The information contained in this discussion and in the unaudited Condensed Consolidated Financial Statements and Accompanying Notes presented in this Form 10-Q should be read in conjunction with information set forth in Part II, Items 7 and 8, in Farmland’s Annual Report on Form 10-K for the year ended August 31, 1999.

Financial Condition, Liquidity and Capital Resources

Farmland 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.

Farmland’s debt securities issued under the continuous debt program generally are offered on a best-efforts basis through our wholly owned broker-dealer subsidiary, Farmland Securities Company, and also may be offered by selected unaffiliated broker-dealers. The types of debt securities offered in the continuous debt program include certificates payable on demand and subordinated debenture bonds. The total amount of debt securities outstanding and the flow of funds to, or from, Farmland as a result of the continuous debt program are influenced by the rate of interest which we establish for each type or series of debt security offered, by the option of Farmland to call for redemption certain of its outstanding debt securities, and by the option of holders, under certain circumstances, to request the early redemption of outstanding debt securities. During the nine months ended May 31, 2000, the outstanding balance of demand certificates decreased by $1.0 million and the outstanding balance of subordinated debt securities increased by $22.6 million.

In May 2000, Farmland established a 364 day, $800 million, revolving credit facility (the “Credit Facility”) with a syndicate of banks. The Credit Facility, which replaced our $1.1 billion credit facility, expires May 9, 2001, and management believes the Credit Facility can be refinanced at that time.

At May 31, 2000, Farmland had $548.6 million of short-term borrowings under the Credit Facility. Additionally, $62.3 million of the Credit Facility was utilized to support letters of credit. Farmland pays commitment fees under the Credit Facility currently equal to 50 basis points annually on the unused portion of the credit. Borrowings under the Credit Facility are secured by a substantial portion of our accounts receivable, inventories and fixed assets. Interest rates under the credit facility are based on a spread over the base rate (as defined in the agreement) or a spread over LIBOR. The Credit Facility contains covenants related to Farmland’s ratio of earnings before interest, taxes, depreciation and amortization to net interest expense, our ratio of total debt to total capitalization, and our ratio of senior debt to total capitalization, all as defined in the agreement. In addition to these financial covenants, our ability to borrow under the Credit Facility may be restricted based on our level of receivables and inventories. As calculated at May 31, 2000, availability under the Credit Facility was approximately $50 million.

Farmland National Beef Packing Company, L.P. (“FNBPC”) has a five-year $130.0 million credit facility which expires March 31, 2003. This facility is provided by various participating banks and all borrowings are nonrecourse to Farmland or Farmland’s other affiliates. At May 31, 2000, FNBPC had borrowings under this facility of $55.0 million and $17.9 million of the facility was utilized to support letters of credit. FNBPC has pledged certain assets to support its borrowings under the facility.

Our international grain trading subsidiaries (collectively referred to as “Tradigrain”) have borrowing agreements with various international banks which provide financing and letters of credit to support Tradigrain’s international grain trading activities. Obligations of Tradigrain under these loan agreements are nonrecourse to Farmland and Farmland’s other affiliates. At May 31, 2000, such borrowings totaled $184.7 million.

Farmland maintains other borrowing arrangements with banks and financial institutions. Under such agreements, at May 31, 2000, $23.0 million was borrowed.

Leveraged leasing has been utilized to finance railcars and a significant portion of our fertilizer production equipment. In December 1997, Farmland entered into a series of agreements which provide for the construction and operation under a long-term lease of facilities adjacent to our petroleum refinery at Coffeyville, Kansas. These facilities convert petroleum coke by-products into fertilizers. During April 2000, the conditions required for inception of the lease were satisfied, and Farmland became obligated to make future minimum lease payments with an approximate present value of $225 million. We anticipate the facilities’ commissioning and start-up process will be completed, and the facilities will be commercially operational, by late summer of 2000.

