Agricore United

Agricore United

March 10, 2005 10:15 ET

Agricore United First Quarter Sales Reflect Industry Optimism


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: AGRICORE UNITED

TSX SYMBOL: AU.LV

MARCH 10, 2005 - 10:15 ET

Agricore United First Quarter Sales Reflect Industry
Optimism

WINNIPEG, MANITOBA--(CCNMatthews - March 10, 2005) - Agricore United
(TSX:AU.LV) sales of crop nutrients, crop protection products and seed
increased by $13 million (or 22 percent) in the first quarter of the
year compared to the same time last year. First quarter Crop Production
Services sales are typically less than 10 percent of annualized sales.
Nonetheless, this year's increase, coupled with a 22 percent increase in
unrecorded prepaid sales over last year, signals farmer optimism for the
upcoming growing season. Grain shipments increased by 10 percent for the
three months ending January 31, 2005 with Agricore United handling 2.5
million tonnes, or 35 percent of industry grain shipments. Livestock
feed sales also increased by 34,000 tonnes or 15% compared to 2004.

"The good news is that people in the industry, especially farmers,
appear to be optimistic about the coming season," says Brian Hayward,
Chief Executive Officer. "We know moisture levels are good going into
the planting season, and already many of Agricore United's canola,
Linola® and wheat seed varieties are fully subscribed." Hayward says
that improvements in the livestock services side of the business are
also encouraging given the continuing uncertainty of U.S. trade
sanctions.

Gross profit and net revenue from services for Grain Handling and
Livestock feed sales increased $9 million or 15 percent over 2004 due to
both increased volumes and improved margins. Livestock Services gross
profit also reflected improved market conditions for swine sales in
recent months. Retail fertilizer tonnes sold in the quarter (and
constituting over 90 percent of Crop Production Services sales)
increased by 6 percent at improved margins. However, a change in
accounting estimate implemented by the Company in 2005 affected the
timing of gross profits realized from its fertilizer joint venture and
resulted in lower gross profits in the first quarter that will be offset
by an equivalent increase in gross profit in the second and third
quarters as fertilizer sales to retail customers are completed. As a
result, consolidated gross profit and net revenue from services
increased marginally to $81.3 million for the quarter ended January 31,
2005.

Operating, General and Administrative (OG&A) expenses increased over the
same quarter last year by $13 million, including the effect of a $4.5
million property tax recovery which reduced expenses in January last
year. Changes in timing of certain expenses in the current year,
annualization of costs such as insurance programs and an increase of
about three percent in underlying costs also contributed to higher
expenses in the first quarter. After adjusting for last year's property
tax recovery, the Company expects any increase in overall OG&A expenses
for fiscal 2005 to increase consistent with the rate of inflation. The
higher expense for the first quarter, however, resulted in a net loss of
$19.5 million or $0.44 per share for the period, $5.9 million higher
than the loss of $13.6 million or $0.31 per share for the first quarter
of 2004.

Agricore United is one of Canada's leading agri-businesses. The
prairie-based company is diversified into sales of crop inputs and
services, grain merchandising, livestock production services and
financial markets. Agricore United's shares are publicly traded on the
Toronto Stock Exchange under the symbol "AU.LV".

First Quarter

Report for the Quarter Ended January 31, 2005

Q1 Highlights

- Higher Grain Handling Volumes and Margin per Tonne - The Company's
grain handling volume for the quarter ended January 31, 2005 increased
by 228,000 tonnes (or 10%) compared with an increase in industry
shipments of 334,000 tonnes (or 4.9%). The average margin per tonne
increased to $20.85 per tonne compared to $20.55 per tonne for the same
quarter last year.

- Higher Crop Nutrient Sales and Margin - Crop Production Services
("CPS") sales of crop nutrients, crop protection products and seed
increased $12.8 million to $70.1 million for the quarter ended January
31, 2005. The average crop nutrition retail margin per tonne improved
21% compared to the same quarter in 2004.

- Higher Feed Tonne Sales and Margin - The Company's feed sales
increased by 34,000 tonnes (or 15%) while the average margin increased
to $45.85 per tonne for the quarter ended January 31, 2005 from $43.97
per tonne for the same quarter last year.

- Change in Accounting Estimate for Deferred Gross Profit - During 2005,
the Company modified its estimate of deferred gross profit on fertilizer
products sold by its joint venture, Western Cooperative Fertilizers
Limited ("Westco"), to the Company and still held by the Company pending
sale to third parties. The increase in the Company's $14 million
deferral of Westco gross profit as at January 31, 2005 (without
restating prior periods) decreased the gross profit reported in the
first quarter and will be offset by higher gross profit reported in the
Company's second and third quarters.

- Operating, General & Administrative ("OG&A") Expenses - OG&A expenses
for the quarter ended January 31, 2005 increased by $12.6 million over
the same quarter last year due to a non-recurring property tax recovery
that reduced fiscal 2004 expenses by $4.5 million, changes in timing of
certain expenses, an increase in operational activity associated with
higher revenue and inflationary increases of about 3%. After adjusting
for last year's property tax recovery, the Company expects fiscal 2005
OG&A expenses to increase over fiscal 2004 consistent with the rate of
inflation.

- Lower EBITDA and EBIT(1) - The non-inflationary increases in OG&A
expenses for the quarter exceeded the improvement in gross profit from
Grain Handling, Crop Production Services and Livestock Services -
compounded by the change in accounting estimate affecting deferred
profits on inter-company fertilizer sales.

Consolidated Financial Results

The following Management's Discussion and Analysis ("MD&A") as at March
10, 2005 is based on the accompanying financial information that has
been prepared using Canadian GAAP. All amounts are reported in Canadian
dollars unless specifically stated to the contrary.

