UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended February 28, 2002

                                                                  or

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

For the transition period from _____________ to _____________.

                                                   Commission File Number: 001-11629

FARMLAND INDUSTRIES, INC.
                                        (Exact name of registrant as specified in its charter)

Kansas                                                               44-0209330
              (State of incorporation)                                 (I.R.S. Employer Identification No.)

Registrant's telephone number, including area code: 816-713-7000

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 [ ]

PART I - FINANCIAL INFORMATION

`FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES

                                                 CONDENSED CONSOLIDATED BALANCE SHEETS
                                                              (UNAUDITED)
                                                                ASSETS


                                                                      August 31           February 28
                                                                        2001                  2002
                                                                 ----------------     --------------------
                                                                          (Amounts in Thousands)
Accounts receivable - trade.................................. $         550,291       $      484,954
Inventories (Note 2).........................................           588,807              459,247
Other current assets.........................................           213,746              176,805
                                                              -------------------     ---------------------

        Total Current Assets................................. $       1,352,844       $    1,121,006
                                                              -------------------     ---------------------


Investments and Long-Term Receivables (Note 3)............... $         373,119       $      357,912
                                                              -------------------     ---------------------


Property, Plant and Equipment:
  Property, plant and equipment, at cost..................... $       1,708,382       $    1,959,995
     Less accumulated depreciation and
     amortization............................................           952,753              966,569
                                                                -----------------       -------------------

  Net Property, Plant and Equipment.......................... $         755,629       $      993,426
                                                              -------------------     ---------------------


Other Assets                                                  $         245,952       $      224,569
                                                              -------------------     ---------------------

Total Assets                                                  $       2,727,544       $    2,696,913
                                                              ===================     =====================






    See accompanying Notes to Consolidated Financial Statements`

`FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES

                                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                                   (UNAUDITED)
                                            LIABILITIES AND EQUITIES

                                                                         August 31          February 28
                                                                            2001               2002
                                                                   --------------------- ------------------
                                                                           (Amounts in Thousands)
 Current Liabilities:
     Short-term notes payable (Note 12)............................... $        341,559       $        80,584
     Current maturities of long-term debt (Note 12)...................           48,054               108,116
     Accounts payable - trade.........................................          342,312               222,240
     Other current liabilities........................................          383,200               390,135
                                                                       ------------------     ------------------

          Total Current Liabilities................................... $      1,115,125       $       801,075
                                                                       ------------------     ------------------

 Long-Term Liabilities:
     Long-term borrowings (excluding current maturities)
          (Note 12)................................................... $        710,976       $     1,010,017
     Other long-term liabilities......................................           38,702                39,760
                                                                       ------------------     ------------------

          Total Long-Term Liabilities................................. $        749,678       $     1,049,777
                                                                       ------------------     ------------------

 Deferred Income Taxes................................................ $         70,906       $        83,925
                                                                       ------------------     ------------------

 Minority Owners' Equity in Subsidiaries.............................. $         29,311       $        34,372
                                                                       ------------------     ------------------

 Net (Loss)(Note 1)................................................... $             -0-      $       (46,496)
                                                                       ------------------     ------------------

 Capital Shares and Equities:
     Preferred shares, authorized 8,000,000 Shares, 8% Series A
      cumulative redeemable preferred shares, stated
      at redemption value, $50 per share.............................. $        100,000       $       100,000
     Common shares, $25 par value--Authorized
       50,000,000 shares..............................................          527,563               527,365
     Accumulated other comprehensive loss
     (net of deferred tax benefit of $3,806 at August 31, 2001
     and $1,509 at February 28, 2002) (Notes 4 and 5).................          (21,342)               (8,398)
     Earned surplus and other equities................................          156,303               155,293
                                                                       ------------------     ------------------

          Total Capital Shares and Equities........................... $        762,524       $       774,260
                                                                       ------------------     ------------------


Contingent Liabilities and Commitments (Note 6)



          Total Liabilities and Equities.............................. $      2,727,544        $    2,696,913
                                                                       ==================     ==================


    See accompanying Notes to Consolidated Financial Statements`

`FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES

                                       CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                      Six Months Ended
                                                          ------------------------------------------
                                                              February 28           February 28
                                                                  2001                  2002
                                                              ---------------      -----------------
               (Amounts in Thousands)
  Sales......................................................$      4,736,380      $      3,405,315
  Cost of sales..............................................       4,535,111             3,269,438
                                                               ---------------      -----------------

  Gross income...............................................$        201,269      $        135,877

  Selling, general and administrative expenses...............         179,526               154,103

  Restructuring and other charges (credits) (Note 7).........              -0-               (6,340)

  Other income (expense):
      Interest expense.......................................         (63,957)              (44,484)
 Interest income.............................................           4,788                 1,059
 Other, net (Notes 5 and 9)..................................          24,040                19,392
                                                               ---------------      ----------------
 Total other income (expense)................................$        (35,129)     $        (24,033)
                                                               ---------------      ----------------
 (Loss) before equity in net income of investees, minority
     owners' interest in net (income) of subsidiaries, income
     tax benefit, discontinued operations and cumulative
     effect of changes in accounting principles............. $        (13,386)      $       (35,919)


 Equity in net income of investees (Note 3) ................            1,144                 1,319

 Minority owners' interest in net (income)
     of subsidiaries.........................................          (9,090)               (9,588)
                                                               ---------------      ----------------

 (Loss) before income tax benefit, discontinued
     operations and cumulative effect of changes in
     accounting principles..................................$         (21,332)              (44,188)

 Income tax benefit..........................................           1,073                11,856
                                                               ---------------      ----------------
(Loss) from continuing operations before discontinued
     operations and cumulative effect of changes in
     accounting principles..................................$         (20,259)              (32,332)

 Discontinued operations (Note 10):
     Income (loss) from operations of discontinued
     international grain division (net of applicable
     income tax benefit of $990 at February 2001
     and income tax expense of $861 at
     February 2002)..........................................           5,852              (14,164)
                                                             =================      =================

(Loss) before cumulative effect of changes in
     accounting principles ...............................  $         (14,407)              (46,496)


 Cumulative effect of changes in accounting for
     derivative financial instruments and planned major
     maintenance costs, net of $3,333 income tax
     expense (Notes 5 and 8).................................          19,776                    -0-
                                                             =================      =================

     Net income (loss)......................................$           5,369               (46,496)
                                                             =================     =================


    See accompanying Notes to Consolidated Financial Statements`

`FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES

                                            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                       Three Months Ended
                                                             -----------------------------------------
                                                                 February 28           February 28
                                                                    2001                  2002
                                                             ------------------   --------------------
               (Amounts in Thousands)

  Sales......................................................$       2,393,924     $      1,557,122
  Cost of sales..............................................        2,298,054            1,509,166
                                                             --------------------  -------------------

  Gross income...............................................$          95,870     $         47,956

  Selling, general and administrative expenses...............           84,493               74,264

  Other income (expense):
      Interest expense.......................................          (32,974)             (20,201)
      Interest income........................................            3,181                  299
      Other, net (Notes 5 and 9).............................           20,371                  633
                                                             -------------------- --------------------
 Total other income (expense)................................$          (9,422)   $         (19,269)
                                                             -------------------  --------------------

   Income (loss) before equity in net (loss) of investees,
       minority owners' interest in net (income) of
    subsidiaries,                                                         1,955   $         (45,577)
       income tax benefit and discontinued
    operations............

     Equity in net (loss) of investees (Note 3) .............            (4,149)               (638)

     Minority owners' interest in net (income)
         of subsidiaries.....................................            (2,876)             (4,851)
                                                                --------------------  -------------------

     (Loss) before income tax benefit and discontinued
         operations..........................................$           (5,070)            (51,066)

     Income tax benefit......................................               790              12,624
                                                                --------------------  -------------------

     (Loss) from continuing operations.......................$           (4,280)            (38,442)

     Discontinued operations (Note 10):
         Income (loss) from operations of discontinued
         international grain division (net of applicable
         income tax expense of $473 at February 2001
         and $861 at February 2002)..........................             2,936             (11,303)
                                                                --------------------  -------------------

     Net (loss)..............................................$           (1,344)            (49,745)
                                                                ====================  ===================












    See accompanying Notes to Consolidated Financial Statements`

`FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES

                                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                              (UNAUDITED)

                                                                                         Six Months Ended
                                                                              -----------------------------------------
                                                                                 February 28           February 28
                                                                                    2001                  2002
                                                                              ------------------   --------------------
                                                                                       (Amounts in Thousands)
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss).........................................................    $        5,369       $       (46,496)
    Adjustments to reconcile net income (loss) to net cash provided by
      (used in) operating activities:
          Depreciation and amortization..........................................         53,296                55,559
          Equity in net (income) of investees....................................         (1,144)               (1,319)
          Other..................................................................          8,878                (1,255)
          Changes in assets and liabilities:
           Accounts receivable...................................................         48,261                65,496
           Inventories...........................................................       (171,257)              129,560
           Other assets..........................................................        (60,809)               (2,818)
           Accounts payable......................................................         44,246              (120,072)
           Other liabilities.....................................................         63,535                 7,120
                                                                                  ------------------   --------------------
    Net cash provided by (used in) operating activities.......................... $       (9,625)      $        85,775
                                                                                  ------------------   --------------------

    CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures......................................................... $      (49,767)      $      (233,262)
    Distributions from joint ventures............................................         17,241                 8,341
    Additions to investments and notes receivable................................        (11,066)               (5,690)
    Acquisition of other long-term assets........................................        (10,200)               (4,071)
    Proceeds from disposal of investments and
      collection of notes receivable.............................................         15,016                39,269
    Proceeds from sale of fixed assets...........................................          6,233                13,330
                                                                                  ------------------   --------------------
    Net cash (used in) investing activities...................................... $      (32,543)      $      (182,083)
                                                                                  ------------------   --------------------

    CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments of dividends........................................................ $       (4,000)      $        (4,000)
    Proceeds from bank loans and notes payable...................................      2,865,524             1,407,190
    Payments on bank loans and notes payable.....................................     (2,769,103)           (1,276,492)
    Proceeds from issuance of subordinated debt certificates.....................         15,328                    -0-
    Payments for redemption of subordinated debt certificates....................        (26,965)              (30,684)
    Debt issuance cost...........................................................             -0-              (15,960)
    Net increase (decrease) in checks and drafts outstanding.....................        (28,790)               16,840
    Net decrease in demand loan certificates.....................................         (5,710)                 (851)
    Other increase (decrease)....................................................         (4,116)                  265
                                                                                  ------------------   --------------------
    Net cash provided by financing activities.................................... $       42,168       $        96,308
                                                                                  ------------------   --------------------

    Net decrease in cash and cash equivalents.................................... $           -0-      $            -0-
    Cash and cash equivalents at beginning of period.............................             -0-                   -0-
                                                                                  ------------------   --------------------
    Cash and cash equivalents at end of period................................... $           -0-      $            -0-
                                                                                  ==================   ====================
Non-cash transactions:

    On October 1, 2000, we contributed property, plant and equipment and investments with a carrying value of approximately $43.8
    million in return for an equity interest in Land O'Lakes Farmland Feed, LLC.

    On December 31, 2000, Cooperative Refining, LLC was dissolved.  We received inventory with a value of $54.4 million in exchange
    for our equity interest in Cooperative Refining.

    During February 2002, approximately $55.0 million of lease payments which were prepaid during fiscal year 2001 were applied as a
    portion of the total $261 million consideration to purchase the Coffeyville, Kansas nitrogen facility.

    See accompanying Notes to Consolidated Financial Statements`

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                                              (UNAUDITED)

Unless the context requires
otherwise, (i) Farmland, we, us and
our refer to Farmland Industries, Inc. and its consolidated
subsidiaries, (ii) all references to year or years are
to fiscal years ended August 31, and (iii) the term member 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). Patronage refund is the term we use to refer to the
distribution of income from transactions done on a cooperative basis with or for
our patrons.

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.

The information included in
these unaudited Condensed Consolidated Financial Statements of Farmland reflects
all adjustments (consisting only of normal recurring accruals) which, in the
opinion of management, are necessary for a fair statement of the results for the
interim periods presented.

The Condensed Consolidated
Statements of Operation have been restated to present our international grain
trading subsidiaries, (collectively referred to as Tradigrain) as a discontinued
operation. The international grain sales, cost of sales and operating expenses
have been reclassified as discontinued operations for all periods presented.

