2005 is shown below:

		Amount and
		Nature of
		Beneficial
Title of Class	Name of Beneficial Owner	Ownership			% of Class
8% Cumulative Redeemable Preferred Stock	Directors:
	Michael Toelle		420 shares	(1)		*
	Bruce Anderson		40 shares			*
	Robert Bass		120 shares			*
	David Bielenberg		1,530 shares			*
	Dennis Carlson		460 shares	(1)		*
	Curt Eischens		120 shares			*
	Robert Elliott		1,155 shares			*
	Steve Fritel		880 shares			*
	Robert Grabarski		2,280  shares	(1)		*
	Jerry Hasnedl		200 shares			*
	Glen Keppy		200 shares			*
	James Kile		250 shares	(1)		*
	Randy Knecht		313 shares	(1)		*
	Michael Mulcahey		0 shares			*
	Richard Owen		240 shares			*
	Duane Stenzel		400 shares			*
	Merlin Van Walleghen		1,600 shares			*
	Named Executive Officers:
	John D. Johnson		4,600 shares			*
	Jay Debertin		400 shares			*
	Patrick Kluempke		1,000 shares			*
	Thomas D. Larson		400 shares			*
	Mark Palmquist		400 shares			*
	John Schmitz		1,400 shares			*
	Leon E. Westbrock		800 shares			*
	Directors and executive officers as a group		19,208 shares			*

(1)  Includes shares held by spouse, children and Individual Retirement Accounts (IRA).

* Less than 1%.

      We have no compensation plans under which our equity securities are authorized for issuance.

      To our knowledge, there is no person who owns beneficially more than 5% of our 8% Cumulative Redeemable Preferred Stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Because our directors must be active patrons of ours, or of an affiliated association, transactions between us and our directors are customary and expected. Transactions include the sales of commodities to us and the purchases of products and services from us, as well as patronage refunds and equity

64

redemptions received from us. During the period indicated, the value of those transactions between a particular director (and members of such director’s immediate family, which includes such director’s spouse; parents; children; siblings; mothers and fathers-in-law; sons and daughters-in-law; and brothers and sisters-in-law) and us in which the amount involved exceeded $60,000 are shown below.

	Year Ended
Name	August 31, 2005
Bruce Anderson	$	156,005
Curt Eischens		228,535
Jerry Hasnedl		506,277
Glen Keppy		207,169
Michael Mulcahey		60,768
Michael Toelle		511,317
Merlin Van Walleghen		285,671

PART IV.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The following table shows the aggregate fees billed to us by PricewaterhouseCoopers for services rendered during the fiscal years ended August 31, 2005 and 2004:

Description of Fees		2005		2004
Audit Fees(1)		$	1,058,078	$	904,128
Audit — Related Fees(2)			102,659		99,717
Tax Fees(3)			29,911		705,151
All Other Fees
	Total	$	1,190,648	$	1,708,996

(1)	Includes fees for audit of annual financial statements and reviews of the related quarterly financial statements, certain statutory audits, work related to S-2 and S-8 filings, and services for 404 readiness efforts.
(2)	Includes fees for employee benefit plan audits.
(3)	Includes fees related to tax compliance, tax advice and tax planning.

      In accordance with our CHS Inc. Audit Committee Charter, on October 4, 2004, our Audit Committee adopted the following policies and procedures for the approval of the engagement of an independent auditor for audit, review or attest services and for pre-approval of certain permissible non-audit services, all to ensure auditor independence.

      Our independent auditor will provide audit, review and attest services only at the direction of, and pursuant to engagement fees and terms approved by, our Audit Committee. Our audit committee approves, in advance, all non-audit services to be performed by the independent auditors and the fees and compensation to be paid to the independent auditors. Our Audit Committee approved all of the services listed above in advance.

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ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS

      (a)(1) FINANCIAL STATEMENTS

      The following financial statements and the Reports of Independent Registered Public Accounting Firms are filed as part of this Form 10-K.

	Page No.
CHS Inc.
Consolidated Balance Sheets as of August 31, 2005 and 2004		F-1
Consolidated Statements of Operations for the years ended August 31, 2005, 2004 and 2003		F-2
Consolidated Statements of Equities and Comprehensive Income for the years ended
August 31, 2005, 2004 and 2003		F-3
Consolidated Statements of Cash Flows for the years ended August 31, 2005, 2004 and 2003		F-4
Notes to Consolidated Financial Statements		F-5
Report of Independent Registered Public Accounting Firm		F-31

      (a)(2) FINANCIAL STATEMENT SCHEDULES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

		Balance at		Additions:		Additions:	Deductions:			Balance at
		Beginning		Charged to Costs		Charged to	Write-offs, net			End of
		of Year		& Expenses		Other Accounts	of Recoveries			Year
		(dollars in thousands)
Allowances for Doubtful Accounts
	2005	$	55,809	$	12,962		$	(8,730	)	$	60,041
	2004		31,618		32,254			(8,063	)		55,809
	2003		26,156		11,958			(6,496	)		31,618

		Balance at		Additions:		Additions:	Deductions:			Balance at
		Beginning		Charged to Costs		Charged to	Expenditures			End of
		of Year		& Expenses		Other Accounts	for maintenance			Year
		(dollars in thousands)
Accrued Turnaround(1)
	2005	$	12,949	$	21,558		$	(15,472	)	$	19,035
	2004		13,980		11,298			(12,329	)		12,949
	2003		10,356		12,055			(8,431	)		13,980

(1)  Accruals for planned major maintenance activities at our energy refineries

66

Report of Independent Registered Public Accounting Firm on

Financial Statement Schedule

To the Board of Directors and Members and Patrons of CHS Inc.:

      Our audits of the consolidated financial statements referred to in our report dated November 3, 2005 appearing on page F-31 of this Form 10-K of CHS Inc. and subsidiaries also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

Minneapolis, Minnesota

November 3, 2005

67

      (a)(3) EXHIBITS

3	.1	Articles of Incorporation of the Company.(24)
3	.2	Bylaws of the Company.(24)
4	.1	Resolution Creating a Series of Preferred Equity to be Designated 8% Cumulative Redeemable Preferred Stock.(13)
4	.2	Form of Certificate Representing 8% Cumulative Redeemable Preferred Stock.(14)
4	.3	Unanimous Written Consent Resolution of the Board of Directors Amending the Amended and Restated Resolution Creating a Series of Preferred Equity to be Designated 8% Cumulative Redeemable Preferred Stock.(14)
4	.4	Unanimous Written consent Resolution of the Board of Directors Amending the Amended and Restated Resolution Creating a Series of Preferred Equity to be Designated 8% Cumulative Redeemable Preferred Stock to change the record date for dividends.(15)
10	.1	Lease between the Port of Kalama and North Pacific Grain Growers, Inc., dated November 22, 1960.(1)
10	.2	Limited Liability Company Agreement for the Wilsey-Holsum Foods, LLC dated July 24, 1996.(1)
10	.3	Long Term Supply Agreement between Wilsey-Holsum Foods, LLC and Harvest States Cooperatives dated August 30, 1996.(*)(1)
10	.4	TEMCO, LLC Limited Liability Company Agreement between Cargill, Incorporated and Cenex Harvest States Cooperatives dated as of August 26, 2002.(12)
10	.5	Cenex Harvest States Cooperatives Supplemental Savings Plan.(7)
10	.6	Cenex Harvest States Cooperatives Supplemental Executive Retirement Plan.(7)
10	.7	Cenex Harvest States Cooperatives Senior Management Compensation Plan.(7)
10	.8	Cenex Harvest States Cooperatives Executive Long-Term Variable Compensation Plan.(7)
10	.9	Cenex Harvest States Cooperatives Share Option Plan.(20)
10	.9A	Amendment to Cenex Harvest States Share Option Plan, dated June 28, 2001.(10)
10	.9B	Amendment No. 2 to Cenex Harvest States Share Option Plan, dated May 2, 2001.(20)
10	.9C	Amendment No. 3 to Cenex Harvest States Share Option Plan, dated June 4, 2002.(20)
10	.9D	Amendment No. 4 to Cenex Harvest States Share Option Plan, dated April 6, 2004.(20)
10	.10	CHS Inc. Share Option Plan Option Agreement(20)
10	.11	CHS Inc. Share Option Plan Trust Agreement(20)
10	.11A	Amendment No. 1 to the Trust Agreement.(20)
10	.12	$225,000,000 Note Agreement (Private Placement Agreement) dated as of June 19, 1998 among Cenex Harvest States Cooperatives and each of the Purchasers of the Notes.(2)
10	.12A	First Amendment to Note Agreement ($225,000,000 Private Placement), effective September 10, 2003, among CHS Inc. and each of the Purchasers of the notes.(16)
10	.13	2005 Amended and Restated Credit Agreement (Revolving Loan) by and between CHS Inc. and the Syndication Parties dated as of May 19, 2005.(22)
10	.13A	First Amendment to 2005 Amended and Restated Credit Agreement (Revolving Loan) by and between CHS Inc. and the Syndication Parties dated as of November 18, 2005.(24)
10	.14	$200 Million Term Loan Credit Agreement dated as of June 1, 1998 among Cenex Harvest States Cooperatives, CoBank, ACB, and St. Paul Bank for Cooperatives, including Exhibit 2.4 (form of $200 Million Promissory Note).(2)
10	.14A	First Amendment to Credit Agreement (Term Loan), effective as of May 31, 1999 among Cenex Harvest States Cooperatives, CoBank, ACB, and St. Paul Bank for Cooperatives.(4)
10	.14B	Second Amendment to Credit Agreement (Term Loan) dated May 23, 2000 by and among Cenex Harvest States Cooperatives, CoBank, ACB, St. Paul Bank for Cooperatives and the Syndication Parties.(6)
10	.14C	Third Amendment to Credit Agreement (Term Loan) dated May 23, 2001 among Cenex Harvest States Cooperatives, CoBank, ACB, and the Syndication Parties.(9)

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10	.14D	Fourth Amendment to Credit Agreement (Term Loan) dated May 22, 2002 among Cenex Harvest States Cooperatives, CoBank, ACB and the Syndication Parties.(11)
10	.14E	Fifth Amendment to Credit Agreement (Term Loan) dated May 21, 2003 by and among Cenex Harvest States Cooperatives, CoBank, ACB and the Syndication Parties.(20)
10	.14F	Sixth Amendment to Credit Agreement (Term Loan) dated as of May 20, 2004 by and among CHS Inc., CoBank, ACB, and the Syndication Parties.(18)
10	.14G	Seventh Amendment to Credit Agreement (Term Loan) dated as of May 19, 2005 by and among CHS Inc., CoBank, ACB, and the Syndication Parties.(24)
10	.14H	Eighth Amendment to Credit Agreement (Term Loan) dated as of November 18, 2005 by and among CHS Inc., CoBank, ACB, and the Syndication Parties.(24)
10	.15	Limited Liability Agreement of United Harvest, LLC dated November 9, 1998 between United Grain Corporation and Cenex Harvest States Cooperatives.(3)
10	.16	Joint Venture Agreement for Agriliance LLC, dated as of January 1, 2000 among Farmland Industries, Inc., Cenex Harvest States Cooperatives, United Country Brands, LLC and Land O’ Lakes, Inc.(5)
10	.17	Employment Agreement dated November 6, 2003 by and between John D. Johnson and CHS Inc.(16)
10	.18	CHS Inc. Special Supplemental Executive Retirement Plan.(16)
10	.19	Note purchase and Private Shelf Agreement dated as of January 10, 2001 between Cenex Harvest States Cooperatives and The Prudential Insurance Company of America.(8)
10	.19A	Amendment No. 1 to Note Purchase and Private Shelf Agreement, dated as of March 2, 2001.(8)
10	.20	Note Purchase Agreement and Series D & E Senior Notes dated October 18, 2002.(12)
10	.21	2003 Amended and Restated Credit Agreement ($15 million, 2 Year Facility) dated December 16, 2003 between CoBank, ACB, U.S. AgBank, FCB and the National Cooperative Refinery Association, Inc.(17)
10	.22	Note Purchase and Private Shelf Agreement between CHS Inc. and Prudential Capital Group dated as of April 13, 2004.(18)
10	.23	Note Purchase Agreement for Series H Senior Notes dated September 21, 2004.(19)
10	.24	Deferred Compensation Plan.(21)
10	.24A	First Amendment to CHS Inc. Deferred Compensation Plan.(23)
10	.25	New Plan Participants 2005 Plan Agreement and Election Form for the CHS Inc. Deferred Compensation Plan.(21)
10	.26	Beneficiary Designation Form for the CHS Inc. Deferred Compensation Plan.(21)
10	.27	Share Option Plan Participants 2005 Plan Agreement and Election Form.(23)
21	.1	Subsidiaries of the Registrant.(24)
23	.1	Consent of Independent Registered Public Accounting Firm.(24)
24	.1	Power of Attorney.(24)
31	.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(24)
31	.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(24)
32	.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(24)
32	.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(24)

(*)  Pursuant to Rule 406 of the Securities Act of 1933, as amended, confidential portions of Exhibit 10.3 have been deleted                     and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

(1)  Incorporated by reference to our Registration Statement on Form S-1 (File No. 333-17865), filed February 7, 1997.

69

(2)	Incorporated by reference to our Form 10-Q Transition Report for the period June 1, 1998 to August 31, 1998, filed October 14, 1998.
(3)	Incorporated by reference to our Form 10-Q for the quarterly period ended November 30, 1998, filed January 13, 1999.
(4)	Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 1999, filed July 13, 1999.
(5)	Incorporated by reference to our Form 10-Q for the quarterly period ended February 29, 2000 filed April 11, 2000.
(6)	Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2000, filed July 10, 2000.
(7)	Incorporated by reference to our Form 10-K for the year ended August 31, 2000, filed November 22, 2000.
(8)	Incorporated by reference to our Form 10-Q for the quarterly period ended February 28, 2001, filed April 10, 2001.
(9)	Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2001, filed July 3, 2001.

(10)	Incorporated by reference to our Registration Statement on Form S-2 (File No. 333-65364), filed October 26, 2001.
(11)	Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2002, filed July 3, 2002.
(12)	Incorporated by reference to our Form 10-K for the year ended August 31, 2002, filed November 25, 2002.
(13)	Incorporated by reference to Amendment No. 1 to our Registration Statement on Form S-2 (File No. 333-101916), dated January 13, 2003.
(14)	Incorporated by reference to Amendment No. 2 to our Registration Statement on Form S-2 (File No. 333-101916), dated January 23, 2003.
(15)	Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2003, filed July 2, 2003.
(16)	Incorporated by reference to our Form 10-K for the year ended August 31, 2003 filed on November 21, 2003.
(17)	Incorporated by reference to our Form 10-Q for the quarterly period ended February 29, 2004, filed April 7, 2004.
(18)	Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2004, filed July 12, 2004.
(19)	Incorporated by reference to our Current Report on Form 8-K filed September 22, 2004.
(20)	Incorporated by reference to our Form 10-K for the year ended August 31, 2004, filed November 18, 2004.
(21)	Incorporated by reference to our Registration Statement on Form S-8 (File No. 333-121161), filed on December 10, 2004.
(22)	Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2005, filed July 8, 2005.
(23)	Incorporated by reference to our Registration Statement on Form S-8 (File No. 333-129464), filed November 4, 2005.
(24)	Filed herewith.

      (b) EXHIBITS

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

70

      (c) SCHEDULES

      None.

SUPPLEMENTAL INFORMATION

      As a cooperative, we do not utilize proxy statements.

71

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 18, 2005.

CHS INC.

By:  /s/ John D. Johnson

John D. Johnson

President and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on November 18, 2005:

Signature	Title
/s/ John D. Johnson John D. Johnson	President and Chief Executive Officer (principal executive officer)
/s/ John Schmitz John Schmitz	Executive Vice President and Chief Financial Officer (principal financial officer)
/s/ Jodell Heller Jodell Heller	Vice President and Controller (principal accounting officer)
* Michael Toelle	Chairman of the Board of Directors
* Bruce Anderson	Director
* Robert Bass	Director
* David Bielenberg	Director
* Dennis Carlson	Director
* Curt Eischens	Director
* Robert Elliott	Director

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Signature		Title
* Steve Fritel		Director
* Robert Grabarski		Director
* Jerry Hasnedl		Director
* Glen Keppy		Director
* James Kile		Director
* Randy Knecht		Director
* Michael Mulcahey		Director
* Richard Owen*		Director
* Duane Stenzel		Director
* Merlin Van Walleghen		Director
*By:	/s/ John D. Johnson John D. Johnson Attorney-in-fact

73

CHS INC.

CONSOLIDATED BALANCE SHEETS

		August 31
		2005		2004
		(Dollars in thousands)
ASSETS
Current assets:
	Cash and cash equivalents	$	241,018	$	136,491
	Receivables		1,093,986		834,965
	Inventories		914,182		723,893
	Other current assets		367,306		273,355
Total current assets			2,616,492		1,968,704
Investments			520,970		575,816
Property, plant and equipment			1,359,535		1,249,655
Other assets			229,940		237,117
Total assets		$	4,726,937	$	4,031,292
LIABILITIES AND EQUITIES
Current liabilities:
	Notes payable	$	61,147	$	116,115
	Current portion of long-term debt		35,340		35,117
	Customer credit balances		91,902		88,686
	Customer advance payments		126,815		64,042
	Checks and drafts outstanding		67,398		64,584
	Accounts payable		945,737		717,501
	Accrued expenses		397,044		305,650
	Dividends and equities payable		132,406		83,569
Total current liabilities			1,857,789		1,475,264
Long-term debt			737,734		648,701
Other liabilities			229,322		148,526
Minority interests in subsidiaries			144,195		130,715
Commitments and contingencies
Equities			1,757,897		1,628,086
Total liabilities and equities		$	4,726,937	$	4,031,292

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

F-1

CHS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

		For the Years Ended August 31
		2005			2004			2003
		(Dollars in thousands)
Revenues:
	Net sales	$	11,769,093		$	10,838,542		$	9,196,666
	Other revenues		171,963			141,165			122,473
			11,941,056			10,979,707			9,319,139
Cost of goods sold			11,458,432			10,539,198			8,994,696
Marketing, general and administrative			191,246			195,639			169,298
Operating earnings			291,378			244,870			155,145
Gain on sale of investments			(13,013	)		(14,666	)
Gain on legal settlements						(692	)		(10,867	)
Interest			55,137			48,717			46,257
Equity income from investments			(95,742	)		(79,022	)		(47,299	)
Minority interests			47,736			33,830			21,950
Income from continuing operations before income taxes			297,260			256,703			145,104
Income taxes			30,434			29,462			16,031
Income from continuing operations			266,826			227,241			129,073
Loss from discontinued operations, net of taxes			16,810			5,909			5,232
Net income		$	250,016		$	221,332		$	123,841
Distribution of net income:
	Patronage refunds	$	203,000		$	166,850		$	90,000
	Unallocated capital reserve		47,016			54,482			33,841
Net income		$	250,016		$	221,332		$	123,841

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

F-2

CHS INC.

CONSOLIDATED STATEMENTS OF EQUITIES AND COMPREHENSIVE INCOME

		For the Years Ended August 31, 2005, 2004 and 2003
																	Accumulated
		Capital			Nonpatronage									Unallocated			Other			Allocated
		Equity			Equity			Preferred			Patronage			Capital			Comprehensive			Capital		Total
		Certificates			Certificates			Stock			Refunds			Reserve			Income (Loss)			Reserve		Equities
		(Dollars in thousands)
Balances, September 1, 2002		$	1,040,596		$	27,773		$	9,325		$	65,030		$	190,761		$	(51,897	)	$	8,050	$	1,289,638
Dividends and equity retirement determination			28,639									27,870											56,509
Patronage distribution			61,784									(92,900	)		4,638								(26,478	)
Equities retired			(31,092	)		(52	)																(31,144	)
Equities issued			350																				350
Preferred stock issued, net									86,379						(3,895	)							82,484
Preferred stock redeemed									(2,002	)													(2,002	)
Preferred stock dividends															(3,575	)							(3,575	)
Other, net			(2,440	)		(3	)								(4	)							(2,447	)
Comprehensive income:
	Net income											90,000			33,841								123,841
	Other comprehensive income																	33,584					33,584
Total comprehensive income																							157,425
Dividends and equities payable			(10,800	)								(27,000	)		(1,249	)							(39,049	)
Balances, August 31, 2003			1,087,037			27,718			93,702			63,000			220,517			(18,313	)		8,050		1,481,711
Dividends and equity retirement determination			10,800									27,000			1,249								39,049
Patronage distribution			66,500									(90,000	)		(5,222	)							(28,722	)
Equities retired			(10,292	)		(47	)																(10,339	)
Capital equity certificates exchanged for preferred stock			(12,990	)					12,990						(150	)							(150	)
Equities issued			13,355																				13,355
Preferred stock redeemed, treasury									—														—
Preferred stock dividends															(7,975	)							(7,975	)
Other, net			(7,669	)		(85	)								(30	)							(7,784	)
Comprehensive income:
	Net income											166,850			54,482								221,332
	Other comprehensive income																	11,178					11,178
Total comprehensive income																							232,510
Dividends and equities payable			(32,100	)								(50,060	)		(1,409	)							(83,569	)
Balances, August 31, 2004			1,114,641			27,586			106,692			116,790			261,462			(7,135	)		8,050		1,628,086
Dividends and equity retirement determination			32,100									50,060			1,409								83,569
Patronage distribution			119,736									(166,850	)		(4,464	)							(51,578	)
Equities retired			(23,625	)		(48	)																(23,673	)
Capital equity certificates exchanged for preferred stock			(19,996	)					19,996						(87	)							(87	)
Equities issued			1,375																				1,375
Preferred stock dividends															(9,178	)							(9,178	)
Other, net			(666	)		(71	)								404								(333	)
Comprehensive income:
	Net income											203,000			47,016								250,016
	Other comprehensive income																	12,106					12,106
Total comprehensive income																							262,122
Dividends and equities payable			(69,856	)								(60,900	)		(1,650	)							(132,406	)
Balances, August 31, 2005		$	1,153,709		$	27,467		$	126,688		$	142,100		$	294,912		$	4,971		$	8,050	$	1,757,897

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

F-3

CHS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				For the Years Ended August 31
				2005			2004			2003
				(Dollars in thousands)
Cash flows from operating activities:
	Net income			$	250,016		$	221,332		$	123,841
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			110,332			108,399			111,347
		Noncash income from equity investments			(95,742	)		(79,022	)		(47,299	)
		Minority interests			47,736			33,830			21,950
		Noncash portion of patronage dividends received			(3,060	)		(4,986	)		(1,795	)
		(Gain) loss on sale of property, plant and equipment			(7,370	)		775			741
		Loss on sale of business			6,163
		Gain on sale of investments			(13,013	)		(14,666	)
		Deferred tax expense			26,400			8,500			9,000
		Other, net			1,027			1,150			4,052
		Changes in operating assets and liabilities:
			Receivables		(250,202	)		(59,039	)		(18,669	)
			Inventories		(190,081	)		88,261			(25,692	)
			Other current assets and other assets		(77,385	)		(89,237	)		(83,347	)
			Customer credit balances		3,216			27,639			30,238
			Customer advance payments		62,773			(59,354	)		(45,740	)
			Accounts payable and accrued expenses		328,961			121,647			135,310
			Other liabilities		9,417			28,060			2,569
Net cash provided by operating activities					209,188			333,289			216,506
Cash flows from investing activities:
	Acquisition of property, plant and equipment				(257,470	)		(245,148	)		(175,689	)
	Proceeds from disposition of property, plant and equipment				21,109			34,530			26,886
	Proceeds from sale of business				38,286
	Investments				(25,938	)		(49,757	)		(43,478	)
	Equity investments redeemed				74,231			65,158			35,939
	Investments redeemed				4,152			9,481			8,467
	Proceeds from sale of investments				147,801			25,000
	Changes in notes receivable				(23,770	)		(6,888	)		(6,630	)
	Acquisitions of working capital, net										(13,030	)
	Distributions to minority owners				(29,925	)		(15,908	)		(4,444	)
	Other investing activities, net				(5,434	)		2,248			(1,274	)
Net cash used in investing activities					(56,958	)		(181,284	)		(173,253	)
Cash flows from financing activities:
	Changes in notes payable				(54,968	)		(135,016	)		(81,383	)
	Borrowings on long-term debt				125,000			35,457			175,000
	Principal payments on long-term debt				(36,033	)		(15,299	)		(89,512	)
	Payments on derivative financial instruments, net							(287	)		(7,574	)
	Changes in checks and drafts outstanding				2,814			(21,431	)		988
	Expenses incurred — capital equity certificates redeemed				(87	)		(151	)		82,484
	Redemptions of preferred stock										(2,002	)
	Preferred stock dividends paid				(9,178	)		(7,975	)		(3,575	)
	Retirements of equities				(23,673	)		(10,339	)		(31,144	)
	Cash patronage dividends paid				(51,578	)		(28,722	)		(26,478	)
Net cash (used in) provided by financing activities					(47,703	)		(183,763	)		16,804
Net increase (decrease) in cash and cash equivalents					104,527			(31,758	)		60,057
Cash and cash equivalents at beginning of period					136,491			168,249			108,192
Cash and cash equivalents at end of period				$	241,018		$	136,491		$	168,249

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

F-4

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies:

Organization:

      CHS Inc. (CHS or the Company) is an agricultural supply, energy and grain-based foods cooperative company organized for the mutual benefit of its members. Members of the cooperative are located throughout the United States. In addition to grain marketing, oilseed processing, foods and wheat milling, the Company provides its patrons with energy and agronomy products, as well as other production agricultural inputs. Sales are both domestic and international.

