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, 1998
OR
[ ] 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 Industries, Inc., founded in 1929 and formally
incorporated in Kansas in 1931, is a farm supply and a processing
and marketing cooperative. Its principal executive offices are at
3315 North Oak Trafficway, Kansas City, Missouri 64116 (telephone
816-459-6000). Farmland has grown from revenues of $310,000 during
its first year of operation to approximately $8.8 billion during
1998. 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, (iii) all references herein to "tons" are to United
States short tons and (iv) the term "member" herein means (a) any
voting member, (b) any associate member, or (c) 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."

Farmland operates on a cooperative basis and is primarily
owned by its members. Members are entitled to receive patronage
refunds distributed by Farmland from the member-sourced portion of
its annual net earnings.
MEMBERSHIP

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

As of August 31, 1998, Farmland's membership, associate membership
and
patrons eligible for patronage refunds consisted of approximately
1,500 cooperative associations of farmers and ranchers and 5,800
pork or beef producers or associations of such producers. See
''Business and Properties Business - Patronage Refunds and
Distribution of Annual Earnings."

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, as
described below in "Voting Members" and "Associate Members," 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.

VOTING MEMBERS

As of August 31, 1998, 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; (2) actively transact
business with Farmland on a patronage basis (the Board of Directors
may deem a member to be inactive when business is not transacted
with Farmland for two consecutive years); (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; (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; (b) be an association conducting business on a cooperative
basis; (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.
BUSINESS

GENERAL

The Company is one of the largest cooperatives in the United
States in terms of revenues. In 1998, Farmland had export sales in
excess of $1.3 billion to customers in over 90 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 and phosphate-based fertilizers ("plant
nutrients") and, through the Company's ownership in WILFARM, L.L.C.
("WILFARM") and Omnium, LLC ("Omnium"),(each 50%owned) 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.
Approximately 60% of the Company's farm supply products sold in 1998
was produced in plants owned by the Company or operated by the
Company under long-term lease arrangements. Approximately 64% of
the Company's farm supply products sold in 1998 was sold at
wholesale to farm cooperative associations which are members of
Farmland. These farm cooperative associations 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 1998, approximately
60% of the hogs processed, 30% of the beef cattle processed and 60%
of the domestic grain marketed by the Company were supplied to the
Company by its members. Substantially all of the pork and beef
products sold by the Company in 1998 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, grain, 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 $279.9 million through August 31,
1998), or $365.7 million (before tax benefits of the interest
deduction) in the aggregate at August 31, 1998. 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 $15.3
million (including accumulated statutory interest thereon). 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.
In March 1998, Farmland received notice from the IRS assessing
the $15.3 million tax and accumulated statutory interest thereon
related to the Company's 1989 tax year (as described above). In
order to establish the trial court in which initial litigation, if
any, of the dispute would occur and to stop the accumulation of
interest, the Company deposited funds with the IRS in the amount of
the assessment. After making this deposit, the Company filed for a
refund of the entire amount deposited.
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
"Credit 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,
1998, Farmland's borrowing capacity under the Credit 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 Credit Facility. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition, Liquidity and Capital Resources."
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.
2.COMPETITION: Competitors may have better access to equity capital
markets and
may offer more varied products or possess greater resources than
the Company. 3.IMPORTS AND EXPORTS: Factors which affect the level
of agricultural products
imported or exported including 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 selling prices and income of the
Company's farm supply products (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.YEAR 2000: The Company does not know with certainty all of the
consequences

of its most reasonably likely worst case Year 2000 scenario. The
Company cannot with certainty address the virtually unlimited
number of differing circumstances relating to what might be its
most reasonably likely worst case. The Company has distributed a
survey of its significant customers and vendors to determine
their state of Year 2000 readiness. However, responses to the
survey questionnaire have not provided a basis to conclude
whether such customers and vendors are Year 2000 compliant.

7.OTHER FACTORS: Domestic variables, such as crop failures, federal

agricultural programs and production efficiencies, and global
variables, such as general economic conditions, conditions in
financial markets, 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 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, 1996, 1997 and 1998" and "Business and
Properties - Business - Raw Materials" and "Crop Production - Raw
Materials."
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
payment of the noncash portion of patronage refunds with common
stock, associate member common stock and capital credits, from
offerings of preferred stocks and from net income on transactions
with nonmembers. See ''Business and Properties - Business -
Patronage Refunds and Distribution of Annual Earnings'' and '' -
Equity Redemption Plans."

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,
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Conditions
Liquidity and Capital Resources -Matters Involving the Environment."

PETROLEUM

MARKETING

The principal products of this business segment are refined
fuels, propane and by-products of the petroleum refinery.
Approximately 50% of petroleum refined fuels products sold in 1998
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 car, truck and tractor tires, batteries and
accessories. Sales of petroleum products as a percent of the
Company's consolidated sales for 1996, 1997 and 1998 were 11%, 15%
and 13%, respectively.

Competitive methods in the petroleum industry include service,
product quality and price. However, in refined fuel markets, price
competition is 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. Effective September 1, 1998, Country Energy LLC, a joint
venture with Cenex Harvest States, commenced operations. Country
Energy LLC provides refined fuel, propane and lubricants marketing
and distribution services for its owners.

PRODUCTION

The Company owns a refinery at Coffeyville, Kansas.
Production volume for 1996, 1997 and 1998 was as follows:

Barrels of Crude Oil Processed
Daily Average
Based on 365 Days per
year

1996 1997
1998
(barrels)
Coffeyville, Kansas 64,276 81,397
91,808

The refinery produced approximately 25 million barrels of motor
fuels,
heating fuels and other petroleum products in 1996, 32 million
barrels in 1997 and 35 million barrels in 1998. 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 and 1998 compared with 1996. Approximately 66% of
refined fuel sales in 1998 represented products produced at this
location.

RAW MATERIALS
Farmland's refinery was originally 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 the cost and availability for coastal
refineries with the capacity for processing and access to lower
quality crude with high sulfur content ("sour crude"). In April
1997, the Company entered various operating, service and lease
agreements with Tessenderlo Kerley Inc. ("TKI"), whereby TKI's
assets or technologies would be utilized to extract sulfur from the
intermediate gas streams generated from crude oil. As a result of
extracting this sulfur, crude oil supplies of lower quality were
made available for processing by the refinery. This allowed the
Company to decrease raw material costs as sour crude is lower
priced. In 1998, the Company's pipeline/trucking gathering system
collected approximately 17% of its crude oil supplies from producers
near its refinery. Additional supplies are acquired from
diversified sources, including sour crude oil from foreign sources.
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 various 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 oil 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
1996, 1997 and 1998 were 14%, 14% and 13%, 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 the
largest producer of synthetic anhydrous ammonia-based fertilizers in
the United States. Natural gas is the major raw material used in
production of nitrogen-based fertilizer, including synthetic
anhydrous ammonia, urea, urea ammonium nitrate ("UAN") and other
forms of nitrogen-based fertilizers.

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.
The Company and Mississippi Chemical Company are each 50% owners of
a joint venture, Farmland MissChem, Limited ("Farmland MissChem"),
which owns an anhydrous ammonia production facility located in The
Republic of Trinidad and Tobago. All output from this facility is
sold to and distributed by the owners of the venture. Annual
production for fiscal years 1996, 1997 and 1998 including Farmland's
50% share of the output of Farmland MissChem, totaled approximately
2.8 million tons, 2.8 million tons and 3.0 million tons,
respectively.

The Company further processes synthetic anhydrous ammonia
products at five plants, one of which is leased under a long-term
lease arrangement, at five locations in Kansas, Oklahoma and
Nebraska. Production of urea, UAN solutions and other forms of
nitrogen fertilizer from synthetic anhydrous ammonia for 1996, 1997
and 1998 approximated 1.5 million tons, 1.6 million tons and 1.9
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, which may be applied directly
or blended with other fertilizers.

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 65,000 tons, 44,000
tons and 56,000 tons in 1996, 1997 and 1998, respectively and
production of feed grade phosphate approximated 160,000 tons,
163,000 tons and 167,000 tons in 1996, 1997 and 1998, respectively.

The Company and Norsk Hydro a.s. are each 50% owners of a
joint venture, Farmland Hydro, L.P. ("Hydro"), which owns a
phosphate fertilizer manufacturing plant at Green Bay, Florida.
Hydro's plant produces products such as super phosphoric acid,
diammonium phosphate and monoammonium. Annual production in tons of
such products for 1996, 1997 and 1998 was 1,459,000, 1,504,000 and
1,428,000, respectively. The Company provides management and
administrative services and Norsk Hydro a.s. provides marketing
services to Hydro. Products of this plant are distributed
principally to international markets.

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. Hydro 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 phosphate rock which the Company owns in Florida).
During 1998, Hydro began obtaining various permits and
licenses necessary for mining the aforementioned properties. This
process will take several years to complete and, therefore, neither
the Company nor Hydro anticipate mining any of their respective
phosphate rock reserves within the next year.
The Company is a 50% owner of a venture, SF Phosphates
Limited Liability 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 1996,
1997 and 1998 of 483,000, 529,000 and 527,000, respectively. Under
the venture agreement, the owners 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.
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."

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, animal health products and farm and ranch supplies.
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%, 7% and 6% of
consolidated sales for the years 1996, 1997 and 1998, respectively.
Approximately 52% of the feed business segment's sales in 1998 was
attributable to products manufactured in the Company's feed mills.
The Company operates feed mixing plants at 15 locations throughout
its territory, an animal protein plant in Maquoketa, Iowa, an animal
protein plant 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 1996, 1997 and 1998, for feed mills owned
by Farmland as of August 31, 1998, was as follows:

Approximate
Annual Production

1996 1997
1998
(tons)

<1c>
20 feed mills (combined).................. 861,000 914,000
817,000

In June of 1998, the Company acquired six feed mills with an aggregate
capacity of 520,000 tons through the acquisition of SF Services, Inc. In
addition, feed mills with an aggregate capacity of approximately
469,000 tons were disposed of or sold to ventures in 1997 and 1998.

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 11 food processing facilities, including
leased facilities in Albert Lea, Minnesota and Omaha, Nebraska.

Meat processing facilities at Springfield, Massachusetts 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.

In 1996, 1997 and 1998 total weekly pork processed approximated 16.2
million pounds, 16.8 million pounds and 16.7 million pounds,
respectively. Average weekly head slaughter at the Company's four
abattoirs (three abattoirs in 1996) was approximately 111,000,
132,000 and 148,000 in 1996, 1997 and 1998, respectively.

MARKETING

The Company's pork products marketed 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, brand and 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 at August 31, 1998, was 71.2%-owned by Farmland.
The beef processing facilities 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 1996, 1997 and 1998, the two
plants slaughtered an aggregate of 2.1 million, 2.1 million and 2.4
million cattle, respectively.
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,
brand and product differentiation and customer service.
GRAIN

MARKETING

The Company, through its North American Grain Division
("NAGD") and through its international grain trading subsidiaries
(collectively referred to as "Tradigrain"), markets wheat, corn,
soybeans, milo, barley and oats, with wheat and corn constituting
the majority of the marketing business. 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.

In 1998, the Company formed two 50%-owned alliances, Concourse
Grain, LLC ("Concourse") and Farmland-Atwood, LLC ("Farmland-
Atwood"), with ConAgra, Inc. ("ConAgra"). Concourse, a marketing
alliance, will provide both domestic and international customers
with multiple classes of wheat. Concourse is expected to improve
access to international customers through its ability to export
from multiple points across the United States. Farmland-Atwood will
provide risk management services, financial and grain support
services and grain brokerage to its customers.