Crop Production Services

Sales of crop nutrients, crop protection products and seed increased by
$12.8 million to $70.1 million for the quarter ended January 31, 2005
compared with the same period in 2004, although typically sales in this
quarter represent less than 10 percent of annualized sales. Fertilizer
tonnes sold in the latest quarter increased 6.4% over the volume sold
during the same quarter in 2004. As in the prior year, sales of seed and
crop protection products were relatively modest for the three months
ended January 31, 2005.

While the Company does not record sales until products are delivered or
services are rendered to customers, deferred sales revenue (prepaid
sales not yet delivered) amounted to $136.4 million at January 31, 2005
compared to $111.8 million at January 31, 2004. This increase in
recorded as well as deferred sales resulted from both fertilizer sales
delayed from the quarter ended October 31, 2004 (due to the late harvest
and unfavourable weather conditions) and producers accelerating seed
purchasing decisions compared to 2004. The current supplies of many of
the Company's canola, linola and wheat seed varieties are fully
subscribed for and the Company is continuing to secure additional
supplies to meet customer demand. Other sales and revenue from services
for the quarter ended January 31, 2005 decreased by $492,000 compared to
last year due primarily to lower seed processing revenue.

In accordance with its existing accounting policy, the Company defers
the recognition of gross profit from inter-company sales until product
is sold to a third party. During 2005, the Company modified its estimate
of deferred gross profits on fertilizer products sold by its subsidiary,
Westco, to the Company and still held by the Company pending sale to
third parties. This change in estimate increased deferred gross profit
from Westco by $8.4 million for the quarter ended January 31, 2005 to
$14 million, reducing gross profit and net revenue from services for the
quarter to $13.3 million, or $7.6 million lower than the same quarter
last year. Since the sale of fertilizer to third parties is
substantively complete by the Company's third quarter ending July 31, as
existing prepaid sales and future sales of fertilizer are completed, the
effect of the change in estimate will decrease prospectively the
recognition of gross profit in the first quarter and increase the
recognition in the Company's second and third quarters by offsetting
amounts.

In accordance with GAAP, this change in accounting estimate has been
applied on a prospective basis commencing with the current quarter ended
January 31, 2005, without restating prior periods. However, in order to
provide comparative information using the same basis of estimation, the
following table indicates the pro forma(2) effect only of this change in
accounting estimate on fiscal 2004 earnings.



Pro forma Financial Information
For the 2004 quarters ended (in thousands)
(Unaudited)

---------------------------------------------------------------------
Increase (decrease) in Gross
Profit, EBITDA, EBIT January 31 April 30 July 31 October 31
---------------------------------------------------------------------
Quarter-to-date $(10,316) $2,054 $7,824 $1,070
---------------------------------------------------------------------
Year-to-date (10,316) (8,262) (438) 632
---------------------------------------------------------------------


Had the Company's current estimation procedure been applied in fiscal
2004, gross profit for the quarter ended January 31, 2004 would have
been reduced by $10.3 million and increased by $2.1 million and $7.8
million in each of the second and third quarters of fiscal 2004,
respectively. The impact of applying the change in estimate to fiscal
2004, while not material, would be to understate gross profit, EBITDA,
EBIT and pre-tax earnings for fiscal 2004 by $632,000.



Crop Production Services
For the periods ended January 31
(in thousands) Three Months Change in Pro forma
(Unaudited) 2005 2004 Estimate 2004
---------------------------------------------------------------------

Gross profit and net revenue
from services $13,268 $20,927 $(10,316) $10,611
Operating, general and
administrative expenses (25,452) (21,963) - (21,963)
---------------------------------------------------------------------
EBITDA (12,184) (1,036) (10,316) (11,352)
Depreciation & amortization (4,866) (4,990) - (4,990)
---------------------------------------------------------------------
EBIT $(17,050) $(6,026) $(10,316) $(16,342)
---------------------------------------------------------------------
---------------------------------------------------------------------

Operating Highlights
Seed, Crop Nutrition, Crop
Protection & related product
Sales $70,080 $57,276 $57,276
Margin (% of Sales) 18.9% 36.5% 18.5%


Gross profit and net revenue from services for the three months ended
January 31, 2005 increased $2.7 million compared to the pro forma
results for the same quarter last year. The average crop nutrition
retail margin per tonne (excluding Westco) for the quarter ended January
31, 2005 improved 21% compared to the same quarter in 2004. The Company
also realized higher gross profit on fertilizer sales from its
proportionate share in Westco. Margins on seed and crop protection
product sales remained consistent with the prior year. Other net revenue
decreased modestly in the quarter, associated with lower seed processing
revenue.

CPS OG&A expenses of $25.5 million for the three months ended January
31, 2005 increased by $3.5 million, comprised of a $907,000 increase in
advertising and promotion costs (associated with an advanced marketing
campaign in the current year), a $606,000 increase in the Company's
consolidated share of Westco OG&A expenses (largely reflecting increased
costs associated with Westco's adoption of the CICA accounting policy
change concerning asset retirement obligations), a $293,000 increase
related to advanced seed germination testing and varietal seed
development costs, and a $976,000 increase in payroll costs. As a
result, compared to the prior year, CPS EBITDA declined by $11.1 million
to a loss of $12.2 million for the quarter ended January 31, 2005. A
modest reduction in depreciation and amortization expenses contributed
to an EBIT loss of $17.1 million, $11 million higher than the $6 million
EBIT loss reported for the same quarter last year.

Grain Handling

The Canadian Grain Commission ("CGC") reported industry shipments of 7.2
million tonnes of the six major grains (wheat, barley, oats, canola,
flax, peas) for the three months ended January 31, 2005, an increase of
334,000 tonnes (or 4.9%) over the same period in 2004. By comparison,
Agricore United handled 2.5 million tonnes in the quarter ended January
31, 2005, an increase of 228,000 tonnes (or 10%) over 2004. The increase
in Company shipping was entirely related to increased shipments of
Canadian Wheat Board ("CWB") grain. The ratio of Company to industry
grain shipments of 34.8% for the quarter, unchanged from the Company's
fiscal year ended October 31, 2004, increased from a market share of
33.1% for the same quarter last year.

