Eighty years later, we remain focused on leveraging system strength to create value for members. And, we are pursuing member interests in one of the most challenging environments ever. Agriculture, agribusiness and the food sector continue to face volatile markets, intense competition and an economic environment driven by consolidation and growth.

Within this environment, it is critical that our farmer-owned system maintain the size, scale and level of performance necessary to compete and win...on behalf of members. In 2000, Land O'Lakes took actions consistent with that goal. We combined positive operational and financial performance with strategic growth to truly build on our best to deliver increased value to members and customers and position our system for future success.

Our year 2000 performance can be illustrated by solid earnings, the return of more than $50 million in cash to members, volume increases in key Dairy Foods and Ag Services product lines and strategic growth in our core businesses.

Performance and Positioning in Dairy Foods

In Dairy Foods, an intense focus on performance produced solid results in our Value-Added and Industrial operations. We achieved a record year in branded butter volume and, with the acquisition of Madison Dairy Produce Co., provided members with a leadership position in private label butter. We also saw enhanced performance in the deli, refrigerated and foodservice cheese markets, as well as in dry cheese and seasonings. New efficiencies and cost reductions were achieved on the processing side of the business.

In addition, we took further steps to upgrade our national Dairy Foods infrastructure, and position our farmer-owned system for future success. We completed the expansion of our Carlisle, Pa., butter plant and, with our joint venture partner Mitsui, broke ground on a new world-class cheese and whey plant in California. We also continued to work toward a number of initiatives aimed at enhancing our Upper Midwest dairy infrastructure.

In another strategic move, we sold our regional, commodity fluid dairy assets to Dean Foods, and established a joint venture with Dean Foods in certain value-added fluid dairy products and sour cream. This transaction will provide additional capital for investment in our core butter and cheese businesses. It also included a long-term milk supply agreement with Dean Foods, protecting market access for members.

Strategic Growth in Feed

In 2000, our system achieved its vision of becoming the leading feed company in North America...through the formation of Land O'Lakes Farmland Feed LLC. This joint venture builds on the best of the feed operations of our two cooperatives to generate enhanced operating efficiencies and deliver greater value to customers and members.

The establishment of Land O'Lakes Farmland Feed is going forward. As we grow our volumes, we are maintaining product and service quality. As a system, we turned in particularly positive performance in feed ingredients, vitamins and animal milk replacers.

We also began construction of a new, world-class animal milk replacer plant in Black River Falls, Wis. This new plant will further solidify our position as the global leader in young animal milk replacers.

The past year also saw our system make progress toward profitability in swine. This was the result of a rebound in hog prices, as well as improvements in system productivity and efficiency. We also undertook successful efforts to reduce our exposure and better manage risk.

Agriliance and our Agronomy Future

In Agronomy, we began the year with a major strategic move...the establishment of the Agriliance joint venture, bringing together the agronomy business of Land O'Lakes, Cenex Harvest States Cooperatives and Farmland Industries. As a result, our members now hold a 50 percent ownership position in the world's premier crop input marketing organization.

Our focus for the year was successfully implementing this joint venture, uniting the facilities, people and cultures of our three cooperatives into a single organization focused on customer and member needs. This process continues in a very volatile nitrogen marketplace, typified by dramatic increases in nitrogen production costs, the result of soaring natural gas prices. We must, and will, continue to place a high priority on communicating with members regarding our strategies and progress in dealing with this environment.

This past year, we also continued efforts to reposition the more than 300 Terra Industries retail facilities acquired in 1999. The focus of this strategic acquisition was to build the strength of our local cooperative distribution system. To date, more than 100 of these facilities have been transferred to member cooperative ownership. While significant, one-time, restructuring costs related to the Terra transaction are reflected in this year's financial statements, our wholesale operations remained strong from both a volume and earnings standpoint.

Dramatic Growth in Seed

In Seed, we saw continued growth through aggressive marketing, a strong commitment to helping local cooperatives build their seed business, and key acquisitions from Wilfarm, Advanta and Agri-BioTech, Inc. As a result, seed sales nearly doubled, with significant volume growth occurring in soybeans, corn and wheat. We also continued to build the CROPLAN GENETICS® brand. As we enter 2001, more than 300 new cooperatives will be marketing CROPLAN GENETICS seed.

Seed also continued its leadership in e-business, with more than 80 percent of system seed sales conducted on-line. In addition, Seed played a major role in the launching of the Total Farm Solutions program at 18 local cooperatives during 2000. This new program, which integrates our Feed, Seed, Agronomy and marketing operations...in a coordinated effort aimed at boosting producer productivity and profitability...will be a key element as we position Ag Services for success in the 21st century.