Item 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2000.

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. On October 31, 2000, we suspended sales under our debt program. To sell debt under our program, we will need to register additional securities with the Securities and Exchange Commission. Although as of January 12, 2000 we have not filed to register additional securities, management believes such a filing will be made during our second quarter. This report on Form 10-Q does not constitute an offer of securities; such an offering will only be made through a prospectus. During the three months ended November 30, 2000, the outstanding balance of demand certificates decreased by $2.8 million, and the outstanding balance of subordinated debenture bonds increased by $1.0 million.

In May 2000, Farmland established a 364 day, $750 million, revolving credit facility (the “Credit Facility”) with a syndicate of banks. The Credit Facility expires May 9, 2001, and management believes the Credit Facility will be refinanced at that time or, if the Credit Facility is not refinanced, that we will be able to obtain adequate credit from alternative sources.

At November 30, 2000, Farmland had $483.6 million of short-term borrowings under the Credit Facility. Additionally, $43.6 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 November 30, 2000, availability under the Credit Facility was approximately $118 million.

Farmland National Beef Packing Company, L.P. (“FNBPC”) has a $130.0 million credit facility which expires March 31, 2003. This facility is provided by various participating banks and these borrowings are nonrecourse to Farmland or Farmland’s other affiliates. At November 30, 2000, FNBPC had borrowings under this facility of $34.0 million, and $17.9 million of the facility was utilized to support letters of credit. Assets with a carrying value of $257 million at November 30, 2000 have been pledged by FNBPC to support its borrowings under the facility.

Tradigrain has borrowing agreements with various international banks which provide financing and letters of credit primarily to support international grain trading transactions. Obligations of Tradigrain under these loan agreements are nonrecourse to Farmland and Farmland’s other affiliates. At November 30, 2000, such borrowings totaled $232.9 million.

Farmland maintains other borrowing arrangements with banks and financial institutions. Under such agreements, at November 30, 2000, $6.6 million was borrowed, of which $4.1 million is nonrecourse to Farmland or Farmland’s other affiliates.

Leveraged leasing has been utilized to finance railcars, a significant portion of our crop production equipment, and certain crop production manufacturing facilities.

Subordinated debenture bonds have been issued under several indentures. Certain subordinated debenture bonds may be redeemed prior to maturity at the option of the owner in accordance with the indenture. Subject to limitations in the indenture, Farmland has options to redeem certain subordinated debenture bonds in advance of scheduled maturities. Additionally, upon written request we will redeem subordinated debenture bonds in the case of death of an owner.

Farmland has issued and outstanding 2 million shares of 8% Series A Cumulative Redeemable Preferred Shares (the “Preferred Shares”) 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 our option, 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. 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 security.

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

Net cash from operating activities decreased $42.7 million as of November 30, 2000 compared to November 30, 1999, reflecting increases in inventories, other assets and a decrease in other liabilities, partially offset by a decrease in accounts receivable and an increase in accounts payable. The major source of cash was provided by net bank loans and notes payable of $62.6 million.

Results of Operations

General

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.

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 production, 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 Three Months Ended November 30, 2000 compared to Three Months Ended November 30, 1999.

During the three months ended November 30, 2000, we were engaged in feed (Land O’Lakes Farmland Feed) and crop production marketing (Agriliance) ventures which were not in existence during the same period in the prior year. We record income from ventures on a single line item, “Equity in net income of investees,” on the Condensed Consolidated Statements of Operations. As a result, sales, costs of sales, SG&A expenses and other income generated by these ventures are not recorded in our Condensed Consolidated Statements of Operations. Therefore, sales, expenses and other income related to feed and crop production marketing decreased for the three months ended November 30, 2000 compared with the prior year.

Sales for the three months ended November 30, 2000 were approximately the same as sales for the same period last year. This comparable sales level is the result of a decrease in sales due to the formation of our Agriliance and Land O’Lakes Farmland Feed ventures to sell crop production and feed products, respectively, partially offset by increased sales in world grain.

For the three months ended November 30, 2000, we had net income of $6.7 million compared with a net loss of $26.5 million for the same period last year. This increase is primarily due to a decrease in selling, general and administrative expenses, increased margins for refined fuels, propane and nitrogen-based plant foods, and the mark-to-market of derivative instruments not designated as a hedge, partly offset by an increase in interest expense due to increased interest rates.

Crop Production

Sales of the crop production segment were $145 million for the three months ended November 30, 2000, compared with sales of $234 million for the same period last year. The decrease is due to a 54% decrease in unit sales, partially offset by a 33% increase in unit selling prices. The primary reason for the decrease in unit sales relates to the change in our marketing structure. When we were responsible for our own marketing, in order to meet demand we would supplement our production by purchasing, for resale, products from third parties. All marketing is now accomplished through our 25%-owned marketing venture, Agriliance. We sell all of our production to Agriliance. If this production is inadequate to meet demand, then Agriliance will purchase, for resale, product from other manufacturers. Average unit selling prices of nitrogen-based plant foods have increased from last year primarily due to decreased supply. Supply decreased primarily as a result of the temporary closing of certain nitrogen manufacturing facilities in response to increased natural gas prices. Natural gas represents a major cost in the production of nitrogen based fertilizer. The price of natural gas has risen substantially since this same period last year. The average price of natural gas for the first quarter of fiscal year 2001 was $4.82 compared to $2.85 for the same period last year. This translates to an increased cost of producing anhydrous ammonia of approximately $70 per ton. To better manage our inventory costs, we have temporarily stopped production at two locations. To meet spring demand, we expect to resume production at these two locations during our second quarter of 2001.

