PROSPECTUS SUPPLEMENT DATED JULY 15, 1997 TO

PROSPECTUS DATED DECEMBER 31, 1996

FARMLAND INDUSTRIES, INC.

Demand Loan Certificates

Subordinated Capital Investment Certificates

Ten Year

Five Year

Subordinated Monthly Income Capital Investment Certificates

Ten Year

Five Year

This Prospectus Supplement to the Prospectus dated December 31, 1996 (the
"Prospectus") supplements certain information contained in, and describes
certain modifications to, the Prospectus. The Prospectus is hereby amended by
the terms of this Prospectus Supplement and the matters addressed herein
supersede any contrary statements that may be contained in the Prospectus.
Defined terms used herein and not otherwise defined shall have the meanings
assigned to them in the Prospectus.

This Prospectus Supplement contains the Condensed Consolidated Financial
Statements of Farmland Industries, Inc. for the three and nine months ended May
31, 1997. The information included in these Condensed Consolidated Financial
Statements reflects all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
statement of the results for the interim period presented. This Prospectus
Supplement also contains Management's Discussion and Analysis of Financial
Condition and Results of Operations relating to the three and nine months ended
May 31, 1997.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

August 31 May 31
1996 1997

(Amounts in Thousands)

Current Assets:
Accounts receivable - trade................................ $ 624,002 $ 621,254
Inventories (Note 2)....................................... 736,620 634,906
Other current assets....................................... 101,748 77,293

Total Current Assets.................................. $ 1,462,370 $ 1,333,453

Investments and Long-Term Receivables (Note 4)............... $ 241,124 $ 269,895

Property, Plant and Equipment:
Property, plant and equipment, at cost..................... $ 1,506,460 $ 1,583,024
Less accumulated depreciation and
amortization............................................ 789,236 818,856

Net Property, Plant and Equipment.......................... $ 717,224 $ 764,168

Other Assets................................................. $ 147,728 $ 156,338

Total Assets................................................. $ 2,568,446 $ 2,523,854

FN>
See accompanying Notes to Consolidated Financial Statements.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND EQUITIES

August 31 May 31
1996 1997

(Amounts in Thousands)

Current Liabilities:
Checks and drafts outstanding................................... $ 30,944 $ 40,697
Demand loan certificates........................................ 40,099 29,296
Short-term notes payable ....................................... 315,428 326,303
Current maturities of long-term debt ........................... 41,080 77,319
Accounts payable - trade........................................ 392,436 342,035
Accrued payroll................................................. 48,893 58,377
Other current liabilities....................................... 271,440 198,436

Total Current Liabilities................................... $ 1,140,320 $ 1,072,463

Long-Term Liabilities:
Long-term borrowings (excluding current maturities)............. $ 616,258 $ 533,822
Other long-term liabilities..................................... 35,983 35,453

Total Long-Term Liabilities................................. $ 652,241 $ 569,275

Deferred Income Taxes............................................... $ 6,709 $ 20,193

Minority Owners' Equity in Subsidiaries............................. $ 13,845 $ 16,604

Net Income (Note 1)................................................. $ 0 $ 90,026
Capital Shares and Equities:
Common shares, $25 par value--Authorized
50,000,000 shares.............................................. $ 414,503 $ 468,323
Earned surplus and other equities............................... 340,828 286,970

Total Capital Shares and Equities........................... $ 755,331 $ 755,293

Contingent Liabilities and Commitments (Note 3)

Total Liabilities and Equities...................................... $ 2,568,446 $ 2,523,854

<FN>
See accompanying Notes to Consolidated Financial Statements.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Nine Months Ended

May 31 May 31
1996 1997

(Amounts in Thousands)

Sales.......................................................... $ 7,025,162 $ 6,942,766
Cost of sales.................................................. 6,613,048 6,558,793

Gross income................................................... $ 412,114 $ 383,973

Selling, general and administrative expenses................... $ 273,987 $ 285,810

Other income (deductions):
Interest expense............................................ $ (44,731) $ (46,686)
Other, net.................................................. 13,993 19,384

Total other income (deductions)................................ $ (30,738) $ (27,302)

Income before income taxes, equity in net income of investees
and minority owners' interest in
net income of subsidiaries................................. $ 107,389 $ 70,861

