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

FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended AUGUST 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 2-60372

FARMLAND INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
KANSAS 44-0209330
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer
Identification No.)

3315 NORTH OAK TRAFFICWAY, KANSAS CITY, MISSOURI 64116-0005
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: 816-459-6000
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ X ]

Farmland Industries, Inc. is a cooperative. Its voting stock can only
be held by its members. No public market for voting stock of Farmland
Industries, Inc. is established and it is unlikely, in the foreseeable future,
that a public market for such voting stock will develop.

Documents incorporated by reference: None

PART I

ITEMS 1 AND 2. BUSINESS AND PROPERTIES

THE COMPANY

Farmland is an agricultural farm supply and processing and marketing
cooperative headquartered in Kansas City, Missouri, that is primarily owned by
its members and operates on a cooperative basis. Founded in 1929, Farmland has
grown from revenues of $310,000 during its first year of operation to over $9.1
billion during 1997. Members are entitled to receive patronage refunds
distributed by Farmland from its member-sourced annual net earnings. Unless the
context otherwise requires, the term "member" herein means (i) any voting
member, (ii) any associate member, or (iii) any other person with which Farmland
is a party to a currently effective patronage refund agreement (a "patron").
See "Business and Properties - Business - Patronage Refunds and Distribution of
Annual Earnings" included herein.

Farmland was formally incorporated in Kansas in 1931. Its principal
executive offices are at 3315 North Oak Trafficway, Kansas City, Missouri 64116
(telephone 816-459-6000). 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 "tons" are to United
States short tons.

MEMBERSHIP

Membership requirements are determined by Farmland's Articles of
Incorporation and the Board of Directors of Farmland (the ''Board of
Directors'').

VOTING MEMBERS

As of August 31, 1997, Farmland's requirements for voting membership were
as follows: the voting member must (1) own a minimum of $1,000 of Farmland's
common stock; and (2) actively transact business with Farmland on a patronage
basis (a member is deemed to be inactive when he or she does not transact
business with Farmland for two consecutive years); and (3) not be a significant
direct competitor with Farmland in any of Farmland's major business lines; and
(4) (a) be a natural person, a family farm corporation or a family farm
partnership that (i) derives a majority of earned income from a farming
operation (excluding any earned income of a spouse from other sources) and (ii)
is a vendor of livestock to Farmland and/or a contract producer of livestock for
Farmland; or (b) be an association of producers of agricultural products that
(i) is organized and conducts business on a cooperative basis; and (ii)
distributes its earnings based on patronage; and (iii) is controlled directly by
its voting producer members.

ASSOCIATE MEMBERS

To qualify for associate membership in Farmland, all of the following
conditions must be met: the associate member must (1) own a minimum of $1,000
of Farmland's associate member common stock; (2) not be a significant direct
competitor of Farmland in any business line in which the associate member
expects to conduct patronage business with Farmland; and (3)(a) be a natural
person, a family farm corporation, or a family farm partnership that (i) derives
a majority of earned income from a farming operation (excluding any earned
income of a spouse from other sources) and (ii) is a vendor of livestock to
Farmland and/or a contract producer of livestock for Farmland; or (b) be an
association conducting business on a cooperative basis; or (c) be a business
entity owned 100%, directly or indirectly, by Farmland or its members or
associate members; or (d) be a hog-and/or cattle-feeding business entity that
agrees to provide Farmland with the information it needs to pass on patronage
refunds from Farmland's hog- and/or cattle-marketing operations to those
agricultural producer-members of Farmland who have conducted business with the
entity.

PATRONAGE AGREEMENTS WITH PATRONS

All existing patronage agreements with patrons will remain in force until
such time as either (a) the patron has been inactive with Farmland during any
single fiscal year or (b) the patronage agreement is canceled by mutual consent.
No new patronage agreements will be authorized without prior approval by the
Board of Directors.

As of August 31, 1997, Farmland's membership, associate membership and
patrons eligible for patronage refunds consisted of approximately 1,400
cooperative associations of farmers and ranchers and 13,000 pork or beef
producers or associations of such producers. See ''Business and Properties -
Business - Patronage Refunds and Distribution of Annual Earnings'' included
herein.

In the event the Board of Directors of Farmland shall determine that any
holder of the common stock or associate member common stock of Farmland does not
meet the qualifications as may be established by the Board of Directors for
holders thereof, such person shall have no rights or privileges on account of
such common stock to vote for director(s) or to vote on the management or
affairs of Farmland, and Farmland shall have the right, at its option, (a) to
purchase such common stock at its book or par value, whichever is less, as
determined by the Board of Directors, or (b) in exchange for such common stock
or associate member common stock, to issue or record on the books of Farmland
capital credits in an equivalent amount. On the failure of any holder,
following any demand by Farmland therefor, to deliver the certificate or
certificates evidencing any common stock or associate member common stock,
Farmland may cancel the same on its books and issue or record on the books of
Farmland an equivalent amount of capital credits in lieu thereof.

BUSINESS

GENERAL

The Company is one of the largest cooperatives in the United States in
terms of revenues. In 1997, Farmland had export sales in excess of $1.3 billion
to customers in over 80 countries. Substantially all of the Company's foreign
sales are invoiced and collected in U.S. Dollars.

The Company conducts business primarily in two operating areas:
agricultural inputs and outputs. On the input side of the agricultural
industry, the Company operates as a farm supply cooperative. On the output side
of the agricultural industry, the Company operates as a processing and marketing
cooperative.

The Company's farm supply operations consist of three principal product
divisions: petroleum, crop production and feed. Principal products of the
petroleum division are refined fuels, propane, and by-products of petroleum
refining. Principal products of the crop production division are nitrogen-,
phosphate- and potash-based fertilizers ("plant nutrients") and, through the
Company's ownership in WILFARM, L.L.C. (a 50%-owned venture formed in 1995)
("WILFARM") and Omnium, LLC (a 50%-owned venture formed in 1997) ("Omnium"), a
complete line of insecticides, herbicides and mixed chemicals. Principal
products of the feed division include swine, dairy, pet, beef, poultry, mineral
and specialty feeds, feed ingredients and supplements, animal health products
and livestock services. Over 50% of the Company's farm supply products sold in
1997 was produced in plants owned by the Company or operated by the Company
under long-term lease arrangements. Approximately 60% of the Company's farm
supply products sold in 1997 was sold at wholesale to farm cooperative
associations which are members of Farmland. These farm cooperative associates
distribute products primarily to farmers and ranchers in states which comprise
the corn belt and the wheat belt and who utilize the products in the production
of farm crops and livestock.

On the output side, the Company's operations include the processing of
pork and beef, the marketing of fresh pork, processed pork and fresh beef and
the storage and marketing of grain. In 1997, approximately 63% of the hogs
processed, 20% of the beef cattle processed and 53% of the grain marketed by the
Company were supplied to the Company by its members. Substantially all of the
Company's pork and beef products sold in 1997 were processed in plants owned by
the Company.

No material part of the business of any segment of the Company is
dependent on a single customer or a few customers. Financial information about
the Company's industry segments is presented in Note 11 of the Notes to
Consolidated Financial Statements included herein.

The principal businesses of the Company are highly seasonal.
Historically, the majority of revenues related to crop production, beef and
grain occur during the spring, summer and fall, respectively. Revenues related
to crop production and beef are lowest during the winter, while sales related to
the grain and feed businesses tend to be lowest during the spring and summer,
respectively.

The Company competes for market share with numerous participants with
various levels of vertical integration, product and geographical
diversification, sizes and types of operations. In the petroleum industry,
competitors include major oil companies, independent refiners, other
cooperatives and product brokers. Competitors in the crop production industry
include global producers (some of which are cooperatives) of nitrogen- and
phosphate-based fertilizers and product importers and brokers. The feed, pork
and beef industries are comprised of a large variety of competitive
participants.

BUSINESS RISK FACTORS

INCOME TAX MATTERS

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 income against which certain patronage-sourced operating losses could be
offset. The statutory notice further asserts that 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 $243.2 million
through August 31, 1997), or $329.0 million (before tax benefits of the interest
deduction) in the aggregate at August 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 $8.1 million), or $13.1 million in the aggregate at
August 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 Syndicated Credit
Facility (the "Facility"), 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 all related additional federal and state income taxes and accumulated
interest thereon been due and payable on August 31, 1997, Farmland's borrowing
capacity under the Facility was adequate at that time to finance the liability.
However, Farmland's continued ability to finance such an adverse decision
depends substantially on the financial effects of future operating events on its
borrowing capacity under the Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial Condition,
Liquidity and Capital Resources" included herein.

EXTERNAL FACTORS THAT MAY AFFECT THE COMPANY

The Company's revenues, margins, net income and cash flow may be volatile
due to factors beyond the Company's control. External factors that affect
agricultural conditions and Farmland's results of operations include:

1.REGULATORY: The Company's ability to grow through acquisitions and
investments in ventures may be adversely affected by regulatory delays or
other unforeseeable factors beyond the Company's control. Various federal
and state regulations to protect the environment have encouraged, and are
likely to continue to encourage, farmers to reduce the amount of fertilizer
and other chemical applications that they use.

2.COMPETITION: Competitors may have better access to equity capital markets
than the Company and may offer more varied products or possess greater
resources than the Company.

3.IMPORTS AND EXPORTS: Specific factors which may affect the level of
agricultural products imported or exported include foreign trade and monetary
policies, laws and regulations, political and governmental changes, inflation
and exchange rates, taxes, operating conditions and world demand.
Fluctuations in the level of agricultural product imports and exports will
likely impact the Company's operations.

4.WEATHER: Weather conditions, both domestic and global, affect the Company's
operations. Weather conditions may either increase or decrease demand and,
thereby, affect prices related to the Company's farm supply operation (crop
production, petroleum and feed). Weather conditions also may increase or
decrease the supply of products and, thereby, affect costs related to the
Company's pork and beef processing and marketing and grain storage and
marketing.

5.RAW MATERIALS COST: Historically, changes in the costs of raw materials have
not necessarily resulted in corresponding changes in the prices at which
finished products have been sold by the Company.

6.OTHER FACTORS: Domestic variables, such as crop failures, federal
agricultural programs and production efficiencies, and global variables, such
as embargoes, political instabilities and local conflicts, affect the supply,
demand and price of crude oil, refined fuels, natural gas and other
commodities and may unfavorably impact the Company's operations.

Management cannot determine the extent to which these factors may impact
future operations of the Company. The Company's revenues, margins, net income
and cash flow may continue to be volatile as conditions affecting agriculture
and markets for the Company's products change. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations for Years Ended August 31, 1995, 1996, and 1997" and "Business and
Properties - Business - Raw Materials" and "Crop Production - Raw Materials"
included herein.

LIMITED ACCESS TO EQUITY CAPITAL MARKETS

As a cooperative, the Company cannot sell its voting common equity to
traditional public or private markets. Instead, equity is raised largely from
cooperative voting members, associate members and patrons. Farmland's equity
results from payment of the noncash portion of patronage refunds with common
stock, associate member common stock and capital credits and from net income on
transactions with nonmembers (earned surplus). See ''Business and Properties -
Business - Patronage Refunds and Distribution of Annual Earnings'' and '' -
Equity Redemption Plans" included herein.

ENVIRONMENTAL MATTERS

The Company is subject to various stringent federal, state and local
environmental laws and regulations, including those governing the use, storage,
discharge and disposal of hazardous materials, or which may impose liability for
cleanup of environmental contamination. The Company uses hazardous materials
and generates hazardous wastes in the ordinary course of its manufacturing
processes.

The Company recognizes liabilities, without offset for potential
recoveries, related to remediation of contaminated properties when the related
costs are probable and can be reasonably estimated. Estimates of these
liabilities are based upon currently enacted laws and regulations, available
facts, existing technology and undiscounted site specific costs. Environmental
liabilities include estimates of the Company's share of costs attributable to
potentially responsible parties (' 'PRPs'') which are insolvent or otherwise
unable to pay. All liabilities are monitored and adjusted regularly as new
facts or changes in law or technology occur.

Many of the Company's current and former facilities have been in
operation for many years and, over such time, the Company and other predecessor
operators of such facilities have generated, used, stored or disposed of
substances or wastes that are or might be considered hazardous under applicable
environmental laws. As a result of such operations, the soil and groundwater at
or under certain of the Company's current and former facilities have been
contaminated. Material expenditures may be required by the Company in the
future to remediate contamination from past or future releases of hazardous
substances or wastes.

The Company wholly or jointly owns or operates 27 grain elevators and 62
manufacturing properties and has potential responsibility for environmental
conditions at a number of former manufacturing facilities and at waste disposal
facilities operated by third parties. The Company also has been identified as a
PRP under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") at various National Priority List sites and has
unresolved liability with respect to the past disposal of hazardous substances
at five such sites. CERCLA may impose joint and several liability on certain
statutory classes of persons for the costs of investigation and remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. These persons include the present and former owners or operators of a
contaminated property, and companies that generated, disposed of or arranged for
the disposal of hazardous substances found at the property. The Company is
investigating or remediating contamination at 25 properties under CERCLA and/or
the state and federal hazardous waste management laws. During 1995, 1996 and
1997, the Company paid approximately $3.2 million, $1.8 million and $4.6
million, respectively, for environmental investigation and remediation.

The Company currently is aware of probable obligations for environmental
matters at 33 properties. As of August 31, 1997, the Company has an
environmental accrual in its Consolidated Balance Sheet for probable and
reasonably estimated cost for remediation of contaminated property of
$16.9 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.

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 August 31, 1997. In the opinion of
management, it is reasonably possible for such additional costs to be
approximately $17.5 million. See "Business and Properties - Business - Matters
Involving the Environment" included herein.

PETROLEUM

MARKETING

The principal products of this business segment are refined fuels, propane
and by-products of the petroleum refinery. Approximately 60% of petroleum
refined fuels products sold in 1997 resulted from transactions with Farmland's
members. The balance of the Company's refined fuels products sales were
principally to retailing chains in urban areas. Other petroleum products
include lube oil, grease and, through the Company's ownership in Triton Tire &
Battery, L.L.C. (a 33.3%-owned venture formed subsequent to year-end), car,
truck and tractor tires, batteries and accessories. Sales of petroleum products
as a percent of the Company's consolidated sales for 1995, 1996 and 1997 were
12%, 11% and 15%, respectively.

Competitive methods in the petroleum industry include service, product
quality and prices. However, in refined fuel markets, price competition is most
dominant. Many participants in the industry engage in one or more of the
industry's processes (oil production, transportation, refining, wholesale
distribution and retailing). The Company participates in the industry primarily
as a mid-continent refiner and as a wholesale distributor of petroleum products.

PRODUCTION

The Company owns a refinery at Coffeyville, Kansas. Production volume for
1995, 1996 and 1997 was as follows:

Barrels of Crude Oil Processed
Daily Average
Based on 365 Days per year
1995 1996 1997
(barrels)
Coffeyville, Kansas 66,367 64,276 81,397

The refinery produced approximately 26 million barrels of motor fuels,
heating fuels and other petroleum products in 1995, 25 million barrels in 1996,
and 32 million barrels in 1997. In July 1994, the Company acquired a mothballed
refinery in Texas for reassembly at the Coffeyville refinery site. Reassembly
was completed during the fourth quarter of 1996, enabling the Company to
increase production during 1997 compared with 1995 and 1996. Approximately 73%
of refined fuel sales in 1997 represented products produced at this location.

RAW MATERIALS

Farmland's refinery was designed to process high quality crude oil with
low sulfur content ("sweet crude"). Competition for sweet crude and declining
production in proximity of the refinery has increased the cost and decreased the
availability of raw material relative to such cost and availability for coastal
refineries with the capacity for processing and access to lower quality crude
with high sulfur content ("sour crude"). In 1997, the Company's
pipeline/trucking gathering system collected approximately 19% of its crude oil
supplies from producers near its refinery. Additional supplies are acquired
from diversified sources.

Modifications are being made to the Coffeyville refinery to increase its
capability to efficiently process crude oil streams containing greater amounts
of sour crude. In 1996, Farmland entered into various 20-year agreements with
Tessenderlo KERLEY Inc. ("TKI") whereby TKI would build two 50-ton per day
sulfur processing facilities at the refinery. The first plant was completed
during 1997. The second unit will be completed during 1998. Under the
agreements, Farmland will provide high sulfur gas streams, a refinery by-
product, to the sulfur processing plants.

Crude oil is purchased approximately 45 to 60 days in advance of the time
the related refined products are to be marketed. Certain of these advance crude
oil purchase transactions, as well as fixed price advance sales contracts of
refined products, are hedged utilizing petroleum futures contracts. See
"Business and Properties - Business - Business Risk Factors - External Factors
That May Affect the Company" included herein.

During periods of volatile crude oil price changes, or in extremely short
crude supply conditions, the Company's petroleum operations could be affected to
a greater extent than petroleum operations of more vertically integrated
competitors with crude oil supplies available from owned producing reserves. In
past periods of relatively severe crude oil shortages, various governmental
regulations such as price controls and mandatory crude oil allocating programs
have been implemented. There can be no assurance as to what, if any, government
action would be taken if a crude oil shortage were to develop.

CROP PRODUCTION

MARKETING

The Company's crop production business includes plant nutrients and,
through the Company's ownership in WILFARM and Omnium, a complete line of crop
protection products such as insecticides, herbicides and mixed chemicals. Sales
of the crop production business segment as a percent of consolidated sales for
1995, 1996 and 1997 were 16%, 14% and 14%, respectively.

Competition in the plant nutrient industry is dominated by price
considerations. However, during the spring and fall plant nutrient application
seasons, farming activities intensify and delivery service capacity is a
significant competitive factor. The Company maintains a significant capital
investment in distribution assets and a seasonal investment in inventory to
enhance its manufacturing and distribution operations. The Company owns or
leases plant nutrient custom dry blending, liquid mixing, storage and
distribution facilities at over 150 locations throughout its trade territory to
conform delivery capacity more closely to customer demands for delivery
services.

The Company's sales of crop production products are primarily at wholesale
to local cooperative associations who are members of Farmland. In view of this
member/customer relationship, management believes that, with respect to such
customers, the Company has a slight competitive advantage.