The Company is exposed to risk of loss in the market value of
its grain inventory and on fixed price purchase contracts that
require the Company to take delivery of grain at a specified date in
the future 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 1996, 1997 and 1998, the Company
maintained hedges on approximately 94.8%, 92.9% and 93.0%,
respectively, of its grain positions. Based on total assets at the
beginning and end of 1998, 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, 1996,
1997 and 1998 - Grain Marketing" included herein.
Approximately 42%, 41% and 43% of grain revenues were from
export sales or sales to domestic customers for export in 1996, 1997
and 1998, respectively. Export-related sales are affected by the
level of grain production in foreign countries. Furthermore, export-
related sales are subject to international political events 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") transact business in all major grains
traded in international markets. Final consumers are either
governmental entities, private companies or other major grain
companies throughout the world.

Tradigrain's purchases of grain are made on a cash basis and
its sales of grain are mostly made 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,
24
inland elevators in the United States with a total capacity of
approximately 147.6 million bushels of grain.

RESEARCH

The Company operates a research and development farm for
the primary purpose of developing improvements in nutrition,
breeding and feeding practices of livestock and pets. The Company
also conducts research at its pork processing facilities directed
toward product development and process improvement. Additionally,
the Company formed a five-year alliance, beginning in 1997, with
Kansas State University.
Expenditures related to Company-sponsored product research and
process improvements amounted to $2.4 million, $2.1 million and $2.4
million for 1996, 1997 and 1998, respectively.

CAPITAL EXPENDITURES AND INVESTMENTS IN VENTURES

In 1998, the Company made capital expenditures and
investments in ventures totaling $179.3 million.

The Company has approved expenditures (of which $44.1
million was committed as of August 31, 1998) of $146.5 million for
capital additions and improvements during the years 1999 and 2000.
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."

YEAR 2000
As the end of this century nears, there are concerns about potential
problems which may arise at the turn of the millennium because many
current computer systems and software products are coded to accept
only two digit entries in date code fields. Before the year 2000,
these systems and software products will need an upgrade in order
to recognize differences between dates in the 21st century and dates
in the 20th century. If not adequately addressed, these technology
problems have a potential to cause widespread business
interruptions, litigation and liability. Significant uncertainty
exists, as to whether adequate resources are available to minimized
these potentially serious problems by the year 2000.

The Company is assessing, but has not completed assessing, its
Year 2000 issues. Since the mid-1980's, the Company has strived to
maintain Year 2000 compliance for all applications developed in-
house. The challenge is that a substantial percentage of the
applications used for normal business processing have been purchased
from outside vendors. Historically, vendors were not required to
commit to Year 2000 compliance. However, all new software contracts
include Year 2000 compliance warranties.

In April 1997, Farmland and Ernst & Young, LLP formed One System
Group,LLC ("OSG"), a joint venture. OSG has approximately 400 employees
and is the sole supplier of information technology ("IT") services
to the Company. The initial focus of OSG involves the
implementation of Systems, Applications, Products in Data Processing
("SAP") software as an enterprise wide solution for processing the
Company's business transactions and for management reporting.
One of the many important benefits of the implementation of SAP is
that it is Year 2000 compliant and, therefore, its installation
will eliminate a large amount of the Year 2000 risk inherent in the
Company's systems and software. Mission critical (critical to the basic
operation of Farmland's businesses)IT projects have
not been deferred because of Year 2000 readiness efforts.

The Company formalized its Year 2000 program with OSG in the
fall of 1997. Through this program, Year 2000 readiness was defined
by criteria which, if satisfied, would demonstrate that systems and
applications programs function correctly after the turn of the
century without abnormal results. In addition, systems and
applications were categorized as "high risk" or "low risk" according
to the respective level of impact on the continuation of business by
the Company at the turn of the century. Further, the program
established minimum acceptance testing procedures for evaluating
whether systems and applications met Year 2000 compliant criteria.

A comprehensive IT software inventory and assessment was then
completed by OSG. As a result of this readiness assessment, the
Company believes that certain of its systems and software are Year
2000 compliant and that substantially all noncompliant systems have
been identified.

To address the state of readiness condition, Farmland established an
Oversight Committee consisting of the Chief Information Officer of
OSG, the Chief Financial Officer and General Counsel of Farmland and
a Year 2000 Program Office.

The Oversight Committee has responsibility for both IT and non-
IT systems (embedded technologies such as microcontrollers built
into machinery) and has a direct reporting relationship to the
Farmland Board of Directors. The Oversight Committee has delegated
Year 2000 compliance responsibility for non-IT systems to management
of the respective plants or facilities. Generally, progress with
respect to non-IT systems is in an assessment phase. However, the
Year 2000 issues of many process control systems and other non-IT
systems have been identified and fixed or the respective system or
application programs have been replaced and tested. The Company has
not separately tracked the replacement cost and time related to non-
IT systems.

The Program Office organizes and administers Year 2000
projects related to IT systems. The Program Office maintains a
detailed project plan to complete and test projects within discrete
time frames. The Program Office continuously monitors the status of
the SAP implementation and re-assesses the risk areas depending on
movement of that system's implementation schedule. The Program
Office provides a quarterly update of Year 2000 progress to the
Oversight Committee. The Program Office has estimated that overall
Year 2000 projects related to IT systems will require approximately
$2.5 million (18,000 hours). Through October 1998, approximately
4,000 hours of such work had been performed. The targeted completion
of the remaining work is September 1, 1999.
The Company believes that the quantity and quality of resources it
has
committed to address its Year 2000 project are adequate to obtain a
Year 2000 state of readiness and it believes all significant
modifications required to reach a state of readiness for Year 2000
will be completed by the year 2000. However, despite all reasonable
efforts of the Company to resolve its Year 2000 issues, as described
above, no assurances can be given that the level of Year 2000
readiness actually attained will eliminate all potential material
effects that Year 2000 problems might have on the Company's
business, results of operation, or financial condition. It is not,
and will not, be possible for the Company to represent that it has
achieved complete Year 2000 compliance.

The Company does not know all of the consequences of its most
reasonably likely worst case Year 2000 scenario. The Company cannot
address the virtually unlimited number of differing circumstances
relating to what might be its most reasonably likely worst case.
The Company is and intends to continue to address this uncertainty
through activities of its Oversight Committee and Program Office, as
described above.

For all applications that are determined to be mission
critical (critical to the basic operation of Farmland's businesses),
a contingency plan will be developed to outline the actions that
will be taken if Year 2000 complications are encountered. The plan
will describe what will be done, both short-term and long-term, to
minimize any interruption to Farmland's business.

The Company has distributed a survey of its significant
customers and vendors to determine their state of Year 2000
readiness. However, responses to the survey questionnaire have not
provided a basis to conclude whether such customers and vendors are
Year 2000 compliant. Further, the Company has not conducted and
does not plan to conduct tests designed to confirm compatibility of
its information systems as modified for Year 2000 issues with those
of its significant customers and vendors. The Company will rely on
the integrity of its vendors and customers to resolve their Year
2000 issues.

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.
The Federal Agriculture Improvement and Reform Act ("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 over a long period of time. This increase may 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 has in the past considered and may consider
trade measures which, if passed, could enhance agricultural export potential.
The Company believes "fast-track" (legislation 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),
China normal trading relations, removal of trade sanctions and
language to prohibit embargoes could benefit U.S. agricultural
interests by opening markets, increasing exports and expanding trade
opportunities with countries which import agricultural products. Absent such
legislation,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, 1998, the Company had approximately 16,100
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 September 2001.

PATRONAGE REFUNDS AND DISTRIBUTION OF ANNUAL EARNINGS{ TC "PATRONAGE
REFUNDS AND DISTRIBUTION OF ANNUAL EARNINGS" \f C \l "1" }

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 means income is before income tax
determined in accordance with generally accepted accounting
principles. 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. The member-
sourced earnings (after handling of membersourced losses) are
returned to members as patronage refunds in the form of qualified
and/or nonqualified written notices 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.
A qualified patronage refund must be paid at least 20% in cash. The
portion of the qualified patronage refund not paid in cash (the
allocated equity portion) is currently paid by Farmland in common
shares, associate member common shares or capital credits (depending
on the membership status of the recipient). The Board of Directors
may determine to pay 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 Company is allowed an income tax deduction for the
total amount (the cash portion and the allocated equity portion) of
its qualified patronage refunds.

Nonqualified patronage refunds paid by Farmland have been
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). The
Board of Directors may determine to record the nonqualified
patronage refund in any other form or forms of nonpreferred
equities. The Company is not allowed an income tax deduction for
the year a nonqualified patronage refund is paid. The nonqualified
patronage refund is deductible for federal income tax purposes only
when such nonqualified written notices of allocation are redeemed
for cash or other property.
For the years ended 1996, 1997 and 1998, 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)

1996............... $ 32,719 $ 60,776 $
93,495
1997............... $ 40,228 $ 68,079 $
108,307
1998............... $ 23,593 $ 35,528 $
59,121

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 { TC "EQUITY REDEMPTION PLANS" \F C \L "1" }

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 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 have been and 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
providing a 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 three-year
period ended 1998. During the third quarter of 1998, the Company
approved and paid a special equity redemption of approximately $50.0
million. Substantially all other amounts approved for redemptions
are paid in cash in the year following approval.

Estate
Base Capital Settlement and
Plan Redemptions Special Equity Total Plan
Redemptions(A)
Redemptions

(Amounts in Thousands)
<c
>
1996....... $ 14,024 $ 11,415 $
25,439
1997....... $ 17,228 $ 11,492 $
28,720
1998....... $ 8,868 $ 50,103 $
58,971

(a)Includes redemptions of preferred stock.

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 A VOTE OF EQUITY 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 the
provisions of the 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, 1998 there are approximately 3,500 holders
of common shares, 680 holders of associate member shares and 6,200
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, 1998 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, 1997 and 1998 and for each of
the years in the three-year period ended August 31, 1998 (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
1994 1995 1996 1997
1998
(Amounts in Thousands)

SUMMARY OF OPERATIONS:(1)
Net Sales..................... $ 6,677,933 $ 7,256,869 $ 9,788,587 $ 9,147,507
$ 8,775,046 Operating Income of Industry
Segments.................... 154,799 295,933 240,452 248,263
140,725
Interest Expense.............. 51,485 53,862 62,445 62,335
73,645
Net Income.................... 73,876 162,799 126,418 135,423
58,770

DISTRIBUTION OF NET INCOME:
Patronage Refunds:

Allocated Equity............ $ 44,032 $ 61,356 $ 60,776 $ 68,079 $
35,528
Cash and Cash
Equivalents................. 26,580 33,061 32,719 40,228
23,593
Earned Surplus and Other
Equities.................... 3,264 68,382 32,923 27,116
(351)

$ 73,876 $ 162,799 $ 126,418 $ 135,423 $
58,770

BALANCE SHEETS:
Working Capital............... $ 290,704 $ 319,513 $ 322,050 $ 242,211 $
373,638
Property, Plant and
Equipment, Net.............. 501,290 592,145 717,224 783,108 $
827,149
Total Assets.................. 1,926,631 2,185,943 2,568,446 2,645,312
2,812,774
Long-Term Borrowings
(excluding
current maturities)......... 506,531 469,718 616,258 580,665
728,103
Capital Shares and
Equities.................... 585,013 687,287 755,331 821,993
912,696

[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, 1998, the outstanding
balance of demand certificates decreased by $22.1 million and the
outstanding balance of subordinated debt certificates increased by
$33.4 million.
In May 1996, Farmland entered into a five year Syndicated
Credit Facility (the "Credit Facility") with various participating
banks. The Credit Facility provides a $1.1 billion credit, subject
to compliance with financial covenants as set forth in the Credit
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 Credit 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 Credit
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 in the agreement. The Company
is in compliance with all covenants of the Credit Facility. The
short-term credit provisions of the Credit Facility are reviewed
and/or renewed annually. The next scheduled review date is in May
1999. The revolving term provisions of the Credit Facility expire
in May 2001.
At August 31, 1998, the Company had $328.2 million of
short-term borrowing under the Facility and $170.0 million of
revolving term borrowings; additionally, $30.3 million of the
Facility was being utilized to support letters of credit issued on
behalf of Farmland. As of August 31, 1998, under the short-term
credit provisions, the Company had capacity to finance additional
current assets of $297.0 million and, under the long-term credit
provisions, the Company had capacity to borrow up to an additional
$274.5 million.
During April 1998, Farmland National Beef Packing Company, L.P.
("FNBPC") replaced its existing borrowing arrangements with a new
five year $130.0 million credit facility. This facility, which
expires March 31, 2003, is provided by various participating banks
and all borrowings thereunder are nonrecourse to Farmland or
Farmland's other affiliates. FNBPC used a portion of this facility
to repay in full its borrowings from Farmland. At August 31, 1998,
FNBPC had borrowings under this facility of $86.2 million and $1.3
million of the facility was being utilized to support letters of
credit. FNBPC has pledged certain assets to support its borrowings
under the new facility.