Consolidation:

      The consolidated financial statements include the accounts of CHS and all of its wholly-owned and majority-owned subsidiaries, including National Cooperative Refinery Association (NCRA). The effects of all significant intercompany transactions have been eliminated.

      The Company had various immaterial acquisitions during the three years ended August 31, 2005, which have been accounted for using the purchase method of accounting. Operating results of the acquisitions are included in the consolidated financial statements since the respective acquisition dates. The respective purchase prices were allocated to the assets and liabilities acquired based upon the estimated fair values. The excess purchase price over the estimated fair values of the net assets acquired has been reported as identifiable intangible assets.

Cash Equivalents:

      Cash equivalents include short-term, highly liquid investments with original maturities of three months or less at the date of acquisition.

Inventories:

      Grain, processed grain, oilseed and processed oilseed are stated at net realizable values which approximates market values. All other inventories are stated at the lower of cost or market. Costs for inventories produced or modified by the Company through a manufacturing process include fixed and variable production and raw material costs, and in-bound freight costs for raw materials over the amount charged to cost of goods sold. Costs for inventories purchased for resale include the cost of products and freight incurred to place the products at the Company’s points of sales. The cost of certain energy inventories (wholesale refined products, crude oil and asphalt) is determined on the last-in, first-out (LIFO) method; all other inventories of non-grain products purchased for resale are valued on the first-in, first-out (FIFO) and average cost methods.

Derivative Financial Instruments:

      The Company enters into exchange-traded commodity futures and options contracts to hedge its exposure to price fluctuations on energy, grain and oilseed transactions to the extent considered practicable for minimizing risk. Futures and options contracts used for hedging are purchased and sold through regulated commodity exchanges. Fluctuations in inventory valuations, however, may not be completely hedged, due in part to the absence of satisfactory hedging facilities for certain commodities and geographical areas and in part to the Company’s assessment of its exposure from expected price fluctuations. The Company also manages its risks by entering into fixed-price purchase contracts with pre-approved producers and establishing appropriate limits for individual suppliers. Fixed-price sales contracts are entered into with customers of acceptable creditworthiness, as internally evaluated. The Company is

F-5

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

exposed to loss in the event of nonperformance by the counterparties to the contracts and therefore, contract values are reviewed and adjusted to reflect potential nonperformance.

      Commodity trading in futures and options contracts is a natural extension of cash market trading. The commodity futures and options markets have underlying principles of increased liquidity and longer trading periods than the cash market, and hedging is one method of reducing exposure to price fluctuations. The Company’s use of the derivative instruments described above reduces the effects of price volatility, thereby protecting against adverse short-term price movements while somewhat limiting the benefits of short-term price movements. Changes in market values of derivative instruments described above are recognized in the Consolidated Statements of Operations in the period such changes occur. The fair value of futures and options contracts are determined primarily from quotes listed on regulated commodity exchanges. Fixed-price purchase and sales contracts are with various counterparties and the fair values of such contracts are determined from the market price of the underlying product. Included in other current assets on August 31, 2005 and 2004 are derivative assets of $102.7 million and $91.3 million, respectively. Included in accrued expenses on August 31, 2005 and 2004 are derivative liabilities of $152.8 million and $110.8 million, respectively.

Commodity Price Risk:

      The Company utilizes futures and options contracts offered through regulated commodity exchanges to reduce price risk. The Company is exposed to risk of loss in the market value of inventories and fixed or partially fixed purchase and sales contracts. In order to reduce that risk, the Company generally takes opposite and offsetting positions using futures contracts or options. Certain commodities cannot be hedged with futures or options contracts because such contracts are not offered for these commodities by regulated commodity exchanges. Inventories and purchase contracts for those commodities are hedged with forward sales contracts, to the extent practical, in order to arrive at a net commodity position within the formal position limits set by the Company and deemed prudent for each of those commodities. Commodities for which future contracts and options are available are also typically hedged with forward contracts, with futures and options used to hedge within position limits the remaining portion. These futures and options contracts and forward purchase and sales contracts used to hedge against commodity price changes are effective economic hedges of price risk, but they are not designated as, and accounted for as, hedging instruments for accounting purposes.

      Unrealized gains and losses on futures contracts and options used as economic hedges of grain and oilseed inventories and fixed-price contracts are recognized in cost of goods sold for financial reporting using market-based prices. Inventories and fixed-price contracts are marked to fair value using market-based prices so that gains or losses on the derivative contracts are offset by gains or losses on inventories and fixed-price contracts.

      Unrealized gains and losses on futures contracts and options used as economic hedges of energy inventories and fixed-price contracts are recognized in cost of goods sold for financial reporting using market-based prices. The inventories hedged with these derivatives are valued at the lower of cost or fair value, and fixed-price contracts are marked to fair value using market-based prices. Certain fixed-price contracts related to propane in the Energy segment meet the normal purchase and sales exemption, and thus are not required to be marked to fair value.

Interest Rate Risk:

      The Company uses fixed and floating rate debt to lessen the effects of interest rate fluctuations on interest expense. Short-term debt used to finance inventories and receivables is represented by notes payable with maturities of 30 days or less so that the blended interest rate to the Company for all such notes approximates current market rates. Long-term debt used to finance non-current assets carries various

F-6

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

fixed interest rates and is payable at various dates to minimize the effect of market interest rate changes. The effective interest rate to the Company on fixed rate debt outstanding on August 31, 2005 was approximately 6.1%.

      The Company enters into interest rate treasury lock instruments to fix interest rates related to a portion of its private placement debts. These instruments were designated and are effective as cash flow hedges for accounting purposes and, accordingly, the net loss on settlements were recorded as a component of other comprehensive income. Interest expense for the years ended August 31, 2005 and 2004, includes $0.9 million and $0.9 million, respectively, related to the interest rate derivatives. The additional interest expense is an offset to the lower actual interest paid on the outstanding debt instruments.

Foreign Currency Risk:

      The Company conducts essentially all of its business in U.S. dollars, except for grain marketing operations in Brazil and purchases of products from Canada, and had minimal risk regarding foreign currency fluctuations during 2005 or in prior years. Foreign currency fluctuations do, however, impact the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of U.S. agricultural products compared to the same products offered by alternative sources of world supply.

Investments:

      Investments in other cooperatives are stated at cost, plus patronage dividends received in the form of capital stock and other equities. Patronage dividends are recorded in other revenues at the time qualified written notices of allocation are received. Joint ventures and other investments in which the Company has significant ownership and influence, but not control, are accounted for in the consolidated financial statements under the equity method of accounting. Investments in other debt and equity securities are considered available for sale financial instruments and are stated at fair value, with unrealized amounts included as a component of accumulated other comprehensive income (loss).

Property, Plant and Equipment:

      Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided on the straight-line method by charges to operations at rates based upon the expected useful lives of individual or groups of assets (primarily 15 to 40 years for land improvements and buildings and 3 to 20 years for machinery, equipment, office and other). The cost and related accumulated depreciation and amortization of assets sold or otherwise disposed of are removed from the related accounts and resulting gains or losses are reflected in operations. Expenditures for maintenance and repairs and minor renewals are expensed, while costs of major renewals and betterments are capitalized.

      The Company periodically reviews property, plant and equipment and other long-lived assets in order to assess recoverability based on projected income and related cash flows on an undiscounted basis. Should the sum of the expected future net cash flows be less than the carrying value, an impairment loss would be recognized. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset.

Goodwill and Other Intangible Assets:

      Goodwill represents the excess of the purchase price of an acquired entity over the amounts assigned to assets acquired and liabilities assumed. Goodwill is reviewed for impairment annually, or more frequently if certain impairment conditions arise. Goodwill that is impaired is written down to fair value. Other intangible assets consist primarily of trademarks, customer lists and agreements not to compete.

F-7

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intangible assets subject to amortization are expensed on a straight-line basis over their respective useful lives (ranging from 5 to 15 years). The Company has no intangible assets with indefinite useful lives.

Revenue Recognition:

      The Company provides a wide variety of products and services, from production agricultural inputs such as fuels, farm supplies and crop nutrients, to agricultural outputs that include grain and oilseed, processed grains and oilseeds and food products. Grain and oilseed sales are recorded after the commodity has been delivered to its destination and final weights, grades and settlement prices have been agreed upon. All other sales are recognized upon transfer of title, which could occur upon either shipment or receipt by the customer, depending upon the transaction. Amounts billed to a customer as part of a sales transaction related to shipping and handling are included in net sales. Service revenues are recorded only after such services have been rendered, and are included in other revenues.

Environmental Expenditures:

      Liabilities, including legal costs, related to remediation of contaminated properties are recognized when the related costs are considered probable and can be reasonably estimated. Estimates of environmental costs are based on current available facts, existing technology, undiscounted site-specific costs and currently enacted laws and regulations. Recoveries, if any, are recorded in the period in which recovery is considered probable. Liabilities are monitored and adjusted as new facts or changes in law or technology occur. Environmental expenditures are capitalized when such costs provide future economic benefits.

Income Taxes:

      The Company is a nonexempt agricultural cooperative and files a consolidated federal income tax return with its 80% or more owned subsidiaries. The Company is subject to tax on income from nonpatronage sources and undistributed patronage-sourced income. Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for federal and state income tax purposes, at each fiscal year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Comprehensive Income:

      Comprehensive income primarily includes net income, unrealized net gains or losses on available for sale investments and the effects of minimum pension liability adjustments. Total comprehensive income is reflected in the Consolidated Statements of Equities and Comprehensive Income.

Use of Estimates:

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

F-8

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recent Accounting Pronouncements:

      In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error Corrections,” which replaces Accounting Principles Board (APB) Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” Among other changes, SFAS No. 154 requires retrospective application of a voluntary change in accounting principle to prior period financial statements presented on the new accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires accounting for a change in method of depreciating or amortizing a long-lived nonfinancial asset as a change in accounting estimate (prospectively) affected by a change in accounting principle. Further, the Statement requires that corrections of errors in previously issued financial statements be termed a “restatement.” The new standard is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 to have a material impact on the consolidated financial statements.

      In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of Accounting Research Bulletin (ARB) No. 43, Chapter 4” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires those items to be recognized as current-period charges regardless of whether they meet the “abnormal” criterion outlined in ARB No. 43. It also introduces the concept of “normal capacity” and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Unallocated overheads must be recognized as an expense in the period in which they are incurred. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 151 to have a material impact on the consolidated financial statements.

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29.” SFAS No. 153 replaces the exception from fair value measurement in APB Opinion No. 29 for nonmonetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is to be applied prospectively, and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 153 to have a material impact on the consolidated financial statements.

      The Company is required to apply SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement requires recognition of a liability for costs that an entity is legally obligated to incur associated with the retirement of fixed assets. Under SFAS No. 143, the fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the fixed asset and depreciated over its estimated useful life. The Company has legal asset retirement obligations for certain assets, including its refineries, pipelines and terminals. The Company is unable to measure this obligation because it’s not possible to estimate when the obligation will be settled. In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB No. 143” (FIN 47). FIN 47 clarifies that SFAS No. 143 requires that an entity recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company has not yet determined the impact that the adoption of this interpretation will have on its consolidated financial statements.

F-9

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Reclassifications:

      Certain reclassifications have been made to prior year’s amounts to conform to current year classifications. These reclassifications had no effect on previously reported net income, equities and comprehensive income, or cash flows.

2.     Receivables:

      Receivables as of August 31, 2005 and 2004 are as follows:

	2005		2004
	(Dollars in thousands)
Trade	$	1,069,020	$	835,066
Other		85,007		55,708
		1,154,027		890,774
Less allowances for doubtful accounts		60,041		55,809
	$	1,093,986	$	834,965

      All international sales are denominated in U.S. dollars. International sales for the years ended August 31, 2005, 2004 and 2003 are as follows:

	2005		2004		2003
	(Dollars in millions)
Africa	$	83	$	112	$	99
Asia		880		1,104		815
Europe		129		158		156
North America, excluding U.S.		605		456		367
South America		271		209		166
	$	1,968	$	2,039	$	1,603

3.     Inventories:

      Inventories as of August 31, 2005 and 2004 are as follows:

	2005		2004
	(Dollars in thousands)
Grain and oilseed	$	387,820	$	308,207
Energy		377,076		277,801
Feed and farm supplies		121,721		110,885
Processed grain and oilseed		26,195		25,740
Other		1,370		1,260
	$	914,182	$	723,893

      As of August 31, 2005, the Company valued approximately 19% of inventories, primarily related to energy, using the lower of cost, determined on the LIFO method, or market (24% as of August 31, 2004). If the FIFO method of accounting for these inventories had been used, inventories would have been higher than the reported amount by $305.4 million and $160.3 million at August 31, 2005 and 2004, respectively. During 2005 and 2004, energy inventory quantities were reduced, which resulted in liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of 2005 and

F-10

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2004 purchases. The effect of the liquidation decreased cost of goods sold by $15.8 million and $9.9 million, respectively.

4.     Investments:

      Investments as of August 31, 2005 and 2004 are as follows:

		2005		2004
		(Dollars in thousands)
CF Industries Holdings, Inc. (CF Industries, Inc.)		$	36,105	$	152,996
Cooperatives:
	Land O’Lakes, Inc.		32,874		31,057
	Ag Processing Inc.		23,864		24,866
	CoBank ACB (CoBank)		11,041		16,625
Joint ventures:
	United Country Brands, LLC (Agriliance, LLC)		177,870		167,597
	Ventura Foods, LLC		117,622		107,719
	Cofina Financial, LLC		38,297
	Horizon Milling, LLC		23,174		16,499
	TEMCO, LLC		4,450		5,776
Other			55,673		52,681
		$	520,970	$	575,816

      During the first quarter of fiscal 2005, CHS evaluated the carrying value of the investment in CF Industries, Inc. (CF), a domestic fertilizer manufacturer in which CHS held a minority interest. At that time, the Company’s carrying value of $153.0 million consisted primarily of noncash patronage refunds received from CF over the years. Based upon indicative values from potential strategic buyers for the business and through other analyses, the Company determined at that time that the carrying value of the CF investment should be reduced by $35.0 million ($32.1 million net of taxes), resulting in an impairment charge to the first fiscal quarter income.

      In February 2005, after reviewing indicative values from strategic buyers, the board of directors of CF determined that a greater value could be derived for the business through an initial public offering of stock in the company. The initial public offering was completed in August 2005. Prior to the initial public offering, CHS held an ownership interest of approximately 20% in CF. Through the initial public offering, CHS sold approximately 81% of its ownership interest for cash proceeds of $140.4 million. The book basis in the portion of the ownership interest sold through the initial public offering, after the $35.0 million impairment charge recognized in the first fiscal quarter Ag Business segment, was $95.8 million. As a result, the Company recognized a pretax gain of $44.6 million ($40.9 million net of taxes) on the sale of that ownership interest during the fourth quarter of 2005. This gain, net of the impairment loss of $35.0 million, resulted in a $9.6 million pretax gain ($8.8 million net of taxes) recognized during 2005.

      CHS retains an ownership interest in CF Industries Holdings, Inc. (the post-initial public offering name of the company) of approximately 3.9% or 2,150,396 shares. CHS has agreed through a Lock-up Agreement not to sell any shares, without the written consent of the underwriters, for a period of one year. The market value of the shares on August 31, 2005 was $36.1 million, and accordingly, CHS has adjusted the carrying value to reflect market value, with the unrealized gain recorded in other comprehensive income.

F-11

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      As of August 31, 2005, the carrying value of our equity method investees; Agriliance, LLC (Agriliance) and Ventura Foods, LLC exceeds our share of their equity by $44.6 million, of which $5.0 million is being amortized with a remaining life of approximately seven years. The remaining basis difference represents equity method goodwill.

      The Company has a 50% interest in Ventura Foods, LLC, a joint venture, which produces and distributes vegetable oil-based products. The following provides summarized unaudited financial information for Ventura Foods, LLC balance sheets as of August 31, 2005 and 2004, and statements of operations for the twelve months ended August 31, 2005, 2004 and 2003:

	2005		2004
	(Dollars in thousands)
Current assets	$	198,576	$	286,613
Non-current assets		455,715		258,270
Current liabilities		146,035		171,269
Non-current liabilities		307,027		194,547

	2005		2004		2003
	(Dollars in thousands)
Net sales	$	1,413,426	$	1,425,061	$	1,165,823
Gross profit		184,466		167,581		155,274
Net income		61,779		44,696		42,837

      Agriliance is a wholesale and retail crop nutrients and crop protection products company and is owned and governed by United Country Brands, LLC (50%) and Land O’Lakes, Inc. (50%). United Country Brands, LLC, was initially owned and governed 50% by the Company and 50% by Farmland Industries, Inc. (Farmland), and was formed solely to hold a 50% interest in Agriliance. Initially, the Company’s indirect share of earnings (economic interest) in Agriliance was 25%, which was the same as the Company’s ownership or governance interest. In April 2003, the Company acquired an additional 13.1% economic interest in the wholesale crop protection business of Agriliance (the “CPP Business”), which constituted only a part of the Agriliance business operations, for a cash payment of $34.3 million. After the transaction, the economic interests in Agriliance were owned 50% by Land O’Lakes, Inc., 25% plus an additional 13.1% of the CPP Business by the Company and 25% less 13.1% of the CPP Business by Farmland. The ownership or governance interests in Agriliance did not change with the purchase of this additional economic interest. Agriliance’s earnings were split among the members based upon the respective economic interests of each member. On April 30, 2004, the Company purchased all of Farmland’s remaining interest in Agriliance for $27.5 million in cash. The Company now owns 50% of the economic and governance interests in Agriliance, and continues to account for this investment using the equity method of accounting.

      The following provides summarized financial information for Agriliance balance sheets as of August 31, 2005 and 2004, and statements of operations for the years ended August 31, 2005, 2004 and 2003:

	2005		2004
	(Dollars in thousands)
Current assets	$	1,337,909	$	1,115,544
Non-current assets		148,611		123,116
Current liabilities		1,064,424		870,718
Non-current liabilities		119,794		128,758

F-12

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	2005		2004		2003
	(Dollars in thousands)
Net sales	$	3,735,125	$	3,471,514	$	3,485,623
Earnings from operations		90,812		82,221		67,239
Net income		77,113		71,278		60,741

      In August 2005, the Company contributed $19.6 million in cash (plus an additional $18.5 million in net assets, primarily loans) to Cofina Financial, LLC (Cofina), for a 49% equity interest. Cofina was formed by the Company and Cenex Finance Association to provide financing for agricultural cooperatives and businesses and to producers of agricultural products.

      During the year ended August 31, 2004, NCRA exercised its right of first refusal to purchase a partial interest in a crude oil pipeline for $16.0 million, increasing their holding to 100%. NCRA subsequently sold a 50% interest in the same pipeline to another third party for proceeds of $25.0 million and recorded a pretax gain on the sale of $14.7 million.

      Disclosure of the fair value of financial instruments to which the Company is a party includes estimates and assumptions which may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Financial instruments are carried at amounts that approximate estimated fair values. Investments in cooperatives and joint ventures have no quoted market prices.

      Various agreements with other owners of investee companies and a majority-owned subsidiary set out parameters whereby CHS may buy and sell additional interests in those companies, upon the occurrence of certain events, at fair values determinable as set forth in the specific agreements.