Income tax expense............................................ (23,637) (9,252)

Income before equity in net income of investees and minority
owners' interest in net income
of subsidiaries............................................ $ 83,752 $ 61,609
Equity in net income of investees (Note 4)..................... 34,159 31,044

Minority owners' interest in net income
of subsidiaries............................................. (3,959) (2,627)

Net income .................................................... $ 113,952 $ 90,026

<FN>
See accompanying Notes to Consolidated Financial Statements.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

May 31 May 31
1996 1997

(Amounts in Thousands)

Sales.......................................................... $ 2,669,084 $ 2,419,764
Cost of sales.................................................. 2,510,081 2,249,348

Gross income................................................... $ 159,003 $ 170,416

Selling, general and administrative expenses................... $ 101,527 $ 102,614

Other income (deductions):
Interest expense............................................ $ (15,137) $ (16,280)
Other, net.................................................. 6,269 3,724

Total other income (deductions)................................ $ (8,868) $ (12,556)

Income before income taxes, equity in net income of investees
and minority owners' interest in
net (income) loss of subsidiaries.......................... $ 48,608 $ 55,246

Income tax (expense).......................................... (10,870) (7,340)

Income before equity in net income of investees and minority
owners' interest in net (income) loss
of subsidiaries............................................ $ 37,738 $ 47,906
Equity in net income of investees
(Note 4).................................................... 13,890 13,938

Minority owners' interest in net (income) loss
of subsidiaries............................................. (2,813) (2,252)

Net income .................................................... $ 48,815 $ 59,592

<FN>
See accompanying Notes to Consolidated Financial Statements.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

May 31 May 31
1996 1997

(Amounts in Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 113,952 $ 90,026
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................................... 55,868 67,952
Equity in net income of investees...................................... (34,159) (31,044)
Other.................................................................. 14,329 18,091
Changes in operating assets and operating liabilities,
net of acquisition of businesses
Accounts receivable.................................................. (156,578) (1,434)
Inventories.......................................................... (38,785) 101,052
Other assets......................................................... (25,746) 21,644
Accounts payable..................................................... 101,897 (50,401)
Accrued payroll...................................................... 4,022 9,484
Other liabilities.................................................... 66,151 23,957

Net cash provided by operating activities................................... $ 100,951 $ 249,327

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments and collection of
notes receivable.......................................................... $ 22,806 $ 23,745
Acquisition of investments and notes receivable............................. (14,347) (45,961)
Capital expenditures........................................................ (143,738) (131,609)
Acquisition of businesses................................................... (32,438) -0-
Distributions from joint ventures........................................... 14,644 40,972
Other....................................................................... (3,934) 2,562

Net cash used in investing activities....................................... $ (157,007) $ (110,291)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand loan certificates......................... $ 12,940 $ (10,802)
Proceeds from bank loans and notes payable.................................. 459,201 229,443
Payments of bank loans and notes payable.................................... (343,529) (346,386)
Proceeds from issuance of subordinated debt certificates.................... 43,421 68,800
Payments for redemption of subordinated debt certificates................... (30,744) (32,651)
Net increase (decrease) in checks and drafts outstanding.................... (19,168) 9,753
Payments for redemption of equities......................................... (27,436) (25,320)
Payments of patronage refunds and dividends................................. (32,745) (32,515)
Other financing sources which provided (used) cash.......................... (5,884) 642

Net cash provided by (used in) financing activities......................... $ 56,056 $ (139,036)

Net increase in cash and cash equivalents................................... $ -0- $ -0-
Cash and cash equivalents at beginning of period............................ -0- -0-

Cash and cash equivalents at end of period.................................. $ -0- $ -0-

<FN>
See accompanying Notes to Consolidated Financial Statements.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) INTERIM FINANCIAL STATEMENTS

Unless the context requires otherwise, (i) "Farmland" or the "Company"
herein refers to Farmland Industries, Inc. and its consolidated subsidiaries,
(ii) all references herein to "year" or "years" are to fiscal years ended August
31 and (iii) all references herein to "members" are to persons eligible to
receive patronage refunds from Farmland including voting members, associate
members and other patrons with which Farmland has a currently effective
patronage refund agreement.