Leveraged leasing has been utilized to finance railcars and a
significant portion of the Company's fertilizer production
equipment. In December 1997, the Company entered into a series of
agreements which provide for the construction and operation under a
long-term lease of facilities adjacent to the Company's petroleum
refinery at Coffeyville, Kansas. These facilities are designed to
convert petroleum coke by-products into fertilizers. When the
facilities are completed (presently scheduled for early in fiscal
year 2000), Farmland will be obligated to make future minimum lease
payments which, at that time, will have an approximate present value
of $223 million. Alternatively, Farmland has an option to purchase
the facilities. The Company's subordinated debt securities are
subordinated in right of payment to the future lease obligations.
In the event Farmland should default on the obligations described
above, future lease obligations may be accelerated. If accelerated,
obligations due and payable would total approximately $263 million,
all of which would be senior to the subordinated debt securities
and, upon payment of such amount, Farmland would receive title to
the assets.

The Company maintains other borrowing arrangements with
banks and financial institutions. Under such agreements, at August
31, 1998, $36.0 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, 1998, such borrowings totaled $34.9
million.

In December 1997, the company sold 2 million shares of 8%
Series A Cumulative Redeemable Preferred Shares (the "Preferred
Shares") at $50 per Preferred Share with an aggregate liquidation
preference of $100 million ($50 liquidation preference per share).
The Preferred Shares are not redeemable prior to December 15, 2022.
On and after December 15, 2022, the Preferred Shares may be redeemed
for cash at the option of the Company, in whole or in part, at
specified redemption prices declining to $50 per share on and after
December 15, 2027, plus accumulated and unpaid dividends, if any,
thereon. The Preferred Shares do not have any stated maturity, are
not subject to any sinking fund or mandatory redemption provisions
and are not convertible into any other securities of the Company.
Proceeds from the issuance of the Preferred Shares have been used to
call for early redemption approximately $47.6 million of principal
and accumulated interest on certain subordinated debt securities and
to redeem approximately $50.0 million of capital shares and equity.

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 markto-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 are 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 1996, 1997 and 1998, the earned surplus account exceeded the
required amount by $84.7 million, $101.7 million and $80.1 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 1998 include: $37.7 million from
operating activities; $57.6 million from cash distributions from
ventures; $100.0 million from the issuance of preferred shares;
$11.2 million of net proceeds from issuance of subordinated debt and
demand loan certificates; $118.4 million of net proceeds on bank
loans and notes payable; and $61.5 million from the collection of long-term
notes receivable,the sale of fixed assets and investments. Cash provided by
operating activities decreased in 1998 compared with 1997 primarily due to the
decrease of net income, accounts payable and other current operating liability
accounts.

Major uses of cash during 1998 include: $136.1 million for
capital expenditures and acquisition of other long-term assets;
$69.5 million for acquisition of investments and notes receivable;
$47.2 million of net decrease in checks and drafts outstanding;
$40.4 million for cash patronage refunds distributed from income of
the 1997 fiscal year; and $80.2 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 $279.9 million through August 31, 1998), or $365.7
million (before tax benefits of the interest deduction) in the
aggregate at August 31, 1998. 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 $15.3 million (including
accumulated statutory interest thereon). 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.

In March 1998, Farmland received notice from the IRS assessing
the $15.3 million tax and accumulated statutory interest thereon
related to the Company's 1989 tax year (as described above). In
order to establish the trial court in which initial litigation, if
any, of the dispute would occur and to stop the accumulation of
interest, the Company deposited funds with the IRS in the amount of
the assessment. After making the deposit, the Company filed for a
refund of the entire amount deposited.

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,
1998, Farmland's borrowing capacity under the Credit 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 Credit 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, 1996, 1997 AND 1998

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.

Change in Sales
1996 1997
1998 Compared
Compared Compared
with 1997
with 1995 with 1996

(Amount in Millions)

INCREASE (DECREASE) OF INDUSTRY SEGMENT SALES:
Petroleum........................................................ $ 181 $ 274 $ (195)
Crop Production.................................................. 165 (73) (105)
Feed............................................................. 102 48 (68)
Food Processing and Marketing.................................... 535 338 90
Grain Marketing.................................................. 1,562 (1,230) (106)
Other............................................................ (14) 2 12

TOTAL CHANGE IN SALES.............................................. $2,531 $ (641) $ (372)

Change in Operating and Net Income

1996 1997
1998 Compared
Compared Compared
with 1997
with 1995 with 1996

(Amount in Millions)

INCREASE (DECREASE) OF OPERATING INCOME OR LOSS:
Petroleum........................................................ $ 13 $ 32 $ (36)
Crop Production.................................................. (20) (19) (112)
Feed............................................................. 3 (6) 4
Food Processing and Marketing.................................... (12) (19) 9
Grain Marketing.................................................. (36) 25 24
Other............................................................ (3) (5) 3

TOTAL CHANGE IN OPERATING INCOME................................... $ (55) $ 8 $ (108)

CORPORATE EXPENSES AND OTHER:
General corporate expenses (increase) decrease..................... $ (10) $ 2 $ (6)
Interest expense (increase) decrease............................... (8) - (11)
Other income and deductions increase (decrease).................... 9 (2) 8
Equity in net income of investees increase......................... 18 1 11
Minority owners' interest in net income of subsidiaries
(increase) decrease.............................................. 2 (1) 2
Income taxes decrease.............................................. 8 1 $ 28

Net income increase (decrease)..................................... $ (36) $ 9 $ (76)

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 practicably identified or
allocated to an industry segment, interest expense, interest income,
equity in net income (loss) of investees, other income (deductions)
and income taxes.

Following is management's discussion of industry segment sales,
operating income or loss and other factors affecting the Company's
net income during 1996, 1997 and 1998.

PETROLEUM
SALES
The petroleum business's unit sales of refined fuels increased
by 7.5% in 1998 compared to 1997. However, aggregate petroleum
dollar sales decreased by $194.9 million, or 14.6%, in 1998 compared
with 1997 primarily due to a 15.3% decrease in the average unit
price of refined fuels (gasoline, distillates and diesel) and a
29.3% decrease in the average unit price of propane products.
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 an increase of the unit price for these products.
Sales of the petroleum business increased $181.5 million in
1996 compared with 1995. This increase was primarily the result of
an 11% increase of the average price of refined fuels and increased
unit sales of approximately 9.5%.

OPERATING INCOME

The petroleum business had operating income of $0.4 million in
1998 compared with $36.3 million in 1997. This decrease resulted
primarily from a $27.6 million adjustment of year-end last-in, first-
out ("LIFO") inventories to market value. Petroleum operating
income also decreased as finished goods prices declined more than
crude oil prices declined, resulting in lower gross margins on units
sold.

Operating income of the petroleum business increased $31.5
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.

CROP PRODUCTION

SALES

Although crop production unit sales increased 2.3% in 1998
compared to 1997, unit prices for nitrogen-based fertilizers
decreased 15.0% and unit prices for phosphate-based fertilizers
decreased 6.7%. As a result, crop production sales decreased $105.7
million, or 8.4%, in 1998 compared with 1997. The decline in
nitrogen-based fertilizer prices resulted from pressures of rising
capacity and inventories in the industry combined with decreased
demand from East Asia and China.

Crop production sales 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-based fertilizer 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-based fertilizer prices,
partly offset by a slight decline of nitrogen prices.

OPERATING INCOME

Operating income of the Company's crop production business
decreased $111.9 million, or 70%, in 1998 compared with 1997. This
decrease was primarily a result of lower nitrogen fertilizer unit
margins partially offset by higher unit margins for phosphate
fertilizers. Nitrogen margins decreased primarily due to lower
selling prices which declined as a result of additional global
fertilizer production capacity combined with lower demand in the
East Asian market, particularly China. The Company's share of net
income from crop production ventures, primarily phosphate
manufacturing and WILFARM, increased in 1998 to $46.9 million
compared with $41.2 million in 1997.
Operating income of the Company's crop production business
decreased $18.8 million, or 10.5%, in 1997 compared with 1996. This
decrease was primarily a result of higher natural gas costs which
resulted in lower nitrogen fertilizer unit margins, partially offset
by higher unit margins related to the distribution of phosphate
fertilizers. The Company's share of net income from crop production
ventures, primarily phosphate manufacturing and WILFARM, decreased
slightly in 1997 to $41.2 million compared with $41.9 million in
1996.

Operating income of the Company's crop production business in
1996 decreased $19.7 million from 1995, primarily because of lower
fertilizer margins. 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. Nitrogen
fertilizer margins decreased by approximately $6.0 million, or 2.8%,
as a result of lower average unit selling prices combined with
higher raw material costs. Unit margins from the Company's
phosphate fertilizer operations decreased approximately $16.7
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.

FEED

SALES

Sales of the feed business decreased $68.3 million in 1998
compared with 1997. The decrease resulted primarily from the sale of
approximately the same volume as in the prior year combined with
lower per ton ingredient prices in livestock feed and feed ingredients.

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.

OPERATING INCOME

Operating income in the feed business increased $4.3 million
in 1998 compared with 1997. The increase was primarily attributable
to higher margins per ton in livestock feed, feed ingredients and
pet/specialty/equine feeds as well as lower expenses.

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. FOOD PROCESSING AND MARKETING

SALES

Sales from the Company's food processing and marketing
business increased $90.2 million in 1998 compared with 1997. The
increase was attributable to increases of approximately 15% and 9%
in the number of cattle and hogs processed, respectively, partly
offset by lower wholesale prices for beef and pork.

The Company's food processing and marketing business sales increased
$338.4 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).

OPERATING INCOME

Operating income of the Company's food processing and
marketing business increased $9.0 million in 1998 compared with
1997. The increase was primarily due to increased gross margins in
pork processing and marketing operations due to lower hog prices.
This increase was partly offset by losses in livestock production,
also resulting from lower hog prices and by losses on the beef
processing and marketing operations.

Operating income of the Company's food processing and
marketing business decreased $18.8 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 $65.1 million in 1996 represented a $12.0 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.

GRAIN MARKETING

SALES AND OPERATING INCOME

Although sales volume in bushels increased 3.7%, lower
commodity prices resulted in a 4.8% decrease in total grain
marketing sales, from $2.2 billion in 1998 to $2.1 billion in 1997.
Operating income in the grain business increased $23.6 million in
1998 compared with 1997. This increase resulted from significantly
improved margins on certain international grain transactions and from
higher storage revenues.