The Company handled 1.4 million tonnes of grain through its port
terminals in Vancouver and Thunder Bay during the three months ended
January 31, 2005 (2004 - 1.2 million tonnes) representing an increase of
200,000 tonnes (or 16.9%). The ratio of terminal handle to the Company's
grain shipments of 55.5% for the quarter increased 3.3% over the same
period in 2004.



Grain Handling
For the periods ended January 31 (in thousands) Three Months
(Unaudited) 2005 2004

Gross profit and net revenue from services $51,892 $46,459
Operating, general and administrative expenses (38,431) (30,749)
---------------------------------------------------------------------
EBITDA 13,461 15,710
Depreciation & amortization (7,775) (7,972)
---------------------------------------------------------------------
EBIT $5,686 $7,738
---------------------------------------------------------------------
---------------------------------------------------------------------

Operating Highlights
Industry shipments (tonnes) 7,158 6,824
Grain shipments - country elevators (tonnes) 2,489 2,261
Terminal Handle (tonnes) 1,381 1,181

Market share (%) 34.8% 33.1%
Margin ($ per grain tonne shipped) $20.85 $20.55


Grain handling gross profit and net revenue from services of $51.9
million ($20.85 per tonne) for the latest quarter compares with $46.5
million ($20.55 per tonne) for the same period in 2004, an increase of
$5.4 million reflecting increases in both tonnes handled and a $0.30 per
tonne increase in margin. Commodity margins per tonne strengthened in
the quarter primarily due to a higher proportion of grain handled
through the Company's port terminals, offset by lower port terminal
margin per tonne due to the timing of periodic inventory weighover
results.

Grain handling OG&A expenses of $38.4 million for the quarter ended
January 31, 2005 increased $2.6 million (or 7.3%) over 2004, excluding
the effect of $5.1 million of non-recurring expense recoveries in the
same quarter last year. Non-recurring expense recoveries in the same
quarter last year included $4.5 million from property tax reassessments
related to the Company's port terminals in Thunder Bay as well as credit
expense recoveries of $577,000. The expense increase of $2.6 million
included $834,000 of credit expenses (including bad debt provisions),
$499,000 increased utilities costs associated with increased grain
drying revenues, $748,000 of increased risk and insurance costs
(primarily related to the Company's integrated insurance program which
commenced January 1, 2004), and $523,000 in increased payroll and
benefit costs.

As a result, despite a $2.8 million improvement in Grain Handling EBITDA
for the quarter, overall EBITDA declined $2.2 million to $13.5 million
due to the absence this year of last year's non-recurring expense
recoveries. Depreciation and amortization expenses of $7.8 million for
the three months ended January 31, 2005 decreased modestly from the $8
million incurred in the same period last year. Consequently, Grain
Handling EBIT of $5.7 million for the latest quarter declined by $2.1
million over the same quarter in 2004.

Livestock Services

Feed sales of $55.8 million ($216 per tonne) for the quarter ended
January 31, 2005 increased modestly from sales of $54.4 million for the
same period last year, due to increased tonnes sold. As a result of the
expanded availability of increasingly inexpensive feed inputs, sales
prices in the current period declined $26 per tonne over the same
quarter last year. Feed prices tend to fluctuate in response to
underlying input costs and accordingly, the profitability of feed
manufacturing tends to be more closely correlated to tonnes sold rather
than gross sales revenues.

The Company sold 258,000 tonnes of feed and ingredients in the quarter
ended January 31, 2005, an increase of 34,000 tonnes (or 15.2%) over the
224,000 tonnes sold in the quarter ended January 31, 2004. The increase
in manufactured feed sold reflects the relative strength of western
Canada's hog, poultry and dairy markets, the annualization of the
purchase of Vertech Feeds Ltd. in February 2004, as well as the
increased number of beef cattle on feed in anticipation of relaxed
restrictions on the export of Canadian live cattle to the United States
originally scheduled for March 7, 2005.



Livestock Services
For the periods ended January 31 (in thousands) Three Months
(Unaudited) 2005 2004

Gross profit and net revenue from services $13,838 $10,594
Operating, general and administrative expenses (8,767) (8,015)
---------------------------------------------------------------------
EBITDA 5,071 2,579
Depreciation & amortization (1,058) (813)
---------------------------------------------------------------------
EBIT $4,013 $1,766
---------------------------------------------------------------------
---------------------------------------------------------------------

Operating Highlights
Livestock Services Feed Sales (tonnes) 258 224
Feed Margin ($ per feed tonne sold) $45.85 $43.97
Gross profit and net revenue from services
- non-feed $2,008 $744


Gross profit of $13.8 million (2004 - $10.6 million) included $11.8
million ($45.85 per tonne) from feed tonnes sold for the three months
ended January 31, 2005, an improvement of $2 million over gross profit
of $9.8 million ($43.97 per tonne) from feed tonnes sold in the same
period last year.

Swine sales of $16.9 million for the latest quarter increased by $5.3
million (or 45%) over the same quarter last year, reflecting continued
strength in hog prices and demand in spite of duties imposed by the
United States on the import of Canadian hogs. Swine sales gross profit
of $1.6 million increased by $1.5 million compared to the same quarter
in 2004. Earnings from the Company's investment in The Puratone
Corporation increased by $601,000 to $398,000 for the quarter ended
January 31, 2005, offset by an $854,000 decline in the Company's other
revenues such as freight, interest earned and gains and losses on
futures contracts.

As a result, Livestock Services gross profit and net revenue from
services increased $3.2 million for the quarter ended January 31, 2005
to $13.8 million. OG&A expenses increased $752,000, including $499,000
in increased U.S. hog duties and $460,000 in higher payroll costs
associated with increased feed manufacturing activity (including costs
associated with Vertech Feeds Ltd. acquired in February 2004).
Depreciation and amortization expenses increased $245,000 to $1.1
million, associated with the Company's new replacement feed mill opened
near Edmonton in August 2004. Despite these expense increases, EBIT
increased $2.2 million in the quarter ended January 31, 2005 to $4
million from $1.8 million for the same period in 2004.