The information included in these Condensed Consolidated Financial
Statements of Farmland reflects all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are necessary for a
fair statement of the results for the interim periods presented.

The Company's revenues, margins and net income depend, to a large extent,
on conditions in agriculture and may be volatile due to factors beyond the
Company's control, such as weather, crop failures, federal agricultural
programs, production efficiencies and U.S. imports and exports. In addition,
various federal and state regulations to protect the environment encourage
farmers to reduce the use of fertilizers and other chemicals. Global variables
which affect supply, demand and price of crude oil, refined fuels, natural gas,
livestock, grain and other commodities may impact the Company's operations.
Historically, changes in the costs of raw materials used in the manufacture of
the Company's finished products have not necessarily resulted in corresponding
changes in the prices at which such products have been sold by the Company.
Management cannot determine the extent to which these factors may impact future
operations of the Company. The Company's cash flow and net income may continue
to be volatile as conditions affecting agriculture and markets for the Company's
products change.

In accordance with the bylaws of Farmland and its cooperative
subsidiaries, the member-sourced portion of income before income taxes is
determined annually and distributed as patronage refunds to members of Farmland.
The member-sourced portion of such income is determined on the basis of the
quantity or value of business done by Farmland with or for members during the
year. As this determination is made only after the end of the fiscal year, and
since the appropriation of earned surplus is dependent on the determination of
the amount of patronage refunds, and in view of the fact that the portion of the
annual patronage refund to be paid in cash and in Farmland equity (common stock,
associate member common stock or capital credits) is determined (by the Farmland
Board of Directors at its discretion) after the amount of the annual patronage
refund has been determined, Farmland makes no provision for patronage refunds in
its interim financial statements. Therefore, the amount of net income has been
reflected as a separate item in the accompanying May 31, 1997 Condensed
Consolidated Balance Sheet.

(2) INVENTORIES

Major components of inventories at August 31, 1996 and May 31, 1997 are as
follows:

August 31 May 31
1996 1997

(Amounts in Thousands)

Finished and in-process products.............. $ 620,794 $ 502,265
Materials..................................... 58,526 73,529
Supplies...................................... 57,300 59,112

$ 736,620 $ 634,906

(3) CONTINGENCIES

(A) TAX LITIGATION

In July 1983, Farmland sold the stock of Terra Resources, Inc. ("Terra"),
a wholly owned subsidiary engaged in oil and gas exploration and production
operations, and exited its oil and gas exploration and production activities.
The gain from the sale of Terra amounted to $237.2 million for tax reporting
purposes.

On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory
notice to Farmland asserting deficiencies in federal income taxes (exclusive of
statutory interest thereon) in the aggregate amount of $70.8 million. The
asserted deficiencies relate primarily to the Company's tax treatment of the
$237.2 million gain resulting from its sale of the stock of Terra and the IRS's
contention that Farmland incorrectly treated the Terra sale gain as patronage-
sourced income against which certain patronage-sourced operating losses could be
offset. The statutory notice further asserts that, among other things, Farmland
incorrectly characterized for tax purposes gains aggregating approximately $14.6
million, and a loss of approximately $2.3 million from dispositions of certain
other assets.

On June 11, 1993, Farmland filed a petition in the United States Tax Court
contesting the asserted deficiencies in their entirety. The case was tried on
June 13-15, 1995. The parties submitted post-trial briefs to the court in
September 1995 and reply briefs were submitted to the court in November 1995.

If the United States Tax Court decides in favor of the IRS on all
unresolved issues raised in the statutory notice, Farmland would have additional
federal and state income tax liabilities aggregating approximately $85.8 million
plus accumulating statutory interest thereon (approximately $234.2 million,
before tax benefits of the interest deduction, through May 31, 1997), or
$320.0 million in the aggregate at May 31, 1997. In addition, such a decision
would affect the computation of Farmland's taxable income for its 1989 tax year
and, as a result, could increase Farmland's federal and state income taxes for
that year by approximately $5.0 million plus accumulating statutory interest
thereon (approximately $7.8 million), or $12.8 million in the aggregate at May
31, 1997. The asserted federal and state income tax liabilities and accumulated
interest thereon would become immediately due and payable unless the Company
appealed the decision and posted the requisite bond to stay assessment and
collection. The liability resulting from an adverse decision by the United
States Tax Court would be charged to current earnings and would have a material
adverse effect on the Company.