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 1996 loss in the
Company's grain operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A")
increased $22.6 million, or 5.5%, in 1998 compared with 1997. SG&A
directly associated with business segments increased $16.4 million
(primarily related to the grain marketing and meats businesses) and
has been included in the determination of the operating income of
business segments. General corporate expenses not identified to
business segments increased $6.2 million primarily as a result of
the increased cost of management information systems and the
acquisition of SF Services, Inc. ("SF Services").
SG&A increased $40.4 million, or 11%, in 1997 compared
with 1996.
SG&A directly associated with business segments increased $42.3
million (primarily associated with 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 $1.9 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 $11.8 million of the increase was directly
connected to business segments (primarily the food processing and
marketing and grain marketing 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 ($12.81 million), included higher expenses from improving
the management information systems and higher employee-related
costs.

OTHER INCOME (DEDUCTIONS)

INTEREST EXPENSE

Interest expense increased $11.3 million in 1998 compared with 1997,
primarily reflecting higher average borrowings.

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.
OTHER, NET

During 1998, the Company sold: (1) an approximate 3.8%
interest in FNBPC,
resulting in a gain before income taxes of $7.2 million; and (2) all
of its interest in Cooperative Services Company, formerly a 100%
owned subsidiary, resulting in a gain before income taxes of $2.2
million.
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
CAPITAL EXPENDITURES

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

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 24 grain
elevators and 75 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
potentially responsible party ("PRP") under the federal
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 ("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 26 properties under CERCLA and/or the state and
federal hazardous waste management laws. During 1996, 1997 and
1998, the Company paid approximately $1.8 million, $4.6 million and
$3.1 million, respectively, for environmental investigation and
remediation.
The Company currently is aware of probable obligations for
environmental matters at 36 properties. As of August 31, 1998, the
Company has an environmental accrual in its Consolidated Balance
Sheet for probable and reasonably estimated cost for remediation of
contaminated property of
$14.4 million. The Company periodically reviews and, as
appropriate, revises its environmental accruals. Based on current
information and regulatory requirements, the Company believes that
the accruals established for environmental expenditures are
adequate.

The Company's actual final costs of addressing certain
environmental matters are not quantifiable and therefore have not
been accrued, because such matters are in preliminary stages and the
timing, extent and costs of various actions which governmental
authorities may require are currently unknown. Also, 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,
1998. In the opinion of management, it is reasonably possible for
such additional costs to be approximately $19.2 million.

Under the Resource Conservation Recovery Act of 1976 ('
'RCRA''), the Company has three closure and four post-closure plans
in place for five 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 postclosure costs are estimated
to be $4.9 million at August 31, 1998 (and is in addition to the
$19.2 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 1996,
1997 and 1998, the Company had capital expenditures of approximately
$10.9 million, $8.4 million and $8.7 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.

RECENT ACCOUNTING PRONOUNCEMENTS

Statements of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," No. 131, "Disclosures about
Segments of an Enterprise and Related Information," and No. 132,
"Employer's Disclosures About Pensions and Other Postretirement
Benefits" have been issued by the Financial Accounting Standards
Board ("FASB") and are effective for fiscal periods beginning after
December 15, 1997. These statements expand or modify disclosures
and, accordingly, will have no impact on the Company's reported
financial position, results of operations or cash flows. SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"
was issued in June 1998 by the FASB and is effective for fiscal
periods beginning after June 15, 1999. The Company is currently
evaluating the impact, if any, that adoption of the provisions of
SFAS No. 133 will have on its financial statements.

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
forwardlooking 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, pending and possible legislation
and regulation upon the Company's business (including, but not
limited to, the effects of FAIR, "fasttrack" 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.Technological changes (including "Year 2000" compliance issues)
are more difficult or expensive to implement than anticipated.

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SENSITIVITY ANALYSIS
The Company is exposed to various market risks, including
commodity price risk, foreign currency risk and interest rate risk.
To manage the volatility related to these risks, the Company enters
into various derivative transactions pursuant to the Company's
policies in areas such as counter-party exposure and hedging
practices. Within limits approved by the Company's Board of
Directors, the Company's international grain trading subsidiary,
Tradigrain, may take net long or short commodity positions.
Otherwise, the Company does not hold or issue derivative instruments
for trading purposes. Commodities to which the Company has risk
exposure include: wheat, corn and milo, soybeans, cattle, hogs,
natural gas, crude oil and refined fuels. The Company maintains
risk management control systems to monitor its commodity risks and
the offsetting hedge positions.
The following table presents one measure of market risk
exposure using sensitivity analysis. Market risk exposure is
defined as the change in the fair value of the derivative commodity
instruments assuming a hypothetical change of 10% in market prices
Actual changes in commodity market prices may differ from
hypothetical changes. Fair value was determined for derivative
commodity contracts using the average quoted market prices for the
three near-term contract periods. For derivative commodity
instruments, fair value was based on the Company's net position by
commodity at year-end. The market risk exposure excludes the
underlying positions that are being hedged. The underlying
commodities hedged have a high inverse correlation to price changes
of the derivative commodity instruments.

Effect of 10% Change in Fair Value
As of August 31, 1998

(In millions)
DERIVATIVE COMMODITY
CONTRACTS: Grains:
Trading.................
... $4.9
Other than
Trading......... $0.9
Energy, other than
trading... $8.9 Meats,
other than trading....
$0.6

The Company uses interest rate swaps to hedge a portion of its
variable
interest rate exposure and uses foreign currency forward contracts
to hedge its exposure related to certain foreign currency
denominated transactions. Assuming an adverse interest rate
movement of 100 basis points and assuming an adverse movement in the
foreign currency spot price of 10%, the impact on fair value of
interest and currency positions held would be $3.1 million and $4.1
million, respectively. Market risk on these transactions is not
material to the Company's results of operations or financial
position.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FARMLAND CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report ...............................73

Consolidated Balance Sheets, August 31, 1997 and
1998 .......................................................75

Consolidated Statements of Operations for each of
the years in the three-year period ended August
31, 1998
...................................................83

Consolidated Statements of Cash Flows for each of
the years in the three-year period ended August
31, 1998
...................................................87

Consolidated Statements of Capital Shares and
Equities for each of the years in the three-year
period ended August 31, 1998
...............................94

Notes to Consolidated Financial Statements
.................99
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, 1997 and
1998, 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, 1998. 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, 1997 and 1998, and the results of their operations and their
cash flows for each of the years in the three-year period ended
August 31, 1998, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Kansas City, Missouri
October 16, 1998
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS

August
31
1997
1998
(Amounts in
Thousands)

Current Assets:
Cash and cash equivalents............................................ $ -0- $
7,334
Accounts receivable - trade........................................ 589,028
596,415
Inventories (Note 2)............................................... 745,301
725,967
Other current assets............................................... 94,239
145,151

Total Current Assets.......................................... $ 1,428,568 $ 1,474,867
Investments and Long-Term Receivables (Note 3) $ 266,554 $ 298,402

Property, Plant and Equipment (Notes 4 and 5):

Property, plant and equipment, at cost............................. $ 1,585,824 $ 1,680,373
Less accumulated depreciation and amortization..................... 802,716 853,224

Net Property, Plant and Equipment.................................. $ 783,108 $ 827,149
Other Assets......................................................... $ 167,082 $ 212,356

Total Assets......................................................... $ 2,645,312 $ 2,812,774

FN>
See accompanying Notes to Consolidated Financial Statements.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES

August 31
1997 1998
(Amounts in
Thousands)
Current Liabilities:
Demand loan certificates............................................... $ 50,523 $
28,407
Short-term notes payable (Note 5)...................................... 258,342
380,232
Current maturities of long-term debt (Note 5).......................... 91,643
38,946
Accounts payable - trade............................................... 366,345
330,043
Other current liabilities.............................................. 419,504
323,601

Total Current Liabilities......................................... $ 1,186,357 $
1,101,229

Long-Term Liabilities (Note 5):
Long-term borrowings (excluding current maturities).................... $ 580,665 $
728,103
Other long-term liabilities............................................ 33,480
31,942

Total Long-Term Liabilities....................................... $ 614,145 $
760,045

Deferred Income Taxes (Note 6)........................................... $ 3,974 $
3,333

Minority Owners' Equity in Subsidiaries (Note 7) $ 18,843 $
35,471
Capital Shares and Equities (Note 8):
Preferred shares, Authorized 8,000,000 shares, 8% Series A cumulative
redeemable preferred shares, stated at redemption value, $50 per share,
2,000,000 shares issued and outstanding (0 shares in 1997) ............ $ -0- $
100,000
Other preferred shares, $25 par value, 2,838 shares issued and
outstanding (2,886 shares in 1997) .... 72
71
Common shares, $25 par value --
Authorized 50,000,000 shares,
18,072,136 shares issued and outstanding
(17,680,493 shares in 1997) ........................................... 442,012
451,804

Associate member common shares
(nonvoting), $25 par value -- Authorized 2,000,000 shares, 1,140,304
shares issued and outstanding
(889,913 shares in 1997) .............................................. 22,248
28,508

Earned surplus and other equities...................................... 357,661
332,313

Total Capital Shares and Equities................................. $ 821,993 $
912,696
Contingent Liabilities and Commitments (Notes 5, 6 and 9)

Total Liabilities and Equities............................................. $ 2,645,312
$2,812,774

<FN>
See accompanying Notes to Consolidated Financial Statements.

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended August 31

1996 1997
1998

(Amounts in Thousands)

Sales....................................................... $ 9,788,587 $ 9,147,507 $
8,775,046
Cost of sales............................................... 9,272,002 8,580,826
8,271,912
Adjustment of LIFO inventories to market.................... -0- -0-
27,593

Gross income................................................ $ 516,585 $ 566,681 $
475,541

Selling, general and administrative expenses................ $ 368,954 $ 409,378 $
431,999

Other income (deductions):
Interest expense......................................... $ (62,445) $ (62,335) $
(73,645)
Interest income.......................................... 5,021 5,352
5,436
Other, net (Note 15)..................................... 24,257 22,486
30,265

Total other income (deductions)............................. $ (33,167) $ (34,497) $
(37,944)

Income before income tax (expense) benefit, equity in net income of
investees and minority owners'
interest in net income of subsidiaries................... $ 114,464 $ 122,806 $
5,598
Income tax (expense) benefit (Note 6)....................... (21,755) (20,907)
6,912
Income before equity in net income of investees and minority

owners' interest in net
income of subsidiaries.................................. $ 92,709 $ 101,899 $
12,510
Equity in net income of investees (net of allocated
tax expense of $7,581, $7,343 and $3,169 in 1996,
1997 and 1998, respectively) (Note 3).................... 41,092 42,108
53,216

Minority owners' interest in net income
of subsidiaries.......................................... (7,383) (8,584)
(6,956)

Net income ................................................. $ 126,418 $ 135,423 $
58,770
Distribution of net income (Note 8):
Patronage refunds:
Farm supply patrons.................................. $ 83,739 $ 101,262 $
51,513
Pork marketing patrons............................... 6,998 -0-
1,274
Beef marketing patrons............................... 2,753 6,458
3,817
Grain marketing patrons.............................. -0- 585
2,517
Livestock production................................. 5 2

- -0-

$ 93,495 $ 108,307 $

59,121

Earned surplus and other equities........................ 32,923 27,116

(351)

$ 126,418 $ 135,423 $
58,770

<FN>
See accompanying Notes to Consolidated Financial statements.