In the opinion of management, the financing arrangements described above will provide adequate capital for our operating and capital plans during the term of such arrangements. The adequacy of capital for our long-term operating and capital plans will depend on our ability to generate cash, comply with the covenants of the Credit Facility, and obtain adequate refinancing when our Credit Facility expires in May 2001. Management believes such financing can be obtained at that time. Furthermore, alternative financing arrangements are continuously evaluated.

Operating activities generated $16.1 million of cash during the nine months ended May 31, 2000. Major uses of cash during the nine months ended May 31, 2000 include: capital expenditures of $73.6 million; $27.6 million for the acquisition of other long-term assets; $39.4 million for additions to investments and notes receivable; and $6.1 million for patronage refunds distributed from income of the 1999 fiscal year. The major sources of cash were $67.8 million of proceeds from the sale of investments (primarily from the sale of our direct interest in Agriliance), $17.8 million of cash distributions from our ventures, and an increase in the balance of checks and drafts outstanding of $23.0 million.

Results of Operations

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

Farmland’s sales, gross margins and net income depend, to a large extent, on conditions in agriculture and may be volatile due to factors beyond our 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 our operations. Historically, changes in the costs of raw materials used in the manufacture of Farmland’s finished products have not necessarily resulted in corresponding changes in the prices at which such products have been sold. Management cannot determine the extent to which these factors may impact our future operations. Farmland’s cash flow and net income or loss may be volatile as conditions affecting agriculture and markets for our products change.

The level of operating income in the crop nutrients and protection, petroleum, and refrigerated foods businesses is, to a significant degree, attributable to the spread between selling prices and raw material costs (natural gas in the case of nitrogen-based crop nutrients, crude oil in the case of petroleum products, and live hogs and cattle in the case of refrigerated foods). We cannot determine the direction or magnitude to which these factors will affect our cash flow and net income or loss.

Results of Operations for Nine Months Ended May 31, 2000 Compared to Nine Months Ended May 31, 1999.

For the nine months ended May 31, 2000, our sales were $8.8 billion compared with sales of $7.8 billion for the same period last year. This increase is primarily due to a $0.4 billion increase in sales of the petroleum segment and a $0.5 billion increase in sales of the refrigerated foods segment. For the nine months ended May 31, 2000, Farmland incurred a net loss of $11.6 million compared with a net loss of $11.7 million for the same period last year. The net loss in the nine months ended May 31, 2000 was comparable to the net loss in the same period last year primarily as a result of a $49.6 million pre-tax gain on the sale of our direct equity interest in the Agriliance venture, offset by start-up costs related to our new gasification plant, the loss on the anticipated sale of our Dubuque pork processing plant, losses on grain trading activities, increased interest expense, and a reduction in our expected tax benefit.

Crop Nutrients and Protection

Sales of the crop nutrients and protection segment decreased $42 million, or approximately 5%, for the nine months ended May 31, 2000 compared with the same period last year. Sales declined as a result of a decline in unit volume combined with lower unit selling prices for phosphate-based fertilizers, partially offset by higher unit selling prices of nitrogen-based fertilizers. Phosphate market prices have declined due to high levels of inventory present in this global industry.

The crop nutrients and protection segment had income of $41.6 million for the nine months ended May 31, 2000 compared with income of $21.5 million the same period last year. The $20.1 million increase in income results primarily from the $49.6 million pre-tax gain on the sale of a portion of our equity investment in the Agriliance venture to Land O’Lakes, partially offset by approximately $19.2 million of start-up costs related to the gasification plant located in Coffeyville, Kansas.

Petroleum

Sales of the petroleum segment in the nine months ended May 31, 2000 increased $358 million, or approximately 54%, compared with the same period last year. This increase was primarily attributable to an increase in the average unit selling price for refined fuels and propane.

Income for the petroleum segment increased $13.6 million for the nine months ended May 31, 2000 compared with the prior period. Refined product shortages caused the spread between crude oil costs and refined products selling prices to strengthen significantly.