5. Property, Plant and Equipment:

      A summary of property, plant and equipment as of August 31, 2005 and 2004 is as follows:

	2005		2004
	(Dollars in thousands)
Land and land improvements	$	66,023	$	64,709
Buildings		420,851		422,545
Machinery and equipment		1,708,400		1,611,455
Office and other		76,320		72,269
Construction in progress		292,592		214,988
		2,564,186		2,385,966
Less accumulated depreciation and amortization		1,204,651		1,136,311
	$	1,359,535	$	1,249,655

      In January 2002, the Company formed a limited liability company with Cargill, Incorporated, to engage in wheat flour milling and processing. The Company holds a 24% interest in the entity, which is known as Horizon Milling, LLC. The Company is leasing certain of its wheat milling facilities and related equipment to Horizon Milling, LLC under an operating lease agreement. The book value of the leased milling assets at August 31, 2005, was $87.9 million, net of accumulated depreciation of $42.8 million.

      For the years ended August 31, 2005, 2004 and 2003, the Company capitalized interest of $6.8 million, $2.8 million and $3.9 million, respectively, related to capitalized construction projects.

F-13

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Discontinued Operations:

      In May 2005, CHS sold the majority of its Mexican Foods business for proceeds of $38.3 million resulting in a loss on disposition of $6.2 million. Assets of $4.6 million (primarily property, plant and equipment) are still held for sale at August 31, 2005, but no material gain or loss is expected upon disposition of the remaining assets. The operating results of the Mexican Foods business have been reclassified and reported as discontinued operations for all periods presented.

      Summarized results from discontinued operations for August 31, 2005, 2004 and 2003 are as follows:

	2005			2004			2003
	(Dollars in thousands)
Sales	$	43,556		$	70,929		$	74,173
Cost of goods sold		49,919			65,047			65,859
Marketing, general and administrative*		18,246			12,645			14,459
Interest		2,903			2,908			2,418
Income tax benefit		(10,702	)		(3,762	)		(3,331	)
Loss from discontinued operations	$	(16,810	)	$	(5,909	)	$	(5,232	)

* 2005 includes $6.2 million of loss on disposition.

7. Other Assets:

      Other assets as of August 31, 2005 and 2004 are as follows:

	2005		2004
	(Dollars in thousands)
Goodwill	$	3,291	$	26,896
Customer lists, less accumulated amortization of $10,335 and $7,445, respectively		4,601		7,087
Non-compete covenants, less accumulated amortization of $2,445 and $2,115, respectively		1,317		1,638
Other intangible assets, less accumulated amortization of $4,141 and $3,113, respectively		12,384		13,498
Prepaid pension and other benefits		200,600		182,773
Notes receivable		3,654		1,186
Other		4,093		4,039
	$	229,940	$	237,117

      The reduction in goodwill of $23.6 million during 2005 was due to the sale of the Mexican foods business.

      Intangible assets amortization expenses for the years ended August 31, 2005, 2004 and 2003 were $4.2 million, $3.8 million and $12.2 million, respectively. The estimated amortization expense related to intangible assets subject to amortization for the next five years will approximate $2.5 million annually for the first three years, and $1.4 million for each of the fourth and fifth years.

      Through Country Energy, LLC, formerly a joint venture with Farmland, the Company marketed refined petroleum products including gasoline, diesel fuel, propane and lubricants under the Cenex® brand. On November 30, 2001, the Company purchased the wholesale energy business of Farmland, as well as all interest in Country Energy, LLC. Based on estimated fair values, $26.4 million of the purchase price was

F-14

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

allocated to intangible assets, primarily trademarks, tradenames and non-compete agreements. The intangible assets had a weighted-average life of approximately 12 years. During the year ended August 31, 2003, the Company accelerated the amortization of the non-compete agreement due to Farmland’s July 31, 2003 notification that it intended to liquidate its assets in bankruptcy. The Company had additional amortization expense of $7.5 million during 2003 related to the acceleration, and the asset had a zero book value as of August 31, 2003.

8. Notes Payable and Long-Term Debt:

      Notes payable and long-term debt as of August 31, 2005 and 2004 consisted of the following:

		Interest Rates at
		August 31, 2005		2005		2004
				(Dollars in thousands)
Notes payable(a)(i)			3.86% to 3.93%	$	61,147	$	116,115
Long-term debt:
	Revolving term loans from cooperative and other banks, payable in installments through 2009, when the balance is due(b)(i)		4.82% to 13.00%	$	133,335	$	155,784
	Private placement, payable in equal installments beginning in 2008 through 2013(c)(i)		6.81%		225,000		225,000
	Private placement, payable in installments beginning in 2007 through 2018(d)(i)		4.96% to 5.60%		175,000		175,000
	Private placement, payable in equal installments beginning in 2011 through 2015(e)(i)		5.25%		125,000
	Private placement, payable in equal installments in 2005 through 2011(f)(i)		7.43% to 7.90%		68,571		80,000
	Private placement, payable in its entirety in 2010(g)(i)		4.08%		15,000		15,000
	Private placement, payable in its entirety in 2011(g)(i)		4.39%		15,000		15,000
	Industrial revenue bonds, payable in its entirety in 2011		5.23%		3,925		3,925
	Other notes and contracts(h)		1.89% to 12.17%		12,243		14,109
Total long-term debt					773,074		683,818
Less current portion					35,340		35,117
Long-term portion				$	737,734	$	648,701

		2005		2004
Weighted-average interest rates at August 31:
	Short-term debt		3.90%		2.16%
	Long-term debt		6.15%		6.35%

(a) The Company finances its working capital needs through short-term lines of credit with a syndication of domestic and international banks. These revolving lines of credit include a 364-day facility of $700.0 million, and a five-year facility of $300.0 million, both of which are committed. On August 31, 2005, $60.0 million was outstanding on the 364-day facility. In addition to these short-term lines of

F-15

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	credit, the Company has a two-year credit facility dedicated to NCRA, with a syndication of banks in the amount of $15.0 million, all of which is committed, with no amounts outstanding on August 31, 2005. Other miscellaneous notes payable totaled $1.1 million on August 31, 2005.
(b)	The Company established a long-term credit agreement, which committed $200.0 million of long-term borrowing capacity to the Company through May 31, 1999, of which $164.0 million was drawn before the expiration date of that commitment. On August 31, 2005, $114.8 million was outstanding. NCRA term loans of $9.0 million are collateralized by NCRA’s investment in CoBank.
(c)	In June 1998, the Company entered into a private placement with several insurance companies for long-term debt in the amount of $225.0 million.
(d)	In October 2002, the Company entered into a private placement with several insurance companies for long-term debt in the amount of $175.0 million.
(e)	In September 2004, the Company entered into a private placement with several insurance companies for long-term debt in the amount of $125.0 million.
(f)	In January 2001, the Company entered into a note purchase and private shelf agreement with Prudential Insurance Company. A long-term note was issued for $25.0 million and a subsequent note for $55.0 million was issued in March 2001.
(g)	In March 2004, the Company entered into a note purchase and private shelf agreement with Prudential Capital Group. In April 2004, two long-term notes were issued for $15.0 million each.
(h)	Other notes payable of $9.4 million are collateralized by property, plant and equipment, with a cost of approximately $16.9 million, less accumulated depreciation of approximately $2.6 million on August 31, 2005.
(i)	The debt is unsecured, however restrictive covenants under various agreements have requirements for maintenance of minimum working capital levels and other financial ratios.

      The fair value of long-term debt approximates book value as of August 31, 2005 and 2004.

      The aggregate amount of long-term debt payable as of August 31, 2005 is as follows:

	(Dollars in
	thousands)
2006	$	35,340
2007		59,856
2008		98,421
2009		117,285
2010		82,589
Thereafter		379,583
	$	773,074

F-16

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Income Taxes:

      The provision for income taxes for the years ended August 31, 2005, 2004 and 2003 is as follows:

		2005			2004			2003
		(Dollars in thousands)
Continuing operations:
	Current	$	4,034		$	20,962		$	7,031
	Deferred		34,200			7,900			7,300
	Valuation allowance		(7,800	)		600			1,700
Income taxes from continuing operations			30,434			29,462			16,031
Income tax benefit from discontinued operations			(10,702	)		(3,762	)		(3,331	)
Income taxes		$	19,732		$	25,700		$	12,700

      The tax effect of temporary differences of deferred tax assets and liabilities as of August 31, 2005 and 2004 is as follows:

		2005			2004
		(Dollars in thousands)
Deferred tax assets:
	Accrued expenses and valuation reserves	$	63,964		$	49,151
	Postretirement health care and deferred compensation		42,248			37,067
	Alternative minimum tax credit and loss carryforward		39,867			28,268
	Other		9,524			21,464
Total deferred tax assets			155,603			135,950
Deferred tax liabilities:
	Pension, including minimum liability		53,094			47,155
	Equity method investments		19,423			7,407
	Property, plant and equipment		72,780			35,737
	Other		7,785			1,184
Total deferred tax liabilities			153,082			91,483
Deferred tax assets valuation reserve			(3,392	)		(11,212	)
Net deferred tax (liability) asset		$	(871	)	$	33,255

      A valuation allowance of $1.7 million was provided to offset deferred tax benefits generated by NCRA as of August 31, 2003. For the year ended August 31, 2004, NCRA decreased its valuation allowance by $5.0 million due to a reduction in NCRA’s deferred tax benefits. The Company recorded a $4.4 million valuation allowance to offset deferred tax benefits relating to a capital loss carryforward in that same period.

      As of August 31, 2005, net deferred tax assets of $62.3 million and $63.1 million are included in current assets and other liabilities, respectively ($43.4 million and $10.1 million in current assets and other liabilities, respectively, as of August 31, 2004). At August 31, 2004, NCRA recognized a valuation allowance for the entire tax benefit associated with its net deferred tax asset, as it was considered more likely than not, based on the weight of available information, that the future tax benefits related to these items would not be realized.

F-17

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      At August 31, 2004, NCRA’s net deferred tax assets of $6.8 million were comprised of deferred tax assets of $18.4 million and deferred tax liabilities of $11.6 million. During its August 31, 2005 fiscal year, NCRA issued non-qualified patronage to CHS. As a result, the tax liability for the Company’s share of NCRA’s earnings remained with NCRA. This ability to generate taxable income through the issuance of non-qualified patronage will enable NCRA to realize the tax benefits related to its deferred tax assets in future years. Consequently, the valuation allowance established in 2004 has been reversed.

      Deferred tax assets are comprised of basis differences related to inventories, investments, lease obligations, accrued liabilities and certain federal and state tax credits. NCRA files a separate tax return and, as such, these items must be assessed independently of the Company’s deferred tax assets when determining recoverability.

      As of August 31, 2005, the Company has net operating loss carryforwards of approximately $88.6 million for tax purposes available to offset future taxable income. If not used, these carryforwards will expire in fiscal years 2024 and 2025.

      The reconciliation of the statutory federal income tax rates to the effective tax rates for continuing operations for the years ended August 31, 2005, 2004 and 2003 is as follows:

	2005			2004			2003
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net of federal income tax benefit		3.9			3.9			3.9
Patronage earnings		(26.9	)		(24.8	)		(24.1	)
Export activities at rates other than the U.S. statutory rate		(2.4	)		(4.4	)		(3.0	)
Deferred tax asset valuation allowance		(2.6	)		0.2			1.2
Other		3.2			1.6			(2.0	)
Effective tax rate		10.2	%		11.5	%		11.0	%

10. Equities:

      In accordance with the by-laws and by action of the Board of Directors, annual net earnings from patronage sources are distributed to consenting patrons following the close of each fiscal year, and are based on amounts using financial statement earnings. The cash portion of the patronage distribution is determined annually by the Board of Directors, with the balance issued in the form of capital equity certificates.

      Annual net savings from sources other than patronage may be added to the unallocated capital reserve or, upon action by the Board of Directors, allocated to members in the form of nonpatronage equity certificates. Redemptions are at the discretion of the Board of Directors.

      A policy was adopted effective September 1, 2004, whereby redemptions of capital equity certificates approved by the Board of Directors was divided into two pools, one for non-individuals (primarily member cooperatives) who may participate in an annual pro-rata program for equities older than 10 years, and another for individual members who are eligible for equity redemptions at age 72 or upon death. The amount that each non-individual member receives under the pro-rata program in any year will be determined by multiplying the dollars available for pro-rata redemptions, if any that year, as determined by the Board of Directors, by a fraction, the numerator of which is the amount of patronage certificates older than 10 years held by that member, and the denominator is the sum of the patronage certificates older than 10 years held by all eligible non-individuals.

F-18

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      For the years ended August 31, 2005, 2004 and 2003, the Company redeemed in cash, patronage related equities in accordance with authorization from the Board of Directors in the amounts of $23.7 million, $10.3 million and $31.1 million, respectively. An additional $20.0 million and $13.0 million of capital equity certificates were redeemed in fiscal years 2005 and 2004, respectively, by issuance of shares of the Company’s 8% Cumulative Redeemable Preferred Stock (New Preferred) pursuant to registration statements on Forms S-2 filed with the Securities and Exchange Commission. The amount of equities redeemed with each share of preferred stock issued was $27.58 and $27.10, which was the closing price per share of the stock on the NASDAQ National Market on January 24, 2005 and March 2, 2004, respectively. On August 31, 2005, the Company had 4,951,434 shares of the New Preferred outstanding with a total redemption value of approximately $123.8 million, excluding accumulated dividends. The New Preferred is redeemable at the Company’s option beginning in 2008.

      The Company expects cash redemptions related to the year ended August 31, 2005, to be distributed in fiscal year 2006, to be approximately $64.1 million and are classified as a current liability on the August 31, 2005 Consolidated Balance Sheet. The Company expects to redeem an additional $24.0 million of capital equity certificates in fiscal year 2006 by issuing shares of the Company’s New Preferred, pending approval from the Securities and Exchange Commission.

      In 2001 and 2002 the Company issued 9,454,874 shares of 8% Preferred Stock (Old Preferred). In late 2002, the Company suspended sales of the Old Preferred, and on February 25, 2003 the Company filed a post-effective amendment to terminate the offering of the Old Preferred shares. In January 2003, the Board of Directors authorized the sale and issuance of up to 3,500,000 shares of New Preferred at a price of $25.00 per share. The Company filed a registration statement on Form S-2 with the Securities and Exchange Commission registering 3,000,000 shares of the New Preferred (with an additional over-allotment option of 450,000 shares granted to the underwriters), which was declared effective on January 27, 2003. The shares were subsequently sold for gross proceeds of $86.3 million (3,450,000 shares). The New Preferred is listed on the NASDAQ National Market under the symbol CHSCP. Expenses related to the issuance of the New Preferred were $3.8 million.

      On March 5, 2003, the Company’s Board of Directors authorized the redemption and conversion of the Old Preferred shares. A redemption notification and a conversion election form were sent to holders of the Old Preferred shares on March 31, 2003 explaining that on April 25, 2003 all shares of the Old Preferred would be redeemed by the Company for $1.00 per share unless they were converted into shares of the Company’s New Preferred. The conversion did not change the base liquidation amount or dividend amount of the Old Preferred, since 25 shares of the Old Preferred converted to 1 share of the New Preferred. The total Old Preferred converted to the New Preferred was 7,452,439 shares, and the balance of the Old Preferred (2,002,435 shares) was redeemed in cash at $1.00 per share.

      The New Preferred accumulates dividends at a rate of 8% per year, and dividends are payable quarterly.

F-19

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. Benefit Plans:

      The Company has various pension and other defined benefit and defined contribution plans, in which substantially all employees may participate. The Company also has non-qualified supplemental executive and board retirement plans.

      Financial information on changes in benefit obligation and plan assets funded and balance sheets status as of August 31, 2005 and 2004 is as follows:

		Qualified						Non-Qualified
		Pension Benefits						Pension Benefits						Other Benefits
		2005			2004			2005			2004			2005			2004
		(Dollars in thousands)
Change in benefit obligation:
	Benefit obligation at beginning of period	$	300,436		$	289,906		$	20,998		$	17,437		$	28,327		$	29,255
	Service cost		12,749			11,548			991			932			874			754
	Interest cost		18,039			17,203			1,175			1,032			1,776			1,758
	Plan amendments					105			61						(330	)		(839	)
	Transfers														(222	)		1,206
	Actuarial loss (gain)		(3,031	)		4,539			2,530			3,080			(1,136	)		(2,162	)
	Special agreement								131			1,003
	Assumption change		23,961						2,137						2,677			502
	Benefits paid		(22,117	)		(22,865	)		(583	)		(2,486	)		(2,121	)		(2,147	)
Benefit obligation at end of period		$	330,037		$	300,436		$	27,440		$	20,998		$	29,845		$	28,327
Change in plan assets:
	Fair value of plan assets at beginning of period	$	299,552		$	280,217
	Actual income on plan assets		32,292			31,500
	Company contributions		22,000			10,700		$	583		$	2,486		$	2,451		$	2,147
	Participants contributions														(330	)
	Benefits paid		(22,117	)		(22,865	)		(583	)		(2,486	)		(2,121	)		(2,147	)
Fair value of plan assets at end of period		$	331,727		$	299,552		$	—		$	—		$	—		$	—
Funded status		$	1,690		$	(884	)	$	(27,440	)	$	(20,998	)	$	(29,845	)	$	(28,327	)
Employer contributions after measurement date												32			220			222
Unrecognized actuarial loss (gain)			124,930			114,401			3,749			153			362			(1,061	)
Unrecognized transition obligation															7,389			8,325
Unrecognized prior service cost			5,939			6,730			2,526			2,977			(1,669	)		(1,742	)
Special agreement									(131	)		(1,003	)
Prepaid benefit cost (accrued)		$	132,559		$	120,247		$	(21,296	)	$	(18,839	)	$	(23,543	)	$	(22,583	)

F-20

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Qualified				Non-Qualified
		Pension Benefits				Pension Benefits						Other Benefits
		2005		2004		2005			2004			2005			2004
		(Dollars in thousands)
Amounts recognized on balance sheets consist of:
	Other assets (accrued benefit liability)	$	132,559	$	120,247	$	(24,840	)	$	(19,538	)	$	(23,543	)	$	(22,583	)
	Intangible assets						2,464
	Accumulated other comprehensive loss						1,080			699
Net amounts recognized		$	132,559	$	120,247	$	(21,296	)	$	(18,839	)	$	(23,543	)	$	(22,583	)

      For measurement purposes, a 9.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for the year ended August 31, 2005. The rate was assumed to decrease gradually to 5.0% for 2011 and remain at that level thereafter. Components of net periodic benefit costs for the years ended August 31, 2005, 2004 and 2003 are as follows:

											Non-Qualified
		Qualified Pension Benefits									Pension Benefits						Other Benefits
		2005			2004			2003			2005		2004		2003		2005			2004			2003
		(Dollars in thousands)
Components of net periodic benefit cost:
	Service cost	$	12,749		$	11,548		$	10,840		$	991	$	932	$	800	$	874		$	754		$	648
	Interest cost		18,039			17,203			17,503			1,175		1,032		1,033		1,776			1,758			1,722
	Expected return on assets		(27,648	)		(27,489	)		(23,788	)
	Prior service cost amortization		792			843			806			519		863		564		(294	)		(174	)		(172	)
	Actuarial loss (gain) amortization		5,759			4,149			2,623			124		103		159		43			108			(215	)
	Transition amount amortization																	936			936			936
Net periodic benefit cost		$	9,691		$	6,254		$	7,984		$	2,809	$	2,930	$	2,556	$	3,335		$	3,382		$	2,919
Average assumptions:
	Discount rate		5.25%			6.40%			6.30%			5.25%		6.25%		6.00%		5.25%			6.40%			6.30%
	Expected return on plan assets		9.00%			9.00%			9.00%			N/A		N/A		N/A		N/A			N/A			N/A
	Rate of compensation increase		4.80%			4.30%			5.00%			4.50%		5.00%		5.00%		4.80%			4.30%			5.00%

      The aggregate projected benefit obligation, accumulated benefit obligation and fair value of plan assets for non-qualified pension benefits with accumulated benefit obligations in excess of plan assets were as follows as of August 31, 2005 and 2004:

	Non-Qualified Pension
	Benefits
	2005		2004
	(Dollars in thousands)
Projected benefit obligation	$	27,440	$	20,998
Accumulated benefit obligation		24,693		19,254
Fair value of plan assets		—		—

F-21

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in the assumed health care cost trend rates would have the following effects:

	1% Increase		1% Decrease
	(Dollars in thousands)
Effect on total of service and interest cost components	$	292	$	(262	)
Effect on postretirement benefit obligation		2,654		(2,417	)

      The Company provides defined life insurance and health care benefits for certain retired employees and Board of Directors’ participants. The plan is contributory based on years of service and family status, with retiree contributions adjusted annually.

      The Company has other contributory defined contribution plans covering substantially all employees. Total contributions by the Company to these plans were $9.5 million, $8.6 million and $8.5 million, for the years ended August 31, 2005, 2004 and 2003, respectively.

      The Company contributed $22.0 million to qualified pension plans in fiscal year 2005. Because the plans are fully funded, the Company does not expect to contribute to the pension plans in fiscal year 2006. The Company expects to pay $2.0 million to participants of the non-qualified pension and postretirement benefit plans during 2006.

      The Company’s retiree benefit payments which reflect expected future service are anticipated to be paid as follows:

	Qualified		Non-Qualified		Other
	Pension Benefits		Pension Benefits		Benefits
	(Dollars in thousands)
2006	$	29,746	$	624	$	1,382
2007		26,154		644		1,653
2008		24,481		672		1,720
2009		27,559		689		1,801
2010		28,929		732		2,116
2011-2015		153,556		3,960		14,625

      The Company has master trusts that hold the assets for the cash balance, production and NCRA pension plans. The Company and NCRA have qualified plan committees that set investment guidelines with the assistance of external consultants. Investment objectives for the Company’s plan assets are to:

•  optimize the long-term returns on plan assets at an acceptable level of risk, and

•  maintain broad diversification across asset classes and among investment managers, and

•  focus on long-term return objectives.

      Asset allocation targets promote optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the obligations of the pension plans. An annual analysis on the risk versus the return of the investment portfolio is conducted to justify the expected long-term rate of return assumption. The Company generally uses long-term historical return information for the targeted asset mix identified in asset and liability studies. Adjustments are made to the expected long-term rate of return assumption when deemed necessary based upon revised expectations of future investment performance of the overall investment markets.