Our sales, gross margins
and net income or loss 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 currency
fluctuations, tariffs and other factors affecting United States imports and
exports. In addition, various federal and state regulations intended 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, livestock, grain 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.
For example, at times during the last few years, the results of our crop
production business have been adversely affected by a combination of high
natural gas prices and competition from imports. In addition, adverse weather
conditions in the winter wheat areas in Oklahoma and Texas during the six months
ended February 28, 2002 have adversely impacted our crop production business.
Also, changes in the prices of crude oil and refined fuels have caused, and will
continue to cause, significant variations in the results of our petroleum
business. Management cannot determine the extent to which the factors mentioned
above may impact our future operations. Our financial success depends largely on
factors which affect agricultural production and market conditions. These
factors, many of which are outside of Farmlands control, often change
agricultural production and market conditions in an unpredictable manner.
Therefore, we cannot determine the future impact on our operations from changes
in these external factors. We expect demand for our products to continue to be
volatile as agricultural conditions change.

In accordance with the
bylaws of Farmland, we determine annually the members portion of income or
loss before income taxes. From this amount, patronage refunds are distributed or
losses are allocated to our members.

Farmland does not provide for patronage refunds in our interim financial statements as:

- we determine the amount
of members income and the amount of members loss only after the end
of the fiscal year;
- after consideration of member losses (if any), the Board
of Directors, in its sole discretion, then determines the amount of

     patronage refund to be paid in cash and the portion to be paid in Farmland equity (common shares, associate member common shares
     and capital credits); and
- the amount of income appropriated to earned surplus is dependent on the amount
of patronage refunds and the handling of members losses (if any).

Therefore, the amount of
net loss for the interim period presented is reflected as a separate item in the
accompanying unaudited Condensed Consolidated Balance Sheet as of February 28,
2002.

`Major components of inventories are as follows:
                                                   August 31               February 28

                                                      2001                    2002
                                               -------------------     --------------------
                                                         (Amounts in Thousands)

  Finished and in-process products.............. $         431,739      $           354,727
  Materials.....................................            98,167                   52,997
  Supplies......................................            58,901                   51,523
                                                 ------------------     --------------------
                                                 $         588,807      $           459,247
                                                 ==================     ====================`

At February 28, 2002, the
carrying value of crude oil and refined petroleum inventories, stated at LIFO
cost, was $81.5 million, which exceeded the market value of such inventory by
approximately $13.0 million. Management reasonably expects that the market value
decline will be recovered during the remainder of fiscal year 2002 and,
accordingly, this market value decline has not been recognized in our interim
results of operations. However, given the volatility of the crude oil and
refined fuels markets, no assurance can be provided that the market value of
petroleum inventories will exceed their carrying value at our year-end.

During December 2001, we
liquidated our purchased gasoline and purchased distillate LIFO pools. The
effect of this layer liquidation was to increase cost of goods sold and decrease
income before income taxes by approximately $8.7 million. Of this amount, $6.7
million had previously been recognized during the three months ended November
30, 2001 as a lower of cost or market charge. The remaining $2.0 million was
recognized during the three months ended February 28, 2002.

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

                                                 Six Months Ended                       Three Months Ended
                                        ------------------------------------   --------------------------------------
                                          February 28         February 28         February 28         February 28
                                              2001               2002                 2001                2002
                                        -----------------   ----------------    -----------------   -----------------
                                                                   (Amounts in Thousands)
Net sales...............................  $  3,166,910      $    3,766,750     $    1,472,653       $    1,797,528
                                        =================  =================   =================    =================
Net income (loss).......................  $    (30,188)     $       (8,771)    $      (29,672)      $       (5,817)
                                        =================  =================   =================    =================
Farmland's equity in net income (loss)..  $      1,144      $        1,319     $       (4,149)      $         (638)
                                        =================  =================   =================    =================`

- 50% equity interests in three manufacturers of crop nutrient products, Farmland Hydro, L.P., SF Phosphates Limited Company
     and Farmland MissChem Limited;
- an approximate 50% equity interest in UCB LLC, which in turn holds a 50% equity interest in Agriliance LLC, an agronomy
     distribution and marketing venture;
        beginning May 4, 2001, a 50% contractual share of the earnings or losses of ADM/Farmland , a grain storage and marketing
     company;
- from September 1, 1999 through December 31, 2000, an equity interest in Cooperative Refining, LLC, which operated two
     refineries; and
- beginning October 1, 2000, an equity interest in Land O'Lakes Farmland Feed, LLC, a manufacturer and marketer of feed
     products.

`Cash Flow             Foreign Currency              Total
                                                           Hedges                Translation                  AOCI
                                                       ---------------      -----------------------     ----------------
                                                                            (Amounts in Thousands)

Balance at August 31, 2000......................       $         -0-        $              111         $            111
Foreign currency translation adjustment.........                 -0-                       (20)                     (20)
Transition adjustment, net of tax...............             25,653                         -0-                  25,653
Net gain on cash flow hedges, net of tax........             35,242                         -0-                  35,242
Less reclassification adjustments, net of tax...            (30,197)                        -0-                 (30,197)
                                                       ---------------      -----------------------    -----------------
Balance at February 28, 2001....................       $     30,698         $               91         $         30,789
                                                       ===============      =======================    =================`

`Changes in accumulated other comprehensive income (AOCI) during the six months ended February 28, 2002 were as follows:


                                                         Cash Flow             Foreign Currency              Total
                                                           Hedges                Translation                 AOCI
                                                       ---------------      -----------------------     ----------------
                                                                            (Amounts in Thousands)

Balance at August 31, 2001......................       $      (21,436)      $               94         $        (21,342)
Foreign currency translation adjustment.........                   -0-                      10                       10
Net (loss) on cash flow hedges, net of tax......                 (898)                      -0-                    (898)
Less reclassification adjustments, net of tax...               13,832                       -0-                  13,832
                                                       ---------------      -----------------------    -----------------
Balance at February 28, 2002....................       $       (8,502)      $              104         $         (8,398)
                                                       ===============      =======================    =================`

Comprehensive income for
the six and three months ended February 28, 2001 and 2002 as follows:

`Six Months Ended
                                                                     --------------------------------------------------
                                                                     February 28, 2001          February 28, 2002
                                                                   -----------------------    -----------------------
                                                                                (Amounts in Thousands)

Net income (loss)................................................    $           5,369        $            (46,496)
                                                                   -----------------------    -----------------------
Net gains (losses) arising during the period
    Cash flow hedges:
         Net derivative transition gain..........................    $          30,208        $                 -0-
         Net derivative gains (losses) during period.............               41,500                      (1,058)
         Reclassification adjustment.............................              (35,560)                     16,289
    Foreign currency translation adjustment......................                  (20)                         10
                                                                   -----------------------    -----------------------
Other comprehensive income before tax............................    $          36,128        $             15,241
Income tax (expense) related to items of
    other comprehensive income...................................    $          (5,450)       $             (2,297)
                                                                   -----------------------    -----------------------
Other comprehensive income.......................................    $          30,678        $             12,944
                                                                   -----------------------    -----------------------
Comprehensive income (loss)......................................    $          36,047        $            (33,552)
                                                                   =======================    =======================`

`Three Months Ended
                                                                  ---------------------------------------------------
                                                                        February 28, 2001          February 28, 2002
                                                                  ------------------------    -----------------------
                                                                                (Amounts in Thousands)

Net loss........................................................     $          (1,344)       $             (49,745)
                                                                  ------------------------    -----------------------
Net gains (losses) arising during the period
    Cash flow hedges:
         Net derivative gains (losses) during period............                18,498                         (819)
         Reclassification adjustment............................               (33,908)                       5,504
    Foreign currency translation adjustment.....................                    (9)                           4
                                                                  ------------------------    -----------------------
Other comprehensive income (loss) before tax....................     $         (15,419)       $               4,689
Income tax (expense) benefit related to items of
    other comprehensive income..................................                 2,311                         (707)
                                                                   ------------------------    -----------------------
Other comprehensive income (loss)...............................               (13,108)                       3,982
                                                                  ------------------------    -----------------------
Comprehensive loss..............................................     $         (14,452)       $             (45,763)
                                                                  ========================    =======================`

Farmland is exposed to
market risk, such as changes in commodity prices, currency exchange rates and
interest rates. In Farmlands various production processes we are subject
to raw material price fluctuations caused by supply conditions, weather,
economic conditions and other factors. To manage volatility associated with
these exposures, Farmland may enter into various derivative transactions
pursuant to our established policies. Generally, Farmland hedges a portion of
its anticipated consumption of commodity inputs for periods up to 12 months. We
may enter into longer term contracts if deemed appropriate.

Effective September 1,
2000, we adopted Statement of Financial Accounting Standard No. 133,
Accounting for Derivative Instruments and Hedging Activities, as
amended. This standard imposes extensive recordkeeping requirements in order to
designate a derivative financial instrument as a hedge. As a result, certain of
our segments hold derivative instruments, such as exchange traded grain, crude
oil and live hog futures, certain natural gas contracts and foreign currency
forward positions that we believe provide an economic hedge of future
transactions, but have not been designated as a hedge. Gains or losses related
to the change in fair value of these derivative instruments are recognized as a
component of other income during that period. The cumulative effect of this
change in accounting principle at September 1, 2000 was to increase income by
$13.5 million (net of income tax expense of $2.2 million). All derivative
instruments are recorded in our balance sheet at fair value. At February 28,
2002 we recorded receivables of $2.8 million and $6.8 million in other current
assets and other long-term assets, respectively, related to unrealized gains on
derivative instruments and we recorded payables of $6.6 million in other current
liabilities related to unrealized losses on derivative instruments.

Farmland also uses
derivative commodity instruments to manage our commodity price risk in the
procurement of natural gas, the primary input necessary for the production of
the various nitrogen-based crop production products we manufacture. These
instruments have been designated as cash flow hedges for accounting purposes
with gains and losses deferred in accumulated other comprehensive income (AOCI),
to the extent the hedge is effective. These amounts are recognized within cost
of goods sold in the period during which the hedged transaction affects
earnings. Any hedge gain or loss resulting from ineffectiveness are immediately
recognized to earnings as a component of other income.

Our objective is to use
derivative commodity instruments to fix the price of a portion of our forecasted
purchases of natural gas used to manufacture crop production products. To meet
this objective, we enter into various types of derivative instruments to manage
fluctuations in cash flows resulting from commodity price risk. These
instruments may include exchange traded futures contracts, over the counter
(OTC) swap contracts and OTC option or exchange traded option contracts. The
changes in the market value of such contracts have historically been, and are
expected to continue to be, highly effective at offsetting changes in price
movements of the hedged item. The amount of hedge ineffectiveness, which is
recognized as a component of other income, was immaterial for the three and six
months ended February 28, 2002 and February 28, 2001.

As of February 28, 2002,
the maximum length of time over which we are hedging our exposure to the
variability in future cash flows associated with natural gas forecasted
transactions is approximately two years. Gains and losses recorded in AOCI are
reclassified, on a first-in, first-out basis, as a component of cost of sales
when the related crop production product is sold. As a result, we anticipate
that an approximate loss of $9.2 million deferred in AOCI as of February 28,
2002 will be reclassified into earnings (loss) within the next twelve months.
Gains and losses in AOCI may fluctuate until the related contract is closed.
During the three and six month periods ended February 28, 2001, approximately
$14.4 million and $18.7 million, respectively, was reclassified into earnings as
other income as a result of the discontinuance of cash flow hedges because it
became probable that the original forecasted purchases of natural gas would not
occur.

In order to reduce
exposures related to changes in interest rates, Farmland may use derivative
instruments, including interest rate swaps. As of February 28, 2002, Farmland
had an interest rate swap agreement outstanding with a notional amount of $25
million expiring on September 14, 2003, effectively converting a portion of the
Farmlands variable rate debt to a fixed rate debt. The interest rate swap
is accounted for at fair value with gains or losses recorded as interest
expense.

SFAS No. 143
Accounting for Asset Retirement Obligations was issued during June
2001, by the FASB. This statement addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) normal use of the asset.

Statement No. 143 requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The fair value of the liability is added to the carrying
amount of the associated asset and this additional carrying amount is
depreciated over the life of the asset. The liability is accreted at the end of
each period through charges to operating expense. If the obligation is settled
for other than the carrying amount of the liability, a gain or loss would be
recognized on settlement.

Farmland is required and
plans to adopt the provisions of Statement No. 143 for the quarter ending
November 30, 2002 (our fiscal year 2003). To accomplish this, Farmland must
identify all legal obligations for asset retirement obligations, if any, and
determine the fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require Farmland to gather
market information and develop cash flow models. Additionally, Farmland will be
required to develop processes to track and monitor these obligations. Because of
the effort necessary to comply with the adoption of Statement No. 143, it is not
practicable for management to estimate the impact of adopting this Statement at
the date of this report.

Farmland 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, we are aware of possible
obligations associated with environmental matters at other sites, including
sites where no claim or assessment has been made. Our accrued liability for
probable and reasonable estimable obligations for resolution of environmental
matters at NPL and other sites was $16.4 million and $17.2 million at February
28, 2002 and August 31, 2001, respectively. We periodically review and, as
appropriate, revise our environmental accruals. Based on current information and
regulatory requirements, we believe that the accruals established for
environmental expenditures are adequate.