Feed

Sales of the feed segment increased $23 million, or approximately 5%, in the nine months ended May 31, 2000 compared with the prior year. This increase was primarily due to increased unit sales of feed ingredients, partially offset by lower unit prices for formula feed. Income for the feed segment increased $1.7 million for the nine months ended May 31, 2000 compared with the same period last year primarily due to an increase in feed ingredient, formula feed, and pet/specialty tons and margins.

Refrigerated Foods

Sales in the refrigerated foods segment increased $469 million, or approximately 17% for the nine months ended May 31, 2000 compared with the same period last year. This increase is primarily attributable to higher unit prices for pork and beef products as well as higher beef unit sales volume, partially offset by lower unit sales volume of pork products.

Income in the refrigerated foods segment for the nine months ended May 31, 2000 increased $9.9 million, or approximately 20% compared to the prior period. This increase is primarily attributable to higher margins and unit volumes on beef products, partly offset by a $7.0 million loss recognized on the anticipated sale of a pork processing plant, as discussed below.

During our third quarter, management reached an agreement with a third party to sell our pork processing plant at Dubuque, Iowa. Accordingly, the assets related to this plant were reduced to the agreed upon selling price and a $7.0 million pre-tax loss was recognized. The sale of this plant was finalized during June.

World Grain

Sales of the world grain segment increased $111 million, or approximately 4%, for the nine month period ended May 31, 2000 compared with the same period last year primarily as the result of adding a new commodity (sugar) to our product line, partly offset by the impact of declining grain prices.

World grain segment income for the nine months ended May 31, 2000 decreased $3.2 million compared to the same period last year. This decrease is primarily attributable to losses recognized to reflect changes in the market value of open contracts. This decrease was partly offset by improved grain margins as a result of increased volume plus the capturing of deferred shipment values, commonly referred to as “carry,” which is revenue in excess of the cost of holding grain for deferred execution.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased $1.4 million, or approximately 0.4%, from the same period last year. SG&A expenses directly connected to segments decreased approximately $2.6 million and these expenses have been included in the determination of business segment income. SG&A expenses not identified to business segments increased $4.0, million primarily as a result of increased employee benefit expenses and increased amortization expense.

Interest Expense

Net interest expense increased $17.5 million compared with the same period last year due both to an increase in average borrowings and to an increase in the average interest rate.

Tax Benefit

The income tax benefit decreased $13.4 million due to a decrease in the effective tax rate and in our loss before income taxes. The decrease in the effective tax rate is a result of our current estimate of annual income which will be patronage-sourced in 2000 compared to 1999.

Results of Operations for Three Months Ended May 31, 2000 compared to Three Months Ended May 31, 1999.

For the three months ended May 31, 2000, our sales were $3.0 billion compared with sales of $2.7 billion for the same period last year. Net income for the three months ended May 31, 2000 was $37.1 million compared with a net loss of $7.4 million for the same period last year, primarily as a result of a $49.6 million pre-tax gain on the sale of a part of our direct equity interest in our Agriliance venture, partly offset by start-up costs related to our new gasification plant and the loss on the sale of our Dubuque pork processing plant.

Crop Nutrients and Crop Protection

Sales of the crop nutrients and crop protection segment increased $7 million, or approximately 2%, for the three months ended May 31, 2000 compared with the same period last year. Sales increased as a result of an increase in nitrogen unit volume, partly offset by decreased phosphate unit volume and lower phosphate unit selling prices. Phosphate market prices have declined due to high levels of inventory present in this global industry.

The crop nutrients and crop protection segment had income of $61.6 million for the three months ended May 31, 2000 compared with income of $15.9 million the same period last year. The $45.7 million increase in income results primarily from the gain on the sale of our direct equity investment in the Agriliance venture to Land O’Lakes, partially offset by approximately $9.2 million of start-up costs related to the gasification plant located Coffeyville, Kansas.

Petroleum

Sales of the petroleum segment in the three months ended May 31, 2000 increased $75 million, or approximately 28%, compared with the same period last year. This increase was primarily attributable to an increase in the average unit selling price for refined fuels and propane.