      The investment portfolio contains a diversified portfolio of investment categories, including domestic and international equities, fixed income securities and real estate. Securities are also diversified in terms of

F-22

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

domestic and international securities, short and long-term securities, growth and value equities, large and small cap stocks, as well as active and passive management styles.

      The Committee believes with prudent risk tolerance and asset diversification, the plan should be able to meet its pension obligations in the future.

      The Company’s pension plans’ average asset allocations by asset categories are as follows:

	2005			2004
Cash		1.	7%		2.	7%
Debt		27.	8		29.	9
Equities		64.	5		62.	0
Real estate		4.	0		3.	8
Other		2.	0		1.	6
Total		100.	0%		100.	0%

12.     Segment Reporting

      On January 1, 2005, the Company realigned its business segments based on an assessment of how its businesses operate and the products and services it sells. As a result of this assessment, leadership changes were made, including the naming of a new executive vice president and chief operating officer, so that the Company now has three chief operating officers to lead its three business segments; Energy, Ag Business and Processing. Prior to the realignment, the Company operated five business segments; Agronomy, Energy, Country Operations and Services, Grain Marketing, and Processed Grains and Foods.

      The Energy segment derives its revenues through refining, wholesaling and retailing of petroleum products. The Ag Business segment derives its revenues through the origination and marketing of grain, including service activities conducted at export terminals, through the retail sales of petroleum and agronomy products, processed sunflowers, feed and farm supplies, and records equity income from investments in the Company’s agronomy joint ventures, grain export joint ventures and other investments. The Processing segment derives its revenues from the sales of soybean meal and soybean refined oil, and records equity income from two wheat milling joint ventures and vegetable oil-based food manufacturing and distribution joint venture. The Company has moved other business operations, previously included in its operating segments, to Corporate and Other because of the nature of their products and services, as well as the relative revenue size of those businesses. These businesses primarily include the Company’s insurance, hedging and other service activities related to crop production that were previously included in the Country Operations and Services segment.

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

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

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

F-23

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Segment information for the years ended August 31, 2005, 2004 and 2003 is as follows:

										Corporate			Reconciling
	Energy			Ag Business			Processing			and Other			Amounts			Total
	(Dollars in thousands)
For the year ended August 31, 2005:
Net sales	$	5,782,948		$	5,556,923		$	610,006					$	(180,784	)	$	11,769,093
Other revenues		10,085			119,782			1,522		$	40,574						171,963
		5,793,033			5,676,705			611,528			40,574			(180,784	)		11,941,056
Cost of goods sold		5,489,425			5,545,373			604,418						(180,784	)		11,458,432
Marketing, general and administrative		62,077			85,570			18,292			25,307						191,246
Operating earnings (losses)		241,531			45,762			(11,182	)		15,267			—			291,378
Gain on sale of investments		(862	)		(11,358	)		(457	)		(336	)					(13,013	)
Interest		13,947			20,535			12,287			8,368						55,137
Equity income from investments		(3,478	)		(55,473	)		(36,202	)		(589	)					(95,742	)
Minority interests		46,741			(41	)					1,036						47,736
Income from continuing operations before income taxes	$	185,183		$	92,099		$	13,190		$	6,788		$	—		$	297,260
Intersegment sales	$	(170,642	)	$	(9,640	)	$	(502	)				$	180,784		$	—
Goodwill	$	3,041		$	250											$	3,291
Capital expenditures	$	205,484		$	27,600		$	4,751		$	19,635					$	257,470
Depreciation and amortization	$	59,847		$	30,748		$	13,868		$	5,869					$	110,332
Total identifiable assets at August 31, 2005	$	2,238,614		$	1,604,571		$	420,373		$	463,379					$	4,726,937
For the year ended August 31, 2004:
Net sales	$	4,028,248		$	6,219,917		$	731,311					$	(140,934	)	$	10,838,542
Other revenues		9,193			92,662			2,698		$	36,612						141,165
		4,037,441			6,312,579			734,009			36,612			(140,934	)		10,979,707
Cost of goods sold		3,784,260			6,192,528			703,344						(140,934	)		10,539,198
Marketing, general and administrative		66,493			86,202			19,166			23,778						195,639
Operating earnings		186,688			33,849			11,499			12,834			—			244,870
Gain on sale of investments		(14,666	)														(14,666	)
Gain on legal settlements					(692	)											(692	)
Interest		13,819			18,812			12,399			3,687						48,717
Equity income from investments		(1,399	)		(47,488	)		(29,966	)		(169	)					(79,022	)
Minority interests		32,507			(24	)					1,347						33,830
Income from continuing operations before income taxes	$	156,427		$	63,241		$	29,066		$	7,969		$	—		$	256,703
Intersegment sales	$	(121,199	)	$	(18,372	)	$	(1,363	)				$	140,934		$	—
Goodwill	$	3,041		$	250					$	23,605					$	26,896
Capital expenditures	$	187,937		$	35,240		$	8,757		$	13,214					$	245,148
Depreciation and amortization	$	57,195		$	30,887		$	13,536		$	6,781					$	108,399
Total identifiable assets at August 31, 2004	$	1,591,254		$	1,590,337		$	415,761		$	433,940					$	4,031,292

F-24

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

										Corporate			Reconciling
	Energy			Ag Business			Processing			and Other			Amounts			Total
	(Dollars in thousands)
For the year ended August 31, 2003:
Net sales	$	3,648,093		$	5,228,267		$	417,863					$	(97,557	)	$	9,196,666
Other revenues		5,655			85,256			2,306		$	29,256						122,473
		3,653,748			5,313,523			420,169			29,256			(97,557	)		9,319,139
Cost of goods sold		3,470,726			5,213,704			407,823						(97,557	)		8,994,696
Marketing, general and administrative		63,740			70,193			15,256			20,109						169,298
Operating earnings (losses)		119,282			29,626			(2,910	)		9,147			—			155,145
Gain on legal settlements					(10,867	)											(10,867	)
Interest		16,401			16,343			10,427			3,086						46,257
Equity income from investments		(1,353	)		(19,681	)		(26,056	)		(209	)					(47,299	)
Minority interests		20,782			(27	)					1,195						21,950
Income from continuing operations before income taxes	$	83,452		$	43,858		$	12,719		$	5,075		$	—		$	145,104
Intersegment sales	$	(94,209	)	$	(2,650	)	$	(698	)				$	97,557		$	—
Capital expenditures	$	80,837		$	31,874		$	50,944		$	12,034					$	175,689
Depreciation and amortization	$	65,868		$	28,587		$	11,177		$	5,715					$	111,347

      During the years ended August 31, 2004 and 2003, the Company received cash proceeds and recorded gains of $0.7 million and $10.9 million, respectively, related to legal settlements from several vitamin product suppliers against whom the Company alleged certain price-fixing claims.

13. Commitments and Contingencies:

Environmental:

      The Company is required to comply with various environmental laws and regulations incidental to its normal business operations. In order to meet its compliance requirements, the Company establishes reserves for the probable future costs of remediation of identified issues, which are included in cost of goods sold and marketing, general and administrative expenses in the Consolidated Statements of Operations. The resolution of any such matters may affect consolidated net income for any fiscal period; however, management believes any resulting liabilities, individually or in the aggregate, will not have a material effect on the consolidated financial position, results of operations or cash flows of the Company during any fiscal year.

      In connection with certain refinery upgrades and enhancements that are necessary in order to comply with existing environmental regulations, the Company expects to incur capital expenditures of approximately $87.0 million for the Company’s Laurel, Montana, refinery and $320.0 million for NCRA’s McPherson, Kansas, refinery, of which $86.4 million has been spent at the Laurel refinery and $258.9 million has been spent by NCRA at the McPherson refinery as of August 31, 2005. The Company expects all of these compliance capital expenditures at the refineries to be complete by December 31, 2005, and has funded these projects with a combination of cash flows from operations and debt proceeds.

Other Litigation and Claims:

      The Company is involved as a defendant in various lawsuits, claims and disputes, which are in the normal course of the Company’s business. The resolution of any such matters may affect consolidated net income for any fiscal period; however, management believes any resulting liabilities, individually or in the

F-25

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

aggregate, will not have a material effect on the consolidated financial position, results of operations or cash flows of the Company during any fiscal year.

Grain Storage:

      As of August 31, 2005 and 2004, the Company stored grain and processed grain products for third parties totaling $170.4 million and $157.1 million, respectively. Such stored commodities and products are not the property of the Company and therefore are not included in the Company’s inventories.

Guarantees:

      The Company is a guarantor for lines of credit for related companies of which $50.1 million was outstanding as of August 31, 2005. The Company’s bank covenants allow maximum guarantees of $150.0 million. In addition, the Company’s bank covenants allow for guarantees dedicated solely for NCRA in the amount of $125.0 million.

      The Company has adopted FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which requires disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. The interpretation also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of the guarantee for obligations the guarantor has undertaken in issuing the guarantee.

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

F-26

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company’s obligations pursuant to its guarantees as of August 31, 2005 are as follows:

	Guarantee/		Exposure on
	Maximum		August 31,		Nature of		Triggering		Recourse	Assets Held
Entities	Exposure		2005		Guarantee	Expiration Date	Event		Provisions	as Collateral
	(Dollars in thousands)
The Company’s financial services cooperative loans sold to CoBank		*	$	8,280	10% of the obligations of borrowers (agricultural cooperatives) under credit agreements for loans sold	None stated, but may be terminated by either party upon 60 days prior notice in regard to future obligations	Credit agreement default		Subrogation against borrower	Some or all assets of borrower are held as collateral and should be sufficient to cover guarantee exposure
Fin-Ag, Inc. agricultural loans sold to CoBank		*		33,355	15% of the obligations of borrowers under credit agreements for some of the loans sold, 50% of the obligations of borrowers for other loans sold, and 100% of the obligations of borrowers for the remaining loans sold	None stated, but may be terminated by either party upon 90 days prior notice in regard to future obligations	Credit agreement default		Subrogation against borrower	Some or all assets of borrower are held as collateral and should be sufficient to cover guarantee exposure
Horizon Milling, LLC	$	5,000		—	Indemnification and reimbursement of 24% of damages related to Horizon Milling, LLC’s performance under a flour sales agreement	None stated, but may be terminated by any party upon 90 days prior notice in regard to future obligations	Non- performance under flour sale agreement		Subrogation against Horizon Milling, LLC	None
TEMCO, LLC	$	15,000		800	Obligations by TEMCO, LLC under credit agreement	None stated	Credit agreement default		Subrogation against TEMCO, LLC	None
Third parties		*		1,000	Surety for, or indemnification of surety for sales contracts between affiliates and sellers of grain under deferred payment contracts	Annual renewal on December 1 in regard to surety for one third party, otherwise none stated and may be terminated by the Company at any time in regard to future obligations		Nonpayment	Subrogation against affiliates	Some or all assets of borrower are held as collateral but might not be sufficient to cover guarantee exposure

F-27

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Guarantee/		Exposure on
	Maximum		August 31,		Nature of		Triggering	Recourse	Assets Held
Entities	Exposure		2005		Guarantee	Expiration Date	Event	Provisions	as Collateral
	(Dollars in thousands)
Cofina Financial, LLC	$	20,561		6,650	Guaranteed loans which were made by the Company under financing programs and contributed by the Company to Cofina	Loans contributed mature at various times. Guarantee of a particular loan terminates on maturity date	Credit agreement default	Subrogation against borrower	Some or all assets of borrower are held as collateral but might not be sufficient to cover guarantee exposure
			$	50,085

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

Lease Commitments:

      The Company leases approximately 1,900 rail cars with remaining lease terms of one to ten years. In addition, the Company has commitments under other operating leases for various refinery, manufacturing and transportation equipment, vehicles and office space. Some leases include purchase options at not less than fair market value at the end of the leases term.

      Total rental expense for all operating leases, net of rail car mileage credits received from the railroad and sublease income was $31.0 million, $35.3 million and $31.7 million for the years ended August 31, 2005, 2004 and 2003, respectively. Mileage credits and sublease income totaled $8.6 million, $7.2 million and $7.1 million for the years ended August 31, 2005, 2004 and 2003, respectively.

      Minimum future lease payments, required under noncancellable operating leases as of August 31, 2005 are as follows:

	Rail				Equipment
	Cars		Vehicles		and Other		Total
	(Dollars in thousands)
2006	$	9,660	$	16,202	$	2,450	$	28,312
2007		8,739		13,156		2,090		23,985
2008		7,588		11,869		1,554		21,011
2009		3,700		8,303		982		12,985
2010		2,614		7,373		796		10,783
Thereafter		3,411		1,674		876		5,961
Total minimum future lease payments	$	35,712	$	58,577	$	8,748	$	103,037

F-28

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14. Supplemental Cash Flow and Other Information:

      Additional information concerning supplemental disclosures of cash flow activities for the years ended August 31, 2005, 2004 and 2003 is as follows:

		2005			2004			2003
		(Dollars in thousands)
Net cash paid (received) during the period for:
	Interest	$	57,569		$	52,004		$	45,239
	Income taxes		(8,804	)		27,997			956
Other significant noncash transactions:
	Capital equity certificates exchanged for preferred stock		19,996			12,990
	Capital equity certificates issued in exchange for elevator properties		1,375			13,355			350
	Exchange of preferred stock								7,452
	Accrual of dividends and equities payable		(132,406	)		(83,569	)		(39,049	)
	Other comprehensive income		12,106			11,178			33,583

15. Related Party Transactions:

      Related party transactions with equity and cooperative investees as of August 31, 2005 and 2004 are as follows:

	2005		2004
Sales	$	1,066,604	$	1,185,366
Purchases		642,840		632,993
Receivables		37,713		17,679
Payables		25,576		28,118

      These related party transactions were primarily with TEMCO, LLC, CF Industries, Inc., Horizon Milling, LLC, Agriliance, LLC, United Harvest, LLC and Ventura Foods, LLC.

F-29

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16. Comprehensive Income:

      The components of comprehensive income, net of taxes, for the years ended August 31, 2005, 2004 and 2003 are as follows:

	2005		2004		2003
	(Dollars in thousands)
Net income	$	250,016	$	221,332	$	123,841
Additional minimum pension liability, net of tax (expense) of $(1,854), $(5,432) and $(11,803) in 2005, 2004 and 2003, respectively		2,822		10,016		36,106
Unrealized net gains on available for sale investments, net of tax (expense) of $(5,147), $(340) and $(349) in 2005, 2004 and 2003, respectively		8,085		698		1,045
Interest rate hedges, net of tax (expense) benefit of $(279), $(226) and $2,259 in 2005, 2004 and 2003, respectively		439		356		(3,549	)
Foreign currency translation adjustment, net of tax (expense) of $(484), $(57) and $(0) in 2005, 2004 and 2003, respectively		760		108		(18	)
Comprehensive income	$	262,122	$	232,510	$	157,425

      The components of accumulated other comprehensive income (loss), net of taxes, as of August 31, 2005 and 2004 are as follows:

	2005			2004
	(Dollars in thousands)
Additional minimum pension liability, net of tax benefit of $705 and $2,559 in 2005 and 2004, respectively	$	(1,108	)	$	(3,930	)
Unrealized net gains on available for sale investments, net of tax (expense) of $(5,487) and $(340) in 2005 and 2004, respectively		8,619			534
Interest rate hedges, net of tax benefit of $2,159 and $2,438 in 2005 and 2004, respectively		(3,390	)		(3,829	)
Foreign currency translation adjustment, net of tax (expense) of $(541) and $(57) in 2005 and 2004, respectively		850			90
Accumulated other comprehensive income (loss)	$	4,971		$	(7,135	)

F-30

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Members and Patrons of CHS Inc.:

      In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of equities and comprehensive income and of cash flows present fairly, in all material respects, the financial position of CHS Inc. and subsidiaries at August 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2005, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

November 3, 2005

Minneapolis, Minnesota

F-31 EX-3.1 2 c99085exv3w1.htm ARTICLES OF INCORPORATION

EXHIBIT 3.1

ARTICLES OF INCORPORATION

OF

CHS INC.

(Effective May 3, 2005)

ARTICLE I.
Name and Principal Place of Business

     Section 1. The name of this cooperative corporation shall be CHS Inc.

     Section 2. The principal place of business for this cooperative shall be in the City of Inver Grove Heights, County of Dakota, State of Minnesota. The registered office address of this cooperative shall be 5500 Cenex Drive, Inver Grove Heights, Minnesota 55077.

ARTICLE II.
Purposes and Powers

     Section 1. This cooperative is organized for the following purposes:

          (a) to receive, handle, store, warehouse, manufacture, process, market, purchase, sell and otherwise deal in the agricultural products of its members, nonmember patrons and others, including without limitation the processing and exporting of grain and other agricultural products;

          (b) to manufacture, buy, sell, market, store, warehouse, acquire, transport, distribute, process, produce, drill, mine, refine, and otherwise deal in and procure for its members, nonmember patrons and others, petroleum products, fuel, oil, grease, automotive parts and accessories, supplies, services, minerals, feed, seed, fertilizer, machinery, equipment, supplies, and other goods, products, and merchandise, primarily for use upon farms or by farmers, or used or useful in the business of farming, recognizing that they may also be incidentally useful to other patrons; and

          (c) to engage in any activity connected with or related to any such purposes, and to engage in any other lawful purpose.

To this end, the business and activities of this cooperative shall be conducted on a cooperative basis, as provided in the Bylaws of this cooperative.

     Section 2. In addition to other powers, this cooperative may perform every act and thing necessary, proper, incidental or convenient to the conduct of this cooperative’s business or the accomplishment of the purposes of this cooperative, and this cooperative shall have all powers, privileges and rights conferred upon this cooperative by the laws of the State of Minnesota under which it was organized and acts amendatory thereof or supplemental thereto, and by the laws of the United States of America. Without limiting the foregoing, this cooperative shall have the power:

          (a) To borrow money from and to loan money to its members, nonmember patrons and others; to guarantee or stand as surety on loans made to its members, nonmember patrons and others by lenders; to issue bonds, deeds of trust, debentures, notes, and other obligations, and to secure the same by pledge, mortgage, or trust deed on any property of this cooperative; to draw, make, accept, endorse, guarantee, execute, and issue promissory notes, bills of exchange, drafts, warrants, warehouse receipts, certificates and other obligations, and negotiable or transferable instruments for any purpose deemed necessary to further the objects for which this cooperative is formed;

          (b) To acquire, purchase, hold, lease, encumber, sell, exchange, and convey such real estate, buildings, and personal property as the business of this cooperative may require;

          (c) To purchase, acquire, own, mortgage, pledge, sell, assign, transfer or otherwise dispose of, equity or debt securities created by any other corporation or other legal entity wherever organized, with all the rights, powers and privileges of ownership thereof;

          (d) To borrow money, to incur obligations and to assume obligations of any other person, individual, corporation or other legal entity, in any amount; and to make contracts of hire;

          (e) To issue equity and debt securities, whether certificated or uncertificated, as further provided in Article IV hereof and in the Bylaws of this cooperative;

          (f) To join with other cooperatives, corporations, partnerships, associations or other entities to form district, state, or national marketing, manufacturing, purchasing and service organizations, and other organizations engaged in the general purposes for which this cooperative is formed, and to purchase, acquire, and hold the capital stock or other equity interest and the notes, bonds and other obligations of such organizations;

          (g) To have one or more offices, and to conduct any or all of its operations and business, and promote its purposes within and without the state of Minnesota without restriction as to places or amounts; and

          (h) To carry on any other business in connection with the foregoing and to engage in any of said activities on its own account or as agent for others, or alone or in association with others; and to employ agents, consultants and nominees to perform any or all of the powers herein enumerated.

The powers, privileges and rights specified herein shall, except where otherwise expressed, be in no way limited or restricted by reference to or inference from the terms of any other provision of these Articles of Incorporation. The enumeration of powers, privileges and rights herein shall not be held to limit or restrict in any manner the general powers, privileges and rights conferred upon this cooperative by the laws of the State of Minnesota.

2

     Section 3. This cooperative shall not deal in the products, supplies and services with or for nonmembers in an amount greater in value than the total amount of such business transacted by it with or for members. All business transacted by this cooperative for or on behalf of the United States or any agency or instrumentality thereof shall be disregarded in determining the volume of member and nonmember business transacted by this cooperative.

ARTICLE III.
Duration

     This cooperative shall have perpetual existence.

ARTICLE IV.
Membership and Authorized Capital Instruments

     Section 1. This cooperative is organized without capital stock on a membership basis.

     Section 2. Membership in this cooperative shall be restricted to associations of producers of agricultural products which are organized and operating so as to adhere to the provisions of the Agricultural Marketing Act, 12 U.S.C. § 1141j(a), as amended, and the Capper-Volstead Act, 7 U.S.C. §§ 291-292, as amended, and to certain producers of agricultural products, which or who in either case meet the conditions of membership as provided in this Article IV and the Bylaws of this cooperative. For purposes of this Article IV, “producers of agricultural products” shall mean persons (including individuals and joint ventures, corporations, partnerships, limited liability companies, limited liability partnerships, unincorporated associations or other legal entities owned or controlled by individual farmers, ranchers or their family groups) that are engaged in the production of one or more agricultural products, including tenants of land used for the production of such products and lessors of such land that receive as rent therefor any part of the product of such land.

The Board of Directors of this cooperative may establish a minimum amount of business (as a percentage of purchases, in dollar volume, or otherwise) that cooperative associations must transact with or through this cooperative to be eligible for membership in this cooperative, and also may adopt such additional conditions, qualifications, methods of acceptance, duties, rights and privileges of membership in this cooperative as it may from time to time deem advisable. The Board of Directors of this cooperative may refuse membership or provide conditional membership to an applicant in its sole discretion. A membership in this cooperative is transferable only with the consent and approval of the Board of Directors.

Producers of agricultural products who transact business with the CSM locations of this cooperative (a.k.a. “Cenex Supply and Marketing division” locations) shall have no voting rights as a result of such transaction but may be eligible to conduct business with this cooperative at such locations on a patronage basis, as provided in Section 5 of this Article IV.

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     Section 3. This cooperative shall have three (3) classes of members, which are hereby designated as the “Cooperative Association Member” class, the “Defined Member” class, and the “Individual Member” class, as more particularly described in the Bylaws of this cooperative. This cooperative shall have such additional classes of members, with such designations, and such relative rights, preferences, privileges and limitations, as provided in the Bylaws of this cooperative.

     Section 4. Voting rights in this cooperative arise solely by virtue of membership in this cooperative, and only members of this cooperative shall have voting power in this cooperative. Each member shall have a minimum of one (1) vote in the affairs of the cooperative, and may otherwise be entitled to additional votes as further authorized in the Bylaws. This cooperative is a cooperative described in Section 308A.641 of Minnesota Statutes.