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 which can be reasonably estimated at
February 28, 2002. In the opinion of management, it is reasonably possible for
such costs to approximate an additional $13.3 million.

Under the Resource
Conservation Recovery Act of 1976 (RCRA), Farmland has three
closure and four post-closure plans in place for five locations. Closure and
post-closure plans also are in place for four landfills and two injection wells
as required by state regulations. Such closure and post-closure costs are
estimated to be $5.4 million at February 28, 2002 (and are in addition to the
$16.4 million accrual and the $13.3 million discussed in the prior paragraphs).
These liabilities are accrued when plans for termination of plant operations are
made. Operations are being conducted at these locations, and we do not plan to
terminate these operations in the foreseeable future. Therefore, these
environmental exit costs have not been accrued.

The Environmental
Protection Agency has issued new rules limiting sulfur in gasoline to 30 parts
per million and has published a proposed rule limiting sulfur in diesel fuel to
15 parts per million. The rules affecting gasoline were effective December 1,
1999 with a January 1, 2004 compliance date. The proposed rules for diesel fuel
have a June 1, 2006 compliance date. Based on information currently available,
we anticipate that expenditures of approximately $90 million will be required to
achieve compliance with these new and pending rules. Farmland has applied for,
but has not received, regulatory extension of the deadlines until 2008.

Farmland is involved in various lawsuits arising in the normal course of business.  In the opinion of management, the ultimate
resolution of these litigation issues is not expected to have a material adverse effect on our unaudited Condensed Consolidated
Financial Statements.

In the third quarter of
fiscal year 2001, Farmland recognized a reserve as a result of restructuring
activities. As of August 31, 2001, the balance in the restructuring reserve was
$7.9 million. During the three months ended February 28, 2002, no adjustments
were made to the reserve. During the six months ended February 28, 2002,
adjustments to the reserve reduced the balance by $2.8 million. The major
component of this adjustment resulted from the sale, during October 2001, of the
assets of Heartland Wheat Growers, our wheat gluten plant located in Russell,
Kansas. This sale released us from future plant maintenance, property taxes, and
all other obligations associated with maintaining idle plant and property.
Deductions to the reserve, in the amounts of $0.9 million for the three months
ended February 28, 2002 and $1.3 million for the six months ended February 28,
2002, represent severance payments and ongoing maintenance costs associated with
closed facilities. As of February 28, 2002, the balance in the restructuring
reserve was $3.8 million.

As part of the
restructuring costs incurred in fiscal year 2001, we recorded an asset
impairment related to the closure of our wheat gluten plant to its estimated net
realizable value. During October 2001, the assets of the plant were sold and a
gain on the sale of assets was recorded in the amount of $3.5 million,
representing the excess of the net proceeds over the plants estimated net
realizable value.

`The following table displays the activity and balances of the restructuring reserve account from August 31, 2001 to February 28, 2002:

                                 Aug 31, 2001                                                            Feb 28, 2002
       Type of Cost                 Balance         Additions       Adjustments        Deductions           Balance
----------------------------    ----------------    -----------    ---------------    --------------    ----------------
                                                                (Amounts in Thousands)

Employee separations            $      1,602        $      16      $       (228)      $    (1,057)      $         333
Facility closings                      3,830               -0-           (2,598)             (286)                946
Other                                  2,500               -0-               -0-               -0-              2,500
                                ----------------    -----------    ---------------    --------------    ----------------
Total                           $      7,932        $      16      $     (2,826)      $    (1,343)      $       3,779
                                ================    ===========    ===============    ==============    ================`

Effective September 1,
2000, Farmland changed its method of accounting for certain costs expected to be
incurred in the next planned major maintenance of its manufacturing and
processing facilities from the accrue-in-advance method to the direct expense
method. Under the new accounting method, maintenance costs are recognized as
expense as maintenance services are performed. We believe the new method is
preferable in the circumstances because, prior to the performance of the
maintenance services, we do not have a present unavoidable duty or
responsibility to perform such services. The effect of this change at September
1, 2000 was a $6.3 million benefit (net of income taxes of $1.1 million) and has
been presented as a cumulative effect of an accounting change in the
accompanying unaudited Condensed Consolidated Statements of Operations for the
six months ended February 28, 2001.

Other income for the six
months ended February 28, 2002 included a gain of $18.0 million recognized on
the sale of our equity interest in Country Energy to Cenex Harvest States. Other
income for the six months ended February 28, 2001 included net gains of $17.2
million related to derivative financial instruments held by certain of our
segments that we believe provide an economic hedge of future transactions, but
were not designated as a hedge under SFAS 133 Accounting for Derivative
Instruments and Hedging Activities. Additionally, we recognized a $4.4
million gain on the sale of our 50% ownership interest in One System Group in
2001.

During February 2002, a
decision was made to liquidate our international grain trading subsidiaries
(collectively referred to as Tradigrain) within one year. Tradigrain was
acquired in 1993 and provides international grain marketing and brokerage
services to our customers. The formation of ADM/Farmland, our domestic grain
joint venture, the changing environment which limited the availability of bank
credit for trading businesses, and our continuing focus on core businesses were
the primary reasons for exiting this business.

The disposal plan consists
primarily of the termination of normal activity, the sale of existing
inventories, the collection of receivables, and the settlement of trade and
financing liabilities. We estimate that no gain or loss will result from the
liquidation. The disposal of Tradigrain operations represents the disposal of a
business segment under Accounting Principles Board (APB) Opinion No.
30. Accordingly, the accompanying consolidated statements of operations have
been restated to reflect Tradigrain as discontinued operations for all periods
presented. For business segment reporting purposes, Tradigrain business results
are reported as discontinued operations within the World Grain
segment.

`Six Months Ended                          Three Months Ended
                                       ------------------------------------------    -----------------------------------

                                             February 28,         February 28,        February 28,        February 28,
                                                 2001                 2002                2001                2002
                                           -----------------    -----------------    ---------------     ---------------
                                                                    (Amounts in Thousands)

Net sales                                  $    1,299,463       $     767,718        $    640,733        $     404,290
                                           =================    =================    ===============     ===============

Pretax income (loss) from                  $        4,862       $     (13,303)
discontinued operations                                                              $      3,409        $     (10,442)
Income tax benefit (expense)                          990                (861)               (473)                (861)
                                           -----------------    -----------------    ---------------     ---------------

Net income (loss) from                     $        5,852       $     (14,164)
    discontinued operations                                                          $      2,936        $     (11,303)
                                           =================    =================    ===============     ===============`

`Cash flows related to discontinued operations are as follows:

                                                                Six Months Ended
                                              -----------------------------------------------------
                                                February 28, 2001            February 28, 2002
                                              -----------------------     -------------------------
                                                             (Amounts in Thousands)

Net cash provided by
  operating activities                        $             37,017        $              70,852
Net cash provided by (used in)
  investing activities                                        (718)                         341
Net cash used in financing
  activities                                               (27,193)                     (61,451)
                                              -----------------------     -------------------------
Net increase in cash and cash                 $              9,106        $               9,741
   equivalents
Cash and cash equivalents at
  beginning of period                                       17,352                        8,708
                                              -----------------------     -------------------------

Cash and cash equivalents at
  end of period                               $             26,458        $              18,449
                                              =======================     =========================`

`Assets and liabilities of discontinued operations are as follows:

                                                 August 31, 2001            February 28, 2002
                                              -----------------------    -------------------------
                                                            (Amounts in Thousands)

Current assets                                $            307,370       $             249,335
Noncurrent assets                                           32,728                      27,072

Current liabilities                                       (280,380)                   (239,397)
Noncurrent liabilities                                      (9,980)                     (1,423)
                                              -----------------------    -------------------------
Net assets of the discontinued
    operations                                $             49,738       $              35,587
                                              =======================    =========================`

Effective September 1,
2001, Truck Operations and Transportation and Warehousing Services are presented
in the operating results of the segment they primarily serve rather than as a
component of Other Operating Units and Unallocated Corporate Expenses. Segment
results for the three months and six months ended February 28, 2001 were
reclassified to conform to our current operational structure.

Unallocated includes income
and expense items which are not directly attributed to or allocated to any
operating segment. Examples of such items include certain interest, legal, human
resources and finance expenses.

`Six months ended
February 28, 2001 (Page 1 of 3)
(Amounts in Thousands)
                                                             CONSOLIDATED SEGMENTS
                                   --------------------------------------------------------------------------
                                                                             Unallocated
                                                     Combined
                                                     Segments             Corporate Expenses           Consolidated
                                               ------------------      ----------------------     ---------------------
           Sales & transfers                   $       6,436,769         $               -0-      $        6,436,769
           Transfers between segments                 (1,700,389)                        -0-              (1,700,389)
                                               ------------------      ----------------------     ---------------------
           Net sales                           $       4,736,380         $               -0-      $        4,736,380
                                               ==================      ======================     =====================

           Income (loss), excluding
           discontinued operations             $          19,707         $          (20,190)      $             (483)
                                               ------------------      ----------------------     ---------------------

           Income (loss) from
              discontinued operations                      5,852         $               -0-      $            5,852
                                               ------------------      ----------------------     ---------------------

           Net income (loss)                   $          25,559         $          (20,190)      $            5,369
                                               ==================      ======================     =====================


           Total assets                        $       3,173,995         $          305,544       $        3,479,539
                                               ==================      ======================     =====================`

`Six months ended
February 28, 2002 (Page 1 of 3)
(Amounts in Thousands)
                                                            CONSOLIDATED SEGMENTS
                                   ------------------------------------------------------------------------
                                                                           Unallocated
                                                    Combined                Corporate
                                                    Segments                 Expenses                  Consolidated
                                               ----------------       --------------------       ---------------------
           Sales & transfers                   $   4,867,280          $               -0-        $       4,867,280
           Transfers between segments             (1,461,965)                         -0-               (1,461,965)
                                               ----------------       --------------------       ---------------------
           Net sales                           $   3,405,315          $               -0-        $       3,405,315
                                               ================       ====================       =====================

            Income (loss), excluding
            discontinued operations            $     (16,703)         $          (15,629)        $         (32,332)

            Income (loss) from
               discontinued operations               (14,164)                         -0-                  (14,164)
                                               ---------------       --------------------       ---------------------

           Net income (loss)                   $     (30,867)         $          (15,629)        $         (46,496)
                                               ================       ====================       =====================


           Total assets                        $   2,362,236          $          334,677         $       2,696,913
                                               ================       ====================       =====================`

`Six months ended
February 28, 2001 (Page 2 of 3)
(Amounts in Thousands)
                                                                        INPUT AND OTHER SEGMENTS
                                    --------------------------------------------------------------------------------------------------
                                                                                                                   Other             Total Input
                                                        Crop                                                     Operating            and Other
                                                     Production           Petroleum              Feed              Units               Segments
                                                  ---------------     ----------------      -------------    ----------------      ----------------
              Sales & transfers                   $     352,681       $       863,746       $     50,262      $     1,066,969      $     2,333,658
              Transfers between segments                (13,393)              (10,458)            (5,191)          (1,010,871)          (1,039,913)
                                                  ---------------     ----------------      -------------     ---------------      ----------------
              Net sales                           $     339,288       $       853,288       $     45,071      $        56,098      $     1,293,745
                                                  ===============     ================      =============    ================      ================

              Income (loss), excluding
              discontinued operations             $      (2,065)      $        15,133       $     (2,406)     $        (3,833)     $         6,829

              Income (loss) from
                 discontinued operations                     -0-                   -0-               -0-                  -0-                  -0-
                                                  ---------------     ----------------      -------------     ----------------     ----------------

              Net income (loss)                   $      (2,065)      $         15,133      $     (2,406)     $        (3,833)     $         6,829
                                                  ===============     ================      =============     ================     ================


              Total assets                        $     833,100       $       431,195       $     54,785      $        69,689      $     1,388,769
                                                  ===============     ================      =============     ================     ================`

`Six months ended
February 28, 2002  (Page 2 of 3)
(Amounts in Thousands)

                                                INPUT AND OTHER SEGMENTS
                                                                                                    Other               Total
                                          Crop                                                    Operating           Input and
                                       Production           Petroleum           Feed                Units               Other
                                                                                                                      Segments
                                   ------------------  -----------------   ----------------   ---------------    ----------------
 Sales & transfers                 $        292,871    $       588,797     $          -0-     $    1,005,860     $     1,887,528
 Transfers between segments                  (5,090)            (6,360)               -0-           (974,260)           (985,710)
                                   ------------------  -----------------   ----------------   ---------------    ----------------
 Net sales                         $        287,781    $       582,437     $          -0-     $       31,600     $       901,818
                                   ==================  =================   ================   ===============    ================
 Income (loss), excluding
 discontinued operations           $        (78,002)   $        18,706     $        2,661     $        6,868     $       (49,767)