Income for the petroleum segment increased $16.5 million for the three months ended May 31, 2000 compared with the prior period. Refined product shortages caused the spread between crude oil costs and refined products selling prices to strengthen significantly.

Refrigerated Foods

Sales in the refrigerated foods segment increased $172 million, or approximately 18% for the three months ended May 31, 2000 compared with the same period last year. This increase is primarily attributable to higher unit prices for pork and beef products as well as higher beef unit sales volume, partially offset by lower pork unit sales volume.

Income in the refrigerated foods segment for the three months ended May 31, 2000 increased $6.2 million, or approximately 43% compared to the prior period. This increase is primarily attributable to higher margins and unit volumes on beef products, higher unit volumes on pork products and higher market values and unit volumes on our hog production business, partly offset by the $7.0 million pre-tax loss we recognized on the anticipated sale of our Dubuque plant.

World Grain

Sales of the world grain segment decreased $59 million, or approximately 6%, for the three month period ended May 31, 2000 compared with the same period last year primarily as the result of lower grain prices combined with a decrease in the volume of grain sold.

World grain segment income for the three months ended May 31, 2000 decreased $6.2 million compared to the same period last year. This decrease is primarily attributable to losses recognized to reflect changes in the market value of open contracts and were partly offset by improved grain margins as a result of increased volume plus the capturing of deferred shipment values, commonly referred to as “carry,” which is revenue in excess of the cost of holding grain for deferred execution.

Interest Expense

Net interest expense increased $3.8 million compared with the same period last year due primarily to an increase in the average interest rate.

Recent Accounting Pronouncements

Statements of Financial Accounting Standards 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, 2000. The financial statement impact of adopting the provisions of SFAS No. 133 will depend on our market positions as well as market conditions at the date of adoption. Although adoption of SFAS No. 133 would not have had a material impact on our financial statements as of May 31, 2000, for the reasons stated above we are unable to predict the impact, if any, that adoption of the provisions of SFAS No. 133 will have on our financial statements as of September 1, 2000.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Farmland’s market exposure to derivative transactions, entered into for the purpose of managing commodity price risk, foreign currency risk and interest rate risk, has not materially changed since August 31, 1999. Quantitative and qualitative disclosures about market risk are contained in Item 7A of our Annual Report on Form 10-K for the year ended August 31, 1999.

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

Where any such forward-looking statement includes a statement of the assumptions or basis underlying such forward-looking statement, we caution that, while we believe such assumptions or basis to be reasonable and made in good faith, the assumed facts or basis almost always vary from actual results, and the differences between the assumed facts or basis and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, Farmland, 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 our business, the anticipated expenditures for environmental remediation, the impact of seasonal demand on the profitability of the refrigerated foods business, the outcome and consequences of certain litigations, the perceived future business benefits related to our feed venture, our ability to fully and timely complete modifications and expansions with respect to certain manufacturing facilities and the sufficiency of our arrangements for capital. Discussion containing such forward-looking statements is found in the material set forth herein under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to Condensed Consolidated Financial Statements”.

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

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

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

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

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

          6.   Regulatory  delays and other  unforeseeable  obstacles beyond our
               control that may affect growth  strategies  through  unification,
               acquisitions,  investments  in  joint  ventures  and  operational
               alliances.

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

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

          9.   The factors  identified in "Business and  Properties - Business -
               Business Risk Factors" included in our Annual Report on Form 10-K
               for the year ended August 31, 1999.

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

The exhibits listed below are filed as part of Form 10-Q for quarter ended May 31, 2000.

               4.(ii)A              Syndicated Credit Facility between Farmland Industries,  Inc. and various banks
                                    dated May 10, 2000
              10.(iii)A             Employment Agreement between Farmland and H. D. Cleberg dated March 1, 2000
                 27                 Financial Data Schedule

                                                        FARMLAND INDUSTRIES, INC.
                                                              (Registrant)


                                By:                     /s/  TERRY M. CAMPBELL
                                   -------------------------------------------
                                                           Terry M. Campbell
                                                       Executive Vice President
                                                      and Chief Financial Officer