Domestic competition, mainly from other regional cooperatives and
integrated multinational crop production companies, is intense due to customers'
sophisticated buying tendencies and production strategies that focus on costs
and service. Also, foreign competition exists from producers of crop production
products manufactured in countries with lower cost natural gas supplies (the
principal raw material in nitrogen-based fertilizer products). In certain
cases, foreign producers of fertilizer for export to the United States may be
subsidized by their respective governments.

PRODUCTION

The Company manufactures nitrogen-based crop production products. Based
on total production capacity, the Company is one of the largest producers of
anhydrous ammonia fertilizer in the United States.

The Company operates seven anhydrous ammonia production plants, three of
which are leased under long-term lease arrangements, at six locations in Kansas,
Iowa, Nebraska, Oklahoma and Louisiana. For fiscal years 1995, 1996 and 1997,
annual production approximated 2.7 million tons, 2.8 million tons and 2.8
million tons, respectively.

Natural gas is the major raw material used in production of synthetic
anhydrous ammonia. Synthetic anhydrous ammonia is the basic component of other
commercially produced nitrogen-based crop production products including urea,
urea ammonium nitrate ("UAN") solutions and other products. The Company
produces such value-added nitrogen-based products at five plants, two of which
are leased under long-term lease arrangements, at four locations in Kansas,
Oklahoma and Nebraska. Production of such value-added products from anhydrous
ammonia for 1995, 1996 and 1997 approximated 1.6 million tons, 1.5 million tons
and 1.6 million tons, respectively.

Ammonia also is used to react with phosphoric acid to produce phosphoric
acid products such as liquid mixed fertilizer, diammonium phosphate and
monoammonium phosphate.

The Company owns land in Florida which contains an estimated 40 million
tons of phosphate rock and a phosphate chemical plant located in Joplin,
Missouri. The Joplin plant produces ammonium phosphate which is combined in
varying ratios with muriate of potash to produce 12 different fertilizer grade
products. In addition, feed grade phosphate (dicalcium phosphate) is produced
at this facility. Production of ammonium phosphate approximated 64,000 tons,
65,000 tons and 44,000 tons in 1995, 1996 and 1997, respectively, and production
of feed grade phosphate approximated 159,000 tons, 160,000 tons and 163,000 tons
in 1995, 1996 and 1997, respectively.

The Company and Norsk Hydro a.s. are each 50% owners of a joint venture,
Farmland Hydro, L.P. ("Hydro"), which is a manufacturer of phosphate fertilizer
products for distribution principally to international markets. Hydro operates
a phosphate-based plant at Green Bay, Florida, and owns phosphate rock reserves
located in Hardee County, Florida which contain an estimated 40 million tons of
phosphate rock (and is in addition to the aforementioned Florida phosphate rock
owned by the Company). The Company provides management and administrative
services and Norsk Hydro a.s. provides marketing services to Hydro. Hydro's
plant produces phosphate fertilizer products such as super phosphoric acid,
diammonium phosphate and monoammonium phosphate. Annual production in tons of
such products for 1995, 1996 and 1997 was 1,471,000, 1,459,000 and 1,504,000,
respectively. The phosphate rock required to operate Hydro's plant is presently
purchased from outside suppliers and adequate supplies of sulfur are available
from several producers.

In view of the availability of adequate supplies of phosphate rock from
alternative sources, neither the Company nor Hydro plan to develop their
respective phosphate rock reserves within the next year.

The Company and J.R. Simplot Company are each 50% owners of a venture, SF
Phosphates Limited Company ("SF Phosphates"), which operates a phosphate mine
located in Vernal, Utah, a phosphate chemical plant located in Rock Springs,
Wyoming and a 96-mile pipeline connecting the mine to the plant. The plant
produces monoammonium phosphate and super phosphoric acid with annual production
in tons for 1995, 1996 and 1997 of 409,000, 483,000 and 409,000, respectively.
Under the venture agreement, the Company and J.R. Simplot Company purchase the
production of the venture in proportion to their ownership. Based on current
recovery methods and the levels of plant production in recent years, the Company
estimates that the phosphate rock reserves owned by SF Phosphates are adequate
to provide the phosphate rock requirements of the plant for approximately 75
years.

The Company and Mississippi Chemical Company are each 50% owners of a
joint venture formed to develop, construct and operate a 1,850 metric ton per
day ammonia production facility in The Republic of Trinidad and Tobago. The
plant construction is funded by a combination of nonrecourse project financing
and equity. Construction is scheduled to be completed in 1998. See "Business
and Properties - Business - Capital Expenditures and Investments in Ventures"
included herein.

RAW MATERIALS

Natural gas, the largest single component of nitrogen-based fertilizer
production, is purchased directly from natural gas producers. Natural gas
purchase contracts are generally market sensitive and contract prices change as
the market price for natural gas changes. In addition, the Company has a
hedging program which utilizes natural gas futures and options to reduce risks
of market price volatility. See " Business and Properties - Business - Business
Risk Factors - External Factors That May Affect the Company" included herein.

Natural gas is delivered to the Company's facilities under pipeline
transportation service agreements which have been negotiated with each plant's
delivering pipeline. Natural gas delivery to the plants could be curtailed
under regulations of the Federal Energy Regulatory Commission if a delivering
pipeline's capacity was required to serve priority users such as residences,
hospitals and schools. In such cases, production could be curtailed. No
significant production has been lost because of curtailments in pipeline
transportation, and no such curtailment is anticipated.

FEED

Products in the Company's feed line include swine, beef, poultry, dairy,
pet, mineral and specialty feeds, feed ingredients and supplements, livestock
and animal health products. The primary components of feed products are grain
and grain by-products, which are generally available in the region in which the
Company operates.

This business segment's sales were approximately 6%, 6% and 7% of
consolidated sales for the years 1995, 1996 and 1997, respectively.
Approximately 51% of the feed business segment's sales in 1997 was attributable
to products manufactured in the Company's feed mills. The Company operates feed
mixing plants at 22 locations throughout its territory, an animal protein and a
premix plant located in Eagle Grove, Iowa, a premix plant in Marion, Ohio and a
pet food plant in Muncie, Kansas.

Feed production for 1995, 1996 and 1997 was as follows:

Approximate Annual Production
1995 1996 1997
(tons)

26 feed mills (combined)... 1,112,000 1,103,000 1,165,000

The Company conducts research in animal health and nutrition. Through
local cooperative associations of farmers and ranchers, the Company participates
in livestock and hog services designed to produce lean, feed-efficient animals
and help livestock producers select feed formulations which maximize weight
gain.

FOOD PROCESSING AND MARKETING

PORK

PROCESSING

The Company's pork processing and marketing operations are conducted
through a 99%-owned subsidiary, Farmland Foods, Inc. ("Foods"), which operates
12 food processing facilities. These facilities are primarily located in the
Midwest and include facilities at Topeka, Kansas and Dubuque, Iowa, which were
purchased during 1996, and a leased facility in Albert Lea, Minnesota.

Meat processing facilities at Springfield, Massachusetts, Carey, Ohio, and
New Riegel, Ohio produce Italian-style specialty meats and ham products. Plants
in Wichita and Topeka, Kansas and Albert Lea, Minnesota process fresh pork into
a variety of products including ham, bacon and sausage. Additionally, the
Wichita, Kansas facility processes pork, beef and chicken into hot dogs, dry
sausage and other luncheon meats. Facilities in Denison and Dubuque, Iowa,
Monmouth, Illinois and Crete, Nebraska function as pork abattoirs and have
additional capabilities for processing pork into bacon, ham and smoked meats.
These facilities also process fresh pork into primal cuts for additional
processing into fabricated meats which are sold to commercial users and to
retail grocery chains, as well as case-ready and label-branded cuts for retail
distribution. The plant located in Carroll, Iowa is primarily a packaging
facility for canned or cook-in-bag products. The facility located in Omaha,
Nebraska, prepares primal beef and pork products into case-ready cuts of meat
which can be shipped directly to retailers.

The Company's total weekly production approximated 12.6 million pounds,
16.2 million pounds and 16.8 million pounds, and total weekly head slaughtered
approximated 120,000, 111,000 and 132,000 in 1995, 1996 and 1997, respectively.

MARKETING

The Company's products include fresh pork, fabricated pork, smoked meats,
ham, bacon, fresh sausage, dry sausage, hot dogs and packing house by-products.
These products are marketed under a variety of brand names including: Farmland,
Farmstead, OhSe, Maple River, Carando, Roegelein, Regal and Marco Polo.
Product distribution is through national and regional retail food chains, food
service accounts, distributors and through international marketing brokers.

Pork marketing is a highly competitive industry with many suppliers of
fresh and processed pork products competing for shelf space in retail food
stores. Other meat products such as beef, poultry and fish also compete
directly with pork products. Competitive methods in this segment include price,
product quality, product differentiation and customer service.

BEEF

PROCESSING

The Company's beef processing and marketing operations are conducted
through Farmland National Beef Packing Company, L.P. ("FNBPC"), which was formed
in April 1993, and at September 1, 1997, was 75%-owned by Farmland. The
processing facilities for these beef operations are located in Liberal, Kansas
and Dodge City, Kansas. These facilities function as beef abattoirs and process
fresh beef into primal cuts for additional processing into fabricated or boxed
beef. During 1995, 1996 and 1997, the two plants slaughtered an aggregate of
1.9 million, 2.1 million and 2.1 million cattle, respectively.

The Company has agreed to sell up to a 25% interest in FNBPC to an
unrelated party, U.S. Premium Beef, LTD. ("USPB"). Therefore, the Company's
ownership in FNBPC could be reduced to 50%. At this time, there is no assurance
USPB will raise the capital necessary to consummate part or all of this
transaction.

MARKETING

Products in the Company's beef processing and marketing operations include
fresh and frozen beef, boxed beef and packing house by-products. Product
distribution is through national and regional retail and food service customers
as well as under the Farmland Black Angus Beef label. In addition, certain
beef products are distributed in international markets.

Beef marketing is a highly competitive industry with many suppliers of
fresh and boxed beef. Other meat products such as pork, poultry and fish also
compete directly with beef products. Competitive methods in this industry
include price, product quality, product differentiation and customer service.

GRAIN

MARKETING

The Company markets wheat, corn, soybeans, milo, barley and oats, with
wheat and corn constituting the majority of the marketing business. The
Company's North American Grain Division ("NAGD") purchases grain from members
and nonmembers located in the Midwestern part of the United States and assumes
all risks related to selling such grain. Grain is priced in the United States
principally through bids based on organized commodity markets.

The Company is exposed to risk of loss in the market value of its grain
inventory and fixed price purchase contracts if grain market prices decrease and
is exposed to loss on its fixed price sales contracts if grain market prices
increase. To reduce the price change risk associated with holding positions in
grain, the Company takes opposite and offsetting positions by entering into
grain commodity futures contracts. Generally, such contracts have terms of up
to one year. The Company's strategy is to maintain hedged positions on as close
to 100% of its grain positions as is possible. During 1995, 1996 and 1997, the
Company maintained hedges on approximately 97.9%, 94.8% and 92.9%, respectively,
of its grain positions. Based on total assets at the beginning and end of 1997,
the average market value of grain positions not hedged during the year amounted
to less than 1% of the Company's average total assets. While hedging activities
reduce the risk of loss from changing market values of grain, such activities
also limit the gain potential which otherwise could result from changes in
market prices of grain. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Financial Condition, Liquidity and
Capital Resources - Results of Operations for Years Ended August 31, 1995, 1996
and 1997 - Grain Marketing" included herein.

In 1997, approximately 41% of grain revenues were from export sales or
sales to domestic customers for export. In 1995 and 1996, export sales or sales
to domestic customers for export accounted for approximately 47% and 42%,
respectively, of grain revenues. Export-related sales are subject to
international political upheavals and changes in other countries' trade policies
which are not within the control of the United States or the Company. Foreign
sales of grain generally are paid in U.S. Dollars.

The Company's international grain trading subsidiaries (collectively
referred to as "Tradigrain") import, export and ship all major grains from the
major producing countries to final consumers which are either governmental
entities, private companies or other major grain companies.

Tradigrain's purchases of grain are made on a cash basis and its sales of
grain are mostly done against confirmed letters of credit. For purposes of the
Company's Consolidated Financial Statements, the Company recognizes as sales the
net margin on grain merchandised by Tradigrain rather than the gross value of
such products merchandised. Furthermore, Tradigrain may take long or short
grain positions. These positions are accounted for on a mark-to-market basis
and the gain or loss is recognized as a component of net sales.

PROPERTY

The Company currently operates, through either ownership or lease, 26
inland elevators and one export elevator in the United States with a total
capacity of approximately 120.6 million bushels of grain.

RESEARCH

The Company operates a research and development farm for the primary
purpose of improving nutrition, genetic selection and animal health practices
related to livestock and pets. The Company also conducts research at its pork
processing facilities directed toward product development and process
improvement.

Expenditures related to Company-sponsored product research and process
improvements amounted to $2.3 million, $2.4 million and $2.1 million for 1995,
1996, and 1997, respectively.

CAPITAL EXPENDITURES AND INVESTMENTS IN VENTURES

In 1997, the Company made capital expenditures and investments in
ventures totaling $187.9 million.

The Company has approved expenditures (of which $39.2 million was
committed as of August 31, 1997) of $197.0 million for capital additions and
improvements and $5.0 million for investments in ventures during the years 1998
and 1999. The majority of these expenditures are in the crop production, food
processing and marketing and petroleum businesses and are primarily for plant
improvements. From time to time, management may recommend additional capital
projects to Farmland's Board of Directors for approval.

The Company intends to fund its capital program with cash from
operations, through borrowings or through other capital market transactions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition, Liquidity and Capital Resources" included
herein.

YEAR 2000

The Company has assessed key financial, informational and operational
systems. Management does not anticipate that the Company will encounter
significant operational issues related to Year 2000. Furthermore, the financial
impact of making required systems changes is not expected to be material to the
Company's consolidated financial position, results of operations or cash flows.

MATTERS INVOLVING THE ENVIRONMENT

The Company is subject to various stringent federal, state and local
environmental laws and regulations, including those governing the use, storage,
discharge and disposal of hazardous materials, as the Company uses hazardous
substances and generates hazardous wastes in the ordinary course of its
manufacturing processes. The Company recognizes liabilities related to
remediation of contaminated properties when the related costs are probable and
can be reasonably estimated. Estimates of these costs are based upon currently
available facts, existing technology, undiscounted site specific costs and
currently enacted laws and regulations. In reporting environmental liabilities,
no offset is made for potential recoveries. Such liabilities include estimates
of the Company's share of costs attributable to potentially responsible parties
which are insolvent or otherwise unable to pay. All liabilities are monitored
and adjusted regularly as new facts or changes in law or technology occur.

The Company wholly or jointly owns or operates 27 grain elevators and
62 manufacturing properties and has potential responsibility for environmental
conditions at a number of former manufacturing facilities and at waste disposal
facilities operated by third parties. The Company also has been identified as a
PRP under CERCLA at various National Priority List sites and has unresolved
liability with respect to the past disposal of hazardous substances at five such
sites. CERCLA may impose joint and several liability on certain statutory
classes of persons for the costs of investigation and remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. These persons include the present and former owners or operators of a
contaminated property and companies that generated, disposed of, or arranged for
the disposal of hazardous substances found at the property. The Company is
investigating or remediating contamination at 25 properties under CERCLA and/or
the state and federal hazardous waste management laws. During 1995, 1996 and
1997, the Company paid approximately $3.2 million, $1.8 million and $4.6
million, respectively, for environmental investigation and remediation.

The Company currently is aware of probable obligations for
environmental matters at 33 properties. As of August 31, 1997, the Company has
an environmental accrual in its Consolidated Balance Sheet for probable and
reasonably estimated cost for remediation of contaminated property of
$16.9 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 August 31, 1997. In the opinion of
management, it is reasonably possible for such additional costs to be
approximately $17.5 million.

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 $5.1 million at August 31, 1997 (and is in addition to
the $17.5 million discussed in the prior paragraph). The Company accrues these
liabilities when plans for termination of plant operations have been made.
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.

There can be no assurance that the environmental matters described
above, or environmental matters which may develop in the future, will not have a
material adverse effect on the Company's business, financial condition or
results of operations.

Protection of the environment requires the Company to incur
expenditures for equipment or processes, which expenditures may impact the
Company's future net income. However, the Company does not anticipate that its
competitive position will be adversely affected by such expenditures or by laws
and regulations enacted to protect the environment. Environmental expenditures
are capitalized when such expenditures provide future economic benefits. In
1995, 1996 and 1997, the Company had capital expenditures of approximately $4.7
million, $10.9 million and $8.4 million, respectively, to improve the
environmental compliance and efficiency of its operations. Management believes
the Company currently is in substantial compliance with existing environmental
rules and regulations.

GOVERNMENT REGULATION

The Company's business is conducted within a legal environment created
by numerous federal, state and local laws which have been enacted to protect the
public's interest by promoting fair trade practices, safety, health and welfare.
The Company believes that its operating procedures conform to the intent of
these laws and that the Company currently is in compliance with all such laws,
the violation of which could have a material adverse effect on the Company.

Certain policies may be implemented from time to time by the United
States Department of Agriculture, the Department of Energy or other governmental
agencies which may impact the demands of farmers and ranchers for the Company's
products or which may impact the methods by which certain of the Company's
operations are conducted. Such policies may impact the Company's farm supply,
food processing and marketing and grain storage and marketing operations.

In 1996, the Federal Agriculture Improvement and Reform Act ("FAIR") was
signed into law. FAIR represents the most significant change in government farm
programs in more than 60 years. Under FAIR, the former system of variable
price-linked deficiency payments to farmers has been replaced by a program of
fixed payments which decline over a seven-year period. In addition, FAIR
eliminates federal planting restrictions and acreage controls. The Company
believes that FAIR was intended to accelerate the trend toward greater market
orientation and reduced Government influence on the agricultural sector. As a
result, the Company expects the number of acres under cultivation to increase.
This increase could favorably impact demand of producers for the Company's plant
nutrients and crop protection products and fuels. Whether demand for the
Company's products is favorably impacted depends in a large part on whether U.S.
agriculture becomes more competitive in world markets as this industry moves
toward greater market orientation, the extent which governmental actions expand
international trade agreements and whether market access opportunities for U.S.
agriculture is increased.