  Income (loss) from
    discontinued operations                    -0-                 -0-               -0-                  -0-                -0-
                                   ------------------  -----------------   ----------------   ---------------    ----------------
  Net income (loss)                $        (78,002)   $        18,706     $        2,661     $        6,868     $       (49,767)
                                   ==================  =================   ================   ===============    ================
  Total assets                     $        840,933    $       277,581     $       58,137     $       35,071     $     1,211,722
                                   ==================  =================   ================   ===============    ================`

`Six months ended
February 28, 2001 (Page 3 of 3)
(Amounts in Thousands)
                                                         OUTPUT SEGMENTS
                                    -----------------------------------------------------------
                                                                                  Total
                                     Refrigerated          World                  Output
                                        Foods              Grain                 Segments
                                    ---------------    ---------------      -------------------
   Sales & transfers                $    2,828,453      $   1,274,658        $     4,103,111
   Transfers between segments             (442,192)         (218,284)               (660,476)
                                    ---------------    ---------------      -------------------
   Net sales                        $    2,386,261      $   1,056,374        $     3,442,635
                                    ===============    ===============      ===================

   Income (loss), excluding
   discontinued operations          $       14,469      $      (1,591)       $        12,878

   Income (loss) from
      discontinued operations                   -0-             5,852                  5,852
                                    ---------------    ---------------      -------------------

   Net income (loss)                $       14,469      $       4,261        $        18,730
                                    ===============    ===============      ===================

   Total assets                     $      814,952      $     970,274        $     1,785,226
                                    ===============    ===============      ===================`

`Six months ended
  February 28, 2002  (Page 3 of 3)
  (Amounts in Thousands)
                                                       OUTPUT SEGMENTS
                                    -------------------------------------------------------
                                                                                Total
                                     Refrigerated            World             Output
                                        Foods                Grain            Segments
                                    ---------------     ----------------   ----------------
Sales & transfers                   $   2,977,122        $       2,630      $   2,979,752
Transfers between segments               (476,255)                  -0-          (476,255)
                                    ---------------     ----------------   ----------------
Net sales                           $   2,500,867        $       2,630      $   2,503,497
                                    ===============     ================   ================

Income (loss), excluding
discontinued operations             $      33,582        $        (518)     $      33,064

Income (loss) from
   discontinued operations                     -0-             (14,164)           (14,164)
                                    ---------------     ----------------   ----------------

Net income (loss)                   $      33,582        $     (14,682)     $      18,900
                                    ===============     ================   ================


Total assets                        $     825,164        $     325,350      $   1,150,514
                                    ===============     ================   ================`

`Three  months ended
February 28, 2001 (Page 1 of 3)
(Amounts in Thousands)
                                                               CONSOLIDATED SEGMENTS
                                    ---------------------------------------------------------------------------
                                                                  Unallocated
                                          Combined             Corporate Expenses
                                          Segments                                           Consolidated
                                    ------------------      ----------------------     -----------------------
Sales & transfers                   $       3,283,432        $                -0-       $          3,283,432
Transfers between segments                   (889,508)                        -0-                   (889,508)
                                    ------------------      ----------------------     -----------------------
Net sales                           $       2,393,924        $                -0-       $          2,393,924
                                    ==================      ======================     =======================
Income (loss), excluding
discontinued operations             $          (2,244)       $             (2,036)      $             (4,280)

Income (loss) from
   discontinued operations                      2,936                          -0-                     2,936
                                    ------------------      ----------------------     -----------------------
Net income (loss)                   $             692        $             (2,036)      $             (1,344)
                                    ==================      ======================     =======================

Total assets                        $       3,173,995        $            305,544       $          3,479,539
                                    ==================      ======================     =======================`

`Three months ended
February 28, 2002  (Page 1 of 3)
(Amounts in Thousands)
                                                               CONSOLIDATED SEGMENTS
                                    -------------------------------------------------------------------------
                                                                Unallocated
                                         Combined                Corporate
                                         Segments                 Expenses                  Consolidated
                                    ----------------       --------------------       ---------------------
Sales & transfers                   $      2,247,058       $                -0-        $         2,247,058
Transfers between segments                  (689,936)                       -0-                   (689,936)
                                    ----------------       --------------------       ---------------------
Net sales                           $      1,557,122       $                -0-        $         1,557,122
                                    ================       ====================       =====================
Income (loss), excluding
discontinued operations             $        (37,755)      $              (687)        $           (38,442)

Income (loss) from
   discontinued operations                  (11,303)                        -0-                    (11,303)
                                    ----------------       --------------------       ---------------------

Net income (loss)                   $       (49,058)       $              (687)        $           (49,745)
                                    ================       ====================       =====================
Total assets                        $     2,362,236        $           334,677         $         2,696,913
                                    ================       ====================       =====================`

`Three months ended
February 28, 2001 (Page 2 of 3)
(Amounts in Thousands)
                                                                        INPUT AND OTHER SEGMENTS
                                    ------------------------------------------------------------------------------------------------
                                                                                                       Other            Total Input
                                            Crop                                                     Operating           and Other
                                         Production           Petroleum             Feed               Units             Segments
                                    ----------------     ------------------    -------------    ----------------    -----------------
 Sales & transfers                   $     187,527       $        441,622      $        -0-     $      570,780      $    1,199,929
 Transfers between segments                 (5,415)                (5,390)              -0-           (546,120)           (556,925)
                                    ----------------     ------------------    -------------    ----------------    -----------------
 Net sales                           $     182,112       $        436,232      $        -0-     $       24,660      $      643,004
                                    ================     ==================    =============    ================    =================
 Income (loss), excluding
 discontinued operations             $      (3,158)      $         11,482      $    (3,850)     $       (2,262)     $        2,212

 Income (loss) from
    discontinued operations                     -0-                   -0-               -0-                 -0-                 -0-
                                     ---------------     -----------------     -------------    ----------------    -----------------
 Net income (loss)                   $      (3,158)      $         11,482      $    (3,850)     $       (2,262)     $        2,212
                                     ===============     =================     =============    ================    =================
 Total assets                        $     833,100       $        431,195      $     54,785     $       69,689      $    1,388,769
                                     ===============     =================     =============    ================    =================`

`Three months ended
February 28, 2002  (Page 2 of 3)
(Amounts in Thousands)
                                                                        INPUT AND OTHER SEGMENTS
                                    ----------------------------------------------------------------------------------------------
                                                                                                  Other                Total
                                         Crop                                                   Operating            Input and
                                      Production           Petroleum            Feed              Units                Other
                                                                                                                     Segments
                                    --------------       ---------------     -------------     ---------------     ---------------
Sales & transfers                   $      123,248       $      201,206      $        -0-      $      473,911      $      798,365
Transfers between segments                  (2,268)              (1,109)              -0-            (461,558)           (464,935)
                                    ---------------         ------------     -------------       -------------     ---------------
Net sales                           $      120,980       $      200,097      $        -0-      $       12,353      $      333,430
                                    ===============      ===============     =============     ===============     ===============

Income (loss), excluding
discontinued operations             $      (35,941)      $      (16,531)     $      2,047      $         (359)     $      (50,784)

Income (loss) from
   discontinued operations                     -0-                 -0-                -0-                  -0-                 -0-
                                    ---------------      ---------------     -------------    ----------------     ---------------

Net income (loss)                   $      (35,941)      $      (16,531)     $      2,047      $         (359)     $      (50,784)
                                    ===============      ===============    ==============     ===============     ===============

Total assets                        $      840,933       $      277,581      $     58,137      $       35,071      $    1,211,722
                                    ===============      ===============     =============     ===============     ===============`

`Three months ended
February 28, 2001(Page 3 of 3)
(Amounts in Thousands)
                                                          OUTPUT SEGMENTS
                                    ------------------------------------------------------------
                                                                                   Total
                                     Refrigerated          World                  Output
                                        Foods              Grain                 Segments
                                    ---------------    ---------------      --------------------
   Sales & transfers                $   1,432,603       $    650,900         $      2,083,503
   Transfers between segments            (214,589)          (117,994)                (332,583)
                                    ---------------    ---------------      --------------------
   Net sales                        $   1,218,014       $    532,906         $      1,750,920
                                    ===============    ===============      ====================

   Income (loss), excluding
   discontinued operations          $        (745)      $      (3,711)       $         (4,456)

   Income (loss) from
      discontinued operations                 -0-               2,936                   2,936
                                    ---------------    ---------------      --------------------

   Net income (loss)                $        (745)      $        (775)       $         (1,520)
                                    ===============    ===============      ====================


   Total assets                     $     814,952       $     970,274        $      1,785,226
                                    ===============    ===============      ====================`

`Three months ended
  February 28, 2002  (Page 3 of 3)
  (Amounts in Thousands)
                                                       OUTPUT SEGMENTS
                                  ----------------------------------------------------------
                                                                               Total
                                  Refrigerated          World                  Output
                                      Foods             Grain                 Segments
                                  --------------    ---------------      -------------------
Sales & transfers                 $   1,448,648      $          45       $   1,448,693
Transfers between segments             (225,001)                -0-           (225,001)
                                  --------------    ---------------      -------------------
Net sales                         $   1,223,647      $          45       $   1,223,692
                                  ==============    ===============      ===================

Income (loss), excluding
discontinued operations           $      12,078      $         951       $      13,029

Income (loss) from
   discontinued operations                   -0-           (11,303)            (11,303)
                                  --------------    ---------------      -------------------

Net income (loss)                 $      12,078      $     (10,352)      $       1,726
                                  ==============    ===============      ===================


Total assets                      $     825,164      $     325,350       $   1,150,514
                                  ==============    ===============      ===================`

Effective February 8, 2002,
Farmland and a syndicate of banks, including Bankers Trust Company, Rabobank,
and CoBank, entered into a new credit facility (the Credit
Facility). At inception, this Credit Facility consisted of a $350 million
revolving loan and a $150 million term loan. We currently pay a commitment fee
equal to 100 basis points on the unused portion of the revolving loan portion of
the Credit Facility. Concurrent with the execution of this agreement, Farmland
utilized approximately $190 million of this Credit Facility to purchase the
nitrogen facility at Coffeyville, Kansas that we had previously leased.

Interest on the Credit Facility is variable and is based on a spread over the Eurodollar rate and/or the base rate, as each such rate
is described in the Credit Agreement.

The $350 million revolving
loan is collateralized by a first priority security interest in a substantial
portion of our accounts receivable and inventories, a second priority security
interest in a substantial portion of our property, plant and equipment, and a
first priority security interest in a substantial portion of our intangible
assets that is shared, on an equal priority basis, with the $150 million term
loan described in the next paragraph. Availability under the revolving loan is
reduced to $300 million effective February 28, 2005 and is further reduced to
$250 million effective February 28, 2006. Also, depending on our level of
accounts receivable and inventory, we may be unable to borrow the entire amount
available. The revolving portion of the Credit Facility expires February 28,
2007.

The $150 million term loan
is collateralized by a first priority security interest in a substantial portion
of our property, plant and equipment, a second priority security interest in a
substantial portion of our accounts receivable and inventories, and a first
priority security interest in a substantial portion of our intangible assets
that is shared, on an equal priority basis, with the $350 million revolving loan
described in the preceding paragraph. Beginning with Farmlands
quarter-ended May 31, 2002, Farmland must make scheduled term loan principal
payments of $10 million per quarter, with such amount increasing to $15 million
per quarter beginning with the quarter ending May 31, 2003. A final term loan
payment, representing the balance of the term loan ($65 million), is due and
payable as of February 29, 2004.

At February 28, 2002,
Farmland had $400.1 million of borrowings outstanding under the Credit Facility,
of which $40.0 million is classified as short term. Additionally, $33.4 million
of the Credit Facility was utilized to support letters of credit. As calculated
at February 28, 2002, availability under the Credit Facility was approximately
$27.2 million.

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, 2001.

The unaudited condensed
consolidated financial statements of Farmland are prepared in conformity with
accounting principles generally accepted in the United States for interim
reporting purposes. The preparation of these financial statements requires the
use of estimates, judgments, and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the periods presented. Farmland believes
that of its significant accounting policies the following may involve a higher
degree of judgments, estimates, and complexity:

- estimating the allowance for doubtful accounts;
- estimating an accrued environmental liability;
- accounting for income taxes;
- valuation of long-lived and intangible assets, including goodwill;
- valuation of derivative financial and commodity instruments;
- accounting for discontinued operations;
- inventory valuation; and
- pension cost and prepaid pension cost

Allowance for doubtful
accounts. Our management must make estimates of the uncollectability of our
accounts receivables. Management specifically analyzes accounts receivable and
analyzes historical bad debt experience, customer concentrations, customer
credit-worthiness, current economic trends, including conditions in the
industries in which our customers operate, and changes in our customer payment
terms when evaluating the adequacy of the allowance for doubtful accounts. Our
accounts receivable balance was $485.0 million, net of allowance for doubtful
accounts of $15.8 million, as of February 28, 2002.