     Section 5. Associations of producers of agricultural products and producers of agricultural products described in the first paragraph of Section 2 of this Article IV who (i) patronize this cooperative under conditions established by the Board of Directors of this cooperative or as provided in the Bylaws of this cooperative but (ii) who are otherwise not eligible to be members of this cooperative may nevertheless conduct business with this cooperative on a patronage basis as a nonmember patron, as more particularly provided in the Bylaws of this cooperative. Such nonmember patrons are not members of this cooperative and are not entitled to voting rights or other privileges incident to membership in this cooperative.

     Section 6. In addition to and not by way of limitation of the powers granted to the Board of Directors of this cooperative by the laws of the State of Minnesota or elsewhere in these Articles or the Bylaws of this cooperative, the Board of Directors shall have the following authority and powers, which may be exercised from time to time at its sole discretion:

          (a) The Board of Directors by resolution may establish and organize separate defined business units of this cooperative (“Defined Business Unit”) with respect to the operations of this cooperative, on such terms and conditions and having such rights, preferences, privileges and limitations as the Board of Directors deems appropriate, as may be further provided in the Bylaws of this cooperative. The Board of Directors may sell, liquidate, dissolve or wind up any Defined Business Unit, in which event the assets of such Defined Business Unit shall be used first to redeem the Equity Participation Units (as defined below) and Preferred Capital Certificates (as defined in the Bylaws of this cooperative) of the Defined Business Unit on a pro rata basis;

          (b) The Board of Directors by resolution may establish and issue one or more than one class or series of equity participation units (“Equity Participation Units”) in connection with each Defined Business Unit, may set forth the designation of classes or series of Equity Participation Units, and may fix the relative rights, preferences, privileges and limitations of each class or series of Equity Participation Units, as may be further provided in the Bylaws of this cooperative. Equity Participation Units shall not entitle the holder to voting rights and may be issued to and held only by Defined Members of this cooperative. Equity Participation Units may only be sold or transferred with the approval of the Board of Directors of this cooperative; and

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          (c) The Board of Directors by resolution may establish and issue to any person (whether member, nonmember patron, or other person) one or more than one class or series of debt and/or equity instruments, may set forth the designation of classes or series of such debt and/or equity instruments, and may fix the relative rights, preferences, privileges and limitations of each class or series of debt and/or equity instruments, including, without limitation, one or more than one class or series of Preferred Equity instruments. Dividends may be paid on the equity capital of this cooperative which is evidenced by an equity instrument established pursuant to this Section 6(c); provided that dividends on such equity capital may not exceed eight percent (8%) per annum. Dividends may be cumulative. Debt or equity instruments established pursuant to this Section 6(c) shall not entitle the holder to voting rights. Unless otherwise expressly authorized by the Board of Directors, debt or equity instruments established and issued pursuant to this Section 6(c) may only be sold or transferred with the approval of the Board of Directors of this cooperative.

ARTICLE V.
Net Income and Loss

     The net income of this cooperative in excess of additions to reserves shall be distributed to members and nonmember patrons annually or more often on the basis of patronage and the records of this cooperative may show the interest of members and equity holders in the reserves. Net income may be accounted for and distributed on the basis of allocation units that may be functional, divisional, departmental, geographic, or otherwise. Net income may be distributed in cash, allocated patronage equities (including without limitation Patrons’ Equities), revolving fund certificates, securities of this cooperative, other securities, or any combination thereof. Any such allocated equity shall be redeemable only at the option of the Board of Directors. The net loss of an allocation unit or allocation units may be offset against the net income of other allocation units to the extent permitted by Minnesota Statutes Section 308A.705, Subdivision 1. The net income or net loss of this cooperative or any allocation unit may be determined by including the cooperative’s proportionate share of the net income or loss of other entities in which the cooperative owns an equity interest. The foregoing provisions of this Article V shall be implemented as more particularly provided in the Bylaws of this cooperative.

ARTICLE VI.
First Lien

     This cooperative shall have a first lien on all certificates of equity, patronage capital and other equity interests standing on its books (including any earned but not allocated capital equity to be issued to members as patronage refunds), for all indebtedness of the respective holders or owners thereof to this cooperative. This cooperative shall also have the right, exercisable at the option of the Board of Directors, to set off such indebtedness against the face amount of such equity interests; provided, however, that nothing contained herein shall give the holder of such equity interests any right to have such set off made.

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ARTICLE VII.
Certain Corporate Actions; Dissolution

     Section 1. A merger, consolidation, liquidation or dissolution involving this cooperative, or the sale of all or substantially all of the assets and property of this cooperative, may be authorized by the members in accordance with the Minnesota Cooperative Law, Minnesota Statutes Chapter 308A, upon the approval of two-thirds (2/3) of the votes cast in person or by mail vote at an annual or special meeting of the members called for such purpose; provided, however, in the event the Board of Directors of this cooperative declares, by resolution adopted by a majority of the Board of Directors present and voting, that the action involves or is related to a hostile takeover, then the action may be adopted only upon the approval of eighty percent (80%) of the total voting power of the members of this cooperative, whether or not present and voting on the action. Notwithstanding Article X of these Articles of Incorporation, this Article VII may be amended only upon the approval of eighty percent (80%) of the total voting power of the members of this cooperative, whether or not present and voting on the amendment.

     Section 2. In the event of any dissolution, liquidation or winding up of this cooperative, whether voluntary or involuntary, all debts and liabilities of this cooperative shall be paid first according to their respective priorities. As more particularly provided in the Bylaws, the remaining assets shall then be paid to the holders of equity capital to the extent of their interests therein and any excess shall be paid to the patrons of this cooperative on the basis of their past patronage. The Bylaws may provide more particularly for the allocation among the members and nonmember patrons of this cooperative of the consideration received in any merger or consolidation to which this cooperative is a party.

ARTICLE VIII.
Board of Directors

     The business and affairs of this cooperative shall be managed by a Board of Directors of not less than seventeen (17) directors, as further provided in the Bylaws of this cooperative. Directors shall be elected by the members at the annual meeting of the members of this cooperative in such manner and for such terms as the Bylaws of this cooperative may prescribe.

ARTICLE IX.
Limitation of Director Liability

     No director of this cooperative shall be personally liable to this cooperative or its members for monetary damages for breach of fiduciary duty as a director, except for liability:

          (a) for a breach of the director’s duty of loyalty to this cooperative or its members;

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          (b) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

          (c) for a transaction from which the director derived an improper personal benefit; or

          (d) for an act or omission occurring prior to the date when the provisions of this Article (or predecessor thereto) became effective.

It is the intention of the members of this cooperative to eliminate or limit the personal liability of the directors of this cooperative to the greatest extent permitted under Minnesota law. If amendments to the Minnesota Statutes are passed after the effective date of this Article which authorize cooperatives to act to further limit or eliminate the personal liability of directors, then the liability of the directors of this cooperative shall be limited or eliminated to the greatest extent permitted by the Minnesota Statutes, as so amended. Any repeal or modification of this Article by the members of this cooperative shall not adversely affect any right of or any protection available to a director of this cooperative which is in existence at the time of such repeal or modification.

ARTICLE X.
Amendment

     These Articles of Incorporation may be amended in accordance with the Minnesota Cooperative Law, Minnesota Statutes Chapter 308A, upon the approval of a majority of the votes cast in person or by mail vote at an annual or special meeting of the members called for such purpose; provided, however, in the event the Board of Directors of this cooperative declares, by resolution adopted by a majority of the Board of Directors present and voting, that the amendment involves or is related to a hostile takeover, then the amendment may be adopted only upon the approval of eighty percent (80%) of the total voting power of the members of this cooperative, whether or not present and voting on the amendment.

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EX-3.1

exv3w1

EX-3.2

EXHIBIT 3.2

BYLAWS

OF

CHS INC.

(Effective May 3, 2005)

ARTICLE I.
Membership

          Section 1 — Qualifications. Producers of agricultural products and associations of producers of agricultural products who are eligible under Article IV, Section 2 of the Articles of Incorporation of this cooperative and who patronize this cooperative under conditions established by the Board of Directors of this cooperative or as elsewhere provided in these Bylaws may, upon approval or pursuant to the authorization of the Board of Directors, become members of this cooperative. Each transaction between this cooperative and each member shall be subject to and shall include as a part of its terms each provision of the Articles of Incorporation of this cooperative and these Bylaws, whether or not the same be expressly referred to in said transaction.

          Section 2 — Classes of Members. In accordance with the Articles of Incorporation, there shall be three classes of members of this cooperative, which are hereby designated as the “Cooperative Association” class, “Individual Member” class and the “Defined Member” class. Membership in a particular class of members shall be determined as follows:

          (a) Cooperative Association Members. All members which are cooperative associations shall belong to and be part of the Cooperative Association class of members and shall become known and be designated as “Cooperative Association Members.”

          (b) Individual Members. All members who are individuals shall belong to and be part of the Individual Member class of members, and shall become known and be designated as “Individual Members;” and

          (c) Defined Members. All members who are holders of Equity Participation Units (as described in the Articles of Incorporation of this cooperative) shall belong to and be part of the Defined Member class of members, and shall become known and be designated as “Defined Members.”

          Section 3 — Defined Members and Defined Business Units.

          (a) Defined Business Units. Each Defined Member holding Equity Participation Units in a Defined Business Unit (as such unit is established in the Articles of Incorporation) shall be eligible to receive patronage distributions from the Defined Business Unit as a separate allocation unit.

          (b) Delivery Rights and Obligations. The delivery rights and obligations of each Defined Member shall be as specified in the member marketing agreement between such Defined Member and this cooperative. Each such member marketing agreement shall at all times be subject to modification by this cooperative upon written notice to the Defined Member in question, provided that such modification is first approved by Defined Members holding a majority of the voting power of the Defined Business Unit in question who are present and voting at a meeting of Defined Members holding Equity Participation Units in such Defined Business Unit, where the notice of such meeting contains a statement of the proposed modification.

          (c) Defined Member Boards. Each Defined Business Unit shall be represented by a Defined Member Board. The initial members of each Defined Member Board shall be selected by the Board of Directors of this cooperative. Subsequently, the members of the Defined Business Unit in question shall be entitled to elect, on a one Defined Member/one vote basis, the members of the Defined Member Board. Each Defined Member Board shall be made up of at least five (5) but not more than ten (10) individuals. Each member of a Defined Member Board must be (i) either a Defined Member or a representative of a Defined Member, and (ii) in good standing as a Defined Member and in full compliance with delivery obligations in and to such member’s Defined Business Unit; provided, however, that no employee of this cooperative may serve as a member of any Defined Member Board. Each Defined Member Board shall be headed by a Chairperson selected by and from the Board of Directors of this cooperative. Each Defined Member Board shall meet at least quarterly (one of which meetings may be its annual meeting), and shall be charged with reflecting Defined Member concerns and providing a direct communication mechanism to the Board of Directors of this cooperative. Individuals serving on a Defined Member Board shall serve for staggered terms of three (3) years and until their successors are elected and have qualified.

          Section 4 — Termination of Membership. If the Board of Directors determines that a member has become ineligible for membership in this cooperative, such member shall have no rights or privileges on account of such membership in the management of the affairs of this cooperative, and the membership of such member may be terminated by the Board of Directors. Membership may, at the discretion of the Board of Directors, be terminated whenever the Board of Directors by resolution finds that a member has:

          (a) intentionally or repeatedly violated any provision of the Articles of Incorporation, Bylaws or Board policies of this cooperative; or

          (b) failed to patronize this cooperative for a period of twelve (12) consecutive months; or

          (c) breached any contract with this cooperative; or

          (d) willfully obstructed any lawful purpose or activity of this cooperative; or

          (e) remained indebted to this cooperative for ninety (90) days after such indebtedness becomes payable; or

          (f) died or legally dissolved;

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provided, however, that termination of any member’s membership as a result of any of the circumstances listed in paragraphs (a) through (f) above shall not be deemed to revoke such member’s consent contained in Article VIII hereof but rather such member may only revoke such consent in writing. Upon termination of membership said member shall thereafter have no voting rights in this cooperative. A terminated member’s patronage credits shall be revolved or retired in the same manner as the patronage credits of members. No action taken hereunder shall impair the obligations or liabilities of either party under any contract with the cooperative which may be terminated only as provided therein.

ARTICLE II.
Meetings of Members

          Section 1 — Annual and Special Meetings. The annual meeting of the members of this cooperative shall be held at a time and place fixed by the Board of Directors. Special meetings of the members of this cooperative may be called by the Board of Directors or upon the written petition of twenty percent (20%) of the members. The special members’ meeting shall be held at the time and place specified in the notice of the meeting, and the notice shall also state the purpose of the special members’ meeting. No business shall be considered at the special members’ meeting except as mentioned in the notice of the meeting.

          Section 2 — Notice of Meetings. Notice of the annual meeting of the members of this cooperative shall be published or mailed as prescribed by Minnesota Statutes Section 308A.611, Subdivision 5. Notice of a special meeting of the members of this cooperative shall be published or mailed as prescribed by Minnesota Statutes Section 308A.615, Subdivision 2. The notice of meetings must be published at least two weeks before the date of the meeting or mailed at least 15 days before the date of the meeting. The notice shall state the date, time, and place of the meeting, and in the case of a special meeting, the purposes for which the meeting is called. The Secretary shall execute a certificate which contains a copy of the notice, shows the date of mailing or publication (as the case may be), and states the notice was mailed or published (as the case may be) as prescribed by these Bylaws. The certificate shall be made a part of the meeting. The failure of any member to receive notice shall not invalidate any action which may be taken by the members at a meeting.

          Section 3 — Voting Power. The voting power of the members of this cooperative shall be exercised as follows:

          (a) Cooperative Association Members. Each Cooperative Association Member shall be entitled to the number of permitted votes designated by the Board of Directors of this cooperative, which shall be determined based on the following formula:

          (i) One (1) vote for each $10,000, or major fraction thereof, of the average annual business transacted with this cooperative and with CENEX, Inc. (combined sales to and purchases from) during the three years ending on the last day of this cooperative’s fiscal year last ended prior to the meeting; plus

          (ii) One (1) vote for each $1,000, or major fraction thereof, of equity issued by this cooperative as a patronage refund and standing on the books of this cooperative in the name of such Cooperative Association Member.

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For purposes of Section 3(a)(i), the dollar value of commodities delivered by a Defined Member to a Cooperative Association Member for handling by and on behalf of this cooperative and the Defined Member shall be included in the calculation for determining the number of permitted votes of the Cooperative Association Member. For purposes of Section 3(a)(ii), the face amount of any Equity Participation Units issued to and held by a Cooperative Association Member shall be included in the determination of the amount of equity in this cooperative held by such Cooperative Association Member. In determining the number of permitted votes of a Cooperative Association Member, the Board of Directors of this cooperative shall give due consideration to the membership eligibility criteria set forth in these Bylaws and the Articles of Incorporation of this cooperative, and shall have the authority to suspend or adjust voting power to reflect such criteria, including without limitation the authority to establish reasonable procedures to address special circumstances, for example, procedures to annualize the average annual business of Cooperative Association Members having less than three full years of business included in the averaging period and procedures to equitably measure the business transacted by Cooperative Association Members that have acquired or merged with other entities that did business with this cooperative or with CENEX, Inc. within the averaging period. The Board of Directors of this cooperative also may require such supporting information from Cooperative Association Members as it deems necessary or appropriate to determine the number of permitted votes of the Cooperative Association Members hereunder.

Each Cooperative Association Member shall be represented at members’ meetings of this cooperative by elected or appointed delegates, which delegates shall exercise the voting rights of such Cooperative Association Member at such meetings as hereinafter provided.

          (b) Individual Members and Defined Members. Each Individual Member and each Defined Member shall have one (1) vote; provided, however, that, except as such Individual Member or such Defined Member shall cast a vote individually in person at an annual or special meeting (as hereinafter provided), or by mail when a mail ballot has been provided for, and except for votes of Defined Members for elections to Defined Member Boards, such Individual Member or Defined Member may be grouped with other Individual Members and Defined Members in local units (hereinafter referred to as “Patrons’ Associations”) as may be established from time to time by the Board of Directors of this cooperative. An Individual Member or a Defined Member grouped in a Patrons’ Association may, however, elect to exercise their vote individually in which case such Member shall have one (1) vote. An Individual Member or a Defined Member who intends to exercise their vote individually hereunder shall be entitled to do so after giving notice of such intent to this cooperative in the manner prescribed by the Board of Directors of this cooperative.

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If an Individual Member or a Defined Member elects to cast their vote individually, such Member’s business transacted with and equity held by such Member in this Company shall be excluded from determining the number of votes held by such Member’s Patrons’ Association pursuant to Sections 3(c)(i) and 3(c)(ii) below.

Each Defined Member shall have one (1) vote for the election of Defined Member Boards, which shall be cast individually in person at an annual or special meeting (as hereinafter provided), or by mail when a mail ballot has been provided for.

          (c) Patrons’ Associations. The delegates representing Individual Members and Defined Members (as provided herein) grouped in each Patrons’ Association shall be entitled (in the aggregate) to the number of permitted votes designated by the Board of Directors of this cooperative, which shall be determined based on the following formula:

          (i) One (1) vote for each $10,000, or major fraction thereof, of the average annual business transacted with this cooperative (combined sales to and purchases from) by the Individual Members and Defined Members grouped in such Patrons’ Associations, during the three years ending on the last day of this cooperative’s fiscal year last ended prior to the meeting; plus

          (ii) One (1) vote for each $1,000, or major fraction thereof, of equity issued by this cooperative as a patronage refund and standing on the books of this cooperative in the name of the Individual Members and Defined Members grouped in such Patrons’ Associations, calculated on an aggregate basis.

For purposes of Section 3(c)(ii), the face amount of any Equity Participation Units issued to and held by an Individual Member or a Defined Member shall be included in the determination of the amount of equity held by such members. In determining the number of permitted votes of a Patron Association, the Board of Directors of this cooperative shall have the authority to establish reasonable procedures to address special circumstances. For example, procedures to annualize the average annual business of Individual Members and Defined Members having less than three full years of business included in the averaging period and procedures to equitably measure the business transacted by Individual Members and Defined Members that patronized entities that were acquired or merged with this cooperative within the averaging period. The Board of Directors of this cooperative also may require such supporting information from or relating to the Individual Members and Defined Members grouped in Patrons’ Associations as it deems necessary or appropriate to determine the number of permitted votes of the Patrons’ Associations hereunder.

The Individual Members and Defined Members grouped in each Patrons’ Association shall be represented at members’ meetings of this cooperative by elected delegates, which delegates shall exercise the voting rights of the Individual Members and Defined Members grouped in such Patrons’ Association at such meetings as hereinafter provided. Such delegates and their alternates shall be elected on a one member/one vote basis by the Individual Members and the Defined Members grouped in the Patrons’ Association, at an annual meeting of such Patrons’ Association held following reasonable notice, and pursuant to such other procedures as the Board of Directors of this cooperative may establish from time to time. In no instance shall managers or other employees of this cooperative appoint such delegates or alternates. Such delegates shall exercise the same powers at such members’ meetings as the delegates of Cooperative Association Members may exercise.

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          Section 4 — Manner of Voting. At annual and special meetings of members of this cooperative, the designated number of permitted votes of members as hereinabove provided shall be cast in the following manner:

          (a) Each Individual Member and each Defined Member who is certified or has provided notice to vote individually as further provided in these Bylaws shall be entitled to cast such Member’s own vote in person.

          (b) Each Cooperative Association Member and the Individual Members and Defined Members grouped in each Patrons’ Association shall cast its designated number of permitted votes through duly selected delegates (or their duly selected alternates). The maximum number of delegates that may represent a Cooperative Association Member or the Individual Members and Defined Members grouped in a Patrons’ Association at members’ meetings, and the maximum number of votes that each delegate may carry at such meetings, shall be as authorized by the Board of Directors.

          (c) There shall be no mail voting except in cases where, in the notice of the meeting, the Board of Directors of this cooperative shall have submitted a specific issue or issues for a mail vote. In such case, a mail vote cast by a Cooperative Association Member shall be binding upon the delegates representing such Cooperative Association Member at the meeting (if any) on the issue or issues so submitted. The voting power of a Cooperative Association Member may not be split between mail voting and voting in person by delegates of the Cooperative Association Member upon an issue or issues submitted for mail vote. No combination of mail voting and voting in person by delegates of the same Patrons’ Association upon an issue or issues submitted for mail vote shall be permitted. An attempt by a Cooperative Association Member or delegates of a Patrons’ Association to do such splitting or combining shall be treated as having the effect of not voting on the issue or issues so submitted. Delegates of Cooperative Association Members and Patrons’ Associations which have not cast a vote by mail upon the issue or issues submitted for mail vote shall cast the vote or votes of the respective members they are representing upon said issue or issues in the manner prescribed by the chairman of said meeting. Nothing in this section shall, however, prevent an annual or special meeting of this cooperative from considering and acting upon issues in addition to those submitted for mail vote, to the extent permitted by law; and such issues shall be voted upon by delegates (and alternates) in the manner hereinabove provided for other than mail votes.

          (d) The mail vote of a Cooperative Association Member shall be cast as determined by the Board of Directors of the Cooperative Association Member. The mail ballot used by a Cooperative Association Member to cast its vote shall contain the certificate of the secretary or the president of the Cooperative Association Member that the vote shown thereon is so cast by the direction of said member’s Board of Directors and stating such supporting information as may be prescribed by the Board of Directors of this cooperative.

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          (e) The mail vote cast by each Patrons’ Association shall be determined by the delegate or delegates last certified by the Patrons’ Association to this cooperative as provided in these Bylaws. The mail ballot used by the delegate or delegates of a Patrons’ Association to cast its mail vote shall contain the certificate of the delegate or delegates that the vote shown thereon is so cast, and stating such supporting information as may be prescribed by the Board of Directors of this cooperative.

          (f) The mail vote cast by each Individual Member or Defined Member of this cooperative shall be on such form of ballot as may be prescribed by the Board of Directors of this cooperative.

          (g) There shall be no voting by proxy or under power of attorney at any annual or special meeting of this cooperative.

          Section 5 — Quorum and Registration.