The U.S. Congress is currently deliberating legislation, commonly
referred to as "fast track", which would authorize the President to submit a
trade agreement to Congress with the assurance that it will be voted on within
90 days and not be subject to amendments. The Company believes that fast-track
legislation could be beneficial to U.S. agricultural interests, as it may open
markets, increase exports and expand trade opportunities with countries which
import agricultural products. If Congress were to fail to ratify the fast-track
legislation, or if Congress were to modify the pending legislation in any
significant respect, the Company's access to international markets may be
adversely impacted.

Management is not aware of any newly implemented or pending policies,
other than as discussed above, having a significant impact or which may have a
significant impact on operations of the Company.

EMPLOYEE RELATIONS

At August 31, 1997, the Company had approximately 14,600 employees.
Approximately 50% of the Company's employees were represented by unions having
national affiliations. The Company considers its relationship with employees to
be generally satisfactory. No labor strikes or work stoppages within the last
three fiscal years have had a materially adverse effect on the Company's
operating results. Current labor contracts expire on various dates through March
2001.

PATRONAGE REFUNDS AND DISTRIBUTION OF ANNUAL EARNINGS

For purposes of this section, annual earnings means earnings before income
taxes determined in accordance with generally accepted accounting principles.

The patronage refunds may be paid in the form of qualified or
nonqualified written notices of allocation or cash. The qualified patronage
refund, if any, must be paid at least 20% in cash and is deductible by the
Company for federal income tax purposes. The portion of the qualified patronage
refund not paid in cash (the allocated equity portion) is distributed in common
shares, associate member common shares or capital credits (depending on the
membership status of the recipient), or the Board of Directors may determine to
distribute the allocated equity portion in any other form or forms of equities.
The allocated equity portion of the qualified patronage refund is determined
annually by the Board of Directors, but is limited to no more than 80% of the
total qualified patronage refund. The nonqualified patronage refund, if any, is
recorded as book credits in the form of common shares, associate member common
shares or capital credits (depending on the membership status of the recipient),
or the Board of Directors may determine to record the nonqualified patronage
refund in any other form or forms of nonpreferred equities. The nonqualified
patronage refund is deductible by the Company for federal income tax purposes
only upon redemption of the equity or equities issued. The bylaws of Farmland
provide that the Board of Directors has complete discretion with respect to the
handling and ultimate disposition of any member-sourced losses. For the year
ended August 31, 1997, the Board of Directors determined that the Company would
retain $13.5 million of member-sourced losses for disposition at a later date.

For the years ended 1995, 1996 and 1997, patronage refunds authorized by
the Board of Directors were:

Cash or Cash Equivalent
Portion of Patronage Non-Cash Portion of Total Patronage
Refunds Patronage Refunds Refunds
(Amounts in thousands)

1995............... $ 33,061 $ 61,356 $ 94,417
1996............... $ 32,719 $ 60,776 $ 93,495
1997............... $ 40,228 $ 68,079 $ 108,307

Nonmember-sourced income (earnings attributed to transactions with
persons not eligible to receive patronage refunds, i.e. nonmembers) and
nonpatronage income or loss (income or loss from activities not directly related
to the cooperative marketing or purchasing activities of Farmland) is subject to
income taxes computed on the same basis as such taxes are computed on the income
or loss of other corporations.

EQUITY REDEMPTION PLANS

The Equity Redemption Plans described below, namely the base capital
plan, the estate settlement plan and the special equity redemption plans
(collectively, the "Plans") may be changed at any time or from time to time at
the sole and absolute discretion of the Board of Directors. The Plans are also
not binding upon the Board of Directors or the Company, and the Board of
Directors reserves the right to redeem, or not redeem, any equities of the
Company without regard to whether such action or inaction is in accordance with
the Plans. The factors which may be considered by the Board of Directors in
determining when, and under what circumstances, the Company may redeem equities
include, but are not limited to, the terms of the Company's base capital plan,
the Company's results of operations, financial position, cash flow, capital
requirements, long-term financial planning needs, income and other tax
considerations and other relevant considerations. By retaining discretion to
determine the amount, timing and ordering of any equity redemptions, the Board
of Directors believes that it can continue to assure that the best interests of
the Company and thus of its owners will be protected.

BASE CAPITAL PLAN

For the purposes of acquiring and maintaining adequate capital to
finance the business of the Company, the Board of Directors has established a
base capital plan.

The base capital plan provides a mechanism for determining the
Company's total capital requirements and each voting member's and associate
member's share thereof (hereinafter referred to as the "Base Capital
Requirement"). As part of the base capital plan, the Board of Directors may, in
its discretion, provide for redemption of Farmland common shares or associate
member common shares held by voting members or associate members whose holdings
of common shares or associate member shares exceed the voting members' or
associate members' Base Capital Requirement. The base capital plan provides a
mechanism under which the cash portion of the patronage refund payable to voting
members or associate members will depend upon the degree to which such voting
members or associate members meet their Base Capital Requirements.

ESTATE SETTLEMENT PLAN

The estate settlement plan provides that equity holdings of deceased
natural persons (except for equity purchased and held for less than five years)
be redeemed at par value. This provision is subject to a limitation of $1.0
million in any one fiscal year without further authorization by the Board of
Directors for such year.

SPECIAL EQUITY REDEMPTION PLANS

From time to time, the Company has redeemed portions of its outstanding
equity under various special equity redemption plans. The special equity
redemption plans may be changed at any time or from time to time at the sole and
absolute discretion of the Board of Directors. The special equity redemption
plans are not binding upon the Board of Directors or the Company, and the Board
of Directors reserves the right to redeem, or not redeem, any equities of the
Company without regard to whether such action or inaction is in accordance with
the special equity redemption plans.

The special equity redemption plans are designed to return cash to members
or former members of Farmland or Farmland Foods by a systematic method for
redemption of outstanding equity which may not be subject to redemption through
other Plans, such as the base capital plan or the estate settlement plan. The
order in which each type of equity is redeemed is determined by the Board of
Directors.

Presented below are the amounts of equity approved for redemption by the
Board of Directors of Farmland and Farmland Foods under the base capital plan,
the estate settlement plan, and special equity redemption plans for each of the
years in the five-year period ended 1997. Substantially all amounts approved
for redemptions are paid in cash in the year following approval.

Base Capital Plan Estate Settlement
Redemptions Plan Redemptions Special Equity Total Plan
Redemption(A) Redemptions
(Amounts in Thousands)

1995.......... $ 14,159 $ 128 $ 13,451 $ 27,738
1996.......... $ 14,024 $ 138 $ 11,277 $ 25,439
1997.......... $ 17,228 $ 141 $ 11,351 $ 28,720

(A)

ITEM 3. LEGAL PROCEEDINGS

The Company believes there is no litigation existing or pending
against Farmland or any of its subsidiaries that, based on the amounts involved
or the defenses available to the Company, would have a material adverse effect
on the financial position of the Company except for the pending tax litigation
relating to Terra, as explained in Note 6 of the Notes to Consolidated Financial
Statements. See "Business and Properties - Business - Business Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition, Liquidity and Capital Resources" included
herein.

ITEM 4. SUBMISSION OF MATTERS TO VOTE ON SECURITIES HOLDERS

No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of equity holders, through the solicitation of
proxies or otherwise.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

There is no established public market for the voting common stock,
associate member common stock and capital credits of Farmland. The Company
believes that it is unlikely that a public market for these equities will
develop in the foreseeable future for the following reasons:

1.the common stock, associate member common stock and capital credits are
nondividend bearing;

2.the common stock, associate member common stock and capital credits are
not transferable without consent of the Farmland Board of Directors.

3.the amount of patronage refunds a holder, who is eligible to receive
patronage refunds, may receive is dependent on the earnings of Farmland
attributable to the quantity or value of business such holder transacts
with Farmland and not on the amount of equity held. See "Business and
Properties - Business - Patronage Refunds and Distribution of Annual
Earnings" included herein; and

4.Farmland intends to redeem its equities in accordance with provisions of
Plans, which provisions may be changed at any time or from time to time at
the sole and absolute discretion of the Board of Directors and which may
be amended or otherwise changed at any time by the Board of Directors.
See "Business and Properties - Business - Equity Redemption Plans"
included herein.

At August 31, 1997 there are approximately 3,500 holders of common
shares, 670 holders of associate member shares, and 10,400 holders of capital
credits based on holders of record.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data as of the end of
and for each of the years in the five-year period ended August 31, 1997 are
derived from the Consolidated Financial Statements of the Company, which
Consolidated Financial Statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The Consolidated Financial Statements
as of August 31, 1996 and 1997 and for each of the years in the three-year
period ended August 31, 1997 (the "Consolidated Financial Statements"), and the
independent auditors' report thereon, are included elsewhere herein. The
information set forth below should be read in conjunction with information
appearing elsewhere herein: "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and related notes.

Year Ended August 31
1993 1994 1995 1996 1997
(Amounts in Thousands)

SUMMARY OF OPERATIONS:(1)
Net Sales..................... $ 4,722,940 $ 6,677,933 $ 7,256,869 $ 9,788,587 $ 9,147,507
Operating Income of Industry
Segments.................... 86,579 154,799 295,933 241,666 242,963
Interest Expense.............. 36,764 51,485 53,862 62,445 62,335
Net Income (Loss)............. (30,400) 73,876 162,799 126,418 135,423

DISTRIBUTION OF NET INCOME (LOSS):
Patronage Refunds:
Allocated Equity............ $ 1,155 $ 44,032 $ 61,356 $ 60,776 $ 68,079
Cash and Cash
Equivalents................. 495 26,580 33,061 32,719 40,228
Earned Surplus and Other
Equities.................... (32,050) 3,264 68,382 32,923 27,116

$ (30,400) $ 73,876 $ 162,799 $ 126,418 $ 135,423

BALANCE SHEETS:
Working Capital............... $ 260,519 $ 290,704 $ 319,513 $ 322,050 $ 242,211
Property, Plant and
Equipment, Net.............. 504,378 501,290 592,145 717,224 783,108
Total Assets.................. 1,719,981 1,926,631 2,185,943 2,568,446 2,645,312
Long-Term Borrowings
(excluding
current maturities)......... 482,112 506,531 469,718 616,258 580,665
Capital Shares and
Equities.................... 561,707 585,013 687,287 755,331 821,993

[FN]

(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition, Liquidity and Capital
Resources" included herein, for a discussion of the pending income tax
litigation relating to Terra, a former subsidiary of the Company.

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

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company has historically maintained two primary sources for debt
capital: a substantially continuous public offering of its subordinated debt and
demand loan 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 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 or series of debt security offered and by options of Farmland to
call for redemption certain of its outstanding debt securities. During the year
ended August 31, 1997, the outstanding balance of demand certificates increased
by $10.4 million and the outstanding balance of subordinated debt certificates
increased by $48.9 million.

In May 1996, Farmland entered into a five year Syndicated Credit
Facility (the "Facility") with various participating banks. The Facility
provides a $1.1 billion credit, subject to compliance with financial covenants
as set forth in the Facility, 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.

Farmland pays commitment fees under the Facility 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 Facility'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. The short-term credit provisions of the
Facility are reviewed and/or renewed annually. The next scheduled review date
is in May 1998. The revolving term provisions of the Facility expire in May
2001.

At August 31, 1997, the Company had $185.5 million of short-term
borrowing under the Facility and $160.0 million of revolving term borrowings;
additionally, $44.2 million of the Facility was being utilized to support
letters of credit issued on behalf of Farmland. As of August 31, 1997, under
the short-term credit provisions, the Company had capacity to finance additional
current assets of $425.6 million and, under the long-term credit provisions, the
Company had capacity to borrow up to an additional $284.7 million.

FNBPC 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 August 31, 1997, $90.0 million was available under this
facility of which $29.1 million was borrowed and $0.6 million was utilized to
support letters of credit. In addition, FNBPC has certain long-term borrowings
from Farmland. FNBPC has pledged certain assets to Farmland and such group of
banks to support its borrowings.

Leveraged leasing has been utilized to finance railcars and a significant
portion of the Company's fertilizer production equipment.

The Company maintains other borrowing arrangements with banks and
financial institutions. Under such agreements, at August 31, 1997, $40.8 million
was borrowed.

Tradigrain 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
August 31, 1997, such borrowings totaled $72.8 million.

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.

In the normal course of business, the Company utilizes derivative
commodity instruments, primarily related to grain, to hedge its exposure to
price volatility. These instruments consist mainly of grain contracts traded on
organized exchanges and forward purchase and sales contracts in cash markets.
These hedging activities limit both the risk of loss and the potential for gain
which otherwise could result from changes in market prices. Also, in the
ordinary course of its international grain trading business, the Company may
take long or short grain positions. Such positions are accounted for on a mark-
to-market basis and the gain or loss is recognized currently as a component of
net earnings. See "Business and Properties - Business - Grain Marketing".

Farmland operates on a cooperative basis. In accordance with its bylaws,
Farmland determines its annual net earnings from transactions with members
("member-sourced earnings"). For this purpose, annual net earnings is before
income tax determined in accordance with generally accepted accounting
principles. Losses (including patronage allocation unit losses), if any, are
handled in accordance with the Company's bylaws. The remaining member-sourced
earnings are returned to members as patronage refunds in the form of qualified
or nonqualified written notice of patronage refund allocation. Each member's
portion of the annual patronage refund is determined by the earnings of Farmland
attributed to the quantity or value of business transacted by the member with
Farmland during the year for which the patronage is paid. Other income is
classified as either nonmember-sourced income (earnings attributed to
transactions with persons not eligible to receive patronage refunds, i.e.
nonmembers) or nonpatronage income or loss (income or loss from activities not
directly related to the cooperative marketing or purchasing activities of
Farmland) and is subject to income taxes. Nonpatronage and nonmember after-tax
earnings are transferred to earned surplus.

Under Farmland's bylaws, patronage refunds, determined as stated above,
are distributed to members unless the earned surplus account after such
distribution is lower than 30% of the sum of the prior year-end balance of
outstanding common shares, associate member shares, capital credits and
patronage refunds for reinvestment. In such cases, the patronage refund is
reduced by the lesser of 15% or an amount required to increase the earned
surplus account to the required 30%. The amount by which the patronage refund
income is so reduced is treated as nonmember-sourced income. The patronage
refund income remaining is distributed to members as in the form of qualified or
nonqualified written notices of allocation. For the years 1995, 1996 and 1997,
the earned surplus account exceeded the required amount by $62.8 million, $84.7
million and $101.7 million, respectively.

The patronage refunds may be paid in the form of qualified or
nonqualified written notices of allocation or cash. The qualified patronage
refund, if any, must be paid at least 20% in cash and is deductible by the
Company for federal income tax purposes. The portion of the qualified patronage
refund not paid in cash (the allocated equity portion) is distributed in common
shares, associate member common shares or capital credits (depending on the
membership status of the recipient), or the Board of Directors may determine to
distribute the allocated equity portion in any other form or forms of equities.
The allocated equity portion of the qualified patronage refund is determined
annually by the Board of Directors, but is limited to no more than 80% of the
total qualified patronage refund. The nonqualified patronage refund, if any, is
recorded as book credits in the form of common shares, associate member common
shares or capital credits (depending on the membership status of the recipient),
or the Board of Directors may determine to record the nonqualified patronage
refund in any other form or forms of nonpreferred equities. The nonqualified
patronage refund is deductible by the Company for federal income tax purposes
only upon redemption of the equity or equities issued. The nonqualified
patronage refund and the allocated equity portion of the qualified patronage
refund are sources of funds from operations which are retained for use in the
business and which increase Farmland's equity base. Common shares and associate
member common shares may be redeemed by cash payments from Farmland to holders
thereof who participate in Farmland's base capital plan. Common stock,
associate member common stock, capital credits and other equities of Farmland
and Foods may also be redeemed under other equity redemption plans. The base
capital plan and other equity redemption plans are described under "Business and
Properties - Business - Equity Redemption Plans" included herein.

Major sources of cash during 1997 include: $222.3 million from
operating activities; $55.2 million from cash distributions from ventures; $59.1
million of net proceeds from issuance of subordinated debt and demand loan
certificates; and $24.8 million from the sale of investments and collection of
long-term notes receivable.

Major uses of cash during 1997 include: $184.4 million for capital
expenditures and acquisition of other long-term assets; $89.7 million for net
payments on bank loans and notes payable; $46.2 million for acquisition of
investments and notes receivable; $32.5 million for cash patronage refunds
distributed from income of the 1996 fiscal year; and $25.4 million for the
redemption of equities under the Farmland base capital and other equity
redemption plans.

In July 1983, Farmland sold the stock of 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 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 income
against which certain patronage-sourced operating losses could be offset. The
statutory notice further asserts that 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.

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 $243.2 million
through August 31, 1997), or $329.0 million (before tax benefits of the
interest deduction) in the aggregate at August 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 $8.1 million), or $13.1 million in the aggregate
at August 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 Syndicated Credit
Facility (the "Facility") become less restrictive. Had the United States Tax
Court decided in favor of the IRS on all unresolved issues, and had all related
additional federal and state income taxes and accumulated interest thereon been
due and payable on August 31, 1997, Farmland's borrowing capacity under the
Facility was adequate at that time to finance the liability. However,
Farmland's ability to finance such an adverse decision depends substantially on
the financial effects of future operating events on its borrowing capacity
under the Facility.

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. The Company believes that it has meritorious positions
with respect to all of these claims.

In the opinion of Bryan Cave LLP, the Company's special tax counsel,
it is more likely than not that the courts will ultimately conclude that the
Company'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 the Company on any of these issues.

RESULTS OF OPERATIONS FOR YEARS ENDED AUGUST 31, 1995, 1996 AND 1997

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
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.

The increase (decrease) in sales and operating income by business
segment in each of the years in the three-year period ended 1997, compared with
the respective prior year, is presented in the below table.

Management's discussion of industry segment sales, operating income or
loss and other factors affecting the Company's net income during 1995, 1996 and
1997 follows the table.