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

Year Ended August 31

1996 1997
1998

(Amounts in Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 126,418 $ 135,423
$ 58,770
Adjustments to reconcile net income to net cash provided by
operating activities:

Depreciation and amortization............................... 77,741 90,351
101,833
Equity in net income of investees........................... (41,092) (42,108)
(53,216)
Minority owners' equity in net
income of subsidiaries.................................... 7,383 8,584 6,956
Gain on disposition of investments.......................... (11,300) (552) (9,450)
Patronage refunds received in equities...................... (2,244) (1,830) (1,099)
Proceeds from redemption of patronage equities.............. 5,112 5,106 6,546
Deferred income taxes....................................... 11,034 (1,469) (641)
Adjustment of LIFO inventories to market.................... -0- -0- 27,593
Other....................................................... (3,302) 1,951 1,029
Changes in assets and liabilities (exclusive
of assets and liabilities of businesses acquired):
Accounts receivable....................................... (175,991) 27,644 25,398
Inventories............................................... 47,220 (9,343) 17,295
Other assets.............................................. (40,774) 6,249 6,893
Accounts payable.......................................... 140,721 (26,091)
(67,286)
Other liabilities......................................... 41,194 28,393
(82,953)

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

$ 37,668

Year Ended August 31

1996 1997

1998

(Amounts in Thousands)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................... $ (168,272) $ (158,655) $
(108,837) Distributions from joint ventures............................. 22,239 55,238 57,635
Acquisition of investments and notes receivable............... (51,923) (46,243)
(69,466)
Acquisition of other long-term assets......................... (23,768) (25,724)
(27,267)
Proceeds from sale of investments
and collection of notes receivable.......................... 31,003 24,758 40,884
Proceeds from sale of fixed assets............................ 5,996 6,895 20,632
Acquisition of businesses..................................... (39,536) (3,515) -0-
Other......................................................... (6,803) -0- (124)

Net cash used in investing activities......................... $ (231,064) $ (147,246)
$(86,543)

<FN>
See accompanying Notes to Consolidated Financial Statements

Year Ended August 31

1996 1997
1998

(Amounts in Thousands)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of patronage refunds................................. $ (32,777) $ (32,511)
$ (40,449)
Payments for redemption of equities........................... (27,470) (25,440) (80,243)
Payments of dividends on preferred shares..................... (4) (4) (4,937)
Proceeds from bank loans and notes payable.................... 597,959 337,407 612,634
Payments of bank loans and notes payable...................... (526,814) (427,139) (494,275)
Proceeds from issuance of subordinated debt
certificates.............................................. 67,965 86,132 99,309
Payments for redemption of subordinated
debt certificates......................................... (43,803) (37,455) (66,000)
Net increase (decrease) in checks
and drafts outstanding.................................... (6,144) 16,299
(47,243)
Net increase (decrease) in demand loan certificates........... 26,575 10,424
(22,116)
Proceeds from issuance of preferred shares.................... -0- -0-
100,000
Other (decrease).............................................. (6,543) (2,775)
(471)

Net cash provided by (used in) financing activities........... $ 48,944 $ (75,062)
$ 56,209

Net increase in cash and cash equivalents..................... $ -0- $ -0-
$ 7,334
Cash and cash equivalents at beginning of year................ -0- -0-
- -0-

Year Ended August 31

1996 1997
1998

(Amounts in Thousands)

Cash and cash equivalents at end of year...................... $ -0- $ -0-
$ 7,334

SUPPLEMENTAL SCHEDULE OF CASH PAID FOR INTEREST AND INCOME TAXES

Interest...................................................... $ 58,125 $ 57,650

$ 76,087

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

$ 14,475

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equities and minority owners' interest called
for redemption............................................ $ 25,214 $ 28,579
$ 8,868

Transfer of assets in exchange for investment in
joint ventures............................................ $ -0- $ 10,292
$ 4,601

Appropriation of current year's net income as
patronage refunds......................................... $ 93,495 $ 108,307
$ 59,121

Acquisition of businesses:
Fair value of net assets acquired......................... $ 52,401 $ -0-
$ 168,409
Goodwill.................................................. 3,181 2,550
14,819

Year Ended August 31

1996 1997
1998

(Amounts in Thousands)

Minority owners' investment............................... -0- 965
- -0-
Equity issuable........................................... -0- -0-
(26,323)
Cash paid or payable...................................... (39,536) (3,515)
(2,766)

Liabilities assumed........................................... $ 16,046 $ -0-
$ 154,139

<FN>
See accompanying Notes to Consolidated Financial Statements.

See accompanying Notes to Consolidated Financial
Statements.
9 4
FARMLAND INDUSTRIES, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF
CAPITAL SHARES AND EQUITIES
See accompanying Notes to Consolidated Financial
Statements.
<

See accompanying Notes to Consolidated Financial
Statements.

Years Ended August 31, 1996, 1997 and 1998
Associate Earned
Member Surplus and
Total Capital Preferred Common Common Other
Shares and
Shares Shares Shares Equities Equities
(Amounts in Thousands)

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 patronage refund allocation............. -0- 49,644 6,493 (56,294) (157)
Dividends on preferred shares...................... -0- -0- -0- (4) (4)
Exchange of common shares, associate
member common shares 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)

See accompanying Notes to Consolidated Financial Statements.

Prior year patronage refund allocation............. -0- 53,269 5,640 (59,103) (194)
Dividends on preferred shares...................... -0- -0- -0- (4) (4)
Exchange of common shares, associate
member common shares and other equities.......... -0- (2,566) 1,929 637 -0-
Issue, redemption and cancellation of equities..... (3) 326 (151) (89) 83

BALANCE AT AUGUST 31, 1997......................... $ 72 $ 442,012 $ 22,248 $ 357,661 $
821,993
Appropriation of current year's net income......... -0- -0- -0- 58,770 58,770
Patronage refund payable in cash transferred
to current liabilities........................... -0- -0- -0- (23,593) (23,593)
Base capital redemptions transferred
to current liabilities........................... -0- (8,738) (130) -0- (8,868)
Prior year patronage refund allocation............. -0- 60,238 7,551 (67,789) -0-
Dividends on preferred shares...................... -0- -0- -0- (6,933) (6,933)
Exchange of common shares, associate
member common shares and other equities.......... -0- (2,058) 123 1,935 -0-
Equity issuable for purchase of
SF Services, Inc................................. -0- -0- -0- 26,323
26,323
Issue, redemption and cancellation of equities..... 99,999 (39,650) (1,284) (14,061)
45,004

BALANCE AT AUGUST 31, 1998......................... $100,071 $ 451,804 $ 28,508 $ 332,313
$ 912,696

<FN>
See accompanying Notes to Consolidated Financial Statements.

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 global,
consumer-driven, producer-owned, farm-to-table 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 which is other
than temporary.

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 and Other Intangible Assets -- 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 $12.9
million and $16.4 million, respectively, at August 31, 1997 and
1998. Other intangible assets, primarily software, are amortized
over three to ten
years.
Sales -- The Company recognizes sales at the time product
is shipped. Net margins of the Company's international grain trading
subsidiaries (collectively referred to as "Tradigrain"), rather than
the gross value of such products, are included in net sales. The
gross value of Tradigrain's grain trading transactions in 1996, 1997
and 1998 was $2.6 billion, $2.3 billion and $1.7 billion,
respectively.
Derivative Commodity Instruments -- The Company uses derivative
commodity instruments, including forward contracts, futures and
options contracts,
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.

Reclassifications -- Certain prior year amounts have been

reclassified to conform with the current year presentation.

(2) INVENTORIES

Major components of inventories are as follows:

August 31

1997 1998

(Amounts in Thousands)
Finished and in-process $625,577 $ 605,876
products.................
Materials................ 62,001 62,578
Supplies................. 57,723
57,513

$745,301
$ 725,967

Income before income taxes for the year ended August 31, 1998
has been reduced by $27.6 million to recognize a non-cash charge for
the adjustment of crude oil and refined petroleum inventories to
market value. The carrying values of crude oil and refined
petroleum inventories stated under the lower of LIFO cost or market
at August 31, 1997 and 1998, were $125.5 million and $112.7 million,
respectively.
The carrying values of beef inventories stated under the
lower of LIFO cost or market at August 31, 1997 and 1998, were $37.0
million and
$42.7 million, respectively. At both August 31, 1997 and 1998,
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
1997
1998
(Amounts in
Thousands)

Investments accounted for by the equity method................ $ 177,994 $
196,106
Investments in and advances to other cooperatives............. 43,585
39,112
National Bank for Cooperatives................................ 20,958
16,554
Other investments and long-term receivables................... 24,017
46,630

$ 266,554
$ 298,402

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, 1997 and
1998, 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

1997
1998

(Amounts in
Thousands)

Current Assets................................................ $ 269,565
$ 614,845
Long-Term Assets.............................................. 492,966
596,869

Total Assets.............................................. $ 762,531
$1,211,714

Current Liabilities........................................... $ 214,662
$ 513,293 Long-Term Liabilities.........................................
186,344 308,382
Total Liabilities......................................... $ 401,006
$ 821,675
Net Assets.................................................... $ 361,525
$ 390,039

Year Ended August 31

1996 1997

1998

(Amounts in Thousands)

Net sales.................................. $ 1,154,195 $ 1,366,038
$ 1,859,159

Net income................................. $ 83,075 $ 84,536
$ 108,517

Farmland's equity in net income............ $ 41,092 $ 42,108
$ 53,216

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 and a 50% equity interest in a
distributor of crop protection products, WILFARM, LLC. At August
31, 1998, the Company's share of the undistributed earnings of all
ventures accounted for by the equity method totaled $58.3 million.

(4) PROPERTY, PLANT AND EQUIPMENT

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

August 31

1997
1998

(Amounts in
Thousands)

Land and improvements..................... $ 51,586 $
57,381
Buildings................................. 275,835
296,163
Machinery and equipment................... 947,836
1,043,831
Automotive equipment...................... 67,021
70,676
Furniture and fixtures.................... 53,391
59,859
Capital leases............................ 54,467
54,467
Leasehold improvements.................... 28,981
30,750
Other..................................... 8,283
7,598
Construction in progress.................. 98,424
59,648

$ 1,585,824 $ 1,680,373

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

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

August
31
1997
1998
(Amounts in
Thousands)

Subordinated capital investment certificates
--6% to 9%, maturing 1999 through 2014......................... $ 284,493
$ 318,733
Subordinated monthly income certificates
--6.25% to 9.25%, maturing 1999 through 2008................... 88,546
87,675
Syndicated Credit Facility
--5.84% to 6.28%, maturing 2001................................ 160,000
170,000
Other bank notes--6.39% to 10.75%,
maturing 1999 through 2008..................................... 69,943
122,214
Industrial revenue bonds--6.75% to 9.25%,
maturing 1999 through 2021..................................... 17,430
25,475
Promissory notes--5% to 8.5%,
maturing 1999 through 2007..................................... 11,707
8,927
Other--3% to 14.92%............................................... 40,189
34,025

$ 672,308
$ 767,049
Less current maturities........................................... 91,643
38,946

$ 580,665
$ 728,103

The Company has a $1.1 billion Syndicated Credit Facility with a group
of domestic and international banks ("the Credit Facility"). The Credit 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, 1998, the Company had
outstanding $328.2 million of revolving shortterm borrowings under
the Credit Facility and $170.0 million of revolving term borrowings;
additionally, $30.3 million of the Credit Facility was being
utilized to support letters of credit issued on behalf of the
Company.

The Company pays commitment fees under the Credit 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 Credit 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 shortterm provisions of the Credit Facility are reviewed and/or
renewed annually.
The next review date is in May 1999. The revolving term provisions
of the Credit Facility expire in May 2001.