Accrued environmental
liability. We accrue a liability related to pending environmental investigation,
remediation and monitoring costs which are probable and which can be reasonably
estimated. As of February 28, 2002, we had recorded a liability of
$16.4 million related to our estimate of environmental matters. This
accrual may increase or decrease materially and may materially impact our
results of operation and financial position as:

- additional information becomes known;
- technology available for clean-up and remediation improves;
- new environmental laws are enacted and/or existing environmental laws are amended or rescinded; and
- additional potentially responsible parties are identified and/or previously
            identified potentially responsible parties file for bankruptcy protection.

Accounting for income
taxes. As part of the process of preparing our consolidated financial statements
we are required to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves estimating our actual current tax
expense, estimating the portion of our results related to transactions with
members, and assessing temporary differences resulting from differing treatment
of items for tax and accounting purposes relating to nonmember business. These
differences result in deferred tax assets and liabilities, which are included
within our consolidated balance sheet. We then assess the likelihood that our
deferred tax assets will be recovered from future taxable income or through
implementation of available tax planning strategies. To the extent we believe
that recovery is not likely, we establish a valuation allowance. To the extent
we establish a valuation allowance or increase this allowance in a period, we
include an expense within the tax provision in the statement of operations.

Significant management
judgment is required in determining our provision for income taxes, our deferred
tax assets and liabilities and any valuation allowance recorded against our net
deferred tax assets. As of February 28, 2002 we have not recorded a valuation
allowance. However, future operating results or changes in tax laws may
adversely affect our ability to recover some or all of our deferred tax assets
and could materially impact our results of operations and financial position.

Valuation of long-lived and
intangible assets, including goodwill. We assess the impairment of long-lived
assets, identifiable intangibles, and goodwill whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
we consider important which could trigger an impairment review include the
following:

o significant
underperformance relative to expected historical or projected future operating
results; o significant changes in the manner of our use of the acquired assets
or the strategy for our overall business; o significant negative industry or
economic trends;

When we determine that the
carrying value of long-lived assets, identified intangibles and goodwill may not
be recoverable based upon the existence of one or more of the above indicators
of impairment, we measure any impairment based on a projected discounted cash
flow method using a discount rate determined by our management to be
commensurate with the risk inherent in our current business model.
Enterprise-wide software (our largest identified intangible asset), goodwill,
and long-lived assets had net book values of $29.5 million, $51.7 million and
$993.4 million, respectively, at February 28, 2002. A change in events or
circumstances, including the decision to hold an asset for sale or to abandon an
asset, resulting in an impairment charge to enterprise-wide software, goodwill
or long-lived assets could have a material impact on our results of operations
and financial position.

Management is currently evaluating the impact that SFAS No. 142 and SFAS No. 144 could have on our financial statements (see Recent
Accounting Pronouncements).

Derivative financial and
commodity instruments. Exchange traded instruments are valued at their closing
price posted by the exchange. We use exchange closing prices, primarily the New
York Mercantile Exchange, to value over-the-counter instruments. Volatility in
commodity prices may materially impact the value of these instruments and may
materially impact our results of operation and financial position.

We also hold a natural gas
contract which has been deemed a derivative instrument and which expires in
2010. As an active market does not exist over this timeframe, we obtain forward
price estimates from an independent third party. Based on these price estimates,
we value this contract by calculating estimated cash flows and discounting these
cash flows to a net present value. Changes in the estimated forward cash price
or in the appropriate discount rate may materially impact the value of these
instruments and may materially impact our results of operation and financial
position.

Discontinued operations.
During February 2002, we adopted a formal plan to dispose of our international
grain trading subsidiaries, primarily through the orderly liquidation of our
business. Under current applicable generally accepted accounting principles (APB
No. 30), we are required to estimate and accrue estimated operating losses
during the liquidation period as well as any estimated loss we will incur on
final liquidation of assets and settlement of liabilities. As of February 28,
2002, we did not accrue either a loss for future operations or liquidation loss,
as management estimates that the liquidation will not result in a gain or a
loss. A change in events could have a material impact on our results of
operations and financial position.

Inventory valuation. Our
crude oil and refined petroleum products are valued at the lower of last-in,
first-out (LIFO) cost or market. Valuing these products at the lower
of first-in, first-out (FIFO) cost or market could have a material
impact on our net income and financial position. During certain prior quarters,
using FIFO inventory costing, applied on a consistent basis, would have
increased or decreased pre-tax income for that quarter by as much as $20
million.

A lower of cost or market
charge is not recognized for declines in inventory values of crude oil and
refined petroleum products in our interim results of operations if management
reasonably expects that market price decline is temporary and that the market
price will exceed LIFO carrying values as of fiscal year end. However, given the
volatility of market prices, no assurance can be provided that the market value
of petroleum inventories will exceed their carrying value at our year-end.

Our other businesses value
inventories at the lower of FIFO cost or market. During periods of significant
price variability, valuation of these inventories at the lower of LIFO cost or
market, applied on a consistent basis, would likely have a material impact on
our results of operations and financial position.

All of our inventories,
whether valued at the lower of LIFO or market or the lower of FIFO or market,
involve commodity products which are subject to large price movements. Such
large price movements could result in significant lower of cost or market
write-downs to our inventories, which may have a material impact on our results
of operations and financial position.

Pension cost and prepaid
pension cost. Our pension cost and our prepaid pension cost are dependent on
assumptions used in calculating such amounts. These assumptions include discount
rates, health care cost trend rates, benefits earned, interest cost, expected
return on plan assets, mortality rates, and other factors. In accordance with
accounting principles generally accepted in the United States, actual results
that differ from the assumptions are accumulated and amortized over future
periods and, therefore, generally affect recognized expense and the recorded
asset or obligation in future periods. While management believes that the
assumptions used are appropriate, differences in actual experience or changes in
assumptions may have a material impact on our results of operations and
financial position.

As a general matter, Farmland's liquidity depends principally on cash flow from operations and our access to debt capital.  At the
present time, as explained below, our liquidity is significantly limited and subject to change on a daily basis.  Contributing
factors include:

- availability of funding, if any, under our Credit Facility;
- potential future defaults under our Credit Facility;
- the volatility of our cash flow from operations resulting from, among other
things, (1) weather conditions in the Midwest which have affected and may
continue to affect sales of nutrient products in our crop production business
and (2) a delay until approximately April 12, 2002 in restarting our Coffeyville
refinery after a planned shut down for repairs and maintenance in March 2002;
- the ability, or lack thereof, of our joint ventures to distribute their earnings in cash;
- cash requirements under demand and other obligations, and
- the time necessary to
negotiate and consummate a plan of debt reduction through major asset sales or
other transactions.

Farmland has historically maintained two primary sources for debt capital: (1) bank lines of credit and (2) a substantially
continuous but, as noted below, now suspended public offering of its subordinated debt and demand loan securities (the  "continuous
debt program ").

Effective February 8, 2002,
Farmland and a syndicate of banks, including Bankers Trust Company, Rabobank,
and CoBank, entered into a new credit facility (the Credit
Facility). At inception, this Credit Facility consisted of a $350 million
revolving loan and a $150 million term loan. We currently pay a commitment fee
equal to 100 basis points on the unused portion of the revolving loan portion of
the Credit Facility. Concurrent with the execution of this agreement, Farmland
utilized approximately $190 million of this Credit Facility to purchase the
nitrogen facility at Coffeyville, Kansas that we had previously leased. As a
result of this transaction, we extinguished approximately $220 million of
off-balance sheet lease commitments.

Interest on the Credit
Facility is variable and is based on a spread over the Eurodollar rate and/or
the base rate, as each such rate is described in the Credit Agreement.

The $350 million revolving
loan is collateralized by a first priority security interest in a substantial
portion of our accounts receivable and inventories, a second priority security
interest in a substantial portion of our property, plant and equipment, and a
first priority security interest in a substantial portion of our intangible
assets that is shared, on an equal priority basis, with the $150 million term
loan described in the next paragraph. The maximum availability under the
revolving loan is reduced to $300 million effective February 28, 2005 and is
further reduced to $250 million effective February 28, 2006. Also, depending on
our level of accounts receivable and inventory, we may be unable to borrow the
entire amount potentially available. The revolving portion of the Credit
Facility expires February 28, 2007.

The $150 million term loan
is collateralized by a first priority security interest in a substantial portion
of our property, plant and equipment, a second priority security interest in a
substantial portion of our accounts receivable and inventories, and a first
priority security interest in a substantial portion of our intangible assets
that is shared, on an equal priority basis, with the $350 million revolving loan
described in the preceding paragraph. Beginning with Farmlands
quarter-ended May 31, 2002, Farmland must make scheduled term loan principal
payments of $10 million per quarter, with such amount increasing to $15 million
per quarter beginning with the quarter ending May 31, 2003. A final term loan
payment, representing the balance of the term loan ($65 million), is due and
payable as of February 29, 2004.

At February 28, 2002,
Farmland had $400.1 million of borrowings outstanding under the Credit Facility,
of which $40.0 million is classified as short term. Additionally, $33.4 million
of the Credit Facility was utilized to support letters of credit. As calculated
at February 28, 2002, availability under the Credit Facility was approximately
$27.2 million.

Subsequent to February 28,
2002, our Coffeyville refinery was temporarily shut down to complete necessary
maintenance and repairs. The expenditures for completing the maintenance and
repairs and the reduced inventory levels of refined products resulting from the
shut down, together with a relatively low level of sales in our crop production
business in March and early April 2002, which we attribute primarily to adverse
weather conditions, have contributed to a reduction in the borrowing base under
our Credit Facility. At April 12, 2002, only approximately $16.8 million was
available for borrowing under the Credit Facility.

The borrowing base
availability under the Credit Facility changes on a daily basis. We seek to
maintain the ability to borrow under the Credit Facility primarily through the
generation of cash flows from operations.

Cash flows from operations
are difficult to predict. In the short-term, our cash flows from operations are
highly dependent on the results of operations from our crop production and
petroleum businesses. Crop nutrient application is dependent on the weather.
Extremely dry conditions reduce the effect of crop nutrients and very wet
conditions make it difficult to apply crop nutrients. These conditions existed
in various parts of the Midwest during March and early April 2002, and if either
condition continues, it would continue to adversely affect our liquidity. As
regards the petroleum business, management believes that the restart of the
Coffeyville refinery, which occurred on approximately April 12, 2002, will
provide additional cash flow, not available in March and early April 2002.
However, global variables which are outside our control affect the supply,
demand and price of both crude oil and refined fuels, and our cash flows from
crude oil refining operations are affected by these global variables. Given the
foregoing as well as the other factors which affect our business, we can provide
no assurance as to the amount of cash flow from operations that we will generate
in our third quarter ending May 31, 2002 or as to our ability to maintain
borrowing base availability under the Credit Facility in the third quarter.

The Credit Facility
requires compliance with financial covenants, all as defined within the Credit
Agreement, including:

- the ratio of earnings before interest, taxes,
depreciation and amortization as compared with interest expense;
- the ratio of
earnings before interest, taxes, depreciation and amortization as compared with
total fixed charges;
- the ratio of total debt as compared with earnings before
interest, taxes, depreciation and amortization;
- the ratio of senior debt as
compared with earnings before interest, taxes, depreciation and amortization;
- a minimum level of earnings before interest, taxes, depreciation and
amortization; and
- a minimum level of subordinated indebtedness outstanding.

We are required to be in
compliance with these financial covenants beginning with our quarter ending May
31, 2002. Management believes, however, that, given Farmlands past and
anticipated earnings, Farmland may likely not be in compliance with the
financial covenant requirements of the Credit Facility on May 31, 2002. Should
we not be in compliance, we would be unable to borrow under the Credit Facility
at May 31, 2002 and the bank syndicate would have the right to declare all of
our borrowings under the Credit Facility and accrued interest immediately due
and payable and to pursue its other remedies under the Credit Facility. Since we
believe we may not have access to other financing facilities sufficient to repay
the Credit Facility in that circumstance, we anticipate having discussions with
the bank syndicate in the quarter ending May 31,2002 with regard to plans to
resolve these issues. We expect to discuss with the bank syndicate, among other
things, appropriate waivers and amendments of the financial covenants of the
Credit Facility so as to avoid a default on May 31, 2002. We cannot assure you,
however, that our lenders would grant any requested waivers and amendments. If
the bank syndicate does not grant sufficient waivers and amendments, then we
expect to be in default under the Credit Facility at May 31, 2002, and, as noted
above, we would then be unable to borrow under the Credit Facility and the bank
syndicate would have the right to declare our borrowings under the Credit
Facility and accrued interest to be immediately due and payable and to pursue
its other remedies under the Credit Facility.

