EXHIBIT 99
CAUTIONARY STATEMENT
Cenex Harvest States Cooperatives (the Company), or persons acting on behalf
of the Company, or outside reviewers retained by the Company making statements
on behalf of the Company, or underwriters, from time to time, may make, in
writing or orally, "forward-looking statements" as defined under the Private
Securities Litigation Reform Act of 1995 (the Act). This Cautionary Statement is
for the purpose of qualifying for the "safe harbor" provisions of the Act and is
intended to be a readily available written document that contains factors which
could cause results to differ materially from those projected in such
forward-looking statements. These factors are in addition to any other
cautionary statements, written or oral, which may be made or referred to in
connection with any such forward-looking statement.
The following matters, among others, may have a material adverse effect on
the business, financial condition, liquidity, results of operations or
prospects, financial or otherwise, of the Company. Reference to this Cautionary
Statement in the context of a forward-looking statement shall be deemed to be a
statement that any one or more of the following factors may cause actual results
to differ materially from those which might be projected, forecast, estimated or
budgeted by the Company in such forward-looking statement or statements:
COMPANY SUBJECT TO SUPPLY AND DEMAND FORCES. The Company may be adversely
affected by supply and demand relationships, both domestic and international.
Supply is affected by weather conditions, disease, insect damage, acreage
planted, government regulation and policies and commodity price levels. The
current short supply and high demand for natural gas will impact the supply of
fertilizer. The business is also affected by transportation conditions,
including rail, vessel, barge and truck. Demand may be affected by foreign
governments and their programs, relationships of foreign countries with the
United States, the affluence of foreign countries, acts of war, currency
exchange fluctuations and substitution of commodities. The monetary crises in
Asia have impacted, and are expected to continue to impact, exports of U.S.
agricultural products. Demand may also be affected by changes in eating habits,
by population growth and increased or decreased per capita consumption of some
products.
The Freedom to Farm Act of 1996 (the Farm Act), enacted in April of 1996, may
affect crop production in several ways. The Farm Act more narrowly defines what
will qualify as environmentally sensitive acreage for purposes of the
conservation reduction program, with the result that acres were put back into
agricultural production, with a present enrollment of 31.4 million acres. The
Farm Act also removes restrictions on the type of crops planted (other than
fruit and vegetables), allowing farmers to plant crops having favorable prices
and thereby increasing the production of those crops. Increased production may
lower prices of certain crops but increase the amount available for export.
However, the Farm Act also reduces Export Enhancement Program subsidies, which
may adversely affect the ability of the U.S. exports to compete with those of
other countries. Reduced demand for U.S. agricultural products may also
adversely affect the demand for fertilizer, chemicals, and petroleum products
sold by the Company and used to produce crops.
COMPANY SUBJECT TO PRICE RISKS. Upon purchase, the Company has risks of
carrying grain and petroleum, including price changes and performance risks
(including delivery, quality, quantity and shipment period), depending upon the
type of purchase contract entered into. The Company is exposed to risks of loss
in the market value of positions held, consisting of grain and petroleum
inventory and purchase contracts at a fixed or partially fixed price, in the
event market prices decrease. The Company is also exposed to risk of loss on its
fixed price or partially fixed price sales contracts in the event market prices
increase.
To reduce the price change risks associated with holding fixed price
positions, the Company generally takes opposite and offsetting positions by
entering into commodity futures contracts (either a straight futures contract or
an options futures contract) on regulated commodity futures exchanges. While
hedging activities reduce the risk of loss from changing market values, such
activities also limit the gain potential which otherwise could result from
changes in market prices. Hedging arrangements do not protect against
nonperformance of a contract. The Company's policy is to generally maintain
hedged positions in grain and petroleum, which are hedgeable, but the Company
can be long or short at any time. The Company's profitability is primarily
derived from margins on grain and products merchandised and processed, not from
hedging transactions.
At any one time, the Company's inventory and purchase contracts for delivery
to the Company may be substantial.
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OILSEED PROCESSING AND REFINING BUSINESS COMPETITION. Competition in the
soybean processing and refining business is driven by price, transportation
costs, service and product quality. The industry is highly competitive. Media
newsletters and other publications indicate that construction of new crush
plants are under strong consideration. The Company estimates that U.S. crushing
capacity has increased by about 30% to 35% between 1994 and 1999. Refining
capacity has increased by an estimated 25% to 30% between 1996 and 1999. Unless
exports increase or existing refineries are closed, this extra capacity is
likely to put additional pressure on prices and erode margins, adversely
affecting the profitability of the Oilseed Processing and Refining Defined
Business Unit. Several competitors operate over various market segments and may
be suppliers to, or customers of, other competitors.
WHEAT MILLING BUSINESS COMPETITIVE TRENDS. Certain major durum milling
competitors of the Wheat Milling Defined Business Unit have developed long-term
relationships with customers by locating plants adjacent to pasta manufacturing
plants. This trend could potentially decrease the future demand for semolina
from nonintegrated millers. In addition, baking and bread flour demand has
declined during a period when the milling industry has been expanding, which
will continue to put pressure on gross margins.
TAXATION OF COOPERATIVES COULD CHANGE. Although under Subchapter T of the
Internal Revenue Code patronage refunds are excluded in determining taxable
income of a cooperative and patronage refunds are taxable to the recipient,
current income tax laws, regulations and interpretations pertaining to the
receipt of patronage refunds could be changed.
DEPENDENCE ON CERTAIN CUSTOMERS. Each of the Wheat Milling Defined Business
Unit and the Oilseed Processing and Refining Defined Business Unit has certain
major customers. Loss of, or a decline in, the business done with one or more of
these customers could have a material adverse effect on the operations of the
affected defined business unit. In addition, the Wheat Milling Defined Business
Unit would be adversely affected by a decline in pasta production in the United
States of America.
The foregoing review of factors pursuant to the Act should not be construed
as exhaustive or as any admission regarding the adequacy of disclosures made by
the Company prior to the effective date of the Act.