During April 1998, Farmland National Beef Packing Company, L.P.
("FNBPC") replaced its existing borrowing arrangements with a new
five-year $130.0 million credit facility. This facility, which
expires March 31, 2003, is provided by various participating banks
and all borrowings thereunder are
nonrecourse to Farmland or Farmland's other affiliates. FNBPC used
a portion of this facility to repay in full its borrowings from
Farmland. At August 31, 1998, FNBPC had borrowings under this
facility of $86.2 million and $1.3 million of the facility was being
utilized to support letters of credit. FNBPC has pledged certain
assets to support its borrowings under the new facility.
The Company maintains other borrowing arrangements with
banks and financial institutions. At August 31, 1998, $36.0 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, 1998, such short-term borrowings totaled $34.9 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 ($604.0 million at August 31,
1998) and certain additional financings (principally long-term
operating leases). See Note 9.

At August 31, 1998, under industrial revenue bonds and other
agreements, assets with a carrying value of $12.9 million have been
pledged.

Borrowings from CoBank, under both the Syndicated Credit
Facility and short-term notes payable, totaling $187.9 million at
August 31, 1998, 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)
1999................. $ 38,946
2000................. 35,203
2001................. 206,689
2002................. 59,069
2003................. 153,687
2004 and after....... 273,455

$ 767,049

At August 31, 1997 and 1998, the Company had demand loan
certificates and short-term bank debt outstanding of $308.9 million
(weighted average interest rate of 6.07%) and $391.5 million
(weighted average interest rate of 6.06%), respectively.

During 1996, 1997 and 1998, the Company capitalized
interest of $1.6 million, $4.0 million and $3.9 million,
respectively.

(6) INCOME TAXES

A. TERRA RESOURCES, INC.

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 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 $279.9 million through August 31,
1998), or $365.7 million (before tax benefits of the interest
deduction) in the aggregate at August 31, 1998. 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 $15.3
million (including accumulating statutory interest thereon). 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
"Credit 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, 1998, Farmland's borrowing capacity under the Credit
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 Credit 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.
b. OTHER INCOME TAX MATTERS
Income before income taxes include the following components:

Year Ended August 31
1996 1997 1998
(Amounts in Thousands)

Foreign..................... $ 13,950 $ 9,709 $
30,269
Domestic.................... 141,804 153,964
24,758

Total....................... $155,754 $163,673 $ 55,027

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

Year Ended August 31
1996 1997
1998
(Amounts in Thousands)

Federal:
Current.................................. $ 7,322 $ 18,712 $
(7,852)
Deferred................................. 9,430 (1,129)
(956)

$ 16,752 $ 17,583 $
(8,808)

State:
Current................................. $ 1,292 $ 3,303 $
(1,386)
Deferred................................ 1,664 (199)
(168)

$ 2,956 $ 3,104 $
(1,554)

Foreign:
Current................................. $ 2,107 $ 361 $
2,967
Deferred................................ (60) (141)
483

$ 2,047 $ 220 $
3,450

Total income tax expense................... $ 21,755 $ 20,907 $
(6,912)

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

Year Ended August 31
1996 1997
1998

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 ....................... (20.4) (22.4)
(95.8)
State income tax expense, net of
federal income tax effect.............. 2.5 1.6
3.3
Minority interest of pass through
entities............................... (2.6) (2.6)
(47.7)
Other, net .............................. 4.5 5.4
(18.3)

Income tax expense (benefit)............... 19.0 % 17.0 %
(123.5) %

The tax effect of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at
August 31, 1997 and 1998 are as follows:

August 31

1997
1998

(Amounts in
Thousands)

Deferred tax liabilities:
Property, plant and equipment, principally due to differences
in depreciation......................... $ 51,632
$ 75,808
Prepaid pension cost ....................... 19,242
16,388
Income from foreign subsidiaries ........... 3,765
11,187
Basis differences in pass-through
ventures................................ 3,929
4,677
Other ...................................... 3,144
6,169

Total deferred tax liabilities.......... $ 81,712
$ 114,229

Deferred tax assets:
Safe harbor leases ......................... $ 4,143
$ 3,802
Accrued expenses ........................... 49,747
61,700
Benefit of nonqualified
written notices......................... 19,456
33,761
Alternative minimum tax credit ............. -0-
5,829
Accounts receivable, principally due to
allowance for doubtful accounts......... 1,844
3,024
Other ...................................... 2,548 2,780
Total deferred tax assets............... $ 77,738
$ 110,896
Net deferred tax liability ................. $ 3,974
$ 3,333

A valuation allowance of $1.6 million and $1.5 million for
deferred
tax assets was provided at August 31, 1997 and 1998, 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, 1998, Farmland has member-sourced loss
carryforwards, expiring in 2012, amounting to $11.3 million
available to offset future membersourced 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 of subsidiaries owned by others is
as follows:

.
August 31
1997
1998
(Amounts in
Thousands)

Farmland National Beef Packing Company, L.P................ $ 11,491 $
30,084
Farmland Foods, Inc........................................ 4,423
4,061
Other subsidiaries......................................... 2,929
1,326

$ 18,843 $
35,471

(8) PREFERRED STOCK, EARNED SURPLUS AND OTHER EQUITIES

A summary of preferred stock is as follows:

August 31

1997
1998

(Amounts in
Thousands)

Preferred shares - Authorized 8,000,000 shares:
8%, Series A cumulative redeemable preferred shares,
stated at redemption value, $50 per share, 2,000,000
shares issued and outstanding (0 shares in 1997) .............. $ -0- $
100,000

6%, $25 par value - 530 shares issued and outstanding
(570 shares in 1997)....................................... 14
13

5-1/2%, $25 par value - 2,308 shares issued and
outstanding (2,316 shares in 1997).........................
58
58
$ 72
$ 100,071

Dividends on the Series A preferred shares accumulate whether or not the
Company has earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not such
dividends are declared. These preferred shares are redeemable,
beginning on December 15, 2022, at the sole discretion of the
Company. No redemption by the Company is allowed prior to that
time. Series A preferred shares each have a liquidation preference
of $50 per share, plus an amount equal to accumulated and unpaid
dividends, if any, thereon. The preferred shares are not entitled to
vote.

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
stockholders 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
1997
1998
(Amounts in
Thousands)

Earned surplus............................................ $ 257,044
$ 249,108
Patronage refund payable in equities...................... 68,079
35,528
Capital credits........................................... 30,879
19,694
Equity issuable for the purchase of SF Services, Inc...... -0-
26,323
Additional paid-in surplus................................ 1,616
1,596
Currency translation adjustment........................... 43
64

$ 357,661
$ 332,313

Patronage refunds payable in equities represent the portion of
patronage refunds payable from 1998 earnings, in the form of common
shares, associate member common shares and capital credits.

In July 1998, the Company acquired all of the common stock of
SF Services, Inc. ("SF Services") in exchange for $26.3 million in
Farmland equity, $2.8 in cash and warrants which, when exercisable,
may be exchanged for $21.7 million in Farmland equity. The right to
exercise the warrants is contingent on the achievement of a
specified minimum volume of business done by the holder with
Farmland. SF Services operated as a regional farm supply
cooperative, serving local cooperative members in Arkansas,
Mississippi, Louisiana and Alabama.

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.
(9) CONTINGENT LIABILITIES AND COMMITMENTS

The Company leases various equipment and real properties under
long-term operating leases. For 1996, 1997 and 1998, rental expense
totaled $42.1 million, $53.9 million and $64.3 million,
respectively. Rental expense is reduced for sublease income,
primarily mileage credits received on leased railroad cars ($1.4
million in 1996, $5.4 million in 1997 and $1.1 million in 1998).

The lease agreements have various remaining terms ranging
from one year to fourteen 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)
1999...........................$ 57,543
2000........................... 56,354
2001........................... 48,034
2002........................... 42,795
2003........................... 16,293
2004 and after................. 62,712

$ 283,731
Commitments for capital expenditures and investments in
joint ventures aggregated $44.1 million at August 31, 1998.

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 $16.9 million and
$14.4 million at August 31, 1997 and 1998, 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,
1998. In the opinion of management, it is reasonably possible for
such costs to approximate an additional $19.2 million.

In the ordinary course of conducting international grain
trading, Tradigrain, as of August 31, 1998, was contingently liable
in the amount of $63.9 million of performance and bid
bonds, guarantees and letters of credit.

In December 1997, the Company entered into a series of agreements
which
provide for the construction and operation under a long-term lease
of facilities adjacent to the Company's petroleum refinery at
Coffeyville, Kansas. These facilities are designed to convert
petroleum coke by-products into fertilizers. When the facilities are
completed (presently scheduled for early in fiscal 2000), Farmland
will be obligated to make future minimum lease payments which, at
that time, will have an approximate present value of $223 million.
Alternatively, Farmland has an option to purchase the facilities.
The Company's subordinated debt securities are subordinated in
right of payment to the future
lease obligations. In the event Farmland should default on the
obligations described above, future lease obligations may be
accelerated. If accelerated, obligations due and payable would total
approximately $263 million, all of which would be senior to the
subordinated debt securities and, upon payment of such amount,
Farmland would receive title to the assets.
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 is not expected to
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 domestic and
foreign common stocks, corporate bonds, United States Government
securities, short-term investment funds, private REITS and Venture
Capital 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
1996 1997
1998
(Amounts in
Thousands)

Service cost - benefits earned during the period................... $ 10,886 $ 11,333
$ 12,013 Interest cost on projected benefit obligation...................... 18,843
19,816 21,403
Actual return on Plan assets....................................... (46,630) (37,816)
(52,300)
Net amortization and deferral...................................... 24,634 12,252
24,315

Pension expense.................................................... $ 7,733 $ 5,585
$ 5,431

At August 31, 1996 and 1997 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, and at
August 31, 1998 were 7.25%, 4.5% and 9.0%, respectively.

The following table sets forth the Plan's funded status
and amounts recognized as assets in the Company's Consolidated
Balance Sheets at August 31, 1997 and 1998. Such prepaid pension
cost is based on the Plan's funded status as of May 31, 1997 and
1998.

August 31
1997
1998
(Amounts in
Thousands)

Actuarial present value of benefit obligations:
Vested benefits.................................................... $ 196,063 $
226,175
Nonvested benefits................................................. 16,730
30,847

Accumulated benefit obligation..................................... $ 212,793 $
257,022
Increase in benefits due to future compensation increases.......... 51,730
85,526

Projected benefit obligation....................................... $ 264,523 $
342,548
Estimated fair value of Plan assets................................ 331,822
385,112

Plan assets in excess of projected benefit obligation.............. $ 67,299 $
42,564
Unrecognized net (gain) loss from past experience different
from that assumed and effects of changes
in assumptions.................................................. (15,405)
5,387
Unrecognized prior service cost.................................... 621
414

Prepaid pension cost at end of year.................................. $ 52,515 $
48,365

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

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.

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; livestock production; and
the storage and marketing of grain.

Other operations primarily includes computer, financial,
management, printing and transportation services.

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, 1996, 1997 and 1998.