In the event of such an adverse determination of the Terra tax issue,
certain financial covenants of the Company's Credit Agreement (the "Agreement"),
dated May 15, 1996, become less restrictive. Had the United States Tax Court
decided in favor of the IRS on all unresolved issues, and had the obligation
related to such unresolved issues been due and payable on May 31, 1997,
Farmland's borrowing capacity under the Agreement would have been adequate to
finance the liability. However, Farmland's capacity to finance such an adverse
decision with borrowings under the Agreement will depend substantially on the
financial effects of future events and on the Company's continued ability to
satisfy the financial covenants in the Agreement.

No provision has been made in the consolidated financial statements for
federal or state income taxes (or interest thereon) in respect of the IRS claims
described above. Farmland believes that it has meritorious positions with
respect to all of these claims.

In the opinion of Bryan Cave LLP, Farmland's special tax counsel, it is
more likely than not that the courts will ultimately conclude that Farmland's
treatment of the Terra sale gain was substantially, if not entirely, correct.
Such counsel has further advised, however, that none of the issues involved in
this dispute is free from doubt, and there can be no assurance that the courts
will ultimately rule in favor of Farmland on any of these issues.

(B) ENVIRONMENTAL MATTERS

The Company currently is aware of probable obligations under state and
federal environmental laws at 38 properties. At May 31, 1997, the Company has
an environmental accrual in its Condensed Consolidated Balance Sheet for
probable and reasonably estimated costs for remediation of contaminated property
of $17.4 million. The Company periodically reviews and, as appropriate, revises
its environmental accruals. Based on current information and regulatory
requirements, the Company believes that the accruals established for
environmental expenditures are adequate.

The Company's actual final costs of addressing certain environmental
matters are not quantifiable, and therefore have not been accrued, because such
matters are in preliminary stages and the timing, extent and costs of various
actions which governmental authorities may require are currently unknown.
Management is aware of other environmental matters for which there is a
reasonable possibility that the Company will incur costs to resolve. It is
possible that the costs of resolution of the matters described in this paragraph
may exceed the liabilities which, in the opinion of management, are probable and
which costs are reasonably estimable at May 31, 1997. In the opinion of
management, it is reasonably possible for such costs to be approximately an
additional $19.8 million.

The environmental accrual discussed above covers certain matters in
connection with which the Environmental Protection Agency has designated the
Company as a potentially responsible party ("PRP") or a responsible party ("RP")
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), at various National Priority List ("NPL") sites.

Under the Resource Conservation Recovery Act of 1976 (''RCRA''), the
Company has four closure and four post-closure plans in place for six locations.
Closure and post-closure plans also are in place for three landfills and two
injection wells as required by state regulations. Such closure and post-closure
costs are estimated to be $5.2 million at May 31, 1997 (and is in addition to
the $17.4 million accrual and the $19.8 million discussed in the prior
paragraphs). Operations are being conducted at these locations and the Company
does not plan to terminate such operations in the foreseeable future. Therefore,
the Company has not accrued these environmental exit costs. The Company accrues
these liabilities when plans for termination of plant operations have been made.

(4) SUMMARIZED FINANCIAL INFORMATION OF INVESTEES ACCOUNTED FOR BY THE EQUITY
METHOD

Summarized financial information of investees accounted for by the equity
method for the nine months ended May 31, 1996 and May 31, 1997 is as follows:

May 31 May 31
1996 1997
(Amounts in Thousands)

Net sales..................................... $ 866,169 $1,013,802

Net income.................................... $ 68,440 $ 61,310

Farmland's equity in net income............... $ 34,159 $ 31,044

The Company's investments accounted for by the equity method consist
principally of 50% equity interests in three manufacturers of crop production
products, Farmland Hydro, L.P., SF Phosphates Limited Company and Farmland
MissChem, Limited (expected to commence production in 1998) and a 50% equity
interest in a distributor of crop protection products, WILFARM, LLC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The information contained herein and the Condensed Consolidated Financial
Statements and Accompanying Notes presented in this Form 10-Q should be read in
conjunction with information set forth in Part II, Items 7 and 8, in the
Company's Annual Report on Form 10-K for the year ended August 31, 1996.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company has historically maintained two primary sources for debt
capital: a substantially continuous public offering of its debt securities (the
''continuous debt program'') and bank lines of credit.