Change in Sales Change in Net Income
1995 1996 1997 1995 1996 1997
Compared Compared Compared Compared Compared Compared
with 1994 with 1995 with 1996 with 1994 with 1995 with 1996
(Amounts in Millions)

INCREASE (DECREASE) OF INDUSTRY SEGMENT
SALES AND OPERATING INCOME OR LOSS:
Petroleum.................. $ 21 $ 181 $ 274 $ (35) $ 13 $ 31
Crop Production............ 8 165 (73) 73 (20) (20)
Feed....................... (60) 102 48 (7) 3 (6)
Food Processing
and Marketing ............. 337 528 338 56 (11) (22)
Grain Marketing............ 279 1,563 1,230) 52 (36) 25
Other...................... (6) (7) 2 2 (3) (7)

$ 579 $ 2,532 $ (641) $ 141 $ (54) $ 1

CORPORATE EXPENSES AND OTHER:
General corporate expenses (increase) decrease....................... $ (17) $ (11) $ 8
Interest expense (increase) decrease................................. (2) (8) -0-
Other income and deductions increase (decrease)...................... (6) 9 (1)
Equity in net income of investees increase (decrease)................ 12 18 1
Minority owners' interest in net income of subsidiaries
(increase) decrease ............................................... (14) 2 (1)
Income taxes (increase) decrease..................................... (25) 8 1

Net income increase (decrease)....................................... $ 89 $ (36) $ 9

In computing the operating income or loss of an industry segment, none
of the following have been added or deducted: corporate expenses (included in
the Consolidated Statements of Operations as selling, general and administrative
expenses) which cannot be identified or allocated, practicably, to an industry
segment, interest expense, interest income, equity in net income (loss) of
investees, other income (deductions) and income taxes.

PETROLEUM

SALES

Sales of the petroleum business increased $273.5 million, or 25.8%, in
1997 compared with 1996. This increase was primarily attributable to expansion
of the refinery's capacity, which resulted in increased unit sales of gasoline,
distillates and diesel fuel, as well as to increased unit prices for these
products.

Sales of the petroleum business increased $181.5 million in 1996 compared
with 1995. This increase was primarily the result of increased fuel (gasoline,
distillate, diesel and propane) prices and unit sales of approximately 11% and
9.5%, respectively.

Sales of the petroleum business increased $21.3 million in 1995 compared
with 1994, or 2.5%. Sales of gasoline increased $42.1 million due to 9.6% higher
unit sales and 2.4% higher prices. Sales of distillates and propane decreased
$14.3 million and $3.0 million, respectively, and sales of other petroleum
products decreased $3.5 million. Unit sales of distillates and propane
decreased as a result of the mild winter and a wet spring.

OPERATING INCOME

Operating income of the petroleum business increased $31.3 million in 1997
compared with 1996. This increase was primarily a result of higher margins
coupled with increased unit sales. The higher margins are primarily
attributable to an increase in the difference between crude oil prices and
finished product prices, the ability of the refinery to process crude oil
streams containing a higher proportion of sulfur and to higher production
efficiencies resulting from increased refinery capacity.

The petroleum business had operating income of $5.0 million in 1996
compared to an operating loss of $8.0 million in 1995. This improvement was
primarily attributable to higher unit margins resulting from seasonal demand
pressure on product price movements. In addition, petroleum realized some
margin improvement resulting from increased production capacity at the Company's
refinery.

The petroleum business incurred an operating loss of $8.0 million in 1995
compared with operating income of $27.2 million in 1994. This loss was
attributable to increased crude oil costs (approximately 9%) without
corresponding increases in finished product selling prices.

CROP PRODUCTION

SALES

Crop production sales, consisting primarily of plant nutrients, decreased
$72.7 million, or 5.4%, in 1997 compared with 1996. This decrease was primarily
a result of lower unit sales of phosphate and nitrogen fertilizers and lower
phosphate prices partially offset by higher nitrogen prices.

Crop production sales increased $164.9 million or 14.1% in 1996 compared
with 1995. This increase was primarily a net result of increased unit sales of
phosphate and nitrogen fertilizers and higher phosphate prices, partly offset by
a slight decline of nitrogen prices.

Sales of the crop production business increased $8.0 million in 1995
compared with 1994. Sales of plant nutrients increased $117.9 million due to
higher selling prices. Unit sales of plant nutrients decreased slightly from
1994. Sales of crop protection products reflect a decrease of $109.9 million as
a result of placing the Company's crop protection operations in WILFARM.

OPERATING INCOME

Operating income of the Company's crop production business decreased $20.0
million, or 11.2%, in 1997 compared with 1996. This decrease was primarily a
result of higher natural gas costs which resulted in lower nitrogen unit
margins, partially offset by higher unit margins related to the distribution of
phosphate fertilizers. Crop production's share of net income from the Company's
phosphate manufacturing and WILFARM ventures decreased slightly in 1997 to
$41.2 million compared with $41.9 million in 1996.

Operating income of the Company's crop production business reflects a
decrease of $19.7 million in 1996 compared with 1995. However, the aggregate
contribution to net income from all crop production operations (including joint
ventures) was at about the same level in 1996 as in 1995. The Company's crop
production operations reflect a decrease primarily because of lower fertilizer
margins. The approximately $6.0 million, or 2.8%, decrease in nitrogen
fertilizer margins was the result of lower average unit selling prices combined
with higher raw material costs. Unit margins from the Company's phosphate
fertilizer operations decreased approximately $17.0 million. The effect of
these decreases were largely offset by an increase of approximately
$17.1 million in the Company's share of net income from joint ventures engaged
in phosphate fertilizer manufacturing operations and an increase of
approximately $2.4 million in the Company's share of net income from WILFARM.

Operating income of the crop production business increased $72.7 million
in 1995 compared with 1994. In addition, the Company's share of the net income
of joint ventures engaged in phosphate manufacturing increased $4.6 million and
the Company's share of net income of WILFARM was $2.2 million. The increased
operating results from crop production operations was principally attributable
to the effect of higher selling prices on unit margins and contributed
significantly to the Company's increased net income in 1995.

FEED

SALES

Sales of the feed business increased $48.1 million in 1997 compared with
1996. This increase resulted primarily from higher unit prices of feed
ingredients combined with a slight increase in volume.

Sales of feed products increased 21.9% to $569.9 million in 1996 compared
with $467.7 million in 1995. The increase was primarily attributable to higher
unit prices which reflected higher cost of raw materials. In addition, unit
sales of formula feed and feed ingredients increased approximately 2% and 10%,
respectively.

Sales of the feed business decreased $60.1 million in 1995 compared with
1994. This decrease reflected lower unit sales in traditional markets for beef,
dairy and swine feed partly offset by increased commercial (bulk) feed sales.
Unit sales of dairy feed decreased because the number of dairy cattle on feed
programs in the Company's trade territory decreased in 1995. Beef and swine
feed unit sales decreased because the relatively low market prices available to

livestock producers encouraged such producers to reduce input costs wherever
possible and such efforts were aided by the mild winter during which pastures in
most of the Company's trade area remained open and provided suitable grazing for
beef cattle.

OPERATING INCOME

Operating income of the feed business decreased $6.3 million in 1997
compared with 1996. This decrease was primarily attributable to declining sales
through traditional local cooperative channels and an increase in sales to lower
margin commercial accounts.

Operating income of the feed business increased $2.9 million in 1996
compared with 1995. This increase was attributable primarily to increased unit
margins on feed grade phosphate and to increased sales of feed ingredients.

Operating income of the feed business decreased $7.0 million in 1995
compared with 1994. This decrease was attributable to decreased unit sales in
traditional markets with cooperatives combined with a net loss on sales to
commercial accounts.

FOOD PROCESSING AND MARKETING

SALES

The Company's food processing and marketing business sales increased
$338.3 million in 1997 compared with 1996. This increase was largely
attributable to increased unit volume primarily resulting from the operations of
pork processing plants acquired during the third and fourth quarters of 1996.
Unit price increases of approximately 4% also contributed to the increase in
sales.

Sales of the food processing and marketing business increased $528.1
million in 1996 compared with 1995. Beef sales increased $308.7 million due
primarily to the effect of including operations of the Hyplains Beef L.C.
("Hyplains") beef plant in the Company's financial statements for a full year in
1996. The Company acquired a majority ownership in this plant in March 1995.
Pork sales increased $219.4 million primarily as a result of higher unit sales
of branded products mostly as a result of acquisitions (OhSe and Farmstead
brands).

Sales of the food processing and marketing business increased $337.3
million in 1995 compared with 1994. Sales of beef increased $350.6 million.
Approximately $235.0 million of this increase resulted from FNBPC's purchase of
assets from Hyplains (formerly 50%-owned by Farmland). The balance of the
increased sales of beef resulted primarily from increased volume (approximately
16%) at FNBPC's plant. Sales of pork decreased $13.3 million reflecting the net
effect of lower wholesale pork prices, partly offset by higher unit sales.

OPERATING INCOME

Operating income of the Company's food processing and marketing business
decreased $21.9 million in 1997 compared with 1996. This decrease was primarily

attributable to the increased cost to acquire live hogs and to the increased
selling and administrative expenses related to the food processing business,
partially offset by increased beef unit margins.

Operating income of the food processing and marketing business of $66.0
million in 1996 represented an $11.1 million decrease compared to 1995. This
decrease primarily resulted from decreased margins on fresh pork and increased
administrative expenses, partially offset by increased beef unit sales.

Operating income of the food processing and marketing business increased
$56.5 million in 1995 compared with 1994. This increase included increased
operating income of $43.5 million in beef operations and $13.0 million in pork
operations. In addition, the Company's share of net income of Hyplains in 1995
(for the period prior to its acquisition by FNBPC) increased $5.2 million
compared with 1994. These increases reflected increased unit margins (mostly a
result of lower cattle and hog market prices) and an increased number of cattle
and hogs processed.

GRAIN MARKETING

SALES AND OPERATING INCOME

The Company's grain marketing sales decreased $1.2 billion in 1997
compared with 1996. This decrease resulted from decreases in both unit sales
(primarily due to a reduction in export sales) and unit prices. The grain
marketing business had operating income of $6.8 million in 1997 compared with an
operating loss of $18.2 million in 1996. This increase in operating income was
primarily attributable to higher margins combined with increased storage income.

Grain sales increased $1.6 billion, or 82%, in 1996 compared to 1995
principally owing to a 40% increase in units sold combined with increased grain
prices. Grain had a $18.2 million operating loss in 1996 compared with $17.9
million operating income in 1995. The operating loss was principally
attributable to drought conditions in certain major wheat producing regions of
the United States which resulted in both shortages of and significantly higher
prices for wheat. Due to this shortage, the Company had to source wheat (in
order to meet contractual obligations), from domestic geographic areas further
from the Company's gulf coast export elevator than expected, resulting in higher
than anticipated purchase prices and transportation charges. The Company's
policy is to hedge its exposure to price fluctuations. However, in order to
avoid influencing price movement in certain commodity futures markets,
significant contracts are hedged over a period of time, but as soon as
practical, after such contracts are written. In 1996, the Company entered into
a significant fixed price sales contract. During the time required to fully
hedge this contract, the market for wheat was relatively volatile but generally
trended upward. The joint effect of these factors contributed to the loss in
the Company's grain operations.

Sales of grain increased $279.0 million in 1995 compared with 1994. This
increase resulted from higher grain prices and unit sales, primarily export
sales. Operating income of the grain business totaled $17.9 million in 1995
compared with a loss of $33.5 million in 1994. The increase in operating
results was attributable to approximately 59.0 million bushels higher export
volume by the NAGD, increased volume of international grain brokered by
Tradigrain and more favorable unit margins which developed as market prices
increased in response to decreased worldwide production in 1995.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") increased $40.4
million, or 11%, in 1997 compared with 1996. SG&A directly associated with
business segments increased $48.8 million (primarily the food processing and
marketing segment) and has been included in the determination of the operating
income of business segments. General corporate expenses not identified to
business segments decreased $8.4 million primarily as a result of lower
employee-related costs.

SG&A increased $24.6 million, or 7.1%, in 1996 compared with 1995.
Approximately $13.5 million of the increase was directly connected to business
segments (primarily the food processing and marketing and grain segments) and
has been included in the determination of the operating income of business
segments. The increase of general corporate expenses, not identified to
business segments ($11.1 million), included higher expenses from improving the
management information systems and higher employee-related costs.

SG&A increased $39.1 million in 1995 compared with 1994.
Approximately $25.3 million of the increase was directly connected to business
segments (primarily the food processing and marketing and grain segments) and
has been included in the determination of the operating income of business
segments. The increase of general corporate expenses, not identified to
business segments ($13.8 million), reflected higher variable compensation,
pension and other employee costs and higher costs for legal services.

OTHER INCOME (DEDUCTIONS)

INTEREST EXPENSE

Interest expense decreased $0.1 million in 1997 compared with 1996,
reflecting lower average borrowings offset by a slight increase in the average
interest rate.

Interest expense increased $8.6 million in 1996 compared with 1995,
reflecting higher average borrowings, partly offset by a slight decline in the
average interest rate.

Interest expense increased $2.4 million in 1995 compared with 1994,
reflecting a higher average interest rate, partly offset by a lower amount of
average borrowings.

OTHER, NET

In May 1996, the Company sold its interest in a communications joint
venture, Broadcast Partners. The sale resulted in a gain before income taxes of
$10.9 million, which has been included in the caption "Other income
(deductions): Other, net" in the Company's Consolidated Statement of
Operations. See Note 15 of the Notes to Consolidated Financial Statements
included herein.

CAPITAL EXPENDITURES

See "Business and Properties - Business - Capital Expenditures and
Investments in Ventures" included herein.

MATTERS INVOLVING THE ENVIRONMENT

See "Business and Properties - Business - Business Risk Factors" and "
- - Matters Involving the Environment" included herein.

RECENT ACCOUNTING PRONOUNCEMENTS

In 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information." These statements, which are effective for periods
beginning after December 15, 1997, expand or modify disclosures and,
accordingly, will have no impact on the Company's reported financial position,
results of operations or cash flows.

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
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 are 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 basis to be reasonable and
makes them in good faith, assumed facts or basis almost always vary from actual
results, and the differences between assumed facts or basis 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 a reasonable basis, but there can be no assurance
that the statement of expectation or belief will result or be achieved or
accomplished. Such forward looking statements include, without limitation,
statements regarding the seasonal effects upon the Company's business, the
effects of actual and pending legislation and regulation upon the Company's
business (including, but not limited to, the effects of FAIR, "fast-track" and
certain environmental laws), the anticipated expenditures for environmental
remediation, the consequences of an adverse judgment in certain litigations
(including the Terra litigation), the Company's ability to fully and timely
complete modifications and expansions with respect to certain of the Company's
manufacturing facilities, the redemption of the Company's various equities, the
adequacy of certain raw material reserves and supplies, the Company's objectives
with respect to certain strategic acquisitions and dispositions and the
Company's ability to resolve Year 2000 issues with respect to its financial,
informational and operational systems. Discussion containing such forward-
looking statements is found in the material set forth under "Business and
Properties" (including, without limitation, "Business Risk Factors"), "Market
for the Registrant's Common Equity and Related Stockholder Matters",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Notes to Consolidated Financial Statements", as well as within
this Form 10-K generally.

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 demand).

5. Factors affecting supply, demand and price of crude oil, refined fuels,
natural gas 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 which may be larger than the Company, offer
more varied products or possess greater resources.

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

9. The factors identified in "Business and Properties - Business - Business
Risk Factors" included herein.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information specified under Item 7A is not required for fiscal 1997,
because of the Company's market capitalization was less than $2.5 billion as of
January 28, 1997.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FARMLAND CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report ...............................32

Consolidated Balance Sheets, August 31, 1996 and
1997 .......................................................33

Consolidated Statements of Operations for each of
the years in the three-year period ended August
31, 1997 ...................................................35

Consolidated Statements of Cash Flows for each of
the years in
the three-year period ended August 31, 1997 ................36

Consolidated Statements of Capital Shares and
Equities for each of the years in the three-year
period ended August 31, 1997 ...............................38

Notes to Consolidated Financial Statements .................39

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Farmland Industries, Inc.:

We have audited the accompanying consolidated balance sheets of Farmland
Industries, Inc. and subsidiaries as of August 31, 1996 and 1997, and the
related consolidated statements of operations, cash flows and capital shares and
equities for each of the years in the three-year period ended August 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Farmland Industries,
Inc. and subsidiaries as of August 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 31, 1997, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Kansas City, Missouri
October 17, 1997

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

August 31
1996 1997
(Amounts in Thousands)

Current Assets:
Accounts receivable - trade........................................ $ 624,002 $ 589,028
Inventories (Note 2)............................................... 736,620 745,301
Other current assets............................................... 101,748 94,239

Total Current Assets.......................................... $ 1,462,370 $ 1,428,568

Investments and Long-Term Receivables (Note 3)....................... $ 241,124 $ 266,554

Property, Plant and Equipment (Notes 4 and 5):
Property, plant and equipment, at cost............................. $ 1,506,460 $ 1,585,824
Less accumulated depreciation and amortization..................... 789,236 802,716

Net Property, Plant and Equipment.................................. $ 717,224 $ 783,108

Other Assets......................................................... $ 147,728 $ 167,082

Total Assets......................................................... $ 2,568,446 $ 2,645,312

FN>
See accompanying Notes to Consolidated Financial Statements.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND EQUITIES

August 31
1996 1997
(Amounts in Thousands)

Current Liabilities:
Demand loan certificates............................................... $ 40,099 $ 50,523
Short-term notes payable (Note 5)...................................... 315,428 258,342
Current maturities of long-term debt (Note 5).......................... 41,080 91,643
Accounts payable - trade............................................... 392,436 366,345
Accrued payroll........................................................ 48,893 57,754
Other current liabilities.............................................. 302,384 361,750

Total Current Liabilities......................................... $ 1,140,320 $ 1,186,357

Long-Term Liabilities (Note 5):
Long-term borrowings (excluding current maturities).................... $ 616,258 $ 580,665
Other long-term liabilities............................................ 35,983 33,480

Total Long-Term Liabilities....................................... $ 652,241 $ 614,145

Deferred Income Taxes (Note 6)........................................... $ 6,709 $ 3,974

Minority Owners' Equity in Subsidiaries (Note 7)......................... $ 13,845 $ 18,843

Capital Shares and Equities (Note 8):
Preferred shares, $25 par value--Authorized 8,000,000 shares, 2,886
shares issued and outstanding
(50,565 shares in 1996).............................................. $ 1,264 $ 72
Common shares, $25 par value--Authorized 50,000,000
shares, 17,680,493 shares issued and outstanding
(16,580,112 shares in 1996) ......................................... 414,503 442,012
Associate member common shares (nonvoting), $25 par value --Authorized
2,000,000 shares, 889,913 shares
issued and outstanding (623,058 shares in 1996) ..................... 15,576 22,248
Earned surplus and other equities...................................... 323,988 357,661

Total Capital Shares and Equities................................. $ 755,331 $ 821,993

Contingent Liabilities and Commitments (Notes 5, 6 and 9)

Total Liabilities and Equities............................................. $ 2,568,446 $ 2,645,312

<FN>
See accompanying Notes to Consolidated Financial Statements.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended August 31
1995 1996 1997
(Amounts in Thousands)

Sales....................................................... $ 7,256,869 $ 9,788,587 $ 9,147,507
Cost of sales............................................... 6,699,178 9,272,002 8,580,826

Gross income................................................ $ 557,691 $ 516,585 $ 566,681

Selling, general and administrative expenses................ $ 344,364 $ 368,954 $ 409,378

Other income (deductions):
Interest expense......................................... $ (53,862) $ (62,445) $ (62,335)
Interest income.......................................... 8,334 5,021 5,352
Other, net (Note 15)..................................... 11,600 24,257 22,486

Total other income (deductions)............................. $ (33,928) $ (33,167) $ (34,497)

Income before income taxes and equity in net
income of investees and minority owners'
interest in net income of subsidiaries................... $ 179,399 $ 114,464 $ 122,806

Income tax expense (Note 6)................................. 29,628 21,755 20,907

Income before equity in net income of investees and minority
owners' interest in net income of subsidiaries......... $ 149,771 $ 92,709 $ 101,899

Equity in net income of investees
(Note 3)................................................. 22,785 41,092 42,108

Minority owners' interest in net income
of subsidiaries.......................................... (9,757) (7,383) (8,584)

Net income ................................................. $ 162,799 $ 126,418 $ 135,423

Distribution of net income (Note 8):
Patronage refunds:
Farm supply patrons.................................. $ 74,557 $ 83,739 $ 101,262
Pork marketing patrons............................... 16,087 6,998 -0-
Beef marketing patrons............................... 2,488 2,753 6,458
Grain marketing patrons.............................. 1,285 -0- 585
Livestock production................................. -0- 5 2

$ 94,417 $ 93,495 $ 108,307
Earned surplus and other equities (Note 8)............... 68,382 32,923 27,116

$ 162,799 $ 126,418 $ 135,423

<FN>
See accompanying Notes to Consolidated Financial Statements.