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

1996
Sales to
unaffiliated
customers.........$1,058,258 $1,336,307 $569,869 $3,227,652 $3,468,686 $ 127,815 $ -0-
$ 9,788,587

Transfers between
segments.......... 7,895 16,392 13,672 40,042 72,819 56,061 (206,881) -0-
Total sales and
transfers.........$1,066,153 $1,352,699 $583,541 $3,267,694 $3,541,505 $ 183,876 $(206,881)
$ 9,788,587

Operating income
(loss) of industry
segments..........$ 4,766 $ 178,861 $ 12,915 $ 65,077 $ (18,234) $ (2,933) $ 240,452

Equity in net income
(loss) of
investees
(Note 3).......... (98) 41,899 382 -0- (10) (1,081) 41,092

Combined operating
income (loss) and
equity in net
income (loss) of investees of
industry segments.0 4,668 $ 220,760 $ 13,297 $ 65,077 $ (18,244) $ (4,014)
$ 281,544
General corporate
expenses.......... (92,883)
Other corporate
income............ 29,340

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 $ 27,977 $ 5,010 $ 5,227 $ 7,081
$ 77,741

Capital expenditures
(Including $29.9
million of capital
assets of
businesses
acquired).........$ 42,075 $ 37,296 $ 5,083 $ 60,725 $ 6,643 $ 19,044 $ 27,342
$ 198,208

1997

Sales to
unaffiliated
customers.........$1,331,786 $1,263,566 $618,000 $3,566,100 $2,238,695 $ 129,360 $ -0-
$ 9,147,507

Transfers between
segments.......... 5,153 15,752 18,134 61,885 160,313 53,668 (314,905) -0-

Total sales and
transfers.........$1,336,939 $1,279,318 $636,134 $3,627,985 $2,399,008 $ 183,028 $(314,905)
$ 9,147,507

Operating income
(loss) of industry
segments..........$ 36,266 $ 160,036 $ 6,643 $ 46,320 $ 6,819 $ (7,821) $ 248,263

Equity in net income
of investees
(Note 3).......... 101 41,213 342 -0- 241 211 42,108

Combined operating
income (loss) and
equity in net
income (loss) of investees of
industry segments.$ 36,367 $ 201,249 $ 6,985 $ 46,320 $ 7,060 $ (7,610)
$ 290,371
General corporate
expenses.......... (90,957)
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 $ 33,353 $ 4,934 $ 7,649 $ 7,923
$ 90,351

Capital expenditures
(Including $3.5
million of capital
assets of
businesses
acquired).........$ 22,599 $ 78,728 $ 2,278 $ 38,106 $ 2,591 $ 12,172 $ 5,696
$ 162,170

1998

Sales to
unaffiliated
customers.........$1,136,928 $1,157,843 $549,732 $3,656,341 $2,131,999 $ 142,203 $ -0-
$ 8,775,046

Transfers between
segments.......... 4,162 4,396 20,889 62,493 101,002 70,053 (262,995) -0-

Total sales and
transfers.........$1,141,090 $1,162,239 $570,621 $3,718,834 $2,233,001 $ 212,256 $(262,995)
$ 8,775,046

Operating income
(loss) of industry
segments before
inventory adjustment
to market.........$ 27,979 $ 48,135 $ 10,960 $ 55,356 $ 30,411 $ (4,523)
$ 168,318

Inventory adjustment
to market......... (27,593) -0- -0- -0- -0- -0- (27,593)

Operating income
(loss) of industry
segments.......... 386 48,135 10,960 55,356 30,411 (4,523) 140,725

Equity in net income
(loss) of
investees
(Note 3).......... 270 46,936 1,055 -0- 2,510 2,445 53,216

Combined operating
income (loss) and
equity in net
income of
investees of
industry segment..$ 656 $ 95,071 $ 12,015 $ 55,356 $ 32,921 $ (2,078)
$ 193,941

General corporate
expenses.......... (97,179)

Other corporate
income............ 35,697

Interest expense.... (73,645)

Minority interest... (6,956)

Income tax benefit.. 6,912

Net income..........

$ 58,770

Identifiable assets at
August 31, 1998...$ 431,900 $ 510,357 $ 91,537 $ 613,633 $ 522,268 $ 238,187
$ 2,407,882

Investment in and advances to
investees.........$ 1,087 $ 150,676 $ 7,308 $ -0- $ 18,245 $ 18,790
$ 196,106
Corporate assets....
208,786
Total assets........
$ 2,812,774
Provision for
depreciation and
amortization......$ 14,609 $ 23,384 $ 4,500 $ 33,745 $ 5,036 $ 8,933 $ 11,626
$ 101,833

Capital expenditures
(including $45.4
million of capital
assets of
businesses
acquired $ 25,939 $ 28,513 $ 5,623 $ 38,988 $ 4,002 $ 47,661 $ 3,503
$ 154,229

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

Year Ended August 31
1996 1997 1998
(Amounts in Thousands)

Asia................................. $ 705,905 $ 549,404 $ 474,721
Latin and South America.............. 695,404 441,912
485,004
Canada............................... 61,217 53,567
60,341
Other................................ 527,770 308,412
280,722

Total................................ $ 1,990,296 $ 1,353,295 $
1,300,788

(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, 1997 August 31,
1998
Carrying Carrying
Amount Fair Value Amount
Fair Value

(Amounts in Thousands)

FINANCIAL ASSETS:
Investments:
National Bank for Cooperatives.............. $ 20,958 $ **** $ 16,554 $
****
Other cooperatives:
Equities.................................. $ 27,871 $ **** $ 27,150 $
**** Notes receivable.......................... $ 15,714 $ 15,010 $ 11,962
$ 11,557
FINANCIAL LIABILITIES:
Subordinated capital investment certificates
and subordinated monthly
income certificates........................... $ (373,039) $ (376,891) $ (406,408) $
(424,269)

****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 redemption 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 Company's
other debt borrowings are at short-term variable rates and the
carrying amounts approximate the fair market values.

(14) RELATED PARTY TRANSACTIONS

The Company has a 50% interest in two manufacturers of
phosphate products and a manufacturer of nitrogen products, Farmland
Hydro, L.P., SF Phosphates Limited Company and Farmland MissChem
Limited, a 50% interest in a distributor of crop protection
products, WILFARM, LLC, a 50% interest in a manufacturer and
distributor of crop protection products, Omnium, LLC and a 50%
interest in OneSystem Group, LLC ("OSG") which is an information
technology service. During 1998, the Company entered into
agreements with ConAgra, Inc. to

form two 50% owned ventures, Concourse Grain, LLC, a grain marketer
and Farmland-Atwood, LLC, a provider of grain merchandising and
support services.

During 1996, 1997 and 1998, the Company purchased $117.4
million, $131.9 million and $231.5 million, respectively, of
products and services from
these ventures. The Company had accounts payable of $10.0 million
and $5.9 million due to these ventures at August 31, 1997 and 1998,
respectively, and a note payable due to a venture of $17.1 million
at August 31, 1998. Accounts receivable owed to the Company at
August 31, 1998 totaled $22.3 million and a notes receivable due
from these ventures totaled $8.9 million and $35.0 million at August
31, 1997 and 1998, respectively.
(15) OTHER INCOME
During 1998, the Company sold: (1) an approximate 3.8%
interest in FNBPC, resulting in a gain before income taxes of $7.2
million; and (2) all of its interest in Cooperative Services
Company, formerly a wholly-owned subsidiary, resulting in a gain
before income taxes of $2.2 million.
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.

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 1998 Farmland Director Member Business Experience During
Last Five Years

Albert J. Shivley 55 Chairman of the 1998 14 General Manager--American Pride
Co-op
Board Association, Brighton, Colorado,
a local
cooperative association of
farmers and ranchers.

H. D. Cleberg 59 President and 2000 8 Mr. Cleberg has been with
Farmland since
Chief Executive 1968. He was named as president-
elect in
Officer February 1991 and became
President in April
1991. His tenure includes
senior leadership positions in
all of Farmland's input and
output businesses and in
corporate areas responsible for
transportation and logistics,
sales, marketing and research.

Jody Bezner 57 Vice Chairman 2000 7 Producer--Texline, Texas. Mr.
Bezner serves
and Vice as President of Dalhart
Consumers Fuel
President Association, Inc., Board of
Directors,
Dalhart, Texas, a local
cooperative association of
farmers and ranchers.

Lyman Adams, Jr. 47 1998 6 General Manager--Cooperative
Grain and
Supply, Hillsboro, Kansas, a
local cooperative association of
farmers and ranchers.
Ronald J. Amundson 54 2000 10 General Manager--Central Iowa
Cooperative,
Jewell, Iowa, a local
cooperative

association of farmers and
ranchers.
Baxter Ankerstjerne 62 1999 8 Producer--Peterson, Iowa.
From 1988 to 1997, Mr.
Ankerstjerne served as Chairman
of the Board of Directors of
Farmers Cooperative Association,
Marathon, Iowa.

Richard L. Detten 64 1999 11 Producer--Ponca City, Oklahoma.

Steven Erdman 48 1998 6 Producer--Bayard, Nebraska.
Mr. Erdman serves as Secretary,
Panhandle Co-op, Scottsbluff,
Nebraska, a local cooperative
association of farmers and
ranchers.

Harry Fehrenbacher 50 1999 2 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.

Martie Floyd 50 2000 1 Producer--Johnson, Kansas. Mr.
Floyd serves
as Secretary of the Board of
Directors of Johnson Cooperative
Grain Co, Inc., Johnson, Kansas,
a local cooperative association
of farmers and ranchers.

Warren Gerdes 50 1998 5 General Manager--Farmers
Cooperative
Elevator Company, Buffalo Lake,
Minnesota, a local cooperative
association of farmers and
ranchers.

Ben Griffith 49 1998 9 General Manager--Central
Cooperatives, Inc.,
Pleasant Hill, Missouri, a local
cooperative association of
farmers and ranchers.

Gail D. Hall 56 2000 10 General Manager--Lexington
Cooperative Oil
Company, Lexington, Nebraska, a
local cooperative association of
farmers and ranchers.

Barry Jensen 53 1999 8 Producer--White River, South
Dakota.
Mr. Jensen currently serves as a
Director, of Dakota Pride
Cooperative, Winner, South
Dakota, a local cooperative
association of farmers and
ranchers.

Ron Jurgens 60 1998 3 General Manager-Agri Co-op in
Holdrege,
Nebraska, a local cooperative
association of farmers and
ranchers.

William F. Kuhlman 49 1999 2 Producer--Oakley, Kansas. Mr.
Kuhlman
serves on the Boards of
Directors of Kansas Retail
Venture Group. 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 49 2000 6 Producer--Hobart, Oklahoma.
Director of The
Farmers Cooperative Association,
Hobart Oklahoma, a local
cooperative association of
farmers and ranchers.
Monte Romohr 45 1999 8 Producer--Gresham, Nebraska Mr.
Romohr
serves as a Director of Farmers
Co-op Business Association,
Shelby, Nebraska, a local
cooperative association of
farmers and ranchers.
Joe Royster 46 1999 5 General Manager--Dacoma Farmers
Cooperative,
Inc., Dacoma, Oklahoma, a local
cooperative association of
farmers and ranchers.

E. Kent Stamper 52 1999 2 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

Eli F. Vaughn 49 2000 1 General Manager--Farmers
Cooperative
Company, Afton, Iowa, a local
cooperative association of
farmers and ranchers.

Frank Wilson 50 1998 3 General Manager-Elkhart Farmers
Co-op
Association, Elkhart, Texas, a
local cooperative
association of
farmers and ranchers.

Board of Directorsr(Cont'd)ected 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, Jody Bezner, 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 chairmen of standing committees of the Board of
Directors as follows: Ronald Amundson, corporate responsibility
committee; Ben Griffith, audit committee; Jody Bezner, compensation
committee; Monte Romohr, finance committee; and Albert Shivley,
nominating committee.

The executive officers of Farmland are as follows:
BoardLof Directors (Cont'd)

Age as of
August 31,
Name 1998 Principal Occupation and Other Positions

J. F. Berardi 55 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.
T. M. Campbell 48 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.
H. D. Cleberg 59 President and Chief Executive Officer - Mr. Cleberg has been with
Farmland since
1968. He was appointed to his present position effective April 1991.
Prior to April 1991 Mr. Cleberg held senior leader positions in all of
Farmland's input and output businesses and in corporate areas
responsible for transportation and logistics, sales, marketing and
research.
G. E. Evans 54 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.
R. W. Honse 55 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.
B. L. Sanders 57 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.