          (a) A quorum necessary to the transaction of business at any annual or special meeting of this cooperative shall be at least ten percent (10%) of the total number of members in this cooperative represented in person by delegates or by mail votes when the members do not exceed five hundred (500) in number. If the members of this cooperative exceed five hundred (500) in number, fifty (50) members of this cooperative represented in person by delegates (or alternates) or by mail votes shall constitute a quorum. In determining a quorum at any meeting, on a question submitted to a vote by mail, as hereinabove provided, members represented in person by delegates (or alternates) or represented by mail vote shall be counted. The fact of the attendance of a sufficient number of members to constitute a quorum shall be established by a registration of the members of this cooperative present at such meeting, which registration shall be verified by the Chairman and Secretary of this cooperative and shall be reported in the minutes of the meeting.

          (b) Registration of Individual Members and Defined Members and of delegates (or alternates) of Cooperative Association Members and Patrons’ Associations shall close at such hour on the day for which an annual or special meeting is called (or in case it is called for a series of days, at such hour on the first day thereof) as the Board of Directors of this cooperative shall determine and specify in the Notice of Meeting, or at such later time to which the close of registration may be extended by majority vote of those registered before said initial time for closing of registration. Persons otherwise eligible to vote, either as Individual Members, Defined Members or as delegates or alternates, but not registered as in attendance at or before said time (original or as extended), shall have no right to vote in any of the affairs of the meeting (including, but not limited to, election of Directors).

          (c) Each Cooperative Association Member and Patrons’ Association shall certify its delegates and alternates to this cooperative, in the manner prescribed by the Board of Directors of this cooperative. The delegates (and alternates) so certified, and found by this cooperative to be eligible to be seated at the meeting or meetings of this cooperative, shall represent their Cooperative Association Members or Patrons’ Associations, as the case may be, to the extent and in the manner provided in this Article. In matters of which advance notice has been given, such delegates and alternates shall endeavor to inform themselves as to the views of the membership of the Cooperative Association Member or Patrons’ Association which they represent.

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          (d) No individual shall serve as a delegate for more than one member of this cooperative. Delegates and alternates representing Patrons’ Associations must be an Individual Member or Defined Member grouped with such Patrons’ Association. The Board of Directors may establish such additional eligibility criteria, procedures, standards and structure with respect to the delegate system of this cooperative as it from time to time deems advisable. No employee of this cooperative shall serve as a delegate or alternate at any meeting of this cooperative; if any such person shall be certified as a delegate or alternate of a member, such person shall nevertheless not be seated as such.

          (e) Duly selected delegates and alternates certified in the manner described above shall serve in such capacity in accordance with these Bylaws until such delegate’s (or alternate’s) successor is selected and qualified, but in no event shall such certificate of selection be valid for more than two years; provided, further, that the election or appointment of any delegate or alternate may be revoked by the Cooperative Association Member that a delegate or alternate represents (effective as of the date this cooperative receives notice of such revocation) or, in the case of delegates or alternates representing Patrons’ Associations, the election shall terminate in the event the delegate or alternate ceases to be an Individual Member or Defined Member of this cooperative.

          (f) A cooperative association which conducts business with this cooperative on a patronage basis as a nonmember patron in the manner prescribed by these Bylaws may have a representative present at a meeting of the members of this cooperative only as authorized by the Board of Directors of this cooperative. A representative so authorized shall have no voting rights and shall only be recognized to speak at the discretion of the Chairman of the meeting.

          (g) Nothing herein shall prevent Individual Members or Defined Members of this cooperative or of Cooperative Association Members, who are not delegates to the annual meetings or special meetings of this cooperative from serving as chairperson of a regional meeting or as chairperson or member of a committee.

          (h) Each member of the Board of Directors of this cooperative shall have the right to speak on any subject during annual or special meetings of this cooperative.

ARTICLE III.
Directors

          Section 1 — Board of Directors. The business and affairs of this cooperative shall be governed by the Board of Directors of this cooperative, which shall consist of seventeen (17) directors.

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          Section 2 — Director Qualifications. The qualifications for the office of director shall be as follows:

          (a) At the time of declaration of candidacy, the individual (except in the case of an incumbent) must have the written endorsement of a locally elected producer board that is a part of the CHS system and located within the Region from which the individual is to be a candidate.

          (b) At the time of the election, the individual must be less than the age of 68.

          The remaining qualifications set forth in subsections (c) through (f) below must be met at all times commencing six months prior to the time of election and while the individual holds office.

          (c) The individual must be a member of this cooperative or a member of a Cooperative Association Member.

          (d) The individual must reside in the Region from which he or she is to be elected.

          (e) The individual must be an active farmer or rancher. For purposes of this section, “active farmer or rancher” means an individual whose primary occupation is that of a farmer or rancher.

          (f) The definition of “farmer or rancher” shall not include anyone who is an employee of this cooperative, or of a Cooperative Association Member.

          Section 3 — Election of Directors.

          (a) At each annual meeting of the members of this Association, directors shall be elected to fill vacancies created by expired terms. The term of office of such directors shall be three (3) years and until their respective successors are elected and qualified.

          (b) The nomination and election of directors of this cooperative shall be by Region. The territory served by this cooperative shall be divided into the following Regions, with the Board of Directors, composed of the following number of directors from each Region:

     Region Number 1 — which shall include the State of Minnesota, and shall be represented by five (5) persons who must be residents of Region Number 1;

     Region Number 2 — which shall include the States of Montana and Wyoming, and shall be represented by one (1) person who must be a resident of Region Number 2;

     Region Number 3 — which shall include the State of North Dakota, and shall be represented by (3) persons who must be residents of Region Number 3;

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     Region Number 4 — which shall include the State of South Dakota, and shall be represented by two (2) persons who must be residents of Region Number 4;

     Region Number 5 — which shall include the States of Wisconsin, Michigan and Illinois, and shall be represented by two (2) persons who must be residents of Region Number 5;

     Region Number 6 — which shall include the States of Alaska, Arizona, California, Idaho, Oregon, Washington and Utah, and shall be represented by two (2) persons who must be residents of Region Number 6;

     Region Number 7 — which shall include the States of Iowa and Missouri, and shall be represented by one (1) person who must be a resident of Region Number 7; and

     Region Number 8 — which shall include the States of Colorado, Nebraska, Kansas, Oklahoma and Texas, and shall be represented by one (1) person who must be a resident of Region Number 8.

          (c) From time to time, the Board of Directors shall review member representation. Future redistricting plans shall be designed to maintain equitable representation. Any redistricting plan shall be determined by using a weighted formula based on sales/purchases and equity by Region. All future redistricting plans shall be subject to member approval at either a special or annual meeting of the members of this cooperative.

          (d) With respect to elections at each annual meeting of the members of this cooperative, Individual Members, Defined Members, and delegates from each Region who are registered in accordance with these Bylaws shall meet separately by Region for the purpose of nominating and electing the directors of this cooperative from such Region. At each such regional meeting, nominations for the election of directors shall be made by the members or delegates of this cooperative and may be made by balloting, nominating committee, petition of members or from the floor; provided that nominations from the floor shall be requested in addition to nominations made by petition or nominating committee. Before each annual meeting of the members of this cooperative, the Board of Directors may appoint a nominating committee to supervise the nominating procedure for election of directors, which procedure shall be prescribed by the Board of Directors.

          (e) When nominations have been closed, the Individual Members, Defined Members and delegates at each regional meeting shall vote on each of the nominees, and the director or directors from such Region shall be elected by a majority of the votes cast at such regional meeting. The Board of Directors shall have the power and authority to adopt a policy and procedure for assigning to an existing Region those members who are not residents of any Region established in Section 3(b) above. Such policy and procedure may be amended from time to time at the discretion of the Board of Directors. Each such regional election shall be binding upon the annual meeting and upon this cooperative, without any ratification or right of rescission or veto by Individual Members or Defined Members or delegates, or any combination thereof, of other Regions. A temporary Chairman of each such regional meeting shall be selected by the Chairman of this cooperative, to serve until a Chairman of such regional meeting is elected by the Individual Members, Defined Members and delegates at such regional meeting. Election of directors shall be by balloting when there are two or more nominees for a position to be filled, or when there are more nominees than there are positions to be filled.

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          Section 4 — Vacancies. Each vacancy occurring on the Board of Directors may be filled by the remaining directors until the next annual meeting of the members when the members shall elect a director to serve for the unexpired term, provided that vacancies on the Board created by any amendment of the Articles of Incorporation or Bylaws shall first be filled at the annual meeting of the members next following the adoption of such amendment unless otherwise provided in the amendment.

          Section 5 — Meetings. The Board of Directors shall meet regularly at such times and places as the Board may determine. Special meetings may be called by the Chairman or any three directors. All meetings shall be held on such notice as the Board may prescribe provided that any business may be transacted at any meeting without specification of such business in the notice of such meeting. Directors may participate in any such meeting by means of a conference telephone conversation or other comparable method of communication by which all persons participating in the meeting can hear and communicate with each other; and for purposes of taking any action at the meeting, any such directors shall be deemed present in person at the meeting.

          Section 6 — Quorum and Voting. A quorum shall consist of a majority of the directors. A majority vote of the directors present shall decide all questions except where a greater vote is required by the Articles of Incorporation, by these Bylaws or by law.

          Section 7 — Action Without Meeting. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if all directors consent thereto in writing and the writing or writings are held with the minutes or proceedings of the Board of Directors.

          Section 8 — Borrowings. The Board of Directors shall have power to authorize and approve the borrowing of money and the pledging and mortgaging of any or all of the assets of this cooperative as security for the sums so borrowed.

ARTICLE IV.
Duties of Directors

          Section 1 — General Powers. The business and affairs of this cooperative shall be governed by the Board of Directors of this cooperative. The Board of Directors shall exercise all of the powers of this cooperative except such as are by law, the Articles of Incorporation, or these Bylaws conferred upon or reserved to the members. The Board of Directors shall adopt such policies, rules, regulations, and actions not inconsistent with law, the Articles of Incorporation, or these Bylaws, as it may deem advisable. The Board of Directors may establish one or more than one committee having such powers and authority as are delegated to it by the Board of Directors.

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          Section 2 — Bonds and Insurance. The Board of Directors may require the officers, agents, or employees charged by this cooperative with responsibility for the custody of any of its funds or property to give adequate bonds. Such bonds, unless cash security is given, shall be furnished by a responsible bonding company and approved by the Board of Directors and the cost thereof shall be paid by this cooperative. The Board of Directors shall provide for the adequate insurance of the property of the cooperative, or property which may be in the possession of this cooperative, or stored by it, and not otherwise adequately insured, and in addition adequate insurance covering liability for accidents to all employees and the public.

          Section 3 — Accounting System and Audit. The Board of Directors shall install and maintain an adequate system of accounts and records. At least once in each year the books and accounts of this cooperative shall be audited and a review of such audit shall be published annually, and a report of such audit shall in addition be made at the next annual meeting of the members.

          Section 4 — Depository. The Board of Directors shall have power to select one or more banks to act as depositories of the funds of this cooperative, and to determine the manner of receiving, depositing, and disbursing the funds of this cooperative, the form of checks, and the person or persons by whom they shall be signed, with the power to change such banks and the person or persons signing such checks and the form thereof at will.

ARTICLE V.
Officers

          Section 1 — Election of Officers. Promptly following each annual meeting of the members, the Board of Directors shall elect from its membership a Chairman, one or more Vice Chairmen, a Secretary, a Treasurer, and such other officers as it shall deem necessary. The Board of Directors shall also elect a Chief Executive Officer, who need not be a director of this cooperative. Upon the recommendation of the Chief Executive Officer, the Board of Directors may elect a President and General Manager, a Chief Financial Officer, one or more Vice Presidents (with such designations as recommended by the Chief Executive Officer), Assistant Secretaries and Assistant Treasurers, and such additional officers with such authority and duties as may be prescribed by the Board of Directors upon the recommendation of the Chief Executive Officer, none of whom need be a director of this cooperative. Other than the office of Chairman and Vice Chairman, one person may hold one or more of the offices provided for above, if eligible to hold each such office. If any vacancy shall occur among the offices of Chairman, Vice Chairmen, Secretary or Treasurer, it shall be filled by the Board of Directors at its next regular meeting following the vacancy.

          Section 2 — Chairman. The Chairman shall preside at all meetings of the members and the Board of Directors. Except where the signature of the Chief Executive Officer is required, the Chairman shall possess the same power as the Chief Executive Officer to sign all certificates, contracts and other instruments of this cooperative which may be authorized by the Board of Directors.

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          Section 3 — Vice Chairmen. In the absence or disability of the Chairman, the Vice Chairmen, in the order designated by the Board of Directors, shall perform the duties and exercise the powers of the Chairman. Each Vice Chairman shall have such other duties as are assigned to such Vice Chairman from time to time by the Board of Directors.

          Section 4 — Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of this cooperative, shall have general supervision of the affairs of this cooperative, shall sign or countersign all certificates, contracts or other instruments of this cooperative as authorized by the Board of Directors, shall make reports to the Board of Directors and members, shall recommend the officers of this cooperative to the Board of Directors for election (except the offices of Chairman, Vice Chairmen, Secretary or Treasurer), and shall perform such other duties as are incident to the Chief Executive Officer’s office or are properly required by the Board of Directors. In the event the office of President and General Manager is not filled, the Chief Executive Officer shall also serve as the President of this cooperative and may exercise the authority of the office of Chief Executive Officer in either or both capacities.

          Section 5 — President and General Manager. The President and General Manager shall report to the Chief Executive Officer of this cooperative, and shall perform such duties as the Board of Directors may prescribe upon the recommendation of the Chief Executive Officer. In the absence or disability of the Chief Executive Officer, the President and General Manager shall perform the duties and exercise the powers of the Chief Executive Officer.

          Section 6 — Vice Presidents. In the absence or disability of the President and General Manager, the Vice Presidents, in the order designated by the Board of Directors, shall perform the duties and exercise the powers of the President. Each Vice President shall have such other duties as are assigned to such Vice President from time to time by the Chief Executive Officer or the President and General Manager.

          Section 7 — Secretary. The Secretary shall keep complete minutes of each meeting of the members and of the Board of Directors, and shall sign with Chairman or the Chief Executive Officer all notes, conveyances and encumbrances of real estate, capital securities and instruments requiring the corporate seal; provided that the Secretary, in writing, may authorize any other officer or employee to execute or sign the Secretary’s name to any or all such instruments. The Secretary shall keep a record of all business of this cooperative, prepare and submit to the annual meeting of the members a report of the previous fiscal year’s business, and give all notice as required by law. The Secretary shall perform such other duties as may be required by the Board of Directors. The Board of Directors may delegate, or authorize the Secretary to delegate, to any other officer or employee, under the supervision of the Secretary, all or any of the duties enumerated in this section.

          Section 8 — Treasurer. The Treasurer shall supervise the safekeeping of all funds and property of this cooperative, supervise the books and records of all financial transactions of this cooperative, and perform such other duties as may be required by the Board of Directors. The Board of Directors may delegate, or authorize the Treasurer to delegate, to any other officer or employee, under the supervision of the Treasurer, all or any of the duties enumerated in this section.

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ARTICLE VI.
Indemnification and Insurance

          Section 1 — Indemnification. This cooperative shall indemnify each person who is or was a director, officer, manager, employee, or agent of this cooperative, and any person serving at the request of this cooperative as a director, officer, manager, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys’ fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred to the fullest extent to which such directors, officers, managers, employees or agents of an cooperative may be indemnified under the law of the State of Minnesota or any amendments thereto or substitutions therefor.

          Section 2 — Insurance. This cooperative shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, manager, employee, or agent of this cooperative, or is or was serving at the request of this cooperative as a director, officer, manager, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against that person and incurred by that person in any such capacity.

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ARTICLE VII.
Method of Operation — Patronage Refunds

          Section 1 — Cooperative Operation. This cooperative shall be operated upon the cooperative basis in carrying out its business within the scope of the powers and purposes defined in the Articles of Incorporation. Accordingly, the net income of this cooperative in excess of amounts credited by the Board of Directors to Capital Reserves shall be accounted for and distributed annually on the basis of allocation units as provided in this Article VII. In determining the net income or net loss of this cooperative or its allocation units, the amount of dividends, if any, paid with respect to equity capital or capital stock shall not be deducted or considered. In determining the net income or net loss of this cooperative or its allocation units, there shall be taken into account this cooperative’s share of the net income or net loss of any unincorporated entity in which it owns an equity interest, patronage dividends distributed by other cooperatives of which it is a patron and, to the extent determined by the Board of Directors, its share of the undistributed net income or net loss of any corporation in which it owns an equity interest.

          Each transaction between this cooperative and each member shall be subject to and shall include as a part of its terms each provision of the Articles of Incorporation and Bylaws of this cooperative, whether or not the same be expressly referred to in said transaction. Each member for whom this cooperative markets or procures goods or services shall be entitled to the net income arising out of said transaction as provided in this Article VII unless such member and this cooperative have expressly agreed to conduct said business on a nonpatronage basis. No nonmember for whom this cooperative markets or procures goods or services shall be entitled to the net income arising out of said transactions as provided in this Article VII unless this cooperative agrees to conduct said business on a patronage basis.

          Section 2 — Patrons; Patronage Business; Nonpatronage Business. As used in this Article VII, the following definitions shall apply:

                    (a) The term “patron” shall refer to any member or nonmember with respect to business conducted with this cooperative on a patronage basis in accordance with Section 1 of this Article VII.

                    (b) The term “patronage business” shall refer to business done by this cooperative with or for patrons.

                    (c) The term “nonpatronage business” shall refer to business done by this cooperative that does not constitute “patronage business.”

          Section 3 — Establishment of Allocation Units. Allocation units shall be established by the Board of Directors on a reasonable and equitable basis and they may be functional, divisional, departmental, geographic, or otherwise; provided, that each Defined Business Unit shall be accounted for as a separate allocation unit. The Board of Directors shall adopt such reasonable and equitable accounting procedures as will, in the Board’s judgment, equitably allocate among such allocation units this cooperative’s income, gains, expenses and losses and, to the extent provided in Section 1 of this Article VII, patronage dividends received by this cooperative and its share of income, gain, loss and deduction of other entities in which it owns an interest.

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          Section 4 — Determination of the Patronage Income or Loss of an Allocation Unit. The net income or net loss of an allocation unit from patronage business for each fiscal year shall be the sum of (1) the gross revenues directly attributable to goods or services marketed or procured for patrons of such allocation unit, plus (2) an equitably apportioned share of other items of income or gain attributable to this cooperative’s patronage business, less (3) all expenses and costs of goods or services directly attributable to goods or services marketed or procured for patrons of such allocation unit, less (4) an equitably apportioned share of all other expenses or losses attributable to this cooperative’s patronage business and distributable net income from patronage business that is credited to the Capital Reserve pursuant to Section 8(c) of this Article VII. The foregoing amounts shall be determined using the accounting methods and principles used by the cooperative in preparation of its annual audited financial statements; provided, however, that the Board of Directors may prospectively adopt a reasonable alternative method. Expenses and cost of goods or services shall include without limitation such amounts of depreciation, cost depletion and amortization as may be appropriate, any unit retentions provided in Section 10 of this Article VII, amounts incurred for the promotion and encouragement of cooperative organization, and taxes other than federal income taxes. Such net income or net loss shall be subject to adjustment as provided in Sections 6 and 9(b) of this Article VII relating to losses.

          Section 5 — Allocation of Patronage Income Within Allocation Units. The net income of an allocation unit from patronage business for each fiscal year, less any amounts thereof that are otherwise allocated in dissolution pursuant to Article IX, shall be allocated among the patrons of such allocation unit in the ratio that the quantity or value of the business done with or for each such patron bears to the quantity or value of the business done with or for all patrons of such allocation unit. The Board of Directors shall reasonably and equitably determine whether allocations within any allocation unit shall be made on the basis of quantity or value.

          Section 6 — Treatment of Patronage Losses of an Allocation Unit.

          (a) Methods for Handling Patronage Losses. If an allocation unit incurs a net loss in any fiscal year from patronage business, this cooperative may take one or more of the following actions:

          (i) Offset all or part of such net loss against the net income of other allocation units for such fiscal year to the extent allowed by law; provided, however, that the net income or net loss of a Defined Business Unit shall not be offset by the net loss of nor netted against the net income of other allocation units;

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          (ii) Establish accounts payable by patrons of the allocation unit that incurs the net loss that may be satisfied out of any future amounts that may become payable by this cooperative to each such patron;

          (iii) Carry all or part of the loss forward to be charged against future net income of the allocation unit that incurs the loss;

          (iv) Offset all or part of such net loss against the Capital Reserve;

          (v) Cancel outstanding Patrons’ Equities; provided, however, that the net loss of a Defined Business Unit shall not be applied in cancellation of Patrons’ Equities of patrons of other allocation units and net losses of other allocation units may not be applied in cancellation of Patrons’ Equities of patrons of Defined Business Units;

          (b) Allocation of Net Loss Among Patrons of Loss Unit. Any cancellation of equities and/or establishment of accounts payable pursuant to this Section 6 shall be made among the patrons of an allocation unit in a manner consistent with the allocation of net income of such allocation unit.

          (c) Restoration of Net Loss out of Future Net Income. The future net income of an allocation unit that incurs a net loss may be reduced by part or all of such net loss that was offset against the Capital Reserve, Patrons’ Equities of patrons of another allocation unit or against the net income of another allocation unit and may be used to restore the Capital Reserve, restore such Patrons’ Equities or to increase the future net income of such other allocation unit; provided that reasonable notice of the intent to do so is given to the patrons of the loss unit.

          (d) Board Discretion. The provisions of this Section 6 shall be implemented by the Board of Directors, having due consideration for all of the circumstances which caused the net loss, in a manner that it determines is both equitable and in the overall best interest of this cooperative.

          (e) No Assessments against Members or Nonmember Patrons. There shall be no right of assessment against members or nonmember patrons for the purpose of restoring impairments to capital caused by net losses.

          Section 7 — Distribution of Net Income.

          (a) Patronage Refunds. The net income allocated to a patron pursuant to Sections 5 and 9 of this Article VII shall be distributed annually or more often to such patron as a patronage refund; provided, however, that no distribution need be made where the amount otherwise to be distributed to a patron is less than a de minimus amount that may be established from time to time by the Board of Directors.

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          (b) Form of Patronage Refunds. Patronage refunds shall be distributed in cash, allocated patronage equities, revolving fund certificates, securities of this cooperative, other securities, or any combination thereof designated by the Board of Directors (all such patronage refunds referred to collectively herein as “Patrons’ Equities), including, without limitation, the following instruments:

          (i) Capital Equity Certificates, in one or more than one class or series, in such designations or denominations, and with such relative rights, preferences, privileges and limitations as may be fixed by the Board of Directors, and bearing no interest, dividend or other annual payment.