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

Year Ended August 31
1995 1996 1997
(Amounts in Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 162,799 $ 126,418 $ 135,423
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 69,138 77,741 90,351
Equity in net income of investees........................... (22,785) (41,092) (42,108)
Minority owners' equity in net
income of subsidiaries.................................... 9,757 7,383 8,584
(Gain) on disposition of investments........................ -0- (11,300) (552)
(Gain) loss on disposition of fixed assets.................. 1,882 (967) (1,390)
Patronage refunds received in equities...................... (2,025) (2,244) (1,830)
Proceeds from redemption of patronage equities.............. 3,776 5,112 5,106
Deferred income taxes....................................... 6,161 11,034 (1,469)
Other....................................................... 412 (2,335) 3,341
Changes in assets and liabilities (exclusive
of assets and liabilities of businesses acquired):
Accounts receivable....................................... (70,413) (175,991) 27,644
Inventories............................................... (186,570) 47,220 (9,343)
Other assets.............................................. 38,889 (40,774) 6,249
Accounts payable.......................................... 782 140,721 (26,091)
Other liabilities......................................... 35,684 41,194 28,393

Net cash provided by operating activities..................... $ 47,487 $ 182,120 $ 222,308

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................... $ (124,722) $ (168,272) $ (158,655)
Distributions from joint ventures............................. 513 22,239 55,238
Acquisition of investments and notes receivable............... (26,789) (51,923) (46,243)
Acquisition of other long-term assets......................... (2,141) (23,768) (25,724)
Proceeds from sale of investments
and collection of notes receivable.......................... 39,780 31,003 24,758
Proceeds from sale of fixed assets............................ 3,828 5,996 6,895
Acquisition of businesses..................................... -0- (39,536) (3,515)
Other......................................................... -0- (6,803) -0-

Net cash used in investing activities......................... $ (109,531) $ (231,064) $ (147,246)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of patronage refunds and dividends................... $ (26,648) $ (32,781) $ (32,515)
Payments for redemption of equities........................... (12,431) (27,470) (25,440)
Proceeds from bank loans and notes payable.................... 522,916 597,959 337,407
Payments of bank loans and notes payable...................... (513,672) (526,814) (427,139)
Proceeds from issuance of subordinated debt
certificates.............................................. 46,715 67,965 86,132
Payments for redemption of subordinated
debt certificates......................................... (26,866) (43,803) (37,455)
Net increase (decrease) in checks
and drafts outstanding.................................... 37,088 (6,144) 16,299
Net increase (decrease) in demand loan certificates........... (9,634) 26,575 10,424
Other, increase (decrease).................................... 492 (6,543) (2,775)

Net cash provided by (used in) financing activities........... $ 17,960 $ 48,944 $ (75,062)

Net decrease in cash and cash equivalents..................... $ (44,084) $ -0- $ -0-
Cash and cash equivalents at beginning of year................ 44,084 -0- -0-

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

SUPPLEMENTAL SCHEDULE OF CASH PAID FOR INTEREST AND INCOME TAXES
Interest...................................................... $ 50,551 $ 58,125 $ 57,650

Income taxes (net of refunds)................................. $ 30,422 $ 27,943 $ 14,399

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equities and minority owners' interest called
for redemption............................................ $ 27,738 $ 25,214 $ 28,579

Transfer of assets in exchange for investment in
joint ventures............................................ $ 2,061 $ -0- $ 10,292

Appropriation of current year's net income as
patronage refunds......................................... $ 94,417 $ 93,495 $ 108,307

Acquisition of businesses:
Fair value of net assets acquired......................... $ -0- $ 52,401 $ -0-

Goodwill.................................................. -0- 3,181 2,550
Minority owners' investment............................... -0- -0- 965
Cash paid................................................. -0- (39,536) (3,515)

Liabilities assumed........................................... $ -0- $ 16,046 $ -0-

<FN>
See accompanying Notes to Consolidated Financial Statements.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL SHARES AND EQUITIES

Years Ended August 31, 1995, 1996 and 1997

Associate Earned Total
Member Surplus and Capital
Preferred Common Common Other Shares and
Shares Shares Shares Equities Equities

(Amounts in Thousands)

BALANCE AT AUGUST 31, 1994......................... $ 3,702 $ 363,562 $ 9,268 $208,481 $ 585,013
Appropriation of current year's net income......... -0- -0- -0- 162,799 162,799
Patronage refund payable in cash transferred
to current liabilities........................... -0- -0- -0- (33,061) (33,061)
Base capital redemptions transferred
to current liabilities........................... -0- (13,939) (220) -0- (14,159)
Other equity redemptions transferred
to current liabilities........................... (1,249) (30) -0- (11,477) (12,756)
Prior year qualified patronage refund allocation... -0- 35,940 1,508 (37,284) 164
Dividends on preferred stock....................... -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities.................. -0- (73) 245 (172) -0-
Issue, redemption and cancellation of equities..... -0- (51) 332 (990) (709)

BALANCE AT AUGUST 31, 1995......................... $ 2,453 $ 385,409 $11,133 $288,292 $ 687,287
Appropriation of current year's net income......... -0- -0- -0- 126,418 126,418
Patronage refund payable in cash transferred
to current liabilities........................... -0- -0- -0- (32,719) (32,719)
Base capital redemptions transferred
to current liabilities........................... -0- (13,922) (103) -0- (14,025)
Other equity redemptions transferred
to current liabilities........................... (1,190) (6,578) (287) (3,272) (11,327)
Prior year qualified patronage refund allocation... -0- 49,644 6,493 (56,294) (157)

Dividends on preferred stock....................... -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities.................. -0- 116 (1,654) 1,538 -0-
Issue, redemption and cancellation of equities..... 1 (166) (6) 29 (142)

BALANCE AT AUGUST 31, 1996 $ 1,264 $ 414,503 $15,576 $323,988 $ 755,331
Appropriation of current year's net income......... -0- -0- -0- 135,423 135,423
Patronage refund payable in cash transferred
to current liabilities........................... -0- -0- -0- (40,228) (40,228)
Base capital redemptions transferred
to current liabilities........................... -0- (16,783) (444) -0- (17,227)
Other equity redemptions transferred
to current liabilities........................... (1,189) (6,737) (302) (2,963) (11,191)
Prior year qualified patronage refund allocation... -0- 53,269 5,640 (59,103) (194)
Dividends on preferred stock....................... -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities.................. -0- (2,566) 1,929 637 -0-
Issue, redemption and cancellation of equities..... (3)

BALANCE AT AUGUST 31, 1997 $ 72 $ 442,012 $22,248 $357,661 $ 821,993

<FN>
See accompanying Notes to Consolidated Financial Statements.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Farmland Industries, Inc., a Kansas corporation, is organized and
operated as a cooperative and its mission is to be a producer-driven, customer-
focused and profitable agricultural supply to consumer foods cooperative system.

General -- The consolidated financial statements include the accounts
of Farmland Industries, Inc. and all of its majority-owned subsidiaries
("Farmland" or the "Company", unless the context requires otherwise). All
significant intercompany accounts and transactions have been eliminated. When
necessary, the financial statements include amounts based on informed estimates
and judgments of management. The Company's fiscal year ends August 31.
Accordingly, all references to "year" or "years" are to fiscal years ended
August 31.

Cash and Cash Equivalents -- Investments with maturities of less than
three months are included as cash and cash equivalents.

Investments -- Investments in companies over which the Company
exercises significant influence (20% to 50% voting control) are accounted for by
the equity method. Other investments are stated at cost, less any provision for
impairment (other than temporary impairment).

Accounts Receivable -- The Company uses the allowance method to
account for doubtful accounts and notes.

Inventories -- Grain inventories are valued at market adjusted for net
unrealized gains or losses on open commodity contracts. Crude oil, refined
petroleum products, cattle and beef inventories are valued at the lower of
last-in, first-out ("LIFO") cost or market. Other inventories are valued at the
lower of first-in, first-out ("FIFO") cost or market. Supplies are valued at
cost.

Property, Plant and Equipment -- Assets, including assets under
capital leases, are stated at cost. Depreciation and amortization are computed
principally using the straight-line method over the estimated useful lives of
the assets and the remaining terms of the capital leases, respectively.

Goodwill -- The excess of cost over the fair market value of assets of
businesses purchased is amortized on a straight-line basis over a period of 15
to 25 years. The Company assesses the recoverability of goodwill and measures
impairment, if any, by determining whether the unamortized balance can be
recovered over its remaining life through undiscounted future operating cash
flows. Goodwill is reflected in the accompanying Consolidated Balance Sheets
net of accumulated amortization of $10.3 million and $12.9 million,
respectively, at August 31, 1996 and 1997.

Sales -- The Company's policy is to recognize sales at the time
product is shipped. Net margins on grain merchandised by the Company's
international grain trading subsidiaries (collectively referred to as
"Tradigrain"), rather than the gross value of such products merchandised, are
included in net sales. The gross value of grain merchandised by Tradigrain in
1995, 1996 and 1997 was $1.6 billion, $2.6 billion and $2.3 billion,
respectively.

Derivative Commodity Instruments -- The Company uses derivative commodity
instruments, including forward contracts, futures contracts, purchased options
and collars, primarily to reduce its exposure to risk of loss from changes in
commodity prices. Derivative commodity instruments which are designated as
hedges and for which changes in value exhibit "high" correlation to changes in
value of the underlying position are accounted for as hedges.
Gains and losses on hedges of inventory are deferred as part of the carrying
amount of the related inventories and, upon sale of the inventory, recognized in
cost of sales. Gains and losses related to qualifying hedges of firm
commitments or anticipated transactions also are deferred and are recognized as
an adjustment to the carrying amounts of the commodities when the underlying
hedged transaction occurs. When a qualifying hedge is terminated or ceases to
meet the specified criteria for use of hedge accounting, any deferred gains or
losses through that date continue to be deferred. To the extent an anticipated
transaction is no longer likely to occur, related hedges are closed with gains
or losses charged to operations.
Tradigrain uses derivative commodity instruments to establish positions for
trading purposes. Instruments used for this purpose are marked-to-market and all
related gains and losses are included in operations. Cash flows from commodity
instruments are classified in the same category as cash flows from the hedged
commodities in the Consolidated Statements of Cash Flows.

Environmental Expenditures -- Liabilities 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
upon currently available facts, existing technology, undiscounted site specific
costs and currently enacted laws and regulations. In reporting environmental
liabilities, no offset is made for potential recoveries. All 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.

Federal Income Taxes -- Farmland is subject to income taxes on all
income not distributed to patrons as qualified patronage refunds. Farmland
files consolidated federal and state income tax returns.

(2) INVENTORIES

Major components of inventories are as follows:

August 31

1996 1997
(Amounts in Thousands)

Finished and in-process
products...................$620,794 $625,577
Materials.................. 58,526 62,001
Supplies................... 57,300 57,723

$736,620 $745,301

The carrying values of crude oil and refined petroleum inventories
stated under the lower of LIFO cost or market at August 31, 1996 and 1997, were
$111.8 million and $125.5 million, respectively. Replacement cost approximated
the LIFO carrying values of inventories at both August 31, 1996 and 1997.

The carrying values of beef inventories stated under the lower of LIFO
or market at August 31, 1996 and 1997, were $32.3 million and $37.0 million,
respectively. At both August 31, 1996 and 1997, market value was lower than
LIFO and, accordingly, such inventories were valued at market.

(3) INVESTMENTS AND LONG-TERM RECEIVABLES

Investments and long-term receivables are as follows:

August 31
1996 1997
(Amounts in Thousands)

Investments accounted for by the equity method................ $ 147,028 $ 177,994
Investments in and advances to other cooperatives............. 45,267 43,585
National Bank for Cooperatives ............................... 24,913 20,958
Other investments and long-term receivables................... 22,473 24,017
Notes receivable from ventures, 20% to 50% owned.............. 1,443 -0-

$ 241,124 $ 266,554

National Bank for Cooperatives ("CoBank") requires its borrowers to
maintain an investment in stock of the bank. The amount of investment required
is based on the average amount borrowed from CoBank during the previous five
years. At August 31, 1996 and 1997, Farmland's investment in CoBank
approximated its requirement. CoBank maintains a statutory lien on the
investment held by the Company in CoBank.

Summarized financial information of investees accounted for by the
equity method is as follows:

August 31
1996 1997
(Amounts in Thousands)

Current Assets................................................ $ 228,883 $ 269,565
Long-Term Assets.............................................. 319,166 492,966

Total Assets.............................................. $ 548,049 $ 762,531

Current Liabilities........................................... $ 191,632 $ 214,662
Long-Term Liabilities......................................... 57,208 186,344

Total Liabilities......................................... $ 248,840 $ 401,006

Net Assets.................................................... $ 299,209 $ 361,525

Year Ended August 31
1995 1996 1997
(Amounts in Thousands)

Net sales.................................. $ 1,212,592 $ 1,154,195 $ 1,366,038

Net income................................. $ 46,803 $ 83,075 $ 84,536

Farmland's equity in net income............ $ 22,785 $ 41,092 $ 42,108

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. At
August 31, 1997, undistributed earnings from all ventures accounted for by the
equity method totaled $58.9 million.

(4) PROPERTY, PLANT AND EQUIPMENT

A summary of cost for property, plant and equipment is as follows:

August 31
1996 1997
(Amounts in Thousands)

Land and improvements..................... $ 50,800 $ 51,586
Buildings................................. 278,097 275,835
Machinery and equipment................... 880,152 947,836
Automotive equipment...................... 67,754 67,021
Furniture and fixtures.................... 61,426 53,391
Capital leases............................ 50,562 54,467
Leasehold improvements.................... 24,539 28,981
Other..................................... 8,837 8,283
Construction in progress.................. 84,293 98,424

$ 1,506,460 $ 1,585,824

(5) BANK LOANS, SUBORDINATED DEBT CERTIFICATES AND NOTES PAYABLE

Bank loans, subordinated debt certificates and notes payable are as
follows:

August 31
1996 1997
(Amounts in Thousands)

Subordinated capital investment certificates
--6% to 9.5%, maturing 1998 through 2014....................... $ 245,792 $ 284,493
Subordinated monthly income certificates
--6.25% to 9.25%, maturing 1998 through 2007................... 78,313 88,546
Syndicated Credit Facility
--5.84% to 6.28%, maturing 2001................................ 175,000 160,000
Other bank notes--6.5% to 10.75%,
maturing 1998 through 2008..................................... 88,704 69,943
Industrial revenue bonds--6.75% to 9.25%,
maturing 1998 through 2007..................................... 18,930 17,430
Promissory notes--7% to 8.5%,
maturing 1998 through 2005..................................... 16,917 11,707
Other--3% to 14.92%............................................... 33,682 40,189

$ 657,338 $ 672,308
Less current maturities........................................... 41,080 91,643

$ 616,258 $ 580,665

The Company has a $1.1 billion Syndicated Credit Facility with a group
of domestic and international banks ("the Facility"). The Facility provides
revolving short-term credit of up to $650.0 million to finance seasonal
operations and inventory, and revolving term credit of up to $450.0 million. At
August 31, 1997, the Company had $185.5 million of revolving short-term
borrowings under the Facility and $160.0 million of revolving term borrowings;
additionally, $44.2 million of the Facility was being utilized to support
letters of credit issued on behalf of the Company.

The Company pays commitment fees under the Facility of 1/10 of 1%
annually on the unused portion of the revolving short-term commitment and 1/4 of
1% annually on the unused portion of the revolving term commitment. In
addition, the Company must comply with the Facility's financial covenants
regarding working capital, the ratio of certain debt to average cash flow and
the ratio of equity to total capitalization, all as defined therein. The short-
term provisions of the Facility are reviewed and/or renewed annually. The next
review date is in May 1998. The revolving term provisions of the Facility
expire in May 2001.