The Company's debt securities issued under the continuous debt program
generally are offered on a best-efforts basis through the Company's wholly owned
broker-dealer subsidiary, Farmland Securities Company, and through American
Heartland Investments, Inc. (which is not affiliated with Farmland), and also
may be offered by selected unaffiliated broker-dealers. The types of securities
offered in the continuous debt program include certificates payable on demand
and five- and ten-year subordinated debt certificates. The total amount of such
debt outstanding and the flow of funds to, or from, the Company as a result of
the continuous debt program are influenced by the rate of interest which
Farmland establishes for each type of debt certificate offered and by options of
Farmland to call for redemption certain of its outstanding subordinated debt
certificates. During the nine months ended May 31, 1997, the outstanding
balance of demand loan and subordinated debt certificates increased
$25.3 million.

In May 1996, Farmland entered into a five year Credit Agreement (the
"Agreement") with various participating banks. The Agreement provides a $1.1
billion facility, subject to compliance with financial covenants as set forth in
the Agreement, consisting of an annually renewable short-term credit of up to
$650.0 million and a long-term credit of up to $450.0 million. During May 1997,
the short-term commitment was renewed. The Agreement matures in May 2001.

Farmland pays commitment fees under the Agreement equal to 1/10 of 1%
annually on the unused portion of the short-term credit and 1/4 of 1% annually
on the unused portion of the long-term credit. In addition, Farmland must comply
with the Agreement's financial covenants regarding working capital, the ratio of
certain debts to average cash flow, and the ratio of equity to total
capitalization, all as defined therein.

At May 31, 1997, under the Agreement the Company had short-term borrowings
of $206.6 million and long-term borrowings of $100.0 million. In addition,
$55.0 million was being utilized to support letters of credit issued on behalf
of Farmland by participating banks. As of May 31, 1997, under the short-term
credit the Company had capacity to finance additional working capital of
$413.9 million and under the long-term credit provisions the Company had
capacity to borrow up to an additional $324.5 million.

The Company maintains other borrowing arrangements with banks and financial
institutions. Under such agreements at May 31, 1997, $13.7 million was borrowed.

National Beef Packing Company, L.P. ("NBPC") maintains borrowing agreements
with a group of banks which provide financing support for its beef packing
operations. Such borrowings are nonrecourse to Farmland or Farmland's other
affiliates (except to the extent of $10.0 million). At May 31, 1997, $105.0
million was available under this facility of which $37.0 million was borrowed
and $0.6 million was utilized to support letters of credit. In addition, NBPC
has incurred certain long-term borrowings from Farmland. NBPC has pledged
certain assets to Farmland and to such group of banks to support its borrowings.

Tradigrain, which conducts international grain trading operations, has
borrowing agreements with various international banks which provide financing
and letters of credit to support current international grain trading
transactions. Obligations of Tradigrain under these loan agreements are
nonrecourse to Farmland or Farmland's other affiliates. At May 31, 1997, such
borrowings totaled $119.6 million.

Leveraged leasing is used to finance railcars, barges and a substantial
portion of the Company's fertilizer production equipment.

In the opinion of management, these arrangements for debt capital are
adequate for the Company's present operating and capital plans. However,
alternative financing arrangements are continuously evaluated.

Major uses of cash during the nine months ended May 31, 1997 include:
$131.6 million for capital expenditures; $116.9 million to reduce outstanding
bank loans and other notes payable; $46.0 million for acquisition of investments
and notes receivable; $32.5 million for patronage refunds and dividends
distributed from income of the 1996 fiscal year; $25.3 million for the
redemption of equities under the Farmland base capital and other equity
redemption plans and $10.8 million for redemption of demand loan certificates.
Major sources of cash include: $249.3 million from operations (including a
$101.1 million reduction in inventories, primarily grain); $41.0 million from
cash distributions of joint ventures; $36.1 million of net proceeds from
issuance of subordinated debt certificates; $23.7 million from the sale of
investments and collections on notes and $9.8 million from an increase in the
balance of checks and drafts outstanding.