Financial Markets and Other Investments

Financial Markets revenue from Agricore United Financial ("AU
Financial") and Unifeed Financial increased $313,000 for the latest
quarter to $2.1 million. Credit recoveries of $130,000 for the quarter
were $225,000 lower than in the same quarter in 2004 as the level of
receivables retained by the Company steadily declines. Earnings from
equity investments in Canadian Pool Agencies and Pool Insurance Company
declined by $1.2 million offset by a $496,000 improvement in other
miscellaneous revenues.



Financial Markets and Other Investments

For the periods ended January 31 (in thousands) Three Months
(Unaudited) 2005 2004
---------------------------------------------------------------------

Gross profit and net revenue from services $2,254 $2,892
Operating, general and administrative expenses (1,326) 73
---------------------------------------------------------------------
EBITDA 928 2,965
Depreciation & amortization (46) (20)
---------------------------------------------------------------------
EBIT $882 $2,945
---------------------------------------------------------------------
---------------------------------------------------------------------


OG&A expenses increased $1.4 million for the quarter ended January 31,
2005 to $1.3 million, reflecting an increase in the timing of indemnity
provisions of $947,000 and a $426,000 increase in the cost of credit
adjudication associated with the introduction of Unifeed Financial and
the advanced timing of credit adjudication associated with AU Financial.

As a result, the increase in OG&A expenses, coupled with the decline in
miscellaneous revenues, contributed to a $2 million reduction in EBITDA
to $928,000 for the quarter ended January 31, 2005. Modest depreciation
and amortization expenses of $46,000 resulted in EBIT for Financial
Markets and Other Investments of $882,000 for the latest quarter.

Corporate Expenses

Corporate OG&A expenses decreased $746,000 (or 7.9%) for the quarter
ended January 31, 2005 to $8.7 million, including a $373,000 reduction
in rent and property taxes resulting from the disposition of leased
properties in Calgary and Winnipeg in 2004. A $358,000 reduction in
depreciation and amortization expenses for the latest quarter compared
to the same period last year resulted in a $1.1 million improvement in
total Corporate expenses to $10.5 million.

Gross Profit and Net Revenue from Services, EBITDA and EBIT

The Company's gross profit and net revenue from services increased $10.7
million (15.2%) over last year on a pro forma(3) basis due to increased
grain shipments at improved margins and higher sales of crop inputs. A
change in accounting estimate for CPS implemented on a prospective basis
in the latest quarter limited the increase in gross profit and net
revenue from services for the Company to $380,000.



Selected Consolidated Financial Information

For the periods ended January 31 Pro
(in thousands) Three Months Change in forma(3)
(Unaudited) 2005 2004 Estimate(3) 2004
---------------------------------------------------------------------

Gross profit and net revenue
from services $81,252 $80,872 $(10,316) $70,556
Operating, general &
administrative expenses (82,712) (70,136) - (70,136)
---------------------------------------------------------------------
EBITDA (1,460) 10,736 (10,316) 420
Depreciation & amortization (15,534) (15,942) - (15,942)
---------------------------------------------------------------------
EBIT (16,994) (5,206) (10,316) (15,522)
Gain (loss) on disposal
of assets (5) 75 - 75
Interest & securitization
expenses (12,947) (14,473) - (14,473)
---------------------------------------------------------------------
(29,946) (19,604) (10,316) (29,920)
Recovery of income taxes 10,462 5,978 3,714 9,692
---------------------------------------------------------------------
Loss for the period $(19,484) $(13,626) $(6,602) $(20,228)
---------------------------------------------------------------------
---------------------------------------------------------------------


OG&A expenses for the quarter increased by $12.6 million (17.9%) from
the same period last year to $82.7 million. The absence of non-recurring
expense recoveries realized in the prior year accounted for $5.1 million
of the increase. Other expense increases include $3.4 million from
expense timing (including $1.8 million related to timing of indemnity
provisions), $1.5 million related to underlying increases in activity
and $375,000 related to annualization of expenses such as risk and
insurance costs. Other costs, including general payroll adjustments for
the quarter, increased $2.3 million over the same quarter last year. The
weighted average equivalent full-time ("EFT") staff(4) of 2,790 for the
12 months ended January 31, 2005 increased modestly over the 2,788 EFTs
at October 31, 2004 and 1.9% over the 2,739 EFTs at January 31, 2004.

The latest quarter's depreciation and amortization expenses of $15.5
million declined modestly from $15.9 million for the same quarter last
year.

The EBIT loss of $17 million for the quarter ended January 31, 2005
increased by $11.8 million compared to the EBIT loss of $5.2 million for
the same quarter last year. The Company's prospective change in
accounting estimate defers the recognition of a portion of CPS margin to
later quarters. As a result, the EBIT loss for the quarter would have
only increased by $1.5 million compared to 2004 had the change been
applied to 2004 on a pro forma basis.

Gain on Disposal of Assets

The nominal loss on disposal for the quarter ended January 31, 2005 and
the gain on disposal of $75,000 for the same quarter last year reflects
the disposition of assets in the normal course of business. Proceeds on
disposition of $1.4 million for the latest quarter exceeded proceeds on
disposition of $867,000 for the same quarter in 2004.

Interest & Securitization Expenses

Interest and securitization expenses decreased $1.5 million (or 10.5%)
for the three months ended January 31, 2005 to $12.9 million, comprised
of $8.2 million of interest on long-term debt, $2.4 million of interest
on the 9% convertible unsecured subordinated debentures (the
"Debentures"), $2.2 million on short-term debt, $320,000 in
securitization expenses and other charges net of capitalized interest of
$272,000, offset by $447,000 in carrying charges recovered from the CWB
in respect of grain purchased on its behalf.