It is also possible that,
on or before May 31, 2002, persons that hold our demand certificates (see the
discussion of our continuous debt program below) and other current obligations
will seek payment to a greater extent than in the recent past. If that were to
occur, our liquidity would be adversely affected.

Management is also working
on plans to restore Farmlands liquidity. The plans include repayment in
full of the Credit Facility and reductions in other liabilities both from major
asset sales and other transactions and from cash generated from operations. The
plans will also include further efforts to reduce costs. We cannot assure you
that we will be successful in our efforts to restore Farmlands liquidity.
If we do not succeed, there would be a material adverse impact on our
operations, and, notwithstanding our belief that our assets exceed our
liabilities, we could be required to seek protection from creditors in order to
resolve our liquidity problems.

In August 2001, Farmland
National Beef Packing Company, L.P. (FNBPC) established a five year,
$225 million credit facility with a syndicate of banks. This facility provides
for a line of credit for up to $100 million and a term loan of $125 million,
both of which are nonrecourse to Farmland and not available to Farmland for
general purposes. Borrowings under the credit facility are collateralized by
substantially all the assets of FNBPC and are subject to certain financial
covenants. FNBPC was in compliance with all covenants at February 28, 2002. At
February 28, 2002, FNBPC had borrowings of $134.5 million, and $17.2 million of
the facility was being utilized to support letters of credit. At February 28,
2002, availability under the line of credit was approximately $67.1 million.

During February 2002, a
decision was made to dispose of our international grain trading subsidiaries
(collectively referred to as Tradigrain) through an orderly liquidation of
assets and settlement of liabilities. The disposal plan consists primarily of
the termination of normal activity, the sale of existing inventories, the
collection of receivables, and the settlement of trade and financing
liabilities. We estimate that no gain or loss will result from the liquidation.
Our Switzerland subsidiary, which held the primary credit facility to fund the
operations of all Tradigrain subsidiaries, filed for creditor protection at that
time and all unused lines of credit were rescinded. Continuing financing is
negotiated with the banks on an as needed basis. All obligations of Tradigrain
are nonrecourse to Farmland and Farmlands other affiliates.

Other borrowing
arrangements with banks and financial institutions are also maintained by
certain of our subsidiaries. Under such arrangements, at February 28, 2002, $5.0
million was borrowed and an additional $2.6 million were being utilized to
support letters of credit, which are nonrecourse to Farmland.

Under our continuous debt
program,  which,  as noted below,  was suspended on October 31, 2000, we offered
unsecured  debt  securities  on a  best-efforts  basis  through our wholly owned
broker-dealer  subsidiary,  Farmland  Securities  Company.  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  were  influenced  by the  rate of  interest  which we
established 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,  management
determined that, given the short-term  nature of the credit facility under which
we operated at that time,  it was  appropriate  to suspend  sales under our debt
program until the credit facility had been  refinanced on a long-term  basis. In
November 2001 we filed a registration statement with the Securities and Exchange
Commission to offer  additional debt securities  under our debt program,  but we
have not yet requested that this registration  statement become effective.  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 six months ended February 28,
2002, the outstanding balance of demand  certificates  decreased by $0.9 million
to $16.8 million,  and the outstanding  balance of subordinated  debenture bonds
decreased by $31.0 million to $504.4 million.

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

Farmland has issued and
outstanding two 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.

As a cooperative, we cannot
sell our voting common equity in traditional public or private markets. Instead,
equity is raised largely from payment of the noncash portion of patronage
refunds with common stock and associate member common stock, from offerings of
preferred stock and from net income on transactions with nonmembers.

Although we had a net loss
for the six months ended February 28, 2002 of $46.5 million, our operating
activities generated $14.9 million in cash from continuing operations and $70.9
million in cash from discontinued operations. Cash from operating activities was
largely generated by reducing our working capital, primarily as a result of
exiting our petroleum marketing and distribution business and reducing the
volume of our international grain trading activities. We generated $52.6 million
of cash through the sale of non-strategic businesses, investments and assets. We
also obtained cash by increasing borrowings, net of payments, by $100.0 million.
The primary use of cash was to purchase the leased facility at Coffeyville,
Kansas which produces nitrogen-based crop nutrients. The total purchase price of
approximately $261 million included cash of approximately $206 million and the
application of approximately $55 million of prepaid lease payments. Therefore,
only $206 million is reflected as a capital expenditure in our unaudited
Condensed Consolidated Statements of Cash Flows. Through this transaction, we
also extinguished approximately $220 million of off-balance sheet lease
commitments.

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.

We operate in the crop
production, petroleum, feed, refrigerated foods and grain businesses. Our 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 currency fluctuations, tariffs and other factors affecting United States
imports and exports. In addition, various federal and state regulations intended
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, livestock, grain and other commodities
may impact our operations. Historically, changes in the cost 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 the
factors mentioned above may impact our future operations. For example, at times
during the last few years, the results of our crop production business have been
adversely affected by a combination of high natural gas prices and competition
from imports. In addition, adverse weather conditions in the winter wheat areas
in Oklahoma and Texas during the six months ended February 28, 2002 have
adversely impacted our crop production business. Also, changes in the prices of
crude oil and refined fuels have caused, and will continue to cause, significant
variations in the results of our petroleum business.

Our financial success
depends largely on factors which affect agricultural production and market
conditions. These factors, many of which are outside of Farmlands control,
often change agricultural production and market conditions in an unpredictable
manner. Therefore, we cannot determine the future impact on our operations from
changes in these external factors. We expect demand for our products to continue
to be volatile as agricultural conditions change.

In order to enhance the
efficiency in marketing crop production products to our members, on January 1,
2000, Farmland, Land OLakes, and Cenex Harvest States combined their crop
production marketing functions into a new venture, Agriliance. Farmland now
sells 100% of our manufactured product to Agriliance.

To better manage our
inventory costs, we placed our Lawrence, Kansas and Pollock, Louisiana nitrogen
plants on a standby operational status during January 2002, after having
operated these plants intermittently since July 2000. If market conditions
improve, we believe our Lawrence plant can be reopened within 60 to 90 days at a
minimal cost. Subsequent to February 28, 2002, the operating lease for the
Pollock plant expired. We currently are in discussions with the owner of the
Pollock plant to determine whether we will purchase this plant, enter into a new
lease or discontinue operations at this facility. Also during the three months
ended February 28, 2002, as a result of weak demand for nitrogen-based crop
nutrients we temporarily idled part or all of our plants at Beatrice, Nebraska,
Dodge City, Kansas, Enid, Oklahoma and Fort Dodge, Iowa in order to better
balance our crop nutrient inventories with existing demand. As the spring season
progresses and inventory levels and product demand become more clear, we will
assess the need to operate these plants in order to provide an adequate volume
of product to Agriliance.

Effective November 30,
2001, our sales mix has been affected by the sale of our equity interest in
Country Energy to Cenex Harvest States. Previously, our sales included 41% of
all sales sold through our agent, Country Energy. These sales included Cenex
Harvest States portion of the output of the NCRA refinery at McPherson,
Kansas, Cenex Harvest States refinery at Laurel, Montana, Farmlands
refinery at Coffeyville, Kansas, gasoline and distillates purchased from third
parties for resale, and wholesale propane, lubricants and petroleum products.
Subsequent to the sale of our interest in Country Energy, our petroleum sales
consist of 100% of the output of our Coffeyville, Kansas refinery. We no longer
participate in sales related to the refineries at McPherson, Kansas or Laurel,
Montana; we no longer participate in the resale of petroleum products to third
parties; and we have substantially discontinued selling wholesale propane,
lubricants and petroleum equipment. The changes account for a decrease of
approximately $120 million of sales compared with last year. Concurrent with the
sale of our interest in Country Energy, we entered into an agreement with Cenex
Harvest States whereby Cenex Harvest States will purchase all refined products
produced at our Coffeyville, Kansas refinery. The selling price for this
production is determined by reference to daily market prices within our
geographic region.

During the first week of
March  2002,  our  Coffeyville,  Kansas  refinery  was shut  down for a  planned
turnaround  project  in order to  perform  equipment  inspections,  repairs  and
capital improvements that could not be performed while the facility was normally
operating.  This  turnaround  project was  completed and the refinery was placed
back on line during the second week of April 2002.  Under our accounting  policy
for planned major maintenance  adopted September 1, 2000, we no longer accrue in
advance for turnaround projects. As a result, the entire cost of this turnaround
project,  which  we  anticipate  will  be  approximately  $16  million,  will be
reflected  as an  expense  primarily  in our third  quarter  operating  results.

Effective October 1, 2000
Farmland and Land OLakes each contributed substantially all their feed
business assets to a newly formed venture (Land OLakes Farmland Feed). As
a result of forming this venture, we did not record any sales for our feed
business during the three and six months ended February 28, 2002 and the three
months ended February 28, 2001. We recorded only one months sales during
the six months ended February 28, 2001.

During August 2001,
Farmland National Beef and DMV USA formed aLF Ventures, LLC. aLF Ventures is
developing activated lactoferrin, an all-natural protein to be used to protect
fresh meat against pathogenic bacteria including E. coli 0157:H7, Salmonella and
Campylobacter. The United States Department of Agriculture (USDA)
has approved activated lactoferrin for use on fresh beef. The commercialization
of activated lactoferrin is still in the development stage.

Effective May 4, 2001 we
formed a grain marketing relationship with Archer Daniels Midland Company (ADM).
ADM/Farmland, Inc., a wholly-owned subsidiary of ADM, purchased our United
States grain inventories and Farmland Atwood, our wholly-owned grain commission
subsidiary. ADM/Farmland leases and operates our grain elevators throughout the
United States. These leases are in an amount adequate to reimburse us for our
depreciation and other ownership expenses. ADM/Farmland obtains its grain from
third party sources. Farmland also shares in 50% of the earnings or losses of
ADM/Farmland. As a result, effective from the date of formation of this venture,
sales, cost of sales, SG&A expenses and other income generated by this
venture are no longer recorded in our Condensed Consolidated Statements of
Operations. Our share of the net earnings of this venture is now included as a
component of equity in net income of investees. During the six and three months
ended February 28, 2001, for this operation we recognized the following in our
unaudited Condensed Consolidated Statements of Operations:

`February 28, 2001             February 28, 2001
                                   ------------------------     ---------------------------
                                                       (Amounts in Millions)

Sales                                  $          1,056.4            $           532.9
Cost of Sales                          $          1,029.9            $           524.5
SG&A expenses                          $             15.3            $             5.8
Other expenses and interest            $             12.7            $             6.4`

During February 2002, a
decision was made to dispose of, within one year, our international grain
trading subsidiaries (collectively referred to as Tradigrain) through an orderly
liquidation of assets and settlement of liabilities. Accordingly, the results of
our international grain operations, net of tax, are reflected as a single line
item, Results of discontinued operations, on our unaudited Condensed
Consolidated Statements of Operations for both the six months and the three
months ended February 28, 2001 and 2002. International grain sales, cost of
sales and operating expenses have been removed from the unaudited Condensed
Consolidated Statements of Operations for all periods presented.

Results of Operations for
Six Months Ended February 28, 2002 compared to Six Months Ended February 28,
2001.

Sales for the six months
ended February 28, 2002 decreased approximately $1.3 billion, or 28%, compared
with the same period last year. This decrease is primarily due to a decrease in
sales recorded in Farmlands financial statements resulting from the
formation of our ADM/Farmland venture and the sale of our interest in Country
Energy, both as described above, combined with a decrease in unit selling prices
for refined fuels and crop nutrient products, partly offset by increased sales
of refrigerated foods products.

For the six months ended
February 28, 2002, we had a net loss of $46.5 million compared with a net income
of $5.4 million for the same period last year. Factors which significantly
affected earnings for the six months ended February 28, 2002, compared with the
six months ended February 28, 2001 include:

- income for the six months ended February 28, 2001 included income of $19.8
million from the cumulative effect of our change in accounting for derivative
financial and commodity instruments, as required by adoption of Statement of
Financial Accounting Standard No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended (SFAS 133), and
planned major maintenance costs;
- net loss from discontinued operations of $14.2 million for the six months ended
February 28, 2002 compared with net earnings from discontinued operations of
$5.9 million for the six months ended February 28, 2001;
- lower margins for our nitrogen-based crop nutrients and refined fuels, partially
offset by improved margins in our refrigerated foods segment;
- our results for the six month period ended February 28, 2001 included $17.5 million of gains recognized on derivative
     commodity instruments; and
- during the six months ended February 28, 2002, we had a pre-tax gain of $18.0
million from the sale of our interest in Country Energy.

For the six months ended
February 28, 2002, our unit sales volume increased by 14% compared to the same
period last year. The average unit selling prices of nitrogen-based plant foods
for the six months ended February 28, 2002 decreased by 30%, or $58 per ton,
compared with the same period last year. The net impact was a $51.5 million
reduction in crop production sales to $287.8 million for the six months ended
February 28, 2002 compared with crop production sales of $339.3 million for the
same period last year.