Farmland National Beef Packing Company, L.P. ("FNBPC") maintains a
$90.0 million borrowing agreement with a group of banks which provides financing
support for its beef packing operations. The provisions of this agreement
expire in May 1998. Such borrowings are nonrecourse to Farmland or Farmland's
other affiliates (except to the extent of $10 million). At August 31, 1997,
$29.1 million was borrowed under this agreement and $0.6 million was utilized to
support letters of credit. In addition, FNBPC has certain long-term borrowings
from Farmland. FNBPC has pledged certain assets to Farmland and such group of
banks to support its borrowings.

The Company maintains other borrowing arrangements with banks and
financial institutions. At August 31, 1997, $40.8 million was borrowed under
such agreements.

Tradigrain has borrowing agreements with various international banks
which provide financing and letters of credit to support current international
grain trading transactions. At August 31, 1997, such short-term borrowings
totaled $72.8 million. Obligations of Tradigrain under these loan agreements
are nonrecourse to Farmland or Farmland's other affiliates.

Subordinated debt certificates have been issued under several
indentures. Certain subordinated capital investment certificates may be
redeemed prior to maturity at the option of the owner in accordance with the
indenture. Subject to limitations in the indenture, the Company has options to
redeem certain subordinated capital investment certificates in advance of
scheduled maturities. Additionally, upon written request the Company redeems
subordinated capital investment certificates and subordinated monthly income
certificates in the case of death of an owner.

Outstanding subordinated debt certificates are subordinated to senior
indebtedness ($459.8 million at August 31, 1997) and additional financings
(principally long-term operating leases). See Note 9.

At August 31, 1997, under industrial revenue bonds and other
agreements, property, plant and equipment with a carrying value of $14.1 million
have been pledged.

Borrowings from CoBank, totaling $93.6 million at August 31, 1997, are
partially secured by liens on the equity investment held by the Company in
CoBank. See Note 3.

Bank loans, subordinated debt certificates and notes payable mature
during future fiscal years ending August 31 in the following amounts:

(Amounts in Thousands)

1998................. $ 91,643
1999................. 38,272
2000................. 30,467
2001................. 211,736
2002................. 66,662
2003 and after....... 233,528

$ 672,308

At August 31, 1996 and 1997, the Company had demand loan certificates and
short-term bank debt outstanding of $355.5 million (weighted average interest
rate of 6.29%) and $308.9 million (weighted average interest rate of 6.07%),
respectively.

During 1995, 1996 and 1997, the Company capitalized interest of $0.7
million, $1.6 million and $4.0 million, respectively.

(6) INCOME TAXES

A. TERRA RESOURCES, INC.

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 income against which certain patronage-sourced operating
losses could be offset. The statutory notice further asserts that 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.

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 $243.2 million
through August 31, 1997), or $329.0 million (before tax benefits of the
interest deduction) in the aggregate at August 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 $8.1 million), or $13.1 million in the aggregate
at August 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 Syndicated Credit
Facility (the "Facility"), 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 all related additional federal and state income taxes and accumulated
interest thereon been due and payable on August 31, 1997, Farmland's borrowing
capacity under the Facility was adequate at that time to finance the liability.
However, Farmland's ability to finance such an adverse decision depends
substantially on the financial effects of future operating events on its
borrowing capacity under the Facility.

B. OTHER INCOME TAX MATTERS

Income tax expense (benefit) is comprised of the following:

Year Ended August 31
1995 1996 1997
(Amounts in Thousands)

Federal:
Current.................................. $ 18,533 $ 7,322 $ 18,712
Deferred................................. 4,255 9,430 (1,129)

$ 22,788 $ 16,752 $ 17,583

State:
Current................................. $ 3,356 $ 1,292 $ 3,303
Deferred................................ 665 1,664 (199)

$ 4,021 $ 2,956 $ 3,104

Foreign:
Current................................. $ 1,578 $ 2,107 $ 361
Deferred................................ 1,241 (60) (141)

$ 2,819 $ 2,047 $ 220

Total income tax expense................... $ 29,628 $ 21,755 $ 20,907

Income tax expense differs from the "expected" income tax expense
using a statutory rate of 35% as follows:

Year Ended August 31
1995 1996 1997

Computed "expected" income tax expense on
income
before income taxes ..................... 35.0 % 35.0 % 35.0 %
Increase (reduction) in income tax
expense attributable to:
Patronage refunds ....................... (18.3) (20.4) (22.4)
State income tax expense net of
federal income tax effect.............. 2.2 2.5 1.6
Other, net .............................. (2.4) 1.9 2.8

Income tax expense......................... 16.5 % 19.0 % 17.0 %

The tax effect of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at August 31, 1996
and 1997 are as follows:

August 31
1996 1997
(Amounts in Thousands)

Deferred tax liabilities:
Property, plant and equipment,
principally due to differences
in depreciation......................... $ 40,182 $ 51,632
Prepaid pension cost ....................... 21,500 19,242
Income from foreign subsidiaries ........... -0- 3,765
Basis differences in pass-through
ventures................................ -0- 3,929
Other ...................................... 2,080 3,144

Total deferred tax liabilities.......... $ 63,762 $ 81,712

Deferred tax assets:
Safe harbor leases ......................... $ 4,699 $ 4,143
Accrued expenses ........................... 47,140 49,747
Benefit of nonqualified
written notices......................... -0- 19,456
Accounts receivable, principally due to
allowance for doubtful accounts......... 1,971 1,844
Other ...................................... 3,243 2,548

Total deferred tax assets .................. $ 57,053 $ 77,738

Net deferred tax liability ................. $ 6,709 $ 3,974

A valuation allowance of $1.5 million and $1.6 million for deferred
tax assets was provided at August 31, 1996 and 1997, respectively. The
valuation allowance was provided because of limitations imposed by the tax laws
on the Company's ability to realize the benefit of income tax credits obtained
through an acquisition.

At August 31, 1997, Farmland has member-sourced loss carryforwards,
expiring in 2012, amounting to $13.5 million available to offset future member-
sourced income. No deferred tax asset has been established for these
carryforwards since member-sourced losses offset future patronage refunds.

(7) MINORITY OWNERS' EQUITY IN SUBSIDIARIES

A summary of the equity in subsidiaries owned by others is as follows:

August 31
1996 1997
(Amounts in Thousands)

Farmland National Beef Packing Company, L.P................ $ 6,455 $ 11,491
Farmland Foods, Inc. ...................................... 4,594 4,423
Other subsidiaries......................................... 2,796 2,929

$ 13,845 $ 18,843

(8) PREFERRED STOCK, EARNED SURPLUS AND OTHER EQUITIES

A summary of preferred stock is as follows:

August 31
1996 1997
(Amounts in Thousands)

Preferred shares, $25 par value - Authorized
8,000,000 shares: 6% - 570 shares issued and
outstanding (608 shares in 1996).................... $ 15 $ 14
5-1/2% - 2,316 shares issued and outstanding
(2,412 shares in 1996)................................. 60 58
Series F - -0- shares issued and outstanding
(47,545 shares in 1996)................................ 1,189 -0-

$ 1,264 $ 72

Dividends on the 5-1/2% and 6% preferred stock are cumulative if
declared by the Farmland Board of Directors and only to the extent earned each
year. Upon liquidation, preferred stock holders are entitled to the par value
thereof and any declared or unpaid earned dividends.

A summary of earned surplus and other equities is as follows:

August 31
1996 1997
(Amounts in Thousands)

Earned surplus............................................ $ 230,340 $ 257,044
Patronage refund allocable in equities.................... 60,776 68,079
Capital credits........................................... 31,237 30,879
Additional paid-in surplus................................ 1,616 1,616
Currency translation adjustment........................... 19 43

$ 323,988 $ 357,661

In accordance with the bylaws of Farmland, the member-sourced portion
of its net income or loss and the resulting patronage refund payable to members
and patrons are determined annually. In 1997, a portion of the patronage refund
was paid in the form of qualified written notices of allocation and a portion
was paid in the form of nonqualified written notices of allocation. The
qualified patronage refund was paid 70% in cash and the remainder was
distributed in the form of common shares, associate member common shares or
capital credits, depending on the patron's status. The member or patron must
take the total amount of the qualified patronage refund into income for income
tax purposes in the year issued. The nonqualified patronage refund was recorded
as book credits in the form of common shares, associate member common shares or
capital credits, depending on the member or patron's status. The nonqualified
distribution is not taxable income to the member or patron until redeemed in
cash.

Capital credits are issued: 1) for payment of patronage refunds to
patrons who do not satisfy requirements for membership or associate membership
and 2) upon conversion of common stock or associate member common stock held by
persons who no longer meet qualifications for membership or associate membership
in Farmland.

Additional paid-in surplus results from members donating Farmland
equity to Farmland.

Farmland maintains a base capital plan. The plan's objectives are as
follows: 1) to achieve proportionality between the dollar amount of business a
member or associate member of Farmland ("Participant") transacts with Farmland
and the equity of Farmland which the Participant should hold (hereinafter
referred to as the Participant's "Base Capital Requirement") and 2) provide a
method for the Board of Directors, in its discretion, to redeem equities held by
a Participant when the amount of such equity held by the Participant exceeds the
Participant's Base Capital Requirement. Under this plan, the cash portion of
the patronage refund payable to voting members or associate members depends upon
the degree to which such voting members or associate members meet their Base
Capital Requirements.

The Base Capital Requirement is determined annually by the Board of
Directors at its sole discretion. At August 31, 1996 and 1997, common stock and
associate member common stock with an aggregate par value of $14.0 million and
$17.2 million, respectively, were approved for redemption by the Board of
Directors under the base capital plan and such amounts have been included in
"Other current liabilities" in the Consolidated Balance Sheets at August 31,
1996 and 1997, respectively.

Farmland maintains an estate settlement plan for redemption of
equities held by estates of deceased individuals (except purchased equities held
less than five years) and special equity redemption plans. Under these plans,
the Board of Directors, in its discretion, may redeem equities based on certain
factors, including the financial position and consolidated net income of the
Company.

At August 31, 1996 and 1997, certain equities with a face amount of
$11.4 million and $11.5 million were approved by the Board of Directors for
redemption under the estate settlement, preferred shares and other special
equity redemption plans and such amounts have been included in "Other current
liabilities" in the Consolidated Balance Sheets at August 31, 1996 and 1997,
respectively.

None of the aforementioned equities are held by or for the account of
Farmland or in any sinking or other special fund of Farmland and none have been
pledged by Farmland.

(9) CONTINGENT LIABILITIES AND COMMITMENTS

The Company leases various equipment and real properties under
long-term operating leases, and also has certain throughput and take-or-pay
agreements for processing services and raw material supplies. For 1995, 1996
and 1997, rental expenses and purchases under the throughput and take-or-pay
agreements totaled $44.6 million, $42.1 million and $55.7 million, respectively.
Rental expense is reduced for sublease income, primarily mileage credits
received on leased railroad cars ($1.8 million in 1995, $1.4 million in 1996 and
$5.4 million in 1997).

The lease and throughput and take-or-pay agreements have various
remaining terms ranging from one year to twenty years. Some agreements are
renewable, at the Company's option, for additional periods. The minimum
required payments for these agreements during the fiscal years ending August 31
are as follows:

(Amounts in Thousands)
1998...........................$ 72,234
1999........................... 63,477
2000........................... 53,477
2001........................... 45,786
2002........................... 30,981
2003 and after................. 121,019

$ 386,974

Commitments for capital expenditures and investments in joint ventures
aggregated $39.2 million at August 31, 1997.

The Company has been designated by the Environmental Protection Agency
as a potentially responsible party ("PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), at various National
Priority List ("NPL") sites. In addition, the Company is aware of possible
obligations associated with environmental matters at other sites, including
sites where no claim or assessment has been made. The Company's accrued
liability for probable and reasonably estimable obligations for resolution of
environmental matters at NPL and other sites was $18.9 million and $16.9 million
at August 31, 1996 and 1997, respectively.

The ultimate costs of resolving certain environmental matters are not
quantifiable because many such matters are in preliminary stages and the timing
and extent of actions which governmental authorities may ultimately require are
unknown. It is possible that the costs of such resolution may be greater than
the liabilities which, in the opinion of management, are probable and reasonably
estimable at August 31, 1997. In the opinion of management, it is reasonably
possible for such costs to approximate an additional $17.5 million.

In the ordinary course of conducting international grain trading,
Tradigrain, as of August 31, 1997, was contingently liable in the amount of
$56.0 million of guarantees, performance and bid bonds, and letters of credit.

The Company is involved in various lawsuits arising in the normal
course of business. In the opinion of management, except for the tax litigation
relating to Terra as explained in Note 6, the ultimate resolution of these
litigation issues will not have a material adverse effect on the Company's
Consolidated Financial Statements.

(10) EMPLOYEE BENEFIT PLANS

The Farmland Industries, Inc. Employee Retirement Plan (the "Plan") is
a defined benefit plan in which substantially all employees of the Company who
meet minimum age and length-of-service requirements are eligible to
participate. Benefits payable under the Plan are based on years of service
and the employee's average compensation during the highest four of the
employee's last ten years of employment.

The assets of the Plan are maintained in a trust fund. The majority
of the Plan's assets are invested in common stocks, corporate bonds, United
States Government securities and short-term investment funds.

The Company's funding strategy is to make the maximum annual
contribution to the Plan's trust fund that can be deducted for federal income
tax purposes. The Company charges pension cost as accrued based on actuarial
valuation of the Plan.

Components of the Company's pension cost are as follows:

Year Ended August 31
1995 1996 1997
(Amounts in Thousands)

Service cost - benefits earned during the period................... $ 10,336 $ 10,886 $ 11,333
Interest cost on projected benefit obligation...................... 16,707 18,843 19,816
Actual return on Plan assets....................................... (27,422) (46,630) (37,816)
Net amortization and deferral...................................... 8,677 24,634 12,252

Pension expense.................................................... $ 8,298 $ 7,733 $ 5,585

The discount rate, the rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligations and the expected long-term rate of return on assets were 8.0%, 4.5%
and 8.5%, respectively, at August 31, 1995, 1996 and 1997.

The following table sets forth the Plan's funded status and amounts
recognized in the Company's Consolidated Balance Sheets at August 31, 1996 and
1997. Such prepaid pension cost is based on the Plan's funded status as of May
31, 1996 and 1997.

Year Ended August 31
1996 1997
(Amounts in Thousands)

Actuarial present value of benefit obligations:
Vested benefits.................................................... $ 180,253 $ 196,063
Nonvested benefits................................................. 12,024 16,730

Accumulated benefit obligation..................................... $ 192,277 $ 212,793
Increase in benefits due to future compensation increases.......... 56,030 51,730

Projected benefit obligation....................................... $ 248,307 $ 264,523
Estimated fair value of Plan assets................................ 301,504 331,822

Plan assets in excess of projected benefit obligation.............. $ 53,197 $ 67,299
Unrecognized net (gain) loss from past experience different
from that assumed and effects of changes
in assumptions.................................................. 450 (15,405)
Unrecognized prior service cost.................................... 871 621

Prepaid pension cost at end of year.................................. $ 54,518 $ 52,515

During 1997, certain employees transferred to a newly formed venture
and were no longer eligible to participate in the Plan. As a result of such
transfer, the Company recognized a curtailment gain of $3.6 million.

(11) INDUSTRY SEGMENT INFORMATION

On the output side, the Company's processing and marketing operations
include the processing of pork and beef, the marketing of fresh pork, processed
pork and fresh beef and the storage and marketing of grain.

Other operations primarily includes livestock production and services
such as computer services, accounting, financial, management, printing and
transportation.

The operating income (loss) of each industry segment includes the
revenue generated on transactions involving products within that industry
segment less identifiable and allocated expenses. In computing operating income
(loss) of industry segments, none of the following items has been added or
deducted: interest expense, interest income, other income (deductions) or
corporate expenses (included in the statements of operations as selling, general
and administrative expenses), which cannot practicably be identified or
allocated by industry segment. Corporate assets include cash, investments in
other cooperatives, the Company's corporate headquarters and certain other
assets.

Following is a summary of industry segment information as of and for
the years ended August 31, 1995, 1996 and 1997.