Short-term interest costs for the quarter declined $915,000 compared to
last year as a result of a $70 million reduction in average short-term
indebtedness for the latest quarter to $145 million compared to $215
million for the same quarter in 2004. Capitalized interest related to
capital expenditures declined by $203,000 to $76,000 for the quarter
ended January 31, 2005.

The average value of grain inventory held on behalf of the CWB of $47
million for the three months ended January 31, 2005 declined by $7
million (or 13%) compared to the same period last year due to
year-over-year reductions in the price of CWB grain purchased.
Commensurate reductions in the average value of CWB grain securitized of
$43 million were the primary reason for the $128,000 reduction in
related securitization expenses. Carrying charges recovered in the
latest quarter from the CWB in respect of grain purchased on its behalf
increased $126,000 over the same quarter in 2004.

Income Taxes

The Company's effective tax recovery rate on the pre-tax loss was 34.9%
for the quarter ended January 31, 2005 (2004 - 30.5%). The lower tax
recovery rate for the prior year reflects the effect of the federal
Large Corporation Tax (which effectively levies a flat tax rate on
capital employed at the end of the year).

As at January 31, 2005, the Company had loss carry-forwards of about
$357 million (2004 - $323 million) available to reduce income taxes
otherwise payable in future years, with about $172 million (2004 - $174
million) expiring between October 2008 and 2010. Management regularly
assesses the Company's ability to realize net future income tax assets
based on all relevant information available and has concluded that it is
more likely than not that these loss carry-forwards can be fully
utilized prior to expiry. Accordingly, the Company has not recorded a
valuation allowance related to these assets.

Note 18 to the Company's audited annual financial statements for the
year ended October 31, 2004, outlined a contingency for a tax dispute
involving an investee (Canadian Fertilizers Limited or "CFL") of the
Company's joint venture Westco. CFL has since received correspondence
from the Canada Revenue Agency confirming that the matters giving rise
to the tax dispute affecting CFL's taxation years 1997 to 2000 have been
resolved with no impact on its shareholders.

Loss for the Period

The loss of $19.5 million ($0.44 basic and diluted loss per share) for
the quarter ended January 31, 2005 was $5.9 million higher than the loss
of $13.6 million ($0.31 basic and diluted loss per share) in 2004. Per
share calculations increase the loss by $276,000 (2004 - $276,000),
being the pro rata cost of the annual preferred share dividend.

If the change in accounting estimate described under "Consolidated
Results - Crop Production Services" were applied to 2004 on a pro forma
basis, the loss for the comparative quarter ended January 31, 2004 would
increase by $6.6 million to $20.2 million ($0.45 basic and diluted loss
per share).

Selected Quarterly Information

The following factor affects the comparability of the quarterly summary
of financial data:

As outlined under "Consolidated Financial Results - Crop Production
Services", the Company implemented a change in accounting estimate in
2005 that increases the first quarter deferral of gross profit from
fertilizer sales, offset by increased recognition of gross profits from
fertilizer sales in the Company's second and third quarters.



Selected Quarterly Financial Information

For the quarters ended
($millions - except per share amounts) 2005 2004 2003
---------------------------------------------------------------------

Sales and revenue from services
January 31 $548.1 $651.0 $524.7
April 30 638.1 518.8
July 31 1,146.6 1,030.8
October 31 612.4 653.9

Net income (loss) from continuing operations
January 31 $(19.5) $(13.6) $(20.5)
April 30 (17.7) (23.9)
July 31 41.8 44.1
October 31 (24.2) (18.0)

Basic earnings (loss) from continuing
operations per share
January 31 $(0.44) $(0.31) $(0.46)
April 30 (0.40) (0.53)
July 31 0.92 0.97
October 31 (0.54) (0.40)

Diluted earnings (loss) from continuing
operations per share
January 31 $(0.44) $(0.31) $(0.46)
April 30 (0.40) (0.53)
July 31 0.72 0.75
October 31 (0.54) (0.40)

Net income (loss)
January 31 $(19.5) $(13.6) $(20.2)
April 30 (17.7) (22.9)
July 31 41.8 44.0
October 31 (24.2) (6.4)

Basic earnings (loss) per share
January 31 $(0.44) $(0.31) $(0.45)
April 30 (0.40) (0.51)
July 31 0.92 0.97
October 31 (0.54) (0.15)

Diluted earnings (loss) per share
January 31 $(0.44) $(0.31) $(0.45)
April 30 (0.40) (0.51)
July 31 0.72 0.75
October 31 (0.54) (0.15)


Other Matters

Related Party Transactions

The Company transacts with related parties in the normal course of
business at commercial rates and terms. The Company receives a shipper's
return for grain movement through its investment in the port terminal at
Prince Rupert. The Company purchases crop protection products through a
member-owned purchasing cooperative, Inter-provincial Cooperative
Limited, which entitles the Company to receive patronage earnings. The
Company also sells commodities to its principal shareholder Archer
Daniels Midland Company and its subsidiaries and associated companies.

Total sales to non-consolidated related parties were $26.7 million for
the quarter ended January 31, 2005 (2004 - $32 million) and total
purchases from related parties over the same period were $8.9 million
(2004 - $13.8 million). As at January 31, 2005, accounts receivable from
and accounts payable to related parties totaled $2.7 million (2004 -
$3.1 million) and $3.1 million (2004 - $4.5 million), respectively.

Accounting Policy Changes

Asset Retirement Obligations

Effective November 1, 2004, the Company adopted CICA Handbook Section
3110, Asset Retirement Obligations ("AROs"). The Company has identified
asset retirement obligations related to site restoration for certain
property leases, however, these obligations are not material
individually and in aggregate and, as such, a liability for AROs has not
been recognized. The majority of these obligations were provided for
under existing merger-related provisions and are expected to be settled
within the next five years.