During the six months ended
February 28, 2001, relatively high natural gas prices caused industry-wide
production of nitrogen-based crop nutrients to be curtailed, resulting in
increased unit selling prices. During the six months ended February 28, 2002,
relatively low natural gas prices encouraged manufacturers to increase
production of nitrogen-based crop nutrients. As a result, average unit selling
prices were $58 per ton lower during the six months ended February 28, 2002 as
compared to the same period in the prior year. The average price of natural gas
for the first six months of fiscal year 2002 was $2.89 per mmbtu compared to
$4.25 per mmbtu for the same period last year, which translates to a decreased
cost of producing anhydrous ammonia of approximately $46 per ton. During the six
months ended February 28, 2002, use of nitrogen-based crop nutrients for wheat
application was reduced as a result of drought conditions experienced in Texas
and Oklahoma.

Significant factors which
caused the loss of the crop production segment to increase by $75.9 million to a
loss of $78.0 million for the six months ended February 28, 2002 compared with a
loss of $2.1 million in the prior year included:

- margins decreased $31.9 million, primarily as a result of much lower average unit selling prices partly
offset by reduced natural gas costs;
- during the six months ended February 28, 2001, derivative commodity instruments
associated with idled facilities were sold, resulting in $18.7 million of income
recognized;
- during the six months ended February 28, 2001, a $4.8 million gain was
recognized from the sale of natural gas inventories due to the idled plants; and
- during the six months ended February 28, 2001, a nonrecurring gain of $14.6
million was recognized as a result of the change in accounting methods for
derivative commodity instruments upon our required adoption of SFAS 133

- during the six months ended February 28, 2002, compared with the same period in
the prior year, we incurred $1.7 million less of costs associated with plant
shutdowns;
- during the six months ended February 28, 2002, compared with the same period in
the prior year, earnings from investees increased $2.6 million;
- during the six months ended February 28, 2002, $2.0 million of gains were realized from the sale of
assets; and
- during the six months ended February 28, 2002, compared with the
same period in the prior year, a $2.0 million increase in other income from subleasing of railcars which are no longer being used by our North American grain operations and which are now
     managed by our crop production business.

Sales of the petroleum
segment decreased $270.9 million, or approximately 32%, for the six months ended
February 28, 2002 compared with the same period last year. The decrease was
primarily related to lower per unit selling prices for gasoline, distillates and
diesel fuels partially offset by an 11% increase in units sold. The decrease in
unit prices for refined fuels was a result of excess supplies across the
country. The high inventory levels were the result of decreased demand after the
September 11th terrorist attacks and a mild winter that affected usage of
distillate heating oil. Also, during periods of relatively high natural gas
prices, power plants will tend to switch from using natural gas to fuel oil to
meet their energy requirements. Natural gas prices were significantly lower this
winter than last winter, resulting in lower demand by power plants for fuel oil.
Increased demand for distillates used in the production of jet fuels used for
military operations was largely offset by a decrease in jet fuel demand by
commercial aircraft.

Income of the petroleum
segment  increased $3.6 million during the six months ended February 28, 2002 as
compared  to the same  period  last year.  Margins  decreased  by $20.2  million
primarily due to the narrowing of the spread between crude oil costs and refined
fuel  selling  prices.  Although  the spread had been very strong  during  early
September, the subsequent decrease in demand and resulting oversupply of refined
products  forced the spread levels to five-year lows during our second  quarter.
This decrease in margins was largely offset by the recognition of a pre-tax gain
of $18.0  million on the sale of our equity  interest in Country  Energy  during
November  2001.  Other  significant  items  affecting   petroleums  income
included a $7.4 million decrease in net interest expense and an increase of $7.7
million in derivative  income  recognized,  partly offset by a reduction of $8.4
million in income from  investees,  primarily as a result of the  dissolution of
Cooperative  Refining and by a nonrecurring  gain of $2.4 million  recognized in
the prior year as a result of the change in  accounting  methods for  derivative
commodity instruments as required to comply with SFAS 133.

Our feed segment recorded
net income of $2.7 million during the six months ended February 28, 2002, an
increase of $5.1 million as compared to a net loss of $2.4 million in the same
period last year. The increase is primarily related to a $4.0 million increase
in equity in earnings from LOLFF and a decrease in net interest expense of $2.1
million, partly offset by $0.6 million in write-offs related to uncollectible
receivables. Equity earnings from LOLFF have improved over the six month period
ended February 28, 2002 as compared to the same period last year due to the
earnings from feed mills acquired through the acquisition of Purina Mills in
October 2001 and partly as a result of the absence of charges recorded last year
to increase LOLFFs reserve for uncollectible receivables and to record
restructuring costs related to plant closings and employee severance.

During the six months ended
February 28, 2002, sales in the refrigerated foods segment increased $114.6
million, or 5%, compared with the same period last year. This increase is
primarily due to a 6% increase in sales volume, partially offset by a 1%
decrease in unit selling price. The increase in unit sales volume was primarily
due to increased slaughter levels resulting from improved plant operations. Our
Extra Tender pork product line has shown a volume increase of 16% over the last
six months resulting from our continued focus on developing value added
products.

Income in the refrigerated
foods segment increased $19.1 million, or approximately 132%, during the six
months ended February 28, 2002 compared with the same period last year. This
increase is primarily attributable to increased unit volume of slaughter,
improved yields, improved labor efficiency, and increased margins in our fresh
pork sector. Our Case Ready product line showed improved margins as compared to
the same period in the prior year. Case Ready refers to meat products which are
prepared to the specifications of retailers and which do not require additional
preparation work prior to sale by the retailer. These favorable margins were
partly offset by increased costs to replace production lost as a result of the
fire at our Albert Lea, Minnesota facility. Refrigerated foods selling,
general and administrative expenses decreased approximately $2.9 million, or 3%,
compared with the same period last year. Other income increased by $5.9 million
in the six months ended February 28, 2002 as compared with the same period last
year, partially the result of a $3.0 million reimbursement from our partner in
aLF Ventures of expenses we incurred last year. Other income also increased by
$1.9 million as a result of a nonrecurring loss recognized in the prior year as
a result of the change in accounting methods for derivative commodity
instruments as required to comply with SFAS 133.

Sales of the world grain
segment decreased $1.1 billion for the six months ended February 28, 2002
compared with the same period last year. The decrease was primarily a result of
the formation of a contractual grain marketing relationship between Farmland and
Archer Daniels Midland Company (ADM), effective May 4, 2001. As a result, we no
longer record domestic grain sales, cost of sales or operating expenses in our
unaudited Condensed Consolidated Statements of Operations.

World grain income suffered
a loss of $14.7 million for the six months ended February 28, 2002, a decrease
of $18.9 million compared with net income of $4.3 million in the same period
last year. Our international grain operations had a loss or $14.2 million
compared to income of $5.9 million last year, a decrease of $20.0 million. This
decrease in income was primarily due to lower gross margins on wheat, corn,
barley, sugar and freight, partly offset by improved margins in soya complex
commodities. The decrease in income from international operations was offset
slightly by a $1.1 million improvement in our North American operations, which
is now a part of ADM/Farmland.

Segment income for other
operating units was $6.9 million for the six months ended February 28, 2002, an
increase of $10.7 million compared with a loss of $3.8 million in the prior
year. During May 2001, we closed Heartland Wheat Growers, our subsidiary which
produced wheat gluten at a facility in Russell, Kansas, because of prolonged
depressed wheat gluten prices. When the decision was made to close the facility,
we recorded an asset impairment and an accrual for anticipated shutdown costs.
Subsequent to the plant closure, we sold the assets of the plant. As a result of
the sale in October 2001, we recognized a gain on the sale of assets of $3.5
million and reversed part of the shutdown accrual in the amount of $2.7 million.
Additionally, increased segment income was a result of a $1.3 million increase
in equity income from investees, primarily from Heartland Grain Fuels, L.P.,
which is a 47% owned entity. This increase was due to higher ethanol production
and selling prices and lower natural gas costs. Also, there was a reduction of
$3.1 million in selling, general and administrative (SG&A)
expenses due to Farmlands decision to exit non-strategic businesses.

For the six months ended
February 28, 2002, SG&A expenses from continuing operations decreased $25.4
million, or approximately 14%, from the same period last year. SG&A expenses
directly associated with business segments decreased approximately $26.1
million, primarily related to formation of our Land OLakes Farmland Feed
and ADM/Farmland joint ventures and to decisions made by Farmland to close
certain facilities and exit non-strategic businesses during the last fiscal
year.

Other income from
continuing operations decreased $4.6 million for the six months ended February
28, 2002 compared with the same period last year. Other income directly
associated with business segments increased $1.6 million, primarily due to a
pre-tax gain of $18.0 million recognized on the sale of our equity interest in
Country Energy, partly offset by a reduction of $17.5 million in income
recognized on derivative commodity instruments, primarily as a result of
discontinued cash flow hedges, during the same period in the prior year. Other
income not directly associated with business segments decreased $6.2 million for
the six months ended February 28, 2002 compared with the same period last year,
primarily due to the $4.5 million gain recognized during the same period last
year on the sale of our 50% equity interest in One System Group, LLC.

Interest expense from
continuing operations decreased $19.5 million for the six months ended February
28, 2002, compared with the same period last year due primarily to a decrease in
average outstanding borrowings and a decrease in our average borrowing rate.

The income tax benefit from
continuing operations increased $10.8 million for the six months ended February
28, 2002, compared with the same period last year primarily due to the increase
in our loss from continuing operations before income taxes.

Results of Operations for
Three Months Ended February 28, 2002 compared to Three Months Ended February 28,
2001.

Sales for the three months
ended February 28, 2002 decreased approximately $836.8 million, or 35%, compared
with the same period last year. This decrease was primarily due to a decrease in
sales recorded in Farmlands financial statements due to the formation of
our ADM/Farmland venture, the sale of our interest in Country Energy, and
decreases in unit selling prices for refined fuels and nitrogen-based crop
nutrients.

For the three months ended
February 28, 2002, we had net loss of $49.7 million compared with a net loss of
$1.3 million for the same period last year. This increased loss was primarily
due to lower margins for our nitrogen-based crop nutrients and refined fuels,
partially offset by improved margins in our refrigerated foods segment. Also
contributing to the increase in our net loss is a net loss from discontinued
operations of $11.3 million during the six months ended February 28, 2002
compared to net earnings from discontinued operations of $2.9 million during the
six months ended February 28, 2001.

Sales of the crop
production segment were $121.0 million for the three months ended February 28,
2002 compared with sales of $182.1 million for the same period last year. The
decrease was primarily due to a 43% decrease in unit selling prices, partially
offset by 7% increase in unit sales. During the three months ended February 28,
2001, relatively high natural gas prices caused industry-wide production of
nitrogen-based crop nutrients to be curtailed, resulting in increased unit
selling prices. During the three months ended February 28, 2002, relatively low
natural gas prices encouraged manufactures to increase production of
nitrogen-based crop nutrients. As a result, average unit selling prices were
lower during the three months ended February 28, 2002 as compared to the same
period in the prior year. The average price of natural gas, which represents a
major cost in the production of nitrogen-based crop nutrients, was $2.90 per
mmbtu for the second quarter for the fiscal year 2002, as compared to $4.42 per
mmbtu for the same period last year. This reduction translates to a decreased
cost of producing anhydrous ammonia of approximately $52 per ton. During the
three months ended February 28, 2002, use of nitrogen-based crop nutrients for
wheat application was reduced as a result of drought conditions experienced in
Texas and Oklahoma. We anticipate spring demand for nitrogen-based crop
nutrients to be higher than last springs demand based on projections by
the USDA that more acres of corn will be planted this year as compared with last
year.

The loss of the crop
production segment increased by $32.8 million to $35.9 million for the three
months ended February 28, 2002 from a loss of $3.2 million in the prior year.
Margins decreased $10.8 million primarily as a result of decreased per unit
selling prices for products partly offset by reduced natural gas costs. In
response to high natural gas prices combined with week crop nutrient demand, we
idled production facilities during the three months ended February 28, 2001. As
these production facilities were idled the derivative commodity instruments
associated with the natural gas consumption at these facilities were sold. The
sale of these derivative commodity instruments resulted in $14.4 million of
income recognized during the three month period ended February 28, 2001.
Additionally, we had a $4.8 million gain last year from the sale of natural gas
inventories which was offset by $4.9 million in additional costs associated with
plant shutdowns. During the three months ended February 28, 2002, we realized
$2.4 million of gains from the sale of assets and, as compared with the same
period in the prior year, equity earnings from investees increased a $1.5
million and net interest expense decreased $1.4 million.