Board of Directors (Cont'd)

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 1996, 1997 and 1998.
Board of Directors (Cont'd)

Long-Term Annual Compensation
Compensation
Employee
Year Variable
Ending Compensation LTIP
Name and Principal Position August 31 Salary Plan
Payouts
Board of Directors (Cont'd)

H. D. Cleberg, 1996 $ 497,713 $ 356,485 $
1,296,482
President and 1997 $ 540,292 $ 469,954 $ 514,999
Chief Executive Officer 1998 $ 578,878 $ 213,564 $ 400,436

G. E. Evans, 1996 $ 298,848 $ 216,121 $ 648,241
Executive Vice President and 1997 $ 317,568 $ 245,352 $ 257,499
Chief Operating Officer 1998 $ 333,456 $ 110,144 $ 200,218
Meats Group

R. W. Honse, 1996 $ 303,364 $ 216,121 $ 648,241
Executive Vice President and 1997 $ 322,125 $ 245,352 $ 257,499
Chief Operating Officer 1998 $ 347,328 $ 110,144 $ 200,218
Ag Input Businesses

J. F. Berardi, 1996 $ 244,770 $ 154,372 $ 549,204
Executive Vice President and 1997 $ 286,814 $ 245,352 $ 243,194
Chief Operating Officer, 1998 $ 326,016 $ 110,144 $ 200,218
Grain and Grain Businesses

T. M. Campbell 1996 $ 154,232 $ 90,050 $ 205,576
Executive Vice President and 1997 $ 197,973 $ 170,382 $ 116,828
Chief Financial Officer 1998 $ 211,824 $ 63,739 $ 123,282

[FN]

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 award is dependent upon the
employee's position, the performance of the Company for the fiscal
year or the selected performance criteria of the operating unit
where the individual is employed. 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.

Under the Management Long-Term Incentive Plan, selected
management employees of the Company are paid cash incentive amounts
determined by a formula which takes into account the position held
and the aggregate income of the Company over periods specified in
the plan. Periods covered by the Management Long-Term Incentive
Plan are: 1997 through 1999 ("1999 Plan"), 1998 through 2000 ("2000
Plan") and 1999 through 2001 ("2001 Plan"). For each plan, if the aggregate
income is less than the Threshold or if the sum of the cash returned to
members as patronage refunds, redemptions under the base capital
plan, estate settlement plans and special allocated equity
redemptions is less than the amount specified for the 1999 Plan,
the 2000 Plan and the 2001 Plan, respectively, subject to the
following paragraph, no payment will occur with respect to such plan.

The Board of Directors may, in its sole discretion, amend
or discontinue, adjust or cancel any award otherwise payable under
the Management Long-Term Incentive Plan, should the Company incur a
loss in the final year of any plan. In addition, the Board of
Directors may impact the payout amount of
a plan by approving for inclusion or exclusion in the calculation of
performance, the effects of extraordinary events occurring during a
plan period.

Subject to the preceding paragraph, 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 of the three year plan period
is made available to pay incentive awards. In general, participants
must be active employees of the Company at the end of a plan in
order to receive payment of the award with respect to such plan.
Absent a significant change in their status, in which event such
percentages may be adjusted, of the amount made available to pay
incentives, Messrs. Cleberg, Evans, Honse, Berardi and Campbell will
receive at least 11.2%, 5.6%, 5.6%, 5.6% and 4.0%, respectively, for
the 1999 Plan, the 2000 Plan and the 2001 Plan.

Under the Company's Management Long-Term Incentive Plan
for the 1999 Plan, the 2000 Plan and the 2001 Plan, certain
management employees, including those executives set forth below,
may be eligible for future awards, contingent on satisfying the
terms and conditions of the Plan as set forth above.

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 $ 503
1998 - 2000 463
1999 - 2001 460

G. E. Evans 1997 - 1999 $ 251
1998 - 2000 232
1999 - 2001 230

R. W. Honse 1997 - 1999
$ 251
1998 - 2000 232
1999 - 2001 230

J. F. Berardi 1997 - 1999
$ 251
1998 - 2000 232
1999 - 2001 230

T. M. Campbell 1997 - 1999
$ 179
1998 - 2000 165
1999 - 2001 164

<FN>

(1) Rights in the incentive pool are expressed as a minimum
percentage BoardooftDirectorsp(Cont'd)

(2) The plan does not specify a target or maximum payment.
Payouts are
only made when income over the three year plan period
reaches the threshold amount, and then the amount
available for payment is a fixed percentage of total
income.

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 1996, 1997 and 1998 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 7,410 active and 8,670 inactive employees
were participants in the Plan on August 31, 1998. 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, 1996,
1997 and 1998 were $12.2 million, $-0- million and $ 1.7 million,
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 $130,000 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
$130,000).

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, 1996, 1997 and
1998 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. Under this plan, each Participant's payment
shall be reduced if the benefit payments to be made, when added to
all prior benefit payments made from this Plan, are greater than the
sum of (a) the total cash value, on August 31 of the preceding year,
of the policies designated by the Administrative Committee and (b)
any previous reductions in cash value caused by withdrawals from the
policies by the Corporation.

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 cash value of life insurance policies designated
(see above) as SERP policies do not cause the aggregate payments
under the SERP to be reduced.

Final Average Years of
Service
Wage 15 20 25 30 35
<s
100,000 $ 26,250 $ 35,000 $ 43,750 $ 52,500 $ 61,250
125,000 32,812 43,750 54,687 65,625 76,563
150,000 39,375 52,500 65,625 78,750 91,875
200,000 47,950 63,933 79,917 95,900 111,883
250,000 55,388 73,850 92,313 110,775 129,238
300,000 62,825 83,767 104,708 125,650 146,592
350,000 70,263 93,683 117,104 140,525 163,946
400,000 77,700 103,600 129,500 155,400 181,300
450,000 85,138 113,517 141,896 170,275 198,654
500,000 92,575 123,433 154,292 185,150 216,008
600,000 107,450 143,267 179,083 214,900 250,717
700,000 122,325 163,100 203,875 244,650 285,425
800,000 137,200 182,933 228,667 274,400 320,133
900,000 152,075 202,767 253,458 304,150 354,842
1,000,000 166,950 222,600 278,250 333,900 389,550
1,100,000 181,825 242,433 303,042 363,650 424,258
1,200,000 196,700 262,267 327,833 393,400 458,967
1,300,000 211,575 282,100 352,625 423,150 493,675
1,400,000 226,450 301,933 377,417 452,900 528,383
1,500,000 241,325 321,767 402,208 482,650 563,092

The following table sets forth the credited years of service for
certain executive officers of the Company at August 31, 1998.
Name Years of Creditable Service
H. D. Cleberg 33
G. E. Evans 24
R. W. Honse 24
J. F. Berardi 6
T. M. Campbell 6

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 1998: Messrs. Jody Bezner,
Lyman Adams, Harry Fehrenbacher, Barry
Jensen and Joe Royster. Mr. Bezner has served as Vice Chairman and
Vice President of the Board of the Company from December 1997 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.

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 are paid.

ITEM 12. EQUITY 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, 1998, no person was known by Farmland to be the
beneficial owner of more than five percent of Farmland's common
shares.

At August 31, 1998, the directors and executive officers
of Farmland, neither individually nor 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 Statement Schedules

and Exhibits (1) FINANCIAL STATEMENTS

Consolidated Balance Sheets, August 31, 1997 and 1998

Consolidated Statements of Operations for each
of the years in the three-year period ended
August 31, 1998

Consolidated Statements of Cash Flows for each
of the years in the three-year period ended
August 31, 1998

Consolidated Statements of Capital Shares and

Equities for each of the years in the three-

year period ended August 31, 1998

Notes to Consolidated Financial Statements

(2) FINANCIAL STATEMENTS

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 179

Exhibit No. Description of Exhibits

ARTICLES OF INCORPORATION AND BYLAWS:

3.(i)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 Form of Trust Indenture with UMB Bank, National
Association, providing for issuance of unsubordinated debt
securities, including form of Demand Loan Certificates.
(Incorporated by Reference - Form S-1, No. 33-40759,
effective December 31, 1997)

4.(i)B Form of Trust Indenture with Commerce Bank, National
Association, providing for issuance of subordinated debt
securities, including forms of Ten-Year Bond, Series A, Ten-
Year Bond, Series B, Five-Year Bond, Series C, Five-Year
Bond, Series D, Ten-Year Monthly Income Bond, Series E, Ten-
Year Monthly Income Bond, Series F, Five-Year Monthly Income
Bond, Series G and Five-Year Monthly Income Bond, Series H.
(Incorporated by Reference - Form S-1, No. 33-40759,
effective December 31, 1997)

4.(i)C Certificate of Designation for a Series of Preferred
Shares Designated as 8% Series A Cumulative Redeemable
Preferred Shares, dated December 19, 1997. (Incorporated by
Reference - Form S2, filed April 3, 1998)
180
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)

MATERIAL CONTRACTS:
MANAGEMENT REMUNERATIVE PLANS:

10.(iii)A Employee Variable Compensation Plan (September 1, 1998 -
August 31,
1999)

10.(iii)B Farmland Industries, Inc. Management Long-Term
Incentive Plan (Incorporated by Reference - Form 10-K, filed
November 7, 1997)

10.(iii)B(1) Exhibit E (Fiscal years 1997 through 1999)
(Incorporated by Reference - Form 10-K, filed November 7,
1997)

10.(iii)B(2) Exhibit F (Fiscal years 1998 through 2000)
(Incorporated by Reference - Form 10-K, filed November 7,
1997)

10.(iii)B(3) Exhibit G (Fiscal years 1999 through 2001)

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) Resol181on 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

* Long-term debt instruments pursuant to which the debt issuable
thereunder
does not exceed 10% of the company's total assets have not been
filed. The company agrees to furnish a copy of such instruments or
agreements upon the Commission's request.

(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.

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 20, 1998.
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
21, 1998.

Signature Title Date

* Chairman of Board, November 20, 1998
Albert J. Shivley Director

/s/ H.D. CLEBERG President, November 20, 1998
H. D. Cleberg Chief Executive
Officer and Director
(Principal Executive Officer)

* Vice Chairman of Board November 20, 1998
Jody Bezner Vice President and Director

* Director November 20, 1998
Lyman L. Adams, Jr.

* Director November 20, 1998
Ronald J. Amundson

* Director November 20, 1998
Richard L. Detten

* Director November 20, 1998
Steven Erdman

* Director November 20, 1998
Harry Fehrenbacher

* Director November 20, 1998
Martie Floyd

* Director November 20, 1998
Warren Gerdes

* Director November 20, 1998
Ben Griffith

* Director November 20, 1998
Gail D. Hall

* Director November 20, 1998
Barry Jensen

* Director November 20, 1998
Ron Jurgens

* Director November 20, 1998
William F. Kuhlman

* Director November 20, 1998
Greg Pfenning

* Director November 20, 1998
Monte Romohr

* Director November 20, 1998
Joe Royster

* Director November 20, 1998
E. Kent Stamper

* Director November 20, 1998
Eli F. Vaughn

* Director November 20, 1998
Frank Wilson

/s/ TERRY M. CAMPBELL Executive Vice PresidentNovember 18, 1998

Terry M. Campbell and Chief Financial Officer
(Principal Financial Officer)

/s/ MERL DANIEL Vice President and November 18, 1998

Merl Daniel Controller
(Principal Accounting Officer)

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