Income of the crop production segment increased $35.2 million for the three months ended November 30, 2000 compared with the prior year. Effective September 1, 2000 we adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Under SFAS No. 133, all entities are required to carry all derivative instruments in the statement of financial position at fair value, which increased crop production’s income by $17 million. Income also increased due to improved margins for nitrogen-based plant foods and a $4.3 million gain on futures positions closed as a result of anticipated natural gas purchases which will not occur due to the temporary close of our Lawrence, Kansas facility. With the formation, effective January 1, 2000, of the Agriliance venture, a portion of our nitrogen-based plant food income is now recognized as equity in income of investees, rather than as gross income. Also, certain of crop production’s selling, general and administrative expenses were transferred to Agriliance.

Petroleum

Sales of the petroleum segment in the three months ended November 30, 2000 increased $45.6 million, or approximately 12%, compared with the same period last year. This increase was primarily due to an approximate 46% increase in unit prices for refined fuels and an approximate 61% increase in unit prices for propane, partially offset by an approximate 8% decline in unit sales of refined fuels and a one-time sale during the three months ended November 30, 1999 of crude oil.

Income for the petroleum segment increased $6.7 million for the three months ended November 30, 2000 compared with the prior period. This increase is primarily due to higher refined fuel and propane product prices combined with lower crude oil prices.

Feed

Sales of the feed segment decreased $114 million, or approximately 72%, in the three months ended November 30, 2000 compared with the prior year. This decrease was primarily due to the feed segment becoming part of the Land O’Lakes Farmland Feed joint venture as of October 1, 2000. With the formation of Land O’Lakes Farmland feed, our feed income is now recognized as equity in income of investees, rather than gross income. Also, feed’s selling, general and administrative expenses have been transferred to our venture.

Refrigerated Foods

Sales in the refrigerated foods segment increased $52.9 million, or approximately 5%, for the three months ended November 30, 2000 compared with the same period last year. This increase is primarily attributable to a 3% increase in unit volume and a 2% increase in average unit price.

Income in the refrigerated foods segment for the three months ended November 30, 2000 decreased $4.4 million, or approximately 23%, compared to the prior period. This decrease is primarily attributable to increased raw materials cost and decreased margins, partly offset by increased unit volume. Refrigerated foods’ selling, general and administrative expenses are approximately the same for the three months ended November 30, 2000 compared to the same period last year. This is the result of a continued expansion of our marketing efforts, offset by a decrease in the storage of product for future sale.

World Grain

Sales of the world grain segment increased $72.2 million or approximately 7% for the three month period ended November 30, 2000 compared with the same period last year primarily due to an increase in grain prices, partially offset by a decrease in unit sales.

Income for the three months ended November 30, 2000 increased $0.7 million compared to the same period last year. This increase is primarily attributable to improved grain margins due to higher grain prices.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses decreased $21.3 million, or approximately 17%, from the same period last year. This decrease is the result of our company-wide effort to reduce overhead as well as a reduction in SG&A expense related to the formation of Agriliance and Land O’Lakes Farmland Feed joint ventures and the sale of our Dubuque, Iowa pork processing plant.

Interest Expense

Net interest expense increased $6.7 million compared with the same period last year due primarily to an increase in the average interest rate.

Recent Developments

The EPA has issued new rules limiting sulfur in gasoline and has proposed rules limiting sulfur in diesel fuel. Material expenditures may be required to comply with these rules. Cooperative Refining, a venture owned by Farmland and NCRA, operated two refineries. Since these refineries are owned separately by Farmland and NCRA, the owners believe that decisions regarding regulatory investments must be made without regard to the impact, if any, on Cooperative Refining. Accordingly, effective January 1, 2001, Cooperative Refining was dissolved and Farmland is responsible for administering the operations of our Coffeyville refinery.

Natural gas prices, based on futures contracts, have continued to increase during the second quarter of fiscal year 2001. The projected average price of natural gas for the second quarter is $8.60 compared to $2.36 for the same period last year. This would translate to an increased cost of producing anhydrous ammonia of approximately $215 per ton and may result in the temporary closure of additional manufacturing facilities by nitrogen fertilizer producers.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards (“SFAS”) No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ” was issued by the FASB and is effective for transfers occurring after March 31, 2001 and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000 (our fiscal year 2001). We are currently evaluating the impact, if any, that adoption of these provisions would have on our financial statements.

Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” was issued in December 1999 by the staff of the SEC and is effective no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. We expect that the adoption of SAB 101 will not have a significant effect on our financial statements.

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, 2000. 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, 2000.

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995

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, our ability to integrate into our operation the responsibilities previously assumed by Cooperative Refining, the outcome and consequences of certain litigations, the impact of pending EPA regulations related to sulfur contact in refined fuels, the projected average price of natural gas, the future closing of nitrogen fertilizer facilities, 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:

1.       Weather patterns or crop failure.

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

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

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

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

6.      Regulatory delays and other unforeseeable obstacles beyond 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, 2000.

PART II - OTHER INFORMATION

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

(a) Exhibits

The exhibit listed below is filed as part of Form 10-Q for quarter ended November 30, 2000.

(b) Reports on Form 8-K

Farmland filed a report on Form 8-K, Item 2, “Acquisition or Disposition of Assets” and Item 7 “Financial Statements and Exhibits” on October 13, 2000. The report described the contribution of our Feed business in return for a partial interest in a feed venture, as well as the pro forma impact of the transaction on certain of our previously filed financial statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

                                                        FARMLAND INDUSTRIES, INC.
                                                              (Registrant)


                                By:                        /s/  JOHN BERARDI
                                   --------------------------------------------------
                                                             John Berardi
                                                       Executive Vice President
                                                      and Chief Financial Officer