Unallocated
Corporate
Farm Supply Marketing and Inter-
Crop and Processing Other Segment
Petroleum Production Feed Foods Grain Operations Eliminations Consolidated
(Amounts in Thousands)

1995
Sales to unaffiliate
customers......... $876,776 $1,171,389 $467,695 $2,692,892 $1,906,164 $ 141,953 $ -0- $ 7,256,869
Tansfers between
segments.......... 6,549 18,368 5,982 3,100 13,164 80,891 (128,054) -0-
Total sales and
transfers......... $883,325 $1,189,757 $473,677 $2,695,992 $1,919,328 $ 222,844 $(128,054) $ 7,256,869
Operating income
(loss) of industry
segments.......... $ (8,029) $ 198,575 $ 9,773 $ 77,060 $ 17,936 $ 618 $ 295,933
Equity in net income
(loss) of investee
(Note 3).......... $ 168 $ 22,096 $ 130 $ 823 $ 688 $ (1,120) $ 22,785
General corporate
expenses.......... (83,039)
Other corporate
income............ 20,367
Interest expense... (53,862)
Minority interest... (9,757)
Income tax expense.. (29,628)
Net income.......... $ 162,799
Identifiable assets at
August 31, 1995... $313,478 $ 410,979 $ 93,438 $ 491,257 $ 503,670 $ 80,470 $ 1,893,292
Investment in and
advances to
investees......... $ 953 $ 80,805 $ 1,497 $ 325 $ 120 $ 9,304 $ 93,004
Corporate assets.... 199,647
Total assets........ $ 2,185,943
Provision for
depreciation and
amortization...... $ 9,858 $ 15,530 $ 4,319 $ 21,891 $ 5,156 $ 5,308 $ 7,076 $ 69,138

Capital expenditures $ 27,638 $ 23,845 $ 5,766 $ 32,219 $ 905 $ 7,504 $ 28,986 $ 126,863

1996
Sales to unaffiliated
customers........$1,058,258 $1,336,307 $569,869 $3,220,996 $3,468,686 $ 134,471 $ -0- $ 9,788,587
Transfers between
segments......... 7,895 16,392 13,672 2,959 72,819 93,144 (206,881) -0-
Total sales and
transfers........$1,066,153 $1,352,699 $583,541 $3,223,955 $3,541,505 $ 227,615 $(206,881) $ 9,788,587
Operating income
(loss) of industry
segments.........$ 4,990 $ 179,008 $ 12,952 $ 65,953 $ (18,234) $ (3,003) $ 241,666
Equity in net income
(loss) of investees
(Note 3).........$ (98) $ 41,899 $ 382 $ -0- $ (10) $ (1,081) $ 41,092
General corporate
expenses......... (94,035)
Other corporate
income........... 29,278
Interest expense.. (62,445)
Minority interest.. (7,383)
Income tax expense. (21,755)
Net income......... $ 126,418
Identifiable assets at
August 31, 1996..$ 433,352 $ 438,559 $107,267 $ 618,122 $ 455,044 $ 102,278 $ 2,154,622
Investment in and
advances to
investees........$ 611 $ 136,959 $ 3,399 $ 18 $ 468 $ 7,016 $ 148,471
Corporate assets... 265,353
Total assets....... $ 2,568,446
Provision for
depreciation and
amortization.....$ 11,024 $ 16,797 $ 4,625 $ 26,438 $ 5,010 $ 6,766 $ 7,081 $ 77,741
Capital expenditure
(Including $29.9
million of capital
assets of
businesses
acquired)........$ 42,075 $ 37,296 $ 5,083 $ 84,493 $ 6,643 $ 19,044 $ 27,342 $ 221,976

1997
Sales to unaffiliated
customers........$1,331,786 $1,263,566 $618,000 $3,559,305 $2,238,695 $ 136,155 $ -0- $ 9,147,507
Transfers between
segments......... 5,153 15,752 18,134 7,362 160,313 108,192 (314,906) -0-
Total sales and
transfers........$1,336,939 $1,279,318 $636,134 $3,566,667 $2,399,008 $ 244,347 $(314,906) $ 9,147,507
Operating income
(loss) of industry
segments.........$ 36,314 $ 158,992 $ 6,658 $ 44,072 $ 6,783 $ (9,856) $ 242,963
Equity in net income
of investees
(Note 3).........$ 101 $ 41,213 $ 342 $ -0- $ 241 $ 211 $ 42,108
General corporate
expenses......... (85,657)
Other corporate
income........... 27,835
Interest expense.. (62,335)
Minority interest.. (8,584)
Income tax expense. (20,907)
Net income......... $ 135,423
Identifiable assets at
August 31, 1997..$ 449,045 $ 465,014 $107,536 $ 647,395 $ 494,176 $ 88,936 $ 2,252,102
Investment in and
advances to
investees........$ 706 $ 158,549 $ 3,185 $ 18 $ 3,901 $ 11,635 $ 177,994
Corporate assets... 215,216
Total assets....... $ 2,645,312
Provision for
depreciation and
amortization.....$ 13,828 $ 17,705 $ 4,959 $ 31,581 $ 4,934 $ 9,421 $ 7,923 $ 90,351
Capital
expenditures .....$ 22,838 $ 78,859 $ 3,167 $ 38,106 $ 2,646 $ 12,172 $ 30,106 $ 187,894

Export sales from the Company's United States operations to unaffiliated
customers were as follows:

Year Ended August 31
1995 1996 1997
(Amounts in Thousands)

Asia................................. $ 788,583 $ 705,905 $ 549,404
Latin and South America.............. 216,059 695,404 441,912
Canada............................... 58,740 61,217 53,567
Other................................ 224,386 527,770 308,412

Total................................ $ 1,287,768 $ 1,990,296 $ 1,353,295

(12) SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK

The Company extends credit to its customers on terms generally no more
favorable than standard terms of sale for the industries it serves. A
substantial portion of the Company's receivables are concentrated in the
agricultural industry. Collection of these receivables may be dependent upon
economic returns from farm crop and livestock production. The Company's credit
risks are continually reviewed and management believes that adequate provisions
have been made for doubtful accounts.

The Company maintains investments in and advances to cooperatives,
cooperative banks and joint ventures from which it purchases products or
services. A substantial portion of the business of these investees is dependent
upon the agribusiness economic sector. See Note 3.

(13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Estimates of fair values are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could affect the estimates.
Except as follows, the fair market value of the Company's financial instruments
approximates the carrying value:

August 31, 1996 August 31, 1997
Carrying Carrying
Amount Fair Value Amount Fair Value
(Amounts in Thousands)

FINANCIAL ASSETS:
Investments:
National Bank for Cooperatives.............. $ 24,913 $ **** $ 20,958 $ ****
Other cooperatives:
Equities.................................. 27,160 **** 27,871 ****
Notes receivable.......................... 18,107 17,073 15,714 15,010
FINANCIAL LIABILITIES:
Subordinated capital investment certificates
and subordinated monthly
income certificates........................... $ (324,105) $ (317,476) $ (373,039) $ (376,891)

****Investments in National Bank for Cooperatives and other cooperatives'
equities which have been purchased are carried at cost and equities received as
patronage refunds are carried at par value, less provisions for other than
temporary impairment. The Company believes it is not practicable to estimate
the fair value of these equities because there is no established market for
these equities and estimated future cash flows, which are largely dependent on
the future equity redemptions policy of each cooperative, are not determinable.

The estimated fair value of notes receivable has been estimated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings.

The estimated fair value of the subordinated debt certificates was
calculated using a discount rate equal to the interest rate on subordinated debt
certificates with similar maturities currently offered for sale by the Company.
The carrying amounts of the Company's other debt borrowings approximate their
fair market value.

(14) RELATED PARTY TRANSACTIONS

The Company has a 50% interest in two manufacturers of phosphate
products, Farmland Hydro, L.P. and SF Phosphates Limited Company, and a 50%
interest in a distributor of crop protection products, WILFARM, LLC. During
1995, 1996 and 1997, the Company purchased $106.2 million, $117.4 million and
$109.7 million, respectively, of product from these ventures. Accounts payable
includes $2.9 million and $9.6 million due to these ventures at August 31, 1996
and 1997, respectively. The Company also has notes receivable from these
ventures in the amount of $12.9 million and $8.9 million at August 31, 1996 and
1997, respectively.

During 1997, the Company entered into an agreement with OneSystem
Group, LLC ("OSG"), a 50% owned venture, to provide information technology
services for a monthly fee plus certain other expenses. Fees and expenses for
these services amounted to $22.2 million for the year ended August 31, 1997.
Accounts payable of $0.3 million were due to OSG at August 31, 1997.

(15) OTHER INCOME

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors of Farmland are as follows:

Expiration Total Years
Age as of Positions of Present of Service
August 31, Held With Term as as Board
Name 1997 Farmland Director Member

Business Experience During Last Five Years

Albert J. Shivley 54 Chairman of 1998 13 General Manager--American Pride Co-op
the Board Association, Brighton, Colorado, a local
cooperative association of farmers and
ranchers.

H. D. Cleberg 58 President and 1997 7 Mr. Cleberg has been with Farmland since
Chief 1968. He was named as president-elect in
Executive February 1991 and became President in April
Officer 1991. From September 1990 to January 1991 he
served as Senior Vice President and Chief
Operating Officer, Agricultural Group. From
April 1989 to August 1990 he served as
Executive Vice President, Operations.

Otis H. Molz 66 Vice Chairman 1997 14 Producer--Deerfield, Kansas. Mr. Molz has
and Vice served as Chairman of the Board of the
President National Bank for Cooperatives since January
1993. He served as Chairman of the Board of
Directors of Farmland Industries, Inc. from
December 1991 to December 1992. He served as
First Vice President of the National Bank for
Cooperatives from January 1990 to January of
1993. He was Second Vice Chairman from
January 1, 1989 to January 1, 1990.

Lyman Adams, Jr. 46 1998 5 General Manager--Cooperative Grain and
Supply, Hillsboro, Kansas, a local
cooperative association of farmers and
ranchers.

Ronald J. Amundson 53 1997 9 General Manager--Central Iowa Cooperative,
Jewell, Iowa, a local cooperative association
of farmers and ranchers.

Baxter Ankerstjerne 61 1999 7 Producer--Peterson, Iowa. Mr. Ankerstjerne
serves as Director of First Cooperative
Association, Cherokee, Iowa, a local
cooperative association of farmers and
ranchers. From 1988 to 1997, he served as
Chairman of the Board of Directors of Farmers
Cooperative Association, Marathon, Iowa.

Jody Bezner 56 1997 6 Producer--Texline, Texas.

Richard L. Detten 63 1999 10 Producer--Ponca City, Oklahoma.

Steven Erdman 47 1998 5 Producer--Bayard, Nebraska.

Harry Fehrenbacher 49 1999 1 Producer--Newton, Illinois. Mr. Fehrenbacher
serves as President of the Board of Directors
of Effingham Equity, Effingham, Illinois, a
local cooperative association of farmers and
ranchers.

Warren Gerdes 49 1998 4 General Manager--Farmers Cooperative Elevator
Company, Buffalo Lake, Minnesota, a local
cooperative association of farmers and
ranchers.

Ben Griffith 48 1998 8 General Manager--Central Cooperatives, Inc.,
Pleasant Hill, Missouri, a local cooperative
association of farmers and ranchers.

Gail D. Hall 55 1997 9 General Manager--Lexington Cooperative Oil
Company, Lexington, Nebraska, a local
cooperative association of farmers and
ranchers.

Barry Jensen 52 1999 7 Producer--White River, South Dakota.
Mr. Jensen currently serves as a Director,
and was President from May 1989 to May 1993,
of Farmers Co-op Oil Association, Winner,
South Dakota, a local cooperative association
of farmers and ranchers.

Ron Jurgens 59 1998 2 General Manager-Agri Co-op in Holdrege,
Nebraska, a local cooperative association of
farmers and ranchers.

William F. Kuhlman 48 1999 1 Producer--Oakley, Kansas. Mr. Kuhlman serves
on the Boards of Directors of Kansas Retail
Venture Group and Northwest Kansas Ground
Water Management. Formerly, he was President
and CEO of Cooperative Agricultural Services,
Inc., Oakley, Kansas and General Manager of
Menlo-Rexford Cooperative, local cooperative
associations of farmers and ranchers.

Greg Pfenning 48 1997 5 Producer--Hobart, Oklahoma. Director of
Hobart & Roosevelt Cooperative, a local
cooperative association of farmers and
ranchers.

Monte Romohr 44 1999 7 Producer--Gresham, Nebraska. From March 1988
to March 1991, Mr. Romohr served as President
of Farmers Co-op Business Association,
Shelby, Nebraska, a local cooperative
association of farmers and ranchers.

Joe Royster 45 1999 4 General Manager--Dacoma Farmers Cooperative,
Inc., Dacoma, Oklahoma, a local cooperative
association of farmers and ranchers.

E. Kent Stamper 51 1999 1 Producer--Plainville, Kansas. Mr. Stamper
serves as Director and Vice President of the
Board of Directors of Midland Marketing Coop,
Hays, Kansas, a local cooperative association
of farmers and ranchers. He is a member of
the Director Development Committee of the
Kansas Cooperative Council. Formerly, he
served as Director and Secretary of the Board
of Directors of Union Equity Cooperative
Exchange, Enid, Oklahoma, a regional grain
marketing cooperative.

Eli F. Vaughn 48 1997 * General Manager--Farm Service Cooperative,
Afton, Iowa, a local cooperative association
of farmers and ranchers.

Frank Wilson 49 1998 2 General Manager-Elkhart Farmers Co-op
Association, Elkhart, Texas, a local
cooperative association of farmers and
ranchers.

*Appointed to the Board of Directors in April, 1997

Directors are elected for a term of three years by the shareholders of
Farmland at its annual meeting. The expiration dates for such three-year terms
are sequenced so that about one-third of the Board of Directors is elected each
year. H. D. Cleberg is serving as director-at-large; the remaining 21 directors
were elected from nine geographically defined districts. The executive
committee consists of Ronald Amundson, Ben Griffith, Otis Molz, Monte Romohr,
Albert Shivley and H. D. Cleberg. With the exception of H. D. Cleberg,
President and Chief Executive Officer, members of the executive committee serve
as chairman of standing committees of the Board of Directors as follows: Ronald
Amundson, corporate responsibility committee; Ben Griffith, audit committee;
Otis Molz, compensation committee; Monte Romohr, finance committee; and Albert
Shivley, nominating committee.

The executive officers of Farmland are as follows:

Age as of
August 31,
Name 1997 Principal Occupation and Other Positions

J. F. Berardi 54 Executive Vice President and Chief Operating Officer, Grain and Grain Businesses -
Mr. Berardi joined Farmland in March 1992, serving as Executive Vice President and
Chief Financial Officer. He was appointed to his present position in July 1996.
He served as Executive Vice President and Treasurer of Harcourt Brace Jovanovich,
Inc., a diversified Fortune 200 company, and was a member of its Board of
Directors from 1988 until 1990.

T. M. Campbell 47 Executive Vice President and Chief Financial Officer - Mr. Campbell joined Farmland
in August 1992, serving as Vice President and Treasurer. He was appointed to his
present position in August 1996. He served as Vice President and Assistant
Treasurer of Harcourt Brace Jovanovich, Inc., a diversified Fortune 200 company,
from 1986 to 1992.

H. D. Cleberg 58 President and Chief Executive Officer - Mr. Cleberg has been with Farmland since
1968. He was appointed to his present position effective April 1991. From
September 1990 to March 1991 he served as Senior Vice President and Chief
Operating Officer. From April 1989 to August 1990 he served as Executive Vice
President, Operations. Prior to April 1989 he held several executive management
positions with Farmland.

S. P. Dees 54 Executive Vice President, Corporate Relations, Communications & International
Services - Mr. Dees joined Farmland in 1984, serving as Vice President and
General Counsel, Law and Administration. He was appointed to his present position
in September 1995. From September 1993 to September 1995 he served as Executive
Vice President, Farmland and Director General of Farmland Industrias, S.A. de C.V.
From October 1990 to September 1993 he served as Executive Vice President,
Administrative Group and General Counsel.

G. E. Evans 53 Executive Vice President and Chief Operating Officer, Meats Group - Mr. Evans has
been with Farmland since 1971. He was appointed to his present position in July
1997. He held the same position in the Meat and Livestock Businesses from
September 1995 until July 1997. From January 1992 to September 1995 he served as
Senior Vice President, Agricultural Production Marketing/Processing. From April
1991 to January 1992 he served as Senior Vice President, Agricultural Inputs. He
served as Executive Vice President, Agricultural Marketing from October 1990 to
March 1991.

R. W. Honse 54 Executive Vice President and Chief Operating Officer, Ag Input Businesses - Mr.
Honse has been with Farmland since 1983. He was appointed to his present position
in September 1995. From January 1992 to September 1995, he served as Executive
Vice President, Agricultural Inputs Operations. From October 1990 to January 1992
he served as Executive Vice President, Agricultural Operations.

B. L. Sanders 56 Senior Vice President and Corporate Secretary - Dr. Sanders has been with Farmland
since 1968. He was appointed to his present position in September 1991. From
April 1990 to September 1991 he served as Vice President, Strategic Planning and
Development. From October 1987 to March 1990 he served as Vice President,
Planning.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the annual compensation awarded to,
earned by, or paid to the Chief Executive Officer and the Company's next four
most highly compensated executive officers for services rendered to the Company
in all capacities during 1995, 1996 and 1997.

Long-Term
Annual Compensation Compensation
Employee
Year Variable
Ending Compensation Other Annual LTIP
Name and Principal Position August 31 Salary Plan Compensation Payouts

H. D. Cleberg, 1995 $ 456,218 $ 346,944 $ -0- $ -0-
President and 1996 $ 497,713 $ 356,485 $ -0- $ 1,296,482
Chief Executive Officer 1997 $ 540,292 $ 469,954 $ -0- $ 514,999

G. E. Evans, 1995 $ 283,988 $ 217,761 $ -0- $ -0-
Executive Vice President and 1996 $ 298,848 $ 216,121 $ -0- $ 648,241
Chief Operating Officer 1997 $ 317,568 $ 245,352 $ -0- $ 257,499
Meats Group

R. W. Honse, 1995 $ 280,248 $ 210,337 $ -0- $ -0-
Executive Vice President and 1996 $ 303,364 $ 216,121 $ -0- $ 648,241
Chief Operating Officer 1997 $ 322,125 $ 245,352 $ -0- $ 257,499
Ag Input Businesses

J. F. Berardi, 1995 $ 226,914 $ 150,241 $ -0- $ -0-
Executive Vice President and 1996 $ 244,770 $ 154,372 $ -0- $ 549,204
Chief Operating Officer, 1997 $ 286,814 $ 245,352 $ -0- $ 243,194
Grain and Grain Businesses

S. P. Dees, 1995 $ 211,000 $ 122,070 $ 127,878(A) $ -0-
Executive Vice President 1996 $ 236,765 $ 125,427 $ 5,357(A) $ 459,171
Corporate Relations, 1997 $ 317,866 $ 165,044 $ -0- $ 182,395
Communications &
International Services
<FN>

(A) Mr. Dees received a differential remuneration and reimbursements in 1995
and 1996 for taxes in connection with a foreign
assignment. Mr. Dees' foreign assignment ended in September 1995.

An Annual Employee Variable Compensation Plan, a Management Long-Term
Incentive Plan ("LTIP") and an Executive Deferred Compensation Plan have been
established by the Company to meet the competitive salary programs of other
companies and to provide a method of compensation which is based on the
Company's performance.

Under the Company's Annual Employee Variable Compensation Plan, all
regular salaried employees' total compensation is based on a combination of base
and variable pay. The variable compensation payment is dependent upon the
employee's position, the performance of the Company for the fiscal year or other
performance criteria of the individual's operating unit. Variable compensation
is awarded only in years that the Company achieves a threshold performance level
as approved each year by the Board of Directors. The Company intends for its
total cash compensation (base plus variable) to be competitive, recognizing that
in the event the Company fails to achieve a predetermined threshold level of
performance, the base pay alone will place the employees well under market
rates. This system of variable compensation allows the Company to keep its
fixed costs (base salaries) lower and only increase payroll costs consistent
with the Company's ability to pay. Distributions under this plan are made
annually after the close of each fiscal year.