Westco, a joint venture of the Company, has determined its previously
recognized reclamation obligation qualifies as an ARO and has accounted
for it accordingly. Given the ARO balance approximates the previously
established reclamation provision and that the retroactive income
statement impact to date is not material, the Company has recognized
Westco's adoption of Section 3110 prospectively without a restatement of
opening retained earnings. As at November 1, 2004, the Company's
proportionate share of Westco's ARO balance, which represents the
discounted future value of the estimated cash flows required to settle
the obligation, was $18.3 million, consistent with the previous
reclamation provision prior to the adoption of AROs.

Variable Interest Entities

Effective November 1, 2004, the Company adopted CICA Accounting
Guideline AcG-15, Consolidation of Variable Interest Entities ("VIE"). A
VIE is any legal structure used to conduct activities or hold assets
which are not controlled by voting interests but rather by contractual
or other interests that change with that entity's underlying net asset
value. The application of these rules to specific situations is complex
and the interpretation of the rules is evolving. The Company currently
accounts for its subsidiaries in accordance with the Company's
principles of consolidation. Based on its assessment of the entities in
which it has contractual and other interests, the Company has concluded
that these entities are either not VIEs or the adoption of AcG-15 did
not result in a material change to the consolidated financial
statements. As a result, the adoption of this guideline had no material
impact on the Company's consolidated financial statements for the
quarter ended January 31, 2005.

Liquidity and Capital Resources

Debt Ratings

On December 23, 2004, Standard & Poor's ("S&P") updated its ratings on
the Company in which it maintained its March 27, 2003 ratings concerning
Senior Long-term Debt, Series 'A' and 'B' Notes and the Debentures.



---------------------------------------------------------------------
9%
convertible Series 'A'
unsecured Convertible
Senior Long- Series 'A' & subordinated Preferred
term Debt 'B' Notes debentures Shares
---------------------------------------------------------------------
Standard & Poor's(1) BB B+ na
---------------------------------------------------------------------
Dominion Bond Rating
Service Limited(2) BB (low) B (high) na Pfd-5(high)
---------------------------------------------------------------------
(1) As at December 23, 2004
(2) As at January 22, 2004


Contractual Obligations

The Company's contractual obligations due for each of the next five
years and thereafter are summarized below:



Contractual Obligations (in thousands)
(Unaudited) Payments Due by Period
---------------------------------------------------------------------
Less
than 1 2 to 3 4 to 5 After 5
Total Year Years Years Years
---------------------------------- -------- -------- ------- --------

Balance Sheet Obligations
Long-term Debt $347,060 $39,259 $136,292 $36,964 $134,545
9% convertible unsecured
subordinated debentures 105,000 - 105,000 - -
Reclamation provision 18,485 1,928 8,768 5,925 1,864
Other long-term obligations 6,164 - 1,164 - 5,000
---------------------------------- -------- -------- ------- --------

476,709 41,187 251,224 42,889 141,409
---------------------------------- -------- -------- ------- --------

Other Contractual Obligations
Operating leases 47,260 14,439 17,133 5,905 9,783
Purchase obligations(1) 329,655 313,909 13,691 2,055 -
---------------------------------- -------- -------- ------- --------

376,915 328,348 30,824 7,960 9,783
---------------------------------- -------- -------- ------- --------

Total Contractual
Obligations $853,624 $369,535 $282,048 $50,849 $151,192
---------------------------------- -------- -------- ------- --------
---------------------------------- -------- -------- ------- --------
(1)Substantially all of the purchase obligations represent
contractual commitments to purchase commodities and products for
resale.


Pension Plan

At January 31, 2005, the market value of aggregate plan assets of the
Company's various defined benefit plans exceeded the aggregate accrued
benefit obligations. The Company has applied to the Office of the
Superintendent of Financial Institutions ("OSFI") to amalgamate two
defined benefit plans with an aggregate surplus of $17.3 million and two
defined benefit plans with an aggregate deficit of $8.6 million, which
would result in the Company having two defined benefit plans. If OSFI
were to decline the amalgamation application, the Company may be
required to fund the defined benefit plan deficits over a period of five
to 15 years. The Company reported a deferred pension asset of $13.6
million in Other Assets at January 31, 2005. The Company made $85,000 in
cash contributions to the defined benefit plans and $706,000 in cash
contributions to the defined contribution and multi-employer plans for
the quarter ended January 31, 2005 (compared to the pension expense of
$1.4 million recorded in the financial statements).

Agricore United Financial and Unifeed Financial

Outstanding credit of $193.7 million at January 31, 2005, advanced by a
Canadian Schedule One chartered bank under AU Financial, increased from
outstanding credit of $182.9 million at January 31, 2004, largely due to
increased credit with "future due" dates. At the same time, credit over
90 days at January 31, 2005 has declined modestly to 4.5% of total
outstanding receivables from 4.6% a year earlier. Over 89% of
outstanding credit is related to the Company's highest credit rating
categories, comparable to 92% the prior year.

Unifeed Financial provides additional working capital financing, through
a Canadian Schedule One chartered bank, to livestock producers to
purchase feeder cattle, feeder hogs and related feed inputs under terms
that do not require payment until the livestock is sold. The Company has
indemnified the bank for aggregate credit losses of $2.9 million based
on the first 20% to 33% of new credit issued on an individual account as
well as for credit losses, shared on an equal basis, of up to 5% on the
aggregate qualified portfolio balance. The Company's aggregate indemnity
will vary at any given time with the credit rating of underlying
accounts and the aggregate credit outstanding.

Securitization Arrangement

As at January 31, 2005, the Company had securitized $56.2 million of
amounts it is entitled to receive in respect of CWB grain compared with
$64 million at January 31, 2004. About $5.7 million of such receivables
remained unsecuritized at January 31, 2005 compared with $2.4 million at
January 31, 2004 due to timing.

Short-term Debt

The Company had about $23 million in Member and Employee Loans
outstanding at January 31, 2005, a decrease of $888,000 from January 31,
2004 due to maturities and normal course redemptions (although largely
unchanged from October 31, 2004).