In 1993, the IRS issued a statutory notice to Farmland asserting
significant deficiencies in federal income taxes and statutory interest thereon.
Farmland filed a petition in the United States Tax Court contesting the asserted
deficiencies in their entirety. See Note 3 of the Notes to the Condensed
Consolidated Financial Statements (which is incorporated herein by reference).

RESULTS OF OPERATIONS

GENERAL

In view of the seasonality of the Company's businesses, it must be
emphasized that the results of operations for the periods presented are not
necessarily indicative of the results for a full fiscal year. Historically, the
majority of farm supply products are sold in the spring. Sales in the beef
business and in grain marketing historically have been concentrated in the
summer. Summer is the lowest sales period for pork products.

RESULTS OF OPERATIONS FOR NINE MONTHS ENDED MAY 31, 1997 COMPARED TO NINE MONTHS
ENDED MAY 31, 1996

For the nine months ended May 31, 1997, the Company had sales of
$6.9 billion compared with sales of $7.0 billion for the same period last year.
Net income for the nine months ended May 31, 1997 decreased $23.9 million from
the prior year period.

SALES

Sales for the nine months ended May 31, 1997 decreased $82.4 million, or
1.2%, compared with the same period last year. This decrease primarily
reflects a $679.7 million decrease in grain sales as a result of both lower
volume and lower unit prices, substantially offset by increased sales for all
other businesses.

On the input side of the Company's business, sales of the petroleum, feed
and crop production segments in the nine months ended May 31, 1997 increased
$245.0 million, $44.9 million and $10.1 million, respectively, compared with the
same period last year. The 32.2% increase in petroleum sales primarily reflects
increases in gasoline, distillates, diesel and propane unit sales and prices.
The unit sales increase resulted principally from an expansion project at the
Company's refinery in Coffeyville, Kansas which came on stream in July 1996.
Feed business sales increased 10.4% primarily due to increased market prices of
feed grains. Sales of crop production products increased by 1% as slightly
higher phosphate unit sales and nitrogen unit prices were mitigated by slightly
lower nitrogen unit sales and phosphate unit prices.

Sales in the food processing and marketing business increased $313.5
million. This increase is primarily attributable to acquisitions of additional
pork slaughter and processing facilities during March and July of 1996 combined
with slightly higher prices for pork and beef. As discussed previously, sales
in the grain business decreased by $679.7 million. The decreased sales of grain
primarily reflects decreases in both unit sales and unit prices.

NET INCOME

Net income for the nine months ended May 31, 1997 decreased $23.9 million
compared with the same period in the prior year. This decrease was principally
attributable to decreased operating income in all major businesses except
petroleum.

Operating income for the petroleum business increased $19.9 million for the
nine months ended May 31, 1997 compared with the prior period. This improvement
was due, in part, to a short-term improvement in the spread between crude oil
costs and refined products selling prices and, in part, to improvements which
have increased the refinery's capacity and which have enabled the refinery to
process a higher proportion of sour crude.

Operating income in the crop production business for the nine months ended
May 31, 1997 decreased $25.8 million compared to the prior period reflecting the
effects of decreased unit margins. The decline of unit margins is mostly
attributable to higher unit costs which increased as a result of higher natural
gas prices.

Operating income of the food processing and marketing business for the nine
months ended May 31, 1997 decreased $22.7 million compared to the prior period.
This decrease is primarily attributable to the increased administrative costs
related to operating additional pork slaughter and processing facilities for the
full nine months of 1997 and to higher live hog prices which decreased unit
margins.

Grain's operating loss for the nine months ended May 31, 1997 was $19.2
million compared to an operating loss of $9.8 million for the nine months ended
May 31, 1996. The current period loss is primarily attributable to: a late
spring freeze which caused short-term grain market volatility; low domestic
stocks of wheat and soybeans which limited export activities; and subsidized
imports of wheat gluten from Europe and Australia which affected the amount of
and price of domestic gluten sales.

Selling, general and administrative ("SG&A") expenses increased
$11.8 million, or 4.3%, from the prior period. SG&A expenses directly connected
to segments increased approximately $17.5 million and these expenses have been
included in the determination of operating income of the segments. This
increase is primarily in the food processing and marketing business and relates
to acquisitions of additional pork slaughtering and processing facilities.
General corporate expenses not identified to segments decreased $5.7 million, or
8.2%.

