1. CH-757PE-017cgMK Farmers Cooperatives 2001 October 8, 2001

2. CH-757PE-017cgMK 1 CHS Cooperatives - Land O’Lakes

3. CH-757PE-017cgMK 2 Data Base 560 Cooperatives 16 states

4. CH-757PE-017cgMK 3 Industry Trends Continued emphasis on critical mass Continued use of E-Business Continued analysis of service income vs. product margins Constant challenge to find, hire, and retain quality people A general trend of greater returns being generated by larger operations

5. CH-757PE-017cgMK 4 Local Cooperative Issues Build a unified cooperative system Ability to generate adequate returns and cash flow Enhance marketing strategies and skills Human Resources programs and development Develop and implement coordinated E-Commerce strategy

6. CH-757PE-017cgMK 5 Total Profitability 560 Local Cooperatives

7. CH-757PE-017cgMK 6 Financial Analysis of 560 Local Cooperatives 2000 Number Profitable 73% TrendsTotal Sales volume down (2.9)% Margins up 4.5% Expenses up 5.7% Local savings down (10.8)% Patronage down (22.3)% Total savings down (17.3)%

8. CH-757PE-017cgMK 7 Local Co-op Trends

9. CH-757PE-017cgMK 8 Local Ownership/ Term/ Local Net Worth Local Ownership38.4% The guidelines for the ratios are: 50% = strong 35-50% = acceptable < 35% = concern Term Debt/ Local Equity44.4% The guidelines for the ratios are: < 35% = strong 35 - 75% = manageable > 75% = concern

10. CH-757PE-017cgMK 9 Market Segmentation and Cooperatives

11. CH-757PE-017cgMK 10 Market Segmentation What is your market? What will your market be? What should your market be?

12. CH-757PE-017cgMK 11 Local Cooperative Analysis

13. CH-757PE-017cgMK 12 Profits by Size of Co-op Over $100 million 111.9%15.1%12.1% 1721.5 $75 - $100 million 101.7%6.6%8.8% 831.2 $50 - $75 million 376.6%18.1%23.3% 61.8 $25 - $50 million 8415.0%24.1%24.2% 36.4 $25 and below41874.8%36.1%31.6% 11.1 560100.0%100.0%100.0% 22.2 % of % of AverageAverage Size ofNumber of % of Total Total Sales Profit Account AccountsAccounts Sales Profit(million) (million) Financial Summary 560 Cooperatives

14. CH-757PE-017cgMK 13 Profits by Size of Co-op Over $100 million 111,890 16.1 3.9 - (1.4) $75 - $100 million 10 829 11.7 2.0 -.2 $50 - $75 million 37 2,254 30.9 3.7 - (1.1) $25 - $50 million 84 3,004 32.1 2.3 - (1.0) $25 and below418 4,466 41.6 1.7 - (1.0) Total560 12,443 132.4 3.9 - (1.4) Total Range Size ofNumber of Sales Total of Account Accounts Volume Profit Profitability (million) Financial Summary 560 Cooperatives

15. CH-757PE-017cgMK 14 State Analysis 560 Cooperatives

16. CH-757PE-017cgMK 15 Local Cooperatives Top 10 Per State/Region - 90 Cooperatives

17. CH-757PE-017cgMK 16 Key Findings Although local co-ops destroy value in the aggregate, a significant fraction do create value on an individual basis –Although a sample of 500 local co-ops destroyed $105 million in 1999 on $2.2 billion invested, 30% of the co-ops created value –Operational efficiency and capital utilization are the most significant drivers of whether a local co- op creates value Co-op performance improves substantially with scale

18. CH-757PE-017cgMK 17 Value Creation at Co-ops Cumulative local value created at sample co-ops* $ Millions *Survey of approximately 500 CHS co-ops Source:Member co-op survey; team analysis Although local co-ops destroy value in aggregate... On $2.2 billion in capital invested, $105 million of value was destroyed... a significant fraction do create value individually 30% of co-ops created value on an individual basis Value created by these co-ops equals $28 million on $0.7 billion invested 30% of co-ops create value Cumulative capital invested $ Billions