During 1997, under the Company's Management Long-Term Incentive Plan
for 1997 through 1999, certain management employees, including those executives
set forth below, became eligible for future payments contingent on satisfying
the terms and conditions of the Plan as set forth below herein.

Estimated Future Payouts Under Non-Stock
(A) (B) (C) Price Based Plans

Number of Shares, Performance or Other
Units or Other Period Until Maturation (D) (E) (F)
Name Rights (1) or Payout Threshold Target (2) Maximum (2)
(Amounts in Thousands)

H. D. Cleberg 1997 - 1999 $ 504

G. E. Evans 1997 - 1999 $ 252

R. W. Honse 1997 - 1999 $ 252

J. F. Berardi 1997 - 1999 $ 252

S. P. Dees 1997 - 1999 $ 180

<FN>

(1) Rights in the incentive pool are expressed as a minimum percentage
of the total pool. See discussion contained below herein.

(2) Not applicable as payouts are based on a percentage of aggregate
income; the plan does not specify a target or maximum payment. See
discussion contained below herein.

Under the Management Long-Term Incentive Plan, certain of the Company's
management employees are paid cash incentive amounts determined by a formula
which takes into account the level of management and the aggregate income of the
Company over a three year period. The Management Long-Term Incentive Plan
provides for three year performance and reward cycles and, in general,
participants must be active employees of the Company at the end of the cycle in
order to receive payment of the award with respect to such cycle. Periods
currently covered by the Management Long-Term Incentive Plan are: 1995 through
1997 ("1997 Plan"); 1996 through 1998 ("1998 Plan") and 1997 through 1999 ("1999
Plan"). The income threshold ("Threshold") for the three year period of the
1997 Plan, the 1998 Plan and 1999 Plan is $235,043,000, $393,481,000 and
$541,768,000, respectively. For each plan, if the aggregate income is less than
the Threshold or if the sum of the cash returned to members during the 1997
Plan, the 1998 Plan and the 1999 Plan, as patronage refunds, redemptions under
the base capital plan, estate settlement plans and special allocated equity
redemption plans is less than $61,938,000, $90,000,000 and $147,285,000,
respectively, subject to the following sentence, no payment will occur with
respect to such plan. The Board of Directors may, in its sole discretion, amend
or discontinue the Management Long-Term Incentive Plan, adjust or cancel any
awards otherwise payable thereunder should the Company incur a loss in the final
year of any performance cycle or impact the goals and rewards of the plan by
approving for inclusion or exclusion in the calculation of performance results
the financial results of extraordinary events occurring during the cycle.
Subject to the preceding sentence, if aggregate income equals or exceeds the
Threshold and the cash returned to members equals or exceeds the specified
amounts, then .83% of aggregate income for the 1997 Plan, the 1998 Plan and the
1999 Plan is allocated to an incentive pool for each such plan from which awards
to management will be paid. Absent a significant change in their status, in
which event such percentages may be adjusted, of the amount, if any, allocated
to the incentive pool Messrs. Cleberg, Evans, Honse, Berardi and Dees will
receive at least : 12%, 6% 6%, 5.7% and 4.25%, respectively, for the 1997 Plan;
12%, 6%, 6%, 6% and 4.25%, respectively, for the 1998 Plan; and 11.2%, 5.6%,
5.6%, 5.6% and 4.0%, respectively, for the 1999 Plan.

The Company's Executive Deferred Compensation Plan permits executive
employees to defer part of their salary and/or part or all of their variable and
incentive compensation. The amount to be deferred and the period for deferral
is specified by an election made semi-annually. Payments of deferred amounts
shall begin at the earlier of the end of the specified deferral period,
retirement, disability or death. The employee's deferred account balance is
credited annually with interest at the highest rate of interest paid by the
Company on any subordinated debt certificate sold during the year. Payment of
an employee's account balance shall, at the employee's election, be a lump sum
or in ten annual installments. Amounts deferred pursuant to the plan for the
accounts of the named individuals during the years 1995, 1996 and 1997 are
included in the cash compensation table.

The Company established the Farmland Industries, Inc. Employee
Retirement Plan (the "Plan") in 1986 for all employees whose customary
employment is at the rate of at least 1,000 hours per year. Participation in
the Plan is optional prior to age 34, but mandatory thereafter. Approximately
7,630 active and 8,140 inactive employees were participants in the Plan on
August 31, 1997. The Plan is funded by employer and employee contributions to
provide lifetime retirement income at normal retirement age 65, or a reduced
income beginning as early as age 55. The Plan also contains provisions for
death and disability benefits. The Plan has been determined qualified under the
Internal Revenue Code. The Plan is administered by a committee appointed by the
Board of Directors, and all funds of the Plan are held by a bank trustee in
accordance with the terms of the trust agreement. It is the present intent to
continue this plan indefinitely. The Company's funding strategy is to make the
maximum annual contributions to the Plan's trust fund that can be deducted for
federal income tax purposes. Company contributions made to the Plan for the
years ended August 31, 1995, 1996 and 1997 were $5.3 million, $12.2 million and
$ -0-, respectively.

Payments to participants in the Plan are based upon length of
participation and compensation reported to the Plan for the four highest of the
last ten years of employment. Compensation for this purpose includes base
salary and compensation earned under the Company's Annual Employee Variable
Compensation Plan discussed above. However, at the present time, the maximum
compensation (per participant) which may be covered by a qualified pension plan
is limited to $160,000 annually and the maximum retirement benefit which may be
paid by such plan is limited to $125,000 annually by the Internal Revenue Code
("IRC").

The Company established the Farmland Industries, Inc. Supplemental
Executive Retirement Plan ("SERP") effective January 1, 1994. The SERP is
intended to supplement the retirement income of executive participants in the
Farmland Industries, Inc. Employee Retirement Plan whose retirement benefit is
reduced because of the limitation of the IRC on the amount of annual salary
which can be included in the computation of retirement income (currently
$160,000) or the amount of annual retirement benefit which may be paid by a
qualified retirement plan (currently $125,000).

The Board of Directors has appointed an Administrative Committee to
administer the SERP. The Company purchased cash value life insurance polices on
the lives of certain plan participants to recover its cost of providing benefits
under the SERP. The Company owns these insurance policies and has the sole
right to name policy beneficiaries. The total SERP premiums charged to
operations for the years ended August 31, 1995, 1996 and 1997 were $0.6 million,
$0.6 million and $0.6 million, respectively.

The Company's obligation to pay supplemental retirement benefits under
the SERP is limited to the aggregate cash value of the life insurance policies
designated by the Administrative Committee as policies of the SERP. If the
benefit payments under this Plan for a year would, when added to all prior
benefit payments made from this Plan, exceed (a) the total cash value, on August
31 of the preceding year, of the policies designated by the Administrative
Committee, increased by (b) any previous reductions in cash value caused by
withdrawals from the policies by the Corporation, each Participant's payment
shall be reduced.

The following table sets forth, for compensation levels up to
$160,000, the estimated annual benefits payable at age 62 for members of the
Retirement Plan, which benefits are not reduced by virtue of Social Security
payments. The following table also sets forth, for compensation levels
exceeding $160,000, the combined estimated annual benefits payable under the
Retirement Plan and SERP for each of the first 10 years following retirement (no
SERP payouts are to be made after 10 years) assuming: retirement occurs on or
after age 62; the portion of the employee's benefit lost (due to the IRC
limitations) which would have been provided by the employer's contribution to
the Retirement Plan is 85%; the employee lives for 10 years after retirement;
and, the aggregate payments under the SERP are less than the cash value of life
insurance policies designated (see above) as SERP policies.

Final Average Years of Service
Wage 15 20 25 30

100,000 $ 26,250 $ 35,000 $ 43,750 $ 52,500
125,000 32,812 43,750 54,687 65,625
150,000 39,375 52,500 65,625 78,750
200,000 47,950 63,933 79,917 95,900
250,000 55,388 73,850 92,313 110,775
300,000 62,825 83,767 104,708 125,650
350,000 70,263 93,683 117,104 140,525
400,000 77,700 103,600 129,500 155,400
450,000 85,138 113,517 141,896 170,275
500,000 92,575 123,433 154,292 185,150
600,000 107,450 143,267 179,083 214,900
700,000 122,325 163,100 203,875 244,650
800,000 137,200 182,933 228,667 274,400
900,000 152,075 202,767 253,458 304,150
1,000,000 166,950 222,600 278,250 333,900

The following table sets forth the credited years of service for
certain executive officers of the Company at August 31, 1997.

Name Years of Creditable Service

H. D. Cleberg 32
G. E. Evans 23
R. W. Honse 23
J. F. Berardi 5
S. P. Dees 13

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The following persons, none of whom, except as indicated below, is
either currently or formerly an officer or employee of the Company or any of its
subsidiaries, served as members of the Company's compensation committee during
1997: Messrs. Otis Molz, Lyman Adams, Jody Bezner, Harry Fehrenbacher and Joe
Royster. Mr. Molz was Chairman of the Board of the Company from December 1991
to December 1992 and has served as Vice Chairman and Vice President of the Board
of the Company from December 1992 to the current date. No executive officer of
the Company (i) served as a member of a compensation committee (or other board
committee performing equivalent functions or, in the absence of such committee,
the entire board of directors) of another entity, one of whose executive
officers served on the compensation committee of the Company, (ii) served as a
director of another entity, one of whose executive officers served on the
compensation committee of the Company, or (iii) served as a member of a
compensation committee (or other board committee performing equivalent functions
or, in the absence of such committee, the entire board of directors) of another
entity, one of whose executive officers served as a director of the Company.

COMPENSATION OF DIRECTORS

Directors' compensation consists of payment of three hundred dollars
($300.00) per day of Farmland business (including, for example, board and
committee meetings, and other similar activities), plus reimbursement of
necessary expenses incurred in connection with their official duties. In
addition, annual retainers of $30,000 for the Chairman; $25,000 for each member
of the Executive Committee, other than the Chairman and President; and $20,000
for all other directors shall be paid.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Farmland's equity consists of preferred shares, common shares,
associate member common shares and capital credits. Only the common shares have
voting rights.

At August 31, 1997, no person was known by Farmland to be the
beneficial owner of more than five percent of Farmland's common shares.

At August 31, 1997, none of the directors of Farmland and the
executive officers listed under the first table under "Executive Compensation"
above, either individually or as a group, beneficially owned in excess of one
percent of any class of Farmland's equity.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company transacts business in the ordinary course with its
directors and with its local cooperative members with which the directors are
associated on terms no more favorable than those available to its other members.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) Listing of Financial Statements, Financial Schedules and Exhibits

(1) FINANCIAL STATEMENTS

Consolidated Balance Sheets, August 31, 1996 and 1997

Consolidated Statements of Operations for each of the years
in the three-year period ended August 31, 1997

Consolidated Statements of Cash Flows for each of the years
in the three-year period ended August 31, 1997

Consolidated Statements of Capital Shares and Equities for
each of the years in the three-year period ended August 31,
1997

Notes to Consolidated Financial Statements

(2) FINANCIAL STATEMENT SCHEDULES

All schedules are omitted as the required information is inapplicable
or the information is presented in the Consolidated Financial Statements
or related notes.

(3) EXHIBITS

Exhibit No. Description of Exhibits

ARTICLES OF INCORPORATION AND BYLAWS:

3.A Articles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 5, 1996. (Incorporated by Reference - Form 10-Q,
filed January 14, 1997)

INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:

4.(i)A Trust Indenture dated November 20, 1981, as amended January 4, 1982,
including specimen of Demand Loan Certificates. (Incorporated by
Reference - Form S-1, No. 2-75071, effective January 7, 1982)

4.(i)B Trust Indenture dated November 8, 1984, as amended January 3, 1985,
including specimen of 10-year Subordinated Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 2-94400,
effective December 31, 1984)

4.(i)B(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3, 1985
covering Farmland Industries, Inc.'s 10-Year Subordinated
Capital Investment Certificates. (Incorporated by
Reference - Form SE, dated December 3, 1991)

4.(i)C Trust Indenture dated November 8, 1984, as amended January 3, 1985,
including specimen of 5-year Subordinated Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 2-94400,
effective December 31, 1984)

4.(i)C(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3, 1985
covering Farmland Industries, Inc.'s 5-Year Subordinated
Capital Investment Certificates. (Incorporated by
Reference - Form SE, dated December 3, 1991)

4.(i)D Trust Indenture dated November 8, 1984, as amended January 3, 1985
and November 20, 1985, including specimen of 10-year Subordinated
Monthly Income Capital Investment Certificates. (Incorporated by
Reference - Form S-1, No. 2-94400, effective December 31, 1984)

4.(i)E Trust Indenture dated November 11, 1985 including specimen of the
5-year Subordinated Monthly Income Capital Investment Certificates.
(Incorporated by Reference - Form S-1, No. 33-1970, effective
December 31, 1985)

4.(ii)A Syndicated Credit Facility between Farmland Industries, Inc. and
various banks dated May 15, 1996, (Incorporated by Reference -
Form 10-Q filed July 15, 1996)

4.(ii)A(1) First Amendment dated May 14, 1997 (including Exhibits
A, B, C, D and Schedule 101A) to Syndicated Credit Facility
dated May 15, 1996 between Farmland Industries, Inc. and
various banks.

MATERIAL CONTRACTS:

LEASE CONTRACTS:

10.(i)A Leveraged lease dated September 6, 1991, among the First National
Bank of Chicago, not individually but solely as Trustee for AT&T
Commercial Finance Corporation, The Boatmen's National Bank of St.
Louis, Firstier Bank, N.A. and Norwest Bank Minnesota, National
Association and Farmland Industries, Inc. in the amount of
$73,153,000. (Incorporated by Reference - Form SE, filed
December 3, 1991)

10.(i)B Leveraged lease dated March 17, 1977, among the First National Bank
of Commerce as Trustee for General Electric Credit Corporation as
Beneficiary and Farmland Industries, Inc. in the amount of
$51,909,257.90. (Incorporated by Reference - Form S-1, No. 2-60372,
effective December 22, 1977)

MANAGEMENT REMUNERATIVE PLANS:

10.(iii)A Employee Variable Compensation Plan (September 1, 1997 - August 31,
1998)

10.(iii)B Farmland Industries, Inc. Management Long-Term Incentive Plan
(Effective September 1, 1993) (Incorporated by Reference -
Form 10-K, filed November 28, 1995)

10.(iii)B(1) Exhibit E (Fiscal years 1997 through 1999)

10.(iii)B(2) Exhibit F (Fiscal years 1998 through 2000)

10.(iii)C Farmland Industries, Inc. Supplemental Executive Retirement Plan
(Effective January 1, 1994) (Incorporated by Reference - Form 10-K,
filed November 28, 1995)

10.(iii)C(1) Resolution Approving the Revision of Appendix A and Appendix
A (Incorporated by Reference - Form 10-K, filed November 27,
1996)

10.(iii)D Farmland Industries, Inc. Executive Deferred Compensation Plan (As
Amended and Restated Effective November 1, 1996) (Incorporated by
Reference - Form 10-K, filed November 27, 1996)

21 Subsidiaries of the Registrant

24 Power of Attorney

27 Financial Data Schedule

(B) Reports on Form 8-K

No reports on Form 8-K have been filed during the last quarter of the
period covered by the report.

(C) The exhibits required by Item 601 of Regulation S-K are filed herewith
or have been filed with the Securities and Exchange Commission and are
incorporated by reference as a part of this Form 10-K.

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT

As of the filing of this Form 10-K, no annual report covering the
Registrant's last fiscal year, and no proxy statement, form of proxy or other
proxy soliciting material, has been sent to holders of the Registrant's

securities. At such time as any such annual report or proxy soliciting material
is sent to holders of the Registrant's securities subsequent to the filing of
this Form 10-K, four copies of the same will be furnished to the Commission as
and to the extent required by the Instructions to Form 10-K.

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT
OF 1934, FARMLAND INDUSTRIES, INC. HAS DULY CAUSED THIS REPORT ON FORM 10-K TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF KANSAS CITY, STATE OF MISSOURI ON NOVEMBER 7, 1997.

FARMLAND INDUSTRIES, INC.

BY /s/ TERRY M. CAMPBELL
Terry M. Campbell
Executive Vice President and
Chief Financial Officer

BY /s/ ROBERT B. TERRY
Robert B. Terry
Vice President and General Counsel

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS FORM 10-K
HAS BEEN SIGNED FOR THE FOLLOWING PERSONS ON BEHALF OF FARMLAND INDUSTRIES, INC.
AND IN THE CAPACITIES AND ON THE DATE INDICATED PURSUANT TO VALID POWER OF
ATTORNEY EXECUTED ON OCTOBER 22, 1997.

Signature Title Date

* Chairman of Board November 7, 1997
Albert J. Shivley and Director

*
H. D. Cleberg Chief Executive Officer November 7, 1997
and Director
(Principal Executive Officer)

* Vice Chairman of Board November 7, 1997
Otis H. Molz and Director

* Director November 7, 1997
Lyman L. Adams, Jr.

* Director October 22 , 1997
Ronald J. Amundson

* Director November 7, 1997
Baxter Ankerstjerne

* Director November 7, 1997
Jody Bezner

* Director November 7, 1997
Richard L. Detten

* Director November 7, 1997
Steven Erdman

* Director November 7, 1997
Harry Fehrenbacher

* Director November 7, 1997
Warren Gerdes

* Director November 7, 1997
Ben Griffith

* Director November 7, 1997
Gail D. Hall

* Director November 7, 1997
Barry Jensen

* Director November 7, 1997
Ron Jurgens

* Director November 7, 1997
William F. Kuhlman

* Director November 7, 1997
Greg Pfenning

* Director November 7, 1997
Monte Romohr

* Director November 7, 1997
Joe Royster

* Director November 7, 1997
E. Kent Stamper

* Director November 7, 1997
Eli F. Vaughn

* Director November 7, 1997
Frank Wilson

/s/ TERRY M. CAMPBELL Executive Vice President November 7, 1997
Terry M. Campbell and Chief Financial Officer
(Principal Financial Officer)

/s/ MERL DANIEL Vice President and November 7, 1997
Merl Daniel Controller
(Principal Accounting Officer)

*BY /s/ TERRY M. CAMPBELL
Terry M. Campbell
Attorney-In-Fact