An increase in income generated by sales to patrons, as a percentage of
total income, resulted in a lower effective tax rate. The $14.4 million
decrease in the provision for income taxes is primarily attributable to the
decreased effective tax rate combined with the decrease in income before taxes.

The level of operating income in the crop production, petroleum and food
processing and marketing businesses is, to a significant degree, attributable to
the spread between selling prices and raw material costs (natural gas in the
case of nitrogen-based plant nutrients, crude oil in the case of petroleum and
live hogs and cattle in the food processing and marketing business). These
price and cost factors are beyond the control of the Company's management and
are volatile. Accordingly, management cannot determine the direction or
magnitude to which these factors will affect the Company's business. The
Company's cash flow and income may be volatile as conditions affecting
agriculture generally and the costs and markets for the Company's products
change.

RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MAY 31, 1997 COMPARED TO THREE
MONTHS ENDED MAY 31, 1996.

SALES

Sales for the three months ended May 31, 1997 decreased $249.3 million, or
9.3%, compared with the prior period substantially as a result of lower grain
sales offset by higher sales in all other segments.

NET INCOME

Net income for the three months ended May 31, 1997, increased $10.8 million
compared with the corresponding period of the prior year. This increase is
primarily attributable to the improvement in the petroleum business, as
discussed above, as well as to higher income in crop production, partly offset
by the loss incurred in the grain business.

Operating income in the crop production business for the three months ended
May 31, 1997 increased $1.7 million as favorable spring weather conditions
enabled the Company to increase volume sufficiently to offset lower margins
caused by higher natural gas prices. The loss in grain was principally a result
of a late spring freeze which caused short-term market volatility. In addition,
domestic gluten sales continued to be impacted by subsidized imports of wheat
gluten from Europe and Australia.

RECENT ACCOUNTING PRONOUNCEMENTS

In the first quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed of"
("Statement 121"), which was issued by the Financial Accounting Standards Board
in March 1995. Statement 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The effect of the Company's
implementation of Statement 121 at September 1, 1996 was insignificant.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

The Company is including the following cautionary statement in this
Form 10-Q to make applicable and take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 for any forward-looking
statement made by, or on behalf of, the Company. The factors identified in this
cautionary statement include important factors (but not necessarily all
important factors) that could cause actual results to differ materially from
those expressed in any forward-looking statement made by, or on behalf of, the
Company.

Where any such forward-looking statement includes a statement of the
assumptions or basis underlying such forward-looking statement, the Company
cautions that, while it believes such assumptions or bases to be reasonable and
makes them in good faith, the assumed facts or bases almost always vary from
actual results, and the differences between the assumed facts or bases and
actual results can be material, depending upon the circumstances. Where, in any
forward-looking statement, the Company, or its management, expresses an
expectation or belief as to future results, such expectation or belief is
expressed in good faith and believed to have reasonable bases, but there can be
no assurance that the statement of expectation or belief will result or be
achieved or accomplished. The words "believe", "expect" and "anticipate" and
similar expressions identify forward-looking statements.

Taking into account the foregoing, the following are identified as
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statement made by, or on behalf of, the
Company:

1.Weather patterns (flood, drought, frost, etc.) or crop failure.

2.Federal or state regulations regarding agricultural programs and production
efficiencies.

3.Federal or state regulations regarding the amounts of fertilizer and other
chemical applications used by farmers.

4.Factors affecting the export of U.S. agricultural produce (including foreign
trade and monetary policies, laws and regulations, political and governmental
changes, inflation and exchange rates, taxes, operating conditions and world
production and demand).

5.Factors affecting supply, demand and price of crude oil, refined fuels,
natural gas, livestock, grain and other commodities.

6.Regulatory delays and other unforeseeable obstacles beyond the Company's
control that may affect growth strategies through acquisitions and
investments in joint ventures.

7.Competitors in various segments may be larger, may offer more varied products
or may possess greater financial and other resources than the Company.

8.Unusual or unexpected events such as, among other things, litigation
settlements, adverse rulings or judgments, and environmental remediation
costs in excess of reserves.

9.The factors identified in "Business and Properties - Business - Business Risk
Factors" included in the Company's Annual Report on Form 10-K for the year
ended August 31, 1996.