Bank loans of $167.1 million at January 31, 2005 were $47.1 million
lower compared to a year earlier as sources exceeded uses of cash. For
the twelve months ended January 31, 2005, the Company generated cash
flow of $136 million comprised of cash flow provided by operations of
$35.9 million and a $100.1 million decrease in non-cash working capital.
Over the same 12 month period, cash used in investing and financing
activities of $88.9 million included $32.8 million in net capital
expenditures and investments, $30.6 million in scheduled debt repayments
net of advances, $6.5 million dividends paid, $4.5 million in deferred
financing and other costs, a $13.2 million increase in cash on deposit,
$888,000 of member and employee loan redemptions and $480,000 in debt
assumed in a business acquisition.

Cash Flow Used in Operations

Cash flow used in operations of $15.1 million ($0.34 per share) for the
quarter increased $10.3 million from cash flow used in operations of
$4.8 million ($0.11 per share) for the same three months ended in 2004.
Per share calculations add the pro rata effect of the preferred share
dividend of $276,000 (2004 - $276,000) to cash flow used in operations.
The decline in cash flow from operations results from a decline in
EBITDA of $12.2 million, a $212,000 increase in current income taxes,
offset by lower interest and securitization expenses of $1.5 million,
and lower non-cash equity earnings from investments of $554,000.

If the change in accounting estimate described under "Consolidated
Results - Crop Production Services" were applied to 2004 on a pro forma
basis, the cash flow used in operations for the comparative quarter
ended January 31, 2004 would increase by $10.3 million to $15.1 million
($0.34 per share).

Cash flow provided by operations of $35.9 million for the 12 months
ended January 31, 2005 exceeded the $32.8 million invested in property,
plant, equipment and other assets by $3.1 million. Principal repayments
on long-term debt and shareholder dividends totaled $37.1 million over
the same trailing twelve-month period.

Working Capital

The current ratio at January 31, 2005 was 1.17 to 1, a decline from 1.25
to 1 at the same date last year.

Working capital of $101 million at January 31, 2005 was $44 million
lower than at January 31, 2004, the result of a $95.5 million decrease
in non-cash working capital, an $8.4 million increase in the current
portion of long-term debt and a $1.3 million decrease in the current
portion of future taxes recoverable, offset by a $48 million decrease in
short-term debt and a $13.2 million increase in cash and cash
equivalents.

The $13.2 million increase in cash and cash equivalents compared to the
same date last year represents a $23.8 million increase in the Company's
consolidated share of cash held by its subsidiaries and joint ventures
pending the settlement of trade credit obligations or the distribution
of cash to the subsidiaries' shareholders and joint venturers, offset by
a $10.6 million decrease in the Company's cash on deposit.

The $95.5 million decrease in non-cash working capital reflects a $45.8
million decrease in accounts receivable (associated with increased
financing of crop inputs receivables through AU Financial and livestock
services receivables under Unifeed Financial), a $2.6 million decrease
in prepaid expenses and a $51.5 million increase in accounts payable
(including a $24.6 million increase in customer deposits related to
deferred sales revenue), offset by a $4.4 million increase in
inventories. Seed inventories increased by $13.1 million (reflecting
higher stocks in store to meet higher levels of pre-season sales), crop
nutrition inventories by $21.2 million (from higher purchase costs and
increased stocks in store in expectation of higher spring sales) and
other inventory by $166,000, offset by $21.7 million in reduced non-CWB
grain inventories (primarily a result of lower grain prices) and an $8.4
million reduction in crop protection product inventory (due to reduced
carry-out of inventory from 2004 and deferred purchasing for 2005).

Capital Expenditures, Acquisitions and Divestitures

Capital expenditures for the quarter ended January 31, 2005 of $10.7
million were $2.3 million higher than the same three-month period last
year. Individually large capital expenditures include $1.6 million for
the expansion of the Carman Bean Plant, $1.6 million for three strategic
grain storage expansion projects, $1.5 million for replacement of air
filtration systems in Thunder Bay terminals and $1.8 million for nine
fertilizer storage upgrade projects. The Company expects to use cash
flow provided by operations to fund between $35 million and $40 million
in capital expenditures in fiscal 2005.

Leverage

The Company's total funded debt (excluding the Debentures), net of cash,
decreased to $473.6 million at January 31, 2005 from $565.4 million at
the same date last year due to cash flow provided by operations and the
reduction in non-cash working capital noted above.

The Company's leverage ratio (net funded debt to capitalization)
fluctuates materially from month-to-month due to underlying seasonal
variations in working capital requirements, reflecting both underlying
price volatility as well as increased purchases of grain beginning in
the fall and crop inputs inventory through the winter and early spring,
all of which cannot be financed entirely with trade credit. The
Company's leverage ratio typically declines to its lowest point at July
31, representing the Company's core non-seasonal level of working
capital. Measured on a weighted average trailing twelve-month basis, the
Company's leverage ratio of 44.4% for the period ended January 31, 2005
improved compared to a ratio of 45.5% and 45.3% for the twelve month
periods ended January 31, 2004 and October 31, 2004, respectively.

The Company's ratio of net funded debt to net tangible assets at January
31, 2005 was 49.8% (2004 - 52.4%).

Market Capitalization

The market capitalization of the Company's 45,337,402 issued and
outstanding Limited Voting Common Shares at March 7, 2005 was $399
million or $8.80 per share compared with the Company's book value of
$9.88 per share(5) ($9.33 per share fully diluted) at January 31, 2005.
The issued and outstanding Limited Voting Common Shares at March 7,
2005, together with securities convertible into Limited Voting Common
Shares, are summarized in the following table.