Sales of the petroleum
segment decreased $236.1 million, or approximately 54%, for the three months
ended February 28, 2002 compared with the same period last year. The decrease
was primarily the result of lower unit selling prices for gasoline, distillates
and diesel fuels partially offset by a 5% increase in units sold. The decrease
in unit prices for refined fuels was a result of excess supplies across the
country. The high inventory levels were the result of decreased demand after the
September 11th terrorist attacks and a mild winter that reduced usage of
distillate heating oil. During periods of relatively high natural gas prices,
power plants will tend to switch from using natural gas units to fuel oil to
meet their energy requirements. Natural gas prices were significantly lower this
winter than last winter, resulting in lower demand by power plants for fuel oil.
Increased demand for distillates used in the production of jet fuels used for
military operations was largely offset by a decrease in jet fuel demand by
commercial aircraft.

The petroleum segment
suffered a loss of $16.5  million  during the three  months  ended  February 28,
2002,  a $28.0  million  decrease as compared to income of $11.5  million in the
same period last year.  Margins  decreased by $38.2 million primarily due to the
narrowing of the spread between crude oil costs and refined fuel selling prices.
An oversupply  of refined  products  forced the spread levels to five-year  lows
during the quarter. This decrease in margins was partly offset by a $3.3 million
reduction  in  selling,  general and  administrative  expenses,  a $4.1  million
decrease in net interest expense,  and an increase of $6.5 million in derivative
commodity  instrument  income  recognized,  partly  offset by a decrease of $3.5
million in income from  investees.  The decrease in income from  investees was a
result  of the  dissolution  of  Cooperative  Refining  on  December  31,  2000.

Income for our feed segment
increased $5.9 million during the three months ended February 28, 2002 to a
profit of $2.0 million as compared to a loss of $3.9 million in the same period
last year. The increase was primarily related to a $4.4 million increase in
equity in earnings form LOLFF, a decrease in net interest expense of $1.0
million and a gain of $1.2 million from partial proceeds received from a
settlement related to vitamin supplements for animal feed. Equity earnings from
LOLFF have improved over the three-month period ended February 28, 2002 as
compared to the same period last year due to the increased earnings from feed
mills acquired through the acquisition of Purina Mills in October 2001 and the
absence of charges recorded last year to increase LOLFFs reserve for
uncollectible receivables and to record restructuring costs related to plant
closings and employee severance.

During the three months
ended February 28, 2002, sales in the refrigerated foods segment increased $5.6
million, or 0.5%, compared with the same period last year. This increase was
primarily due to a 5.2% increase in sales volume, partially offset by a 4.7%
decrease in unit selling price. The increase in unit sales volume was primarily
due to increased slaughter levels resulting from improved plant operations. Unit
selling prices decreased in response to relatively weak Asian demand combined
with reduced selling price for alternate proteins, primarily poultry.

Income in the refrigerated
foods segment increased by $12.8 million during the three months ended February
28, 2002 to a profit of $12.1 million compared to a loss of $0.7 million in the
same period last year. This increase was partly attributable to increased unit
volume of slaughter and improved margins as a result of improvements in yields
and labor efficiencies. Additionally, refrigerated foods selling, general
and administrative expenses decreased approximately $3.0 million, or 6%,
compared with the same period last year. Other income increased by $1.2 million
in the three months ended February 28, 2002 as compared with the same period
last year, primarily the result of a $3.0 million reimbursement from our partner
in aLF Ventures of expenses incurred in a prior year, partly offset by a $1.4
million decrease in equity income from investees.

World grains loss
increased by $9.6 million during the three months ended February 28, 2002 to a
loss of $10.4 million compared with a loss of $0.8 million in the same period
last year. Our international grain operations suffered a loss of $11.3 million,
representing a decrease of $14.2 million from the income of $2.9 million earned
last year. This decrease was primarily due to lower gross margins on corn,
barley and sugar offset by improved margins in wheat and soya complex
commodities. The decrease in income from international operations was partly
offset by a $4.6 million improvement in our North American operations, which are
now a part of ADM/Farmland.

Segment loss for other
operating units was reduced to $0.4 million during the three months ended
February 28, 2002 from $2.3 million in the prior year. This improvement was
primarily due to a reduction in SG&A expenses resulting from Farmlands
decision to exit non-strategic businesses.

For the three months ended
February 28, 2002, SG&A expenses from continuing operations decreased $10.2
million, or approximately 12%, from the same period last year. SG&A expenses
directly associated with business segments decreased approximately $14.6
million, primarily related to formation of ADM/Farmland joint venture and to
decisions made by Farmland to close certain facilities and exit non-strategic
businesses during last fiscal year. SG&A expenses not identified to business
segments increased by $4.4 million, primarily as a result of adjustments made
last year to reduce our Mexico reserve for uncollectible receivables and to
transfer certain reserves from corporate cost centers to the appropriate
business segments.

Other income from
continuing operations decreased $19.7 million for the three months ended
February 28, 2002 compared with the same period last year. Other income directly
associated with business segments decreased $16.0 million. The discussion of
this decrease is contained within the Management Discussion and Analysis of each
segment. Other income not directly connected to segments decreased $3.7 million
for the three months ended February 28, 2002 compared with the same period last
year, primarily due to the $4.5 million gain recognized last year on the sale of
our 50% equity interest in One System Group, LLC.

Interest expense from
continuing operations decreased $12.8 million for the three months ended
February 28, 2002 compared with the same period last year due primarily to a
decrease in average outstanding borrowings and a decrease in our average
borrowing rate.

The income tax benefit from
continuing operations increased $11.8 million for the three months ended
February 28, 2002 compared with the same period last year primarily due to the
increase in our loss from continuing operations before income taxes.

SFAS No. 141 Business
Combinations is effective for business combinations with non-cooperative
enterprises initiated after June 30, 2001. A business combination occurs when an
enterprise acquires net assets that constitute a business or equity interests of
one or more other enterprises and obtains control over that enterprise or
enterprises. For purposes of the final Statement, the formation of a joint
venture is not a business combination. Business combinations involving a
non-cooperative enterprise which are initiated after June 30, 2001 must use the
purchase method of accounting, and the pooling of interest method of accounting
is prohibited. Business combinations involving cooperative enterprises had been
excluded from the scope of SFAS No. 141 pending issuance of interpretative
guidance from the FASB. The FASB recently issued interpretive guidance stating
that business combinations involving cooperative enterprises also must use the
purchase method of accounting and the pooling of interest method of accounting
is prohibited. We do not anticipate that adoption of this statement will have a
material effect on Farmlands financial position or our results of
operations.

SFAS No. 142 Goodwill
and Other Intangible Assets was issued during June 2001 by the FASB. On
adoption of this standard, goodwill and other intangible assets with an
indefinite life will no longer be amortized; however, both goodwill and other
intangible assets will need to be tested annually for impairment. For goodwill
and intangible assets arising out of business combinations with non-cooperative
enterprises, SFAS No. 142, will be effective for fiscal years beginning after
December 15, 2001 (our fiscal year 2003). For goodwill and other intangible
assets arising out of business combinations with cooperatives, implementation of
SFAS No. 142 is delayed pending additional interpretive guidance from the FASB.
For the six month period ended February 28, 2002, Farmland recognized goodwill
amortization of $0.6 million arising from business combinations with
non-cooperatives and $1.3 million from business combinations with cooperatives.
Management is currently reviewing what other, if any, impact that the provisions
of this statement will have on our financial statements and results of
operations.

SFAS No. 143
Accounting for Asset Retirement Obligations was issued during June
2001, by the FASB. This statement addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) normal use of the asset.

Statement No. 143 requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The fair value of the liability is added to the carrying
amount of the associated asset and this additional carrying amount is
depreciated over the life of the asset. The liability is accreted at the end of
each period through charges to operating expense. If the obligation is settled
for other than the carrying amount of the liability, a gain or loss would be
recognized on settlement.

Farmland is required and
plans to adopt the provisions of Statement No. 143 for the quarter ending
November 30, 2002 (our fiscal year 2003). To accomplish this, Farmland must
identify all legal obligations for asset retirement obligations, if any, and
determine the fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require Farmland to gather
market information and develop cash flow models. Additionally, Farmland will be
required to develop processes to track and monitor these obligations. Because of
the effort necessary to comply with the adoption of Statement No. 143, it is not
practicable for management to estimate the impact of adopting this Statement at
the date of this report.

SFAS No. 144
Accounting for the Impairment or Disposal of Long-Lived Assets was
issued during October 2001, by the FASB. This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While this statement supersedes SFAS No. 121, Accounting for Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of it retains many
of the fundamental provisions of that statement.

This statement also
supersedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a
business. However, it retains the requirement in Opinion No. 30 to report
separately discontinued operations and extends that reporting to a component of
an entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale.

This statement is effective
for fiscal years beginning after December 15, 2001 (our fiscal year 2003).
Management is currently reviewing the impact that the provisions of this
statement will have on our financial statements and results of operations.

In November 1999, Farmland
commissioned a voluntary audit at its Coffeyville, Kansas petroleum refinery to
verify compliance with the construction permitting requirements of the state and
federal Clean Air Acts. We submitted a report detailing the audit findings to
Region VII of the United States Environmental Protection Agency
(EPA) on September 19, 2000. In order to satisfy procedural
prerequisites to resolve the findings, on January 17, 2002, EPA issued us a
notice of violation. The notice of violation seeks both injunctive relief in the
form of installation of additional pollution control equipment and monetary
sanctions. At this point, it is not possible to determine the cost of control
device installations necessary to satisfy EPA; however, we believe it is
reasonably possible that the costs may eventually exceed $10 million. Also, at
this stage of these proceedings it is not possible to predict the final amount
of monetary sanctions that will be necessary to resolve this matter. However, it
is reasonably possible that the associated monetary sanctions may exceed
$100,000.

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, 2001. 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, 2001.

Farmland 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,  Farmland.  The factors  identified in this cautionary  statement are
important  factors (but are not  necessarily  all of the  potentially  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,  Farmland  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 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 the business,  the anticipated  expenditures
for environmental  remediation,  the potential capital expenditures  required to
comply with  recently  enacted and  proposed  regulations  related to low sulfur
gasoline and diesel fuel,  our ability to qualify for a delay in  implementation
of enacted and proposed low sulfur  rules,  the status of nitrogen  plants which
have been temporarily  closed,  our ability to obtain the waivers and amendments
of the  Credit  Facility  necessary  to avoid  default as of May 31,  2002,  our
ability to achieve  commercial  production of lactoferrin,  the level of capital
expenditures  and monetary  sanctions  which will be required as a result of EPA
proceedings,  our  ability  to  maintain  compliance  with our  Credit  Facility
covenants,  our ability to generate operating cash flows during the three months
ended May 31, 2002,  our ability to sell assets to generate cash, our ability to
delay  capital  expenditures  to  conserve  cash,  the  impact on our  financial
statements and results of operations of financial accounting standards that have
been issued but which are not yet  effective  for  Farmland,  and our ability to
liquidate  our  Tradigrain   operation  without  incurring  losses.   Discussion
containing  such  forward-looking  statements is found in the material set forth
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 (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 United States 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 our control that may
             affect growth strategies through unification, acquisitions and investments in
             ventures.

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

8.       Technological changes that 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.      Material adverse changes in financial, banking or capital markets.

11.      Federal or state regulations regarding environmental matters.

12.      Terrorist attacks which have disrupted the financial and credit markets and have
              negatively impacted the United States economy and other economies.

13.      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, 2001.

At Farmlands annual
meeting held on December 4 through 6, 2001, in Kansas City, Missouri, the
following directors were re-elected to the Board of Directors for a term of
three years: Lyman Adams, Steven Erdman, Ben Griffith, Ronald Jurgens and Frank
Wilson. The following directors were newly elected to the Board of Directors for
a term of three years: Douglas Kuhlman and Larry Shriver. The following
directors terms of office continued after the meeting: Ronald Amundson,
Baxter Ankerstjerne, Donald Anthony, Jody Bezner, Larry Dahlsten, Harry
Fehrenbacher, Donald Gales, Thomas Gist, Barry Jensen, William Kuhlman, Greg
Pfenning, Monte Romohr, Joe Royster, E. Kent Stamper and Eli Vaughn.

Resolution #1 amending the
Articles and Bylaws to change Farmlands business address and add states to
director districts was ratified as follows: for 442,751, against 5,566, abstain
766.

Resolution #2 amending the
Articles and Bylaws to change restrictions on eligible candidates for election
to the Board of Directors was ratified as follows: for 387,994, against 61,385,
abstain 0.

`FARMLAND INDUSTRIES, INC.
                                                              (Registrant)


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

Date:  April 15, 2002





                                       EXHIBIT INDEX

Exhibit No.                                Description of Exhibit

4.(ii) D       Credit Agreement between Farmland Industries, Inc. and various financial institutions dated February 7, 2002`