          (ii) Certificates of Indebtedness in one or more than one class or series, in such designations or denominations, and with such relative rights, preferences, privileges and limitations as may be fixed by the Board of Directors, and bearing such maturity and rate of interest, if any, as may be fixed by the Board of Directors. Such certificates shall be callable for payment in cash or other assets at such times as may be determined by the Board of Directors.

          (iii) Non-Patronage Earnings Certificates, in one or more than one class or series, in such designations or denominations, and with such relative rights, preferences, privileges and limitations as may be fixed by the Board of Directors, with no maturity date, and bearing no interest, dividend or other annual payment. Non-Patronage Earnings Certificates may be distributed only to members and to nonmember patrons as part of the allocation and distribution of nonpatronage income. Such certificates shall be callable for payment in cash or other assets at such times as may be determined by the Board of Directors.

          (iv) Preferred Capital Certificates in one or more than one class or series, in such designations or denominations, and with such relative rights, preferences, privileges and limitations as may be fixed by the Board of Directors.

          (c) Written Notices of Allocation. The noncash portion of a patronage refund distribution that is attributable to patronage business shall constitute a written notice of allocation as defined in 26 U.S.C. Section 1388 which shall be designated by the Board of Directors as a qualified written notice of allocation, as a nonqualifed written notice of allocation or any combination thereof as provided in said section.

          (d) No Voting Rights. Patrons’ Equities shall not entitle the holders thereof to any voting or other rights to participate in the affairs of this cooperative (which rights are reserved solely for the members of this cooperative), provided that Patrons’ Equities held by members of this cooperative shall be a factor in determining the voting power of such members as more particularly provided in these Bylaws.

          (e) Transfer Restriction. Patrons’ Equities may only be transferred with the consent and approval of the Board of Directors, and by such instrument of transfer as may be required or approved by this cooperative.

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          (f) Board Authority to Allow Conversion. The Board of Directors of this cooperative also shall have the authority to allow conversion of Patrons’ Equities into Equity Participation Units, Preferred Equities or such other debt and/or equity instruments of this cooperative on such terms as shall be established by the Board of Directors.

          (g) Revolvement Discretionary. No person shall have any right whatsoever to require the retirement or redemption of any Patrons’ Equities except in accordance with their term, or of any allocated capital reserve. Such redemption or retirement is solely within the discretion and on such terms as determined from time to time by the Board of Directors of this cooperative.

          Section 8 — Capital Reserve. The Board of Directors shall cause to be created a Capital Reserve and, except as otherwise provided in Section 9 of this Article VII, shall annually add to the Capital Reserve the sum of the following amounts:

          (a) The annual net income of this cooperative attributable to nonpatronage business;

          (b) Annual net income from patrons who are unidentified or to whom the amount otherwise to be distributed is less than the de minimus amount provided in Section 7(a) of this Article VII; and

          (c) An amount not to exceed 10% of the distributable net income from patronage business. The discretion to credit patronage income to a Capital Reserve shall be reduced or eliminated with respect to the net income of any period following the adoption of a Board resolution that irrevocably provides for such reduction or elimination with respect to such period.

Federal income taxes shall be charged to the Capital Reserve.

          Section 9 — Allocation and Distribution of Nonpatronage Income and Loss.

          (a) Nonpatronage Income. The Board of Directors shall have the discretion to allocate to allocation units amounts that are otherwise to be added to the Capital Reserve pursuant to Section 8(a) of this Article VII. Such allocation may be made on the basis of any reasonable and equitable method. Amounts so allocated to allocation units shall be further allocated among the patrons thereof on a patronage basis using such method as the Board of Directors determines to be reasonable and equitable. Amounts so allocated shall be distributed to patrons thereof in the form of cash, property, Non-Patronage Earnings Certificates, or any combination thereof designated by the Board of Directors. The Board of Directors may determine whether and to what extent nonmember patrons may share in such distributions.

          (b) Nonpatronage Loss. If the cooperative incurs a net loss on its nonpatronage business or if a net loss is incurred with respect to the nonpatronage business of an allocation unit, such net loss generally shall be chargeable against Capital Reserve unless and to the extent the Board of Directors, having due consideration for the circumstances giving rise to such net loss, determines that it is reasonable and equitable to allocate all or part of such a net loss among allocation units generally or to a specific allocation unit or units. Any such loss allocated to an allocation unit shall reduce such unit’s net income from patronage business to the

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extent thereof and the excess, if any, shall be treated generally in accordance with Section 6(a)(ii), (iii) and (v) of this Article VII. Notwithstanding the foregoing, a net loss incurred by a Defined Business Unit with respect to nonpatronage business conducted by such unit shall be borne entirely by such unit and no other net loss incurred on nonpatronage business shall be allocated to a Defined Business Unit.

          Section 10 — Defined Business Unit Retentions. This cooperative may require from time to time, investment in its capital in addition to the investments from retained patronage and Equity Participation Units. These investments shall be direct capital investments from a retain on a per unit basis for the products received by the cooperative from its Defined Members, and the same may be determined on either a Qualified or a Nonqualified basis as defined in Subchapter T of the United States Internal Revenue Code. The per unit retention, if required, shall be made on products delivered, in the same amount per unit and shall not become a part of the net annual income available for patronage.

          Each member, by continuing to be such, agrees to invest in the capital of this cooperative. Such investment shall be accounted for separately in a unit retention account set up on the books of the cooperative. All such amounts, from the moment of receipt by this cooperative, are received and retained with the understanding that they are furnished by members as capital. This cooperative is obligated to account to each member in such manner that the amount of per unit retains furnished by each member is annually credited to an appropriate record to the per unit retains capital account of each member. Within a reasonable time after the close of its fiscal year, this cooperative shall notify each member of the amount of capital retains and credit it to the member’s account by reflection upon this cooperative’s books.

          When the Board of Directors determines in its sole discretion that this cooperative has sufficient working capital in the applicable Defined Business Unit, unit retains may be called for payment at the lesser of their stated or book value. Unit retains may be paid, redeemed, or revolved in whole or in part at a time and manner determined by the Board of Directors.

ARTICLE VIII.
Consent

          Section 1 — Consent. Each individual or entity that hereafter applies for and is accepted to membership in this cooperative and each member of this cooperative as of the effective date of this bylaw who continues as a member after such date shall, by such act alone, consent that the amount of any distributions with respect to its patronage which are made in written notices of allocation (as defined in 26 U.S.C. §1388), and which are received by the member from this cooperative, will be taken into account by the member at their stated dollar amounts in the manner provided in 26 U.S.C. §1385(a) in the taxable year in which such written notices of allocation are received by the member.

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          Section 2 — Consent Notification to Members and Prospective Members. Written notification of the adoption of this Bylaw, a statement of its significance and a copy of the provision shall be given separately to each member and prospective member before becoming a member of this cooperative.

          Section 3 — Consent of Nonmember Patrons. If this cooperative obligates itself to do business with a nonmember on a patronage basis, such nonmember must either: (a) agree in writing, prior to any transaction to be conducted on a patronage basis, that the amount of any distributions with respect to patronage which are made in written notices of allocation (as defined in 26 U.S.C. §1388), and which are received by the nonmember patron from this cooperative, will be taken into account by the nonmember patron at their stated dollar amounts in the manner provided in 26 U.S.C. §1385(a) in the taxable year in which such written notices of allocation are received by the nonmember patron and further, that any revocation of such agreement will terminate this cooperative’s obligation to distribute patronage with respect to transactions with such nonmember that occur after the close of this cooperative’s fiscal year in which the revocation is received; or (b) consent to take the stated dollar amount of any written notice of allocation into account in the manner provided in 26 U.S.C. §1385 by endorsing and cashing a qualified check as defined in and within the time provided in 26 U.S.C. §1388(c)(2)(C); provided that failure to so consent shall cause the written notice of allocation that accompanies said check to be canceled with no further action on the part of this cooperative.

ARTICLE IX.
Merger or Consolidation; Dissolution

          Section 1 — Merger or Consolidation. If the terms of a merger or consolidation of which this cooperative is a party do not provide the members and nonmember patrons of this cooperative with an economic interest in the surviving entity that is substantially similar to the economic interest possessed by such members and nonmember patrons in this cooperative immediately before such merger or consolidation, the value of the consideration received shall be divided among them in the same manner as a comparable amount of net liquidation proceeds would distributed pursuant to Section 2 of this Article IX. This shall not be construed to prevent issuance of differing forms of consideration to different groups of members and nonmember patrons to the extent allowed by law.

          Section 2 — Liquidation, Dissolution and Winding-Up. Subject to the Articles of Incorporation, in the event of any liquidation, dissolution or winding up of the affairs of this cooperative, whether voluntary or involuntary, equity capital shall be distributed to the holders thereof as follows: first to payment of the face amount (par value) of all Preferred Equities whose priority was so established upon the issuance of such Preferred Equities, second to payment of the face amount (par value) of all Equity Participation Units and all Preferred Capital Certificates, third to payment of the face amount (par value) of all Capital Equity Certificates and other outstanding equities (other than Non-Patronage Earnings Certificates), and fourth to payment of the face amount (par value) of Non-Patronage Earnings Certificates; provided, however, that assets held at such time by any Defined Business Unit shall first be used to redeem the Equity Participation Units and Preferred Capital Certificates of the Defined Business Unit on a pro rata basis. Any assets remaining after the foregoing payments have been made shall be

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allocated among the allocation units in such manner as the Board of Directors, having taken into consideration the origin of such amounts, shall determine to be reasonable and equitable. Amounts so allocated shall be paid to current and former patrons of each such allocation unit in proportion to their patronage of such unit over such period as may be determined to be equitable and practicable by the Board of Directors. Such obligation to distribute shall be construed as a preexisting duty to distribute any patronage sourced net gain realized in the winding up process to the maximum extent allowable by law.

ARTICLE X.
Seal

          The Board of Directors may, by resolution, adopt, alter or abandon the use of a corporate seal.

ARTICLE XI.
Amendments

          These Bylaws may be amended in accordance with the Minnesota Cooperative Law, Minnesota Statutes Chapter 308A; upon the approval of a majority of the votes cast in person or by mail vote at any annual or special meeting of the members called in accordance with Section 1 of Article II of these Bylaws; provided, however, in the event the Board of Directors of this cooperative declares, by resolution adopted by a majority of the Board of Directors present and voting, that the amendment involves or is related to a hostile take over, then the amendment may be adopted only upon the approval of eighty percent (80%) of the total voting power of the members of this cooperative, whether or not present and/or voting on the amendment; and provided further that notice of such amendment shall have been given in accordance with Section 2 of Article II of these Bylaws to the members in or with the notice of such meeting.

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EX-10.13A

EXHIBIT 10.13A

FIRST AMENDMENT
TO
2005 CREDIT AGREEMENT
(Revolving Loans)

     This First Amendment to2005 Credit Agreement (Revolving Loans) (“Amendment Agreement”) is made November 18, 2005, to be effective as of the Effective Date, by and among CHS Inc., a Minnesota cooperative corporation (“Borrower”), CoBank, ACB (“CoBank”) as the Administrative Agent for the benefit of the present and future Syndication Parties (in that capacity “Administrative Agent”), and the Syndication Parties signatory hereto, including CoBank in such capacity (each a "Syndication Party” and collectively, the “Syndication Parties”).

RECITALS

     A. Borrower, CoBank, and the Syndication Parties signatory thereto entered into that certain 2005 Amended and Restated Credit Agreement (Revolving Loans) dated as of May 19, 2005 (as it may be amended from time to time, the “Credit Agreement”).

     B. The parties hereto desire to amend the Credit Agreement as hereinafter set forth.

     NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, including the mutual promises and agreements contained herein, the parties hereto hereby agree as follows:

     1. Definitions. Capitalized terms used herein without definition shall have the definition given to them in the Credit Agreement if defined therein.

     2. Amendments to Credit Agreement. The parties hereto agree that the Credit Agreement shall be amended as follows as of the Effective Date:

     2.1 Clause (k) of Section 13.8 is hereby amended in its entirety to read as follows:

     (k) Investments, in addition to those permitted by clauses (a) through (j) above, in an aggregate amount not exceeding $175,000,000.00.

     2.2 Exhibit 13.8(f) is replaced by Exhibit 13.8(f) attached hereto.

     3. Borrower’s Representations. Borrower hereby represents and warrants that, after giving effect to this Amendment Agreement and the transactions contemplated hereby, no Potential Default or Event of Default has occurred and is continuing under the Credit Agreement or other Loan Documents.

     4. Effective Date. This Amendment Agreement shall become effective on the date (“Effective Date”), that the Administrative Agent receives (a) an original copy of this Amendment Agreement (or original counterparts thereof) duly executed by each party hereto; and (b) payment by wire transfer of each of the costs, expenses described in Section 5 hereof.

Upon the satisfaction of all conditions precedent hereto, the Administrative Agent will notify each party hereto in writing and will provide copies of all appropriate documentation in connection herewith.

     5. Costs; Expenses and Taxes. Borrower agrees to reimburse the Administrative Agent on demand for all out-of-pocket costs, expenses and charges (including, without limitation, all fees and charges of external legal counsel for the Administrative Agent) incurred by the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Amendment Agreement and any other instruments and documents to be delivered hereunder.

     6. General Provisions.

     6.1 The Credit Agreement, except as expressly modified herein, shall continue in full force and effect and be binding upon the parties thereto.

     6.2 Borrower agrees to execute such additional documents as the Administrative Agent may require to carry out or evidence the purposes of this Amendment Agreement.

     6.3 The execution, delivery and effectiveness of this Amendment Agreement shall not operate as a waiver of any right, power or remedy of the Administrative Agent or any Syndication Party under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents, and the Credit Agreement, as expressly modified hereby, and each other Loan Document are hereby ratified and confirmed and shall continue in full force and effect and be binding upon the parties thereto. Any direct or indirect reference in the Loan Documents to the “Credit Agreement” shall be deemed to be a reference to the Credit Agreement as amended by this Amendment Agreement.

     7. Governing Law. This Amendment Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

     8. Counterparts. This Amendment Agreement may be executed in any number of counterparts and by different parties to this Amendment Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Copies of documents or signature pages bearing original signatures, and executed documents or signature pages delivered by a party by telefax, facsimile, or e-mail transmission of an Adobe® file format document (also known as a PDF file) shall, in each such instance, be deemed to be, and shall constitute and be treated as, an original signed document or counterpart, as applicable. Any party delivering an executed counterpart of this Amendment Agreement by telefax, facsimile, or e-mail transmission of an Adobe® file format document also shall deliver an original executed counterpart of this Amendment Agreement, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment Agreement.

[EXECUTION PAGES BEGIN ON THE NEXT PAGE].

2

     IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Credit Agreement (Revolving Loans) to be executed by their duly authorized officers as of the Effective Date.

BORROWER: CHS INC., a cooperative corporation formed under the laws of the State of Minnesota
By:
	Name:	John Schmitz
	Title:	Executive Vice President and Chief Financial Officer

ADMINISTRATIVE AGENT: COBANK, ACB
By:
	Name:	Michael Tousignant
	Title:	Vice President

3

SYNDICATION PARTIES: CoBank, ACB
By:
	Name:	Michael Tousignant
	Title:	Vice President

The Bank of Tokyo-Mitsubishi, Ltd., Chicago Branch
By:
	Name:
	Title:

SunTrust Bank
By:
	Name:
	Title:

Bank of America, N.A.
By:
	Name:	Daniel Petrik
	Title:	Vice President

Wells Fargo Bank, National Association
By:
	Name:	Jacqueline Ryan
	Title:	Vice President/Sr. Banker

4

BNP Paribas
By:
	Name:	Marcie Weiss
	Title:	Managing Director

By:
	Name:	Chris Chapman
	Title:	Director

Harris Bank N.A. (f/k/a Harris Trust and Savings Bank)
By:
	Name:
	Title:

Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank International” New York Branch
By:
	Name:
	Title:

By:
	Name:
	Title:

Deere Credit, Inc.
By:
	Name:	Jack Harris
	Title:	Manager Credit Operations/Administration

5

U.S. Bank National Association
By:
	Name:	Kathi L. Selimshayev
	Title:	Assistant Vice President

Natexis Banques Populaires
By:
	Name:	Stephen Jendras
	Title:	Vice President

By:
	Name:	Guillaume de Parscau
	Title:

Fortis Capital Corp.
By:
	Name:	Edward Aldrich
	Title:	Director

The Bank of Nova Scotia
By:
	Name:
	Title:

Calyon New York Branch
By:
	Name:	Lee E. Greve
	Title:	Managing Director, Deputy Manager

By:
	Name:	Thomas P. Gillis
	Title:	Managing Director

6

National City Bank of Indiana
By:
	Name:	Christopher A. Susott
	Title:	Vice President

M&I MARSHALL & ILSLEY BANK
By:
	Name:
	Title:

By:
	Name:
	Title:

Farm Credit Services of America, PCA
By:
	Name:	Steven L. Moore
	Title:	Vice President

ING Capital LLC
By:
	Name:
	Title:

UFJ BANK LIMITED
By:
	Name:
	Title:

7

Comerica Bank
By:
	Name:	Timothy O'Rourke
	Title:	Vice President

AgStar Financial Services, PCA
By:
	Name:	Troy Mostaert
	Title:	Vice President

AgFirst Farm Credit Bank
By:
	Name:	Bruce B. Fortner
	Title:	Vice President

U.S. AgBank,FCB
By:
	Name:	Travis Ball
	Title:	Vice President

8

EX-10.14G

EXHIBIT 10.14G

SEVENTH AMENDMENT
TO

CREDIT AGREEMENT
(Term Loan)

     This Seventh amendment to Credit Agreement (Term Loan) (“Amendment Agreement”) is made May 19, 2005, to be effective as of the Effective Date, by and among CHS Inc. (formerly known as Cenex Harvest States Cooperatives), a Minnesota cooperative corporation (“Borrower”), CoBank, ACB (“CoBank”) as the Administrative Agent for the benefit of the present and future Syndication Parties (in that capacity “Administrative Agent”), and the Syndication Parties signatory hereto, including CoBank in such capacity (each a “Syndication Party” and collectively, the “Syndication Parties”).

RECITALS

     A. Borrower, CoBank, St. Paul Bank for Cooperatives (“St. Paul Bank”), and the Syndication Parties signatory thereto entered into a Credit Agreement (Term Loan) (as amended, the “Credit Agreement”) dated as of June 1, 1998.

     B. The Credit Agreement was amended by the First Amendment to Credit Agreement (Term Loan) effective as of May 31, 1999 (“First Amendment”), by the Second Amendment to Credit Agreement (Term Loan) effective as of May 23, 2000 (“Second Amendment”), by the Third Amendment to Credit Agreement (Term Loan) dated as of May 23, 2001 (“Third Amendment”), by the Fourth Amendment to Credit Agreement (Term Loan) dated as of May 22, 2002 (“Fourth Amendment”), by the Fifth Amendment to Credit Agreement (Term Loan) dated as of May 21, 2003 (“Fifth Amendment”) , and by the Sixth Amendment to Credit Agreement (Term Loan) dated as of May 20, 2004 (“Sixth Amendment”).

     C. CoBank is the successor by merger to the interests and obligations of St. Paul Bank under the Credit Agreement.

     D. The parties hereto desire to amend the Credit Agreement as hereinafter set forth.

     NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, including the mutual promises and agreements contained herein, the parties hereto hereby agree as follows:

1. Definitions. Capitalized terms used herein without definition shall have the definition given to them in the Credit Agreement if defined therein.

2. Amendments to Credit Agreement. The parties hereto agree that the Credit Agreement shall be amended as follows as of the Effective Date:

     2.1 The following Sections in Article 1 are amended in their entirety to read as follows:

     1.25 Consolidated Cash Flow: for any period, the sum of (a) earnings before income taxes of Borrower and its Consolidated Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; plus (b) amounts that have been deducted in the determination of such earnings before income taxes for such period for (i) Consolidated Interest Expense for such period, (ii) Depreciation for such period, (iii) Amortization for such period, and (iv) extraordinary and/or one-time non-cash losses for such period; minus (c) the amounts that have been included in the determination of such earnings before income taxes for such period for (i) extraordinary gains, (ii) extraordinary and/or one-time income, (iii) non-cash patronage income, and (iv) non-cash equity earnings in joint ventures.

     1.28 Consolidated Funded Debt: all indebtedness for borrowed money of Borrower and its Consolidated Subsidiaries, that is classified as long term debt in accordance with GAAP, and shall include Debt of such maturity created or assumed by Borrower or any Consolidated Subsidiary either directly or indirectly, including obligations of such maturity secured by liens upon property of Borrower or its Consolidated Subsidiaries and upon which such entity customarily pays the interest, and all rental payments under capitalized leases of such maturity.

     1.39 Environmental Laws: any federal, state, or local law, statute, ordinance, rule, regulation, administration order, or permit now in effect or hereinafter enacted, pertaining to the public health, safety, industrial hygiene, or the environmental conditions on, under or about any of the real property interests of a Person, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Clean Air Act, the Federal Water Pollution Control Act, the Superfund Amendments and Reauthorization Act of 1986, the Federal Toxic Substances Control Act and the Occupational Safety and Health Act, as any of the same may be amended, modified or supplemented from time to time.

     1.94 Revolving Loan Credit Agreement: means that certain 2005 Amended and Restated Credit Agreement (Revolving Loans) dated as of May 19, 2005 by and between Borrower , CoBank, as administrative agent for all syndication parties thereunder, and as a syndication party thereunder, and the other syndication parties set forth on the signature pages thereto, as it shall be amended from time to time.

     2.2 Subsection 9.15.1 is amended in its entirety to read as follows:

     9.15.1 Working Capital. Borrower shall have at all times Consolidated Current Assets minus Consolidated Current Liabilities of not less than $250,000,000.

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     2.3 Sections 10.5 and 10.6, clauses (f), (i), and (j) of Section 10.8 (but no other portion of Section 10.8), and Section 10.12 are amended in their entirety to read as follows:

     10.5 Liabilities of Others. Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) assume, guarantee, become liable as a surety, endorse, contingently agree to purchase, or otherwise be or become liable, directly or indirectly (including, but not limited to, by means of a maintenance agreement, an asset or stock purchase agreement, or any other agreement designed to ensure any creditor against loss), for or on account of the obligation of any Person, except (a) by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of the Borrower’s or any Restricted Subsidiary’s business, and (b) guarantees made from time to time, whether in existence on the Closing Date or made subsequent thereto, by Borrower and its Restricted Subsidiaries in the ordinary course of their respective businesses with respect to the liabilities and obligations of Persons including National Cooperative Refinery Association (“NCRA”); provided, however, that the aggregate amount of all indebtedness guaranteed under this clause (b) shall not exceed $150,000,000.00 in the aggregate.