19. CH-757PE-017cgMK 18 Value Created Across Local Co-ops 1 2 3 4 *Segmented by value created/invested capital **Mean values for co-ops in quartile Source:Member co-op survey; team analysis Quartile* Revenue** $ Millions Value created** $ Thousands Value created/ invested capital Percent ROIC Percent 14.2 6.3 1.8 -9.3 Cost of capital Percent 9.2 9.3 9.5 9.4 Total 4.69.4 -18.7

20. CH-757PE-017cgMK 19 Drivers of Value Creation *Co-ops segmented by level of value created/invested capital **Numbers may not add due to rounding Source:Member co-op survey; team analysis Mean metrics for co-ops segmented by local performance* Q4Q3Q2Q1 EP/IC** Percent Q4Q3Q2Q1 WACC Percent Q4Q3Q2Q1 Capital turnover Ratio Q4Q3Q2Q1 COGS Percent of sales Operational efficiency Co-ops in top quartile expended almost 5% less in expenses than those in the bottom quartile Q4Q3Q2Q1 Pretax ROIC Percent Q4Q3Q2Q1 Pretax operating profit Percent of sales Q4Q3Q2Q1 Expenses Percent of sales Q4Q3Q2Q1 Net PP&E Percent of sales Q4Q3Q2Q1 Working capital Percent of sales Top quartile Bottom quartile Q1 Q4 Capital utilization Bottom quartile co- ops are 3% more capitalized than those in the top quartile

21. CH-757PE-017cgMK 20 Leverage Ratios for Local Co-ops 1 2 3 4 *Segmented by value created/invested capital **Mean values for co-ops in quartile Source:Member co-op survey; team analysis Quartile* Revenue** $ Millions Value created** $ Thousands Long-term debt to equity Current ratio Total

22. CH-757PE-017cgMK 21 KEY FINDINGS Although local co-ops destroy value in the aggregate, a significant fraction do create value on an individual basis Co-op performance improves substantially with scale –While smaller co-ops benefit from larger gross margins... –... the advantage is eroded by subscale operations and overcapitalization

23. CH-757PE-017cgMK 22 Scale Impact on Co-op Performance Return on invested capital at sample co-ops* Percent Co-op revenue $ Millions *Survey of approximately 500 local co-ops **Co-op segmented by annual revenue ***Average for co-ops in quartile Source:Member co-op survey; team analysis Key metrics for co-ops segmented by revenues 1 2 3 4 Quartile** Revenue*** $ Millions Operating margin Percent ROIC Percent -0.2 -0.7

24. CH-757PE-017cgMK 23 Drivers of Scale Impact on Performance *Co-ops segmented by level of value created/invested capital **Numbers may not add due to rounding Source:Member co-op survey; team analysis Mean metrics for co-ops segmented by revenue* Q4Q3Q2Q1 Capital turnover Ratio Q4Q3Q2Q1 COGS Percent of sales Operational efficiency Top quartile co-ops expended 8% less in expenses than those in the bottom quartile Capital utilization Bottom quartile co- ops are 4% more capitalized those in the top quartile Q4Q3Q2Q1 Pretax ROIC** Percent Q4Q3Q2Q1 Pretax operating profit Percent of sales Q4Q3Q2Q1 Expenses Percent of sales Q4Q3Q2Q1 Net PP&E Percent of sales Q4Q3Q2Q1 Working capital Percent of sales Top quartile Bottom quartile Q1 Q4

25. CH-757PE-017cgMK 24 Effects of Scale on Operational Efficiency and Capital Utilization Expenses Percent of revenue Co-op revenue $ Millions Source:Member co-op survey Capital turnover Ratio Co-op revenue $ Millions

26. CH-757PE-017cgMK 25 Successful Co-ops Vision and Mission Outstanding Management/Staff Understand the producers’ needs for value-added strategies Efficient, profitable Manage equity and capital for long- term success Integral piece of co-op system