     10.6 Loans. Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) lend or advance money, credit, or property to any Person, except for (a) loans to Restricted Subsidiaries; (b) trade credit extended in the ordinary course of business and advances against the purchase price for the purchase by Borrower of goods or services in the ordinary course of business; (c) the loan to NCRA advanced on February 28, 2005 and as evidenced by that certain loan agreement and that certain promissory note each dated October 1, 2004; (d) loans made by Borrower to its members on open account maintained by such members with Borrower or made by Borrower to its members pursuant to its Affiliate Financing CoBank Participation Program; (e) loans made by Fin-Ag, Inc. to agricultural producers; and (f) loans, in the amount of open account credit balances owing by Borrower to its customers for goods purchased from such customers by Borrower, made to Cofina Financial, LLC (a joint venture between Borrower and Cenex Finance Association); provided that at all times the aggregate outstanding principal amount of all such loans retained by Borrower and Fin-Ag, Inc. under clauses (d) and (e) of this Section shall not exceed $110,000,000.00.

     10.8 Investments. Except for the purchase of Bank Equity Interests, Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) own, purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, or otherwise make an Investment in, any Person, except that Borrower and the Restricted Subsidiaries may own, purchase or acquire:

     (f) Investments in Persons, which are not Restricted Subsidiaries, identified, including the book value of each such Investment, on Exhibit 10.8(f) hereto; provided that the amount of such Investment shall not increase above the amount shown in Exhibit 10.8(f),except for Investments made pursuant to clauses (h) through (k) of this Section subsequent to the Closing Date;

     (i) Investments in NCRA in addition to (1) non-cash patronage dividends, and (2) those Investments in NCRA by Borrower prior to the Closing Date, as shown, by amount and date, on Exhibit 10.8(i) hereto, provided that the maximum amount of Investments in NCRA subsequent to the Closing Date pursuant to this clause (i) shall not exceed $170,000,000.00;

3

     (j) Investments in Ventura Foods, LLC in addition to those Investments in Ventura Foods, LLC by Borrower prior to the Closing Date, as shown, by amount and date, on Exhibit 10.8(j) hereto, provided that the maximum amount of Investments in Ventura Foods, LLC subsequent to the Closing Date pursuant to this clause (j) shall not exceed $80,000,000.00; and

     10.12 ERISA. Borrower shall not: (a) engage in or permit any transaction which could result in a “prohibited transaction” (as such term is defined in Section 406 of ERISA) or in the imposition of an excise tax pursuant to Section 4975 of the Code with respect to any Borrower Benefit Plan; (b) engage in or permit any transaction or other event which could result in a “reportable event”( as such term is defined in Section 4043 of ERISA) for any Borrower Pension Plan; (c) fail to make full payment when due of all amounts which, under the provisions of any Borrower Benefit Plan, Borrower is required to pay as contributions thereto; (d) permit to exist any “accumulated funding deficiency” (as such term is defined in Section 302 of ERISA) as of the end of any Fiscal Year, in excess of five percent (5.0%) of net worth (determined in accordance with GAAP) of Borrower and its Consolidated Subsidiaries, whether or not waived, with respect to any Borrower Pension Plan; (e) fail to make any payments to any Multiemployer Plan that Borrower may be required to make under any agreement relating to such Multiemployer Plan or any law pertaining thereto; or (f) terminate any Borrower Pension Plan in a manner which could result in the imposition of a lien on any property of Borrower pursuant to Section 4068 of ERISA. Borrower shall not terminate any Borrower Pension Plan so as to result in any liability to the PBGC.

     2.4 The following Section in Article 13 is amended in its entirety to read as follows:

     13.26 Purchase for Own Account; Restrictions on Transfer; Participations. Each Syndication Party represents that it has acquired and is retaining its interest in the Loans for its own account in the ordinary course of its banking or financing business and not with a view toward the sale, distribution, further participation, or transfer thereof. Each Syndication Party other than CoBank agrees that it will not sell, assign, convey or otherwise dispose of (“Transfer”) to any Person, or create or permit to exist any lien or security interest on all or any part of its interest in the Loans, without the prior written consent of the Administrative Agent and Borrower (which consent will not be unreasonably withheld, provided that Borrower shall have no approval rights upon the occurrence and during the continuance of an Event of Default); provided that: (a) any such Transfer (except a Transfer to another Syndication Party or a Transfer by CoBank) must be in a minimum amount of $10,000,000.00, unless it Transfers its entire Syndication Interest; (b) each Syndication Party must maintain an Individual Commitment of no less than $5,000,000.00; (c) the transferee must execute an agreement substantially in the form of Exhibit 13.26 hereto (“Syndication Acquisition Agreement”) and assume all of the transferor’s obligations hereunder and execute such documents as the Administrative Agent may reasonably require; and (d) the Syndication Party making such Transfer must pay, or cause the transferee to pay, the Administrative Agent an assignment fee of $3,500.00. Any Syndication Party may participate any part of its interest in the Loans to any Person with the prior written consent of the Administrative Agent and Borrower (which consent will not be unreasonably withheld, provided that Borrower shall have no approval rights upon the occurrence and during the continuance of an Event of Default), provided that no such consent shall be required where the participant is a Person at least fifty percent (50%) the equity interest in which is owned by such Syndication Party or which owns at least fifty percent (50%) of the equity interest in such Syndication Party or at least fifty percent (50%) of the equity interest of which is owned by the same Person which owns at least fifty percent (50%) of the equity interest of

4

such Syndication Party, and each Syndication Party understands and agrees that in the event of any such participation: (x) its obligations hereunder will not change on account of such participation; (y) the participant will have no rights under this Credit Agreement, including, without limitation, voting rights (except as provided in Section 13.31 hereof with respect to Voting Participants) or the right to receive payments or distributions; and (z) the Administrative Agent shall continue to deal directly with the Syndication Party with respect to the Loans (including with respect to voting rights, except as provided in Section 13.31 hereof with respect to Voting Participants) as though no participation had been granted and will not be obligated to deal directly with any participant (except as provided in Section 13.31 hereof with respect to Voting Participants). Notwithstanding any provision contained herein to the contrary, any Syndication Party may at any time pledge or assign all or any portion of its interest in the Loans to any Federal Reserve Bank or the Federal Farm Credit Bank in accordance with applicable law. CoBank reserves the right to sell participations on a non-patronage basis.

     2.5 The following Subsection in Article 14 is amended in its entirety to read as follows:

      14.4.1 Borrower:
CHS Inc.
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
FAX: (651) 355-4554
Attention: Executive Vice President and Chief Financial Officer
e-mail address: john.schmitz@chsinc.com

with a copy to:

CHS Inc.
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
FAX: (651) 355-4554
Attention: Sr. Vice President and General Counsel
e-mail address: david.kastelic@chsinc.com

3. Borrower’s Representations. Borrower hereby represents and warrants that, after giving effect to this Amendment Agreement and the transactions contemplated hereby, no Potential Default or Event of Default has occurred and is continuing under the Credit Agreement or other Loan Documents.

4. Effective Date. This Amendment Agreement shall become effective on May 19, 2005 (“Effective Date”), so long as on or before that date the Administrative Agent receives (a) an original copy of this Amendment Agreement (or original counterparts thereof) duly executed by each party hereto; (b) proof of the execution of, and satisfaction of all conditions to the effectiveness of, the 2005 Amended and Restated Credit Agreement (Revolving Loans) between

5

the Administrative Agent (as Administrative Agent thereunder and as Bid Agent and as a Syndication Party), each other Syndication Party who is a named party thereto, and Borrower; and (c) payment by wire transfer of each of the costs, expenses described in Section 5 hereof. Upon the satisfaction of all conditions precedent hereto, the Administrative Agent will notify each party hereto in writing and will provide copies of all appropriate documentation in connection herewith.

5. Costs; Expenses and Taxes. Borrower agrees to reimburse the Administrative Agent on demand for all out-of-pocket costs, expenses and charges (including, without limitation, all fees and charges of external legal counsel for the Administrative Agent) incurred by the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Amendment Agreement and any other instruments and documents to be delivered hereunder.

6. General Provisions.

     6.1 The Credit Agreement, except as expressly modified herein, shall continue in full force and effect and be binding upon the parties thereto.

     6.2 Borrower agrees to execute such additional documents as the Administrative Agent may require to carry out or evidence the purposes of this Amendment Agreement.

     6.3 The execution, delivery and effectiveness of this Amendment Agreement shall not operate as a waiver of any right, power or remedy of the Administrative Agent or any Syndication Party under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents, and the Credit Agreement, as expressly modified hereby, and each other Loan Document are hereby ratified and confirmed and shall continue in full force and effect and be binding upon the parties thereto. Any direct or indirect reference in the Loan Documents to the “Credit Agreement” shall be deemed to be a reference to the Credit Agreement as amended by this Amendment Agreement.

7. Governing Law. This Amendment Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

8. Counterparts. This Amendment Agreement may be executed in any number of counterparts and by different parties to this Amendment Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Copies of documents or signature pages bearing original signatures, and executed documents or signature pages delivered by a party by telefax, facsimile, or e-mail transmission of an Adobe® file format document (also known as a PDF file) shall, in each such instance, be deemed to be, and shall constitute and be treated as, an original signed document or counterpart, as applicable. Any party delivering an executed counterpart of this Amendment Agreement by telefax, facsimile, or e-mail transmission of an Adobe® file format document also shall deliver an original executed counterpart of this Amendment Agreement, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment Agreement.

[EXECUTION PAGES BEGIN ON THE NEXT PAGE].

6

     IN WITNESS WHEREOF, the parties hereto have caused this Seventh amendment to Credit Agreement (Term Loan) to be executed by their duly authorized officers as of the Effective Date.

BORROWER: CHS INC., a cooperative corporation formed under the laws of the State of Minnesota
By:
	Name:	John Schmitz
	Title:	Executive Vice President and Chief Financial Officer

ADMINISTRATIVE AGENT: COBANK, ACB
By:
	Name:	Michael Tousignant
	Title:	Vice President

SYNDICATION PARTY: COBANK, ACB
By:
	Name:	Michael Tousignant
	Title:	Vice President

7

EX-10.14H

EXHIBIT 10.14H

EIGHTH AMENDMENT
TO

CREDIT AGREEMENT
(Term Loan)

     This Eighth Amendment to Credit Agreement (Term Loan) (“Amendment Agreement”) is made November 18, 2005, to be effective as of the Effective Date, by and among CHS Inc. (formerly known as Cenex Harvest States Cooperatives), a Minnesota cooperative corporation (“Borrower”), CoBank, ACB (“CoBank”) as the Administrative Agent for the benefit of the present and future Syndication Parties (in that capacity “Administrative Agent”), and the Syndication Parties signatory hereto, including CoBank in such capacity (each a “Syndication Party” and collectively, the “Syndication Parties”).

RECITALS

     A. Borrower, CoBank, St. Paul Bank for Cooperatives (“St. Paul Bank”), and the Syndication Parties signatory thereto entered into a Credit Agreement (Term Loan) (as amended, the “Credit Agreement”) dated as of June 1, 1998.

     B. The Credit Agreement was amended by the First Amendment to Credit Agreement (Term Loan) effective as of May 31, 1999 (“First Amendment”), by the Second Amendment to Credit Agreement (Term Loan) effective as of May 23, 2000 (“Second Amendment”), by the Third Amendment to Credit Agreement (Term Loan) dated as of May 23, 2001 (“Third Amendment”), by the Fourth Amendment to Credit Agreement (Term Loan) dated as of May 22, 2002 (“Fourth Amendment”), by the Fifth Amendment to Credit Agreement (Term Loan) dated as of May 21, 2003 (“Fifth Amendment”), by the Sixth Amendment to Credit Agreement (Term Loan) dated as of May 20, 2004 (“Sixth Amendment”), and by the Sixth Amendment to Credit Agreement (Term Loan) dated as of May 19, 2005 (“Seventh Amendment”).

     C. CoBank is the successor by merger to the interests and obligations of St. Paul Bank under the Credit Agreement.

     D. The parties hereto desire to amend the Credit Agreement as hereinafter set forth.

     NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, including the mutual promises and agreements contained herein, the parties hereto hereby agree as follows:

     1. Definitions. Capitalized terms used herein without definition shall have the definition given to them in the Credit Agreement if defined therein.

     2. Amendments to Credit Agreement. The parties hereto agree that the Credit Agreement shall be amended as follows as of the Effective Date:

   2.1 Clause (k) of Section 10.8 is hereby amended in its entirety to read as follows:

   (k) Investments, in addition to those permitted by clauses (a) through (j) above, in an aggregate amount not exceeding $175,000,000.00.

   2.2 Exhibit 10.8(f) is replaced by Exhibit 10.8(f) attached hereto.

     3. Borrower’s Representations. Borrower hereby represents and warrants that, after giving effect to this Amendment Agreement and the transactions contemplated hereby, no Potential Default or Event of Default has occurred and is continuing under the Credit Agreement or other Loan Documents.

     4. Effective Date. This Amendment Agreement shall become effective on the date (“Effective Date”), that the Administrative Agent receives (a) an original copy of this Amendment Agreement (or original counterparts thereof) duly executed by each party hereto; and (b) payment by wire transfer of each of the costs, expenses described in Section 5 hereof. Upon the satisfaction of all conditions precedent hereto, the Administrative Agent will notify each party hereto in writing and will provide copies of all appropriate documentation in connection herewith.

     5. Costs; Expenses and Taxes. Borrower agrees to reimburse the Administrative Agent on demand for all out-of-pocket costs, expenses and charges (including, without limitation, all fees and charges of external legal counsel for the Administrative Agent) incurred by the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Amendment Agreement and any other instruments and documents to be delivered hereunder.

     6. General Provisions.

   6.1 The Credit Agreement, except as expressly modified herein, shall continue in full force and effect and be binding upon the parties thereto.

   6.2 Borrower agrees to execute such additional documents as the Administrative Agent may require to carry out or evidence the purposes of this Amendment Agreement.

   6.3 The execution, delivery and effectiveness of this Amendment Agreement shall not operate as a waiver of any right, power or remedy of the Administrative Agent or any Syndication Party under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents, and the Credit Agreement, as expressly modified hereby, and each other Loan Document are hereby ratified and confirmed and shall continue in full force and effect and be binding upon the parties thereto. Any direct or indirect reference in the Loan Documents to the “Credit Agreement” shall be deemed to be a reference to the Credit Agreement as amended by this Amendment Agreement.

2

     7. Governing Law. This Amendment Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

     8. Counterparts. This Amendment Agreement may be executed in any number of counterparts and by different parties to this Amendment Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Copies of documents or signature pages bearing original signatures, and executed documents or signature pages delivered by a party by telefax, facsimile, or e-mail transmission of an Adobe® file format document (also known as a PDF file) shall, in each such instance, be deemed to be, and shall constitute and be treated as, an original signed document or counterpart, as applicable. Any party delivering an executed counterpart of this Amendment Agreement by telefax, facsimile, or e-mail transmission of an Adobe® file format document also shall deliver an original executed counterpart of this Amendment Agreement, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment Agreement.

[EXECUTION PAGES BEGIN ON THE NEXT PAGE].

3

     IN WITNESS WHEREOF, the parties hereto have caused this Eighth Amendment to Credit Agreement (Term Loan) to be executed by their duly authorized officers as of the Effective Date.

BORROWER: CHS INC., a cooperative corporation formed under the laws of the State of Minnesota
By:
	Name:	John Schmitz
	Title:	Executive Vice President and Chief Financial Officer

ADMINISTRATIVE AGENT: COBANK, ACB
By:
	Name:	Michael Tousignant
	Title:	Vice President

SYNDICATION PARTY: COBANK, ACB
By:
	Name:	Michael Tousignant
	Title:	Vice President

4

EX-21.1

EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT

	STATE OF
	INCORPORATION/
SUBSIDIARY	ORGANIZATION
ADM/CHS, LLC	Delaware
Ag States Agency, LLC	Minnesota
Ag States Agency of Montana Inc, a subsidiary of Ag States Agency LLC	Montana
Agronomy Company of Canada, Ltd.	Nova Scotia
Allied Agronomy, LLC	North Dakota
Battle Creek/CHS, LLC	Delaware
Cenex Ag, Inc.	Delaware
CHS Energy Canada, Inc.	Alberta
Cenex Petroleum, Inc.	Minnesota
Cenex Pipeline, LLC	Minnesota
Central Montana Propane, LLC	Montana
CHS do Brasil Ltda.	Brazil
CHS-Browns Valley	Minnesota
CHS-Chinook	Montana
CHS-Clinton/Wilmot	Minnesota
CHS-Connell, Inc.	Washington
CHS-Dickinson	North Dakota
CHS-Drayton	North Dakota
CHS-Garrison	North Dakota
CHS-Grangeville, Inc.	Idaho
CHS-Hoffman	Minnesota
CHS-Kindred	North Dakota
CHS-Lewistown	Montana
CHS-Mitchell	South Dakota
CHS-Moscow	Idaho
CHS-Starbuck	Minnesota
CHS-Wallace	Kansas
Circle Land Management, Inc.	Minnesota
Classic Farms, LLC	South Dakota
Cofina Financial, LLC	Minnesota
Country Hedging, Inc.	Delaware
Dakota Agronomy Partners, LLC	North Dakota
Energy Partners, LLC	Montana
Fin-Ag, Inc.	South Dakota
Front Range Pipeline, LLC	Minnesota
Full Circle, LTD	Minnesota
Genetic Marketing Group, LLC	Washington
Green Bay Terminal Corporation	Wisconsin
Harvest States Cooperatives Europe B.V.	Netherlands
Horizon Milling, LLC	Delaware
Kropf/CHS, LLC	Oregon
Montevideo Grain, LLC	Delaware
Mountain View of Montana, LLC	Delaware
National Cooperative Refinery Association (NCRA)	Kansas
Clear Creek Transportation, LLC, a subsidiary of NCRA	Kansas
Jayhawk Pipeline, LLC, a subsidiary of NCRA	Kansas
Kaw Pipeline, a subsidiary of NCRA	Delaware
McPherson Agricultural Products, LLC, a subsidiary of NCRA	Kansas
Osage Pipeline Co, a subsidiary of NCRA	Delaware
Norick Risk Funding Concepts, LLC	Minnesota
PGG/HSC Feed Company, LLC	Oregon
Prairie Lakes Grain Storage	Minnesota
Red Rock Cooperative Association	South Dakota
Safety Resource Alliance, LLC	Kansas
Sparta Foods, Inc.	Minnesota
St. Paul Maritime Corporation	Minnesota
TEMCO, LLC	Delaware
Tillamook/GTA Feeds, LLC	Oregon
United Country Brands, LLC	Delaware
Agriliance, LLC, a subsidiary of United Country Brands, LLC	Delaware
United Energy, LLC	Delaware
United Harvest, LLC	Delaware
United Processors, LLC	Delaware
Rocky Mountain Milling, LLC, a subsidiary of United Processors, LLC	Delaware
Ventura Foods, LLC	Delaware
Western Prairie Nutrition, LLC	Minnesota
Whitman Terminal Association, LLC	Delaware

EX-23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-129464) of CHS Inc. and subsidiaries of our reports dated November 3, 2005 relating to the financial statements and financial statement schedule, which appear in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
November 18, 2005

EX-24.1

POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints John D. Johnson and John Schmitz, and each of them, his or her true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities to sign a Form 10-K under the Securities Act of 1933, as amended, of CHS Inc. and any and all amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or the substitutes for such attorneys-in-fact and agents, may lawfully do or cause to be done by virtue hereof.

Name	Title	Date
/s/ John D. Johnson John D. Johnson	Chief Executive Officer (principal executive officer)	October 5, 2005
/s/ John Schmitz John Schmitz	Executive Vice President & Chief Financial Officer (principal financial officer)	October 5, 2005
/s/ Michael Toelle Michael Toelle	Chairman of the Board	October 5, 2005
/s/ Bruce Anderson Bruce Anderson	Director	October 5, 2005
/s/ Robert Bass Robert Bass	Director	October 5, 2005
/s/ David Bielenberg David Bielenberg	Director	October 5, 2005
/s/ Dennis Carlson Dennis Carlson	Director	October 5, 2005
/s/ Curt Eischens Curt Eischens	Director	October 5, 2005
/s/ Robert Elliott Robert Elliott	Director	October 5, 2005
/s/ Steve Fritel Steve Fritel	Director	October 5, 2005

Name	Title	Date
/s/ Robert Grabarski Robert Grabarski	Director	October 5, 2005
/s/ Jerry Hasnedl Jerry Hasnedl	Director	October 5, 2005
/s/ Glen Keppy Glen Keppy	Director	October 5, 2005
/s/ James Kile James Kile	Director	October 5, 2005
/s/ Randy Knecht Randy Knecht	Director	October 5, 2005
/s/ Michael Mulcahey Michael Mulcahey	Director	October 5, 2005
/s/ Richard Owen Richard Owen	Director	October 5, 2005
/s/ Duane Stenzel Duane Stenzel	Director	October 5, 2005
/s/ Merlin Van Walleghen Merlin Van Walleghen	Director	October 5, 2005

2

EX-31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, John D. Johnson, certify that:

1.	I have reviewed this annual report on Form 10-K of CHS Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

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

c.  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

/s/ John D. Johnson

John D. Johnson

President and Chief Executive Officer

Date: November 18, 2005

EX-31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, John Schmitz, certify that:

1.	I have reviewed this annual report on Form 10-K of CHS Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

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

c.  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

/s/ John Schmitz

John Schmitz

Executive Vice President and

Chief Financial Officer

Date: November 18, 2005

EX-32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

      In connection with the Annual Report of CHS Inc. (the “Company”) on Form 10-K for the fiscal year ended August 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John D. Johnson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John D. Johnson

John D. Johnson

President and Chief Executive Officer

November 18, 2005

EX-32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

      In connection with the Annual Report of CHS Inc. (the “Company”) on Form 10-K for the fiscal year ended August 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Schmitz, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John Schmitz

John Schmitz

Executive Vice President and Chief Financial Officer

November 18, 2005