As at March 7, 2005
(Unaudited)
---------------------------------------------------------------------

Issued and outstanding Limited Voting Common Shares 45,337,402
Securities convertible into Limited Voting Common Shares:

$105,000,000 - 9% convertible unsecured subordinated
debentures, maturing November 30, 2007, convertible at 14,000,000
133.3333 shares per $1,000 principal amount

Series "A" convertible preferred shares, non-voting, $1
dividend per share, cumulative, convertible (1:1 basis), 1,104,385
callable at $24

Stock Options 895,519
---------------------------------------------------------------------
61,337,306
---------------------------------------------------------------------
---------------------------------------------------------------------


Outlook

Subsoil moisture levels at October 24, 2004 were between 80% and 100% of
capacity across western Canada's arable land. On-farm surface water
supplies at November 1, 2004 indicate that no water shortages are
expected across western Canada. Across much of this same area, with the
exception of areas in southern Alberta, precipitation levels from
November 1, 2004 to March 4, 2005 have occurred at historical averages
(85% to 115%) to slightly below historical averages (60% to 85%).
Notwithstanding these favourable preliminary indicators for growing
conditions in the 2005 season, grain production will also depend on
receiving timely precipitation and normal "heat units" during 2005
(commencing about April).

Grain shipments through the balance of fiscal 2005 remain dependent upon
several key drivers, namely: producer decisions to deliver their 2004
crop and the timing of that decision; timely and effective execution by
the railways of grain movement to port terminals and other North
American destinations over the next few months; and the execution of the
CWB marketing program which is also tied to producer decisions on grain
delivery. Producers' November and December grain deliveries were
restrained by low commodity prices. Although deliveries have increased
in recent weeks, the possibility of concentrated delivery decisions in
the late spring and summer could strain the grain handling industry's
capability to execute purchase and delivery to end-use customers.
Effective execution by the railways during this time will also be
critical.

Prepaid sales orders at January 31, 2005 increased by $24 million or 22%
over January 31, 2004, primarily for seed and fertilizer. In addition to
the potential for improved fertilizer and seed sales as evidenced by
increased prepaid sales orders, a return to normal growing conditions
through the spring of 2005 may lead to a recovery in crop nutrition and
crop protection product sales and related services that declined in 2004
due to the unseasonably cold and wet conditions. High production levels
around the world in 2004 continue to suppress prices for many
commodities which may affect producer planting intentions in 2005,
although the current supplies of many of the Company's canola, linola
and wheat seed varieties are already fully subscribed. Soil nutrient
levels remain significantly reduced following the 2004 growing season,
which should enhance demand for crop nutrients, absent unfavourable
weather conditions. Despite an expected increase in demand for
herbicides over the prior year, the application of crop protection
products will be dictated, as always, by the progress of the 2005
growing season in June and early July.

As at January 31, 2005, the Company had processed $787 million of AU
Financial credit applications for the 2005 growing season compared with
$682 million in credit applications processed at the same point in 2004.
Unifeed Financial approved its first credit applicants in February 2004
and has since grown to $32.4 million in approved credit. As at January
31, 2005, the Company had advanced $16.1 million in secured trade credit
that may be eligible for credit under Unifeed Financial. The $13.6
million increase in drawn credit under Unifeed Financial is the primary
reason for the $16.8 million reduction in secured trade credit financed
by the Company directly. The Company expects to continue transferring
eligible customers' credit programs to Unifeed Financial at the
completion of the marketing of their current livestock program.

As a result of recent legal actions undertaken in the United States,
U.S. proposals to relax its import restrictions on Canadian live cattle
beginning March 7, 2005 have once again been delayed. In addition,
Canadian hog producers are still subject to an anti dumping duty
(recently revised from 14% to 10%) on hogs exported to the United
States. The hog industry is awaiting a final determination in April on
the continuation of this duty. Both trade actions are currently negative
for beef and hog producers but the long-term effects are yet to be
determined. However, Canadian livestock and poultry producers continue
to benefit from reduced feed costs due to large feed grain supplies in
western Canada.

After adjusting for the non-recurring property tax recovery of $4.5
million in fiscal 2004, the Company expects fiscal 2005 OG&A expenses to
increase over fiscal 2004 consistent with the rate of inflation. The
timing of expenses between quarters will continue to be affected by
underlying operational activity (such as the timing of the spring sales
season).

The Company has engaged a third party to assist in the marketing and
sale of one of its Vancouver grain terminals pursuant to a consent
agreement with the Commissioner of Competition. The proceeds of such a
sale may be utilized for general corporate purposes, including the
non-scheduled repayment of debt or sustaining capital reinvestment. The
sale is not expected to have a material impact on the Company's results
from continuing operations.

Additional Information

Additional information relating to the Company, including the Company's
2004 Annual Information Form ("AIF"), is available on SEDAR at
www.sedar.com.



Consolidated Balance Sheets

As at January 31 (in thousands) October 31,
(Unaudited) 2005 2004 2004
---------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $63,572 $50,399 $50,214
Accounts receivable (Note 6) 130,745 176,568 185,232
Inventories 471,941 467,562 383,914
Prepaid expenses 23,416 26,035 19,888
Future income taxes 4,922 5,996 6,801
---------------------------------------------------------------------
694,596 726,560 646,049
Property, Plant and Equipment 660,955 683,196 664,396
Other Assets 50,403 64,448 53,456
Goodwill 28,903 26,389 28,903
Intangible Assets 16,502 16,502 16,502
Future Income Taxes 57,287 42,543 40,316
---------------------------------------------------------------------
$1,508,646 $1,559,638 $1,449,622
---------------------------------------------------------------------
---------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank and other loans (Note 10) $190,151 $238,173 $132,121
Accounts payable and accrued expenses 359,927 309,136 326,706
Dividends payable 1,360 1,359 2,464
Current portion of long-term debt 39,259 30,887 39,189
Future income taxes 2,894 1,998 345
---------------------------------------------------------------------
593,591 581,553 500,825
Long-term Debt 307,801 346,741 322,065
Convertible Debentures 105,000 105,000 105,000
Other Long-term Liabilities 36,604 36,802 35,814
Future Income Taxes 6,730 4,705 6,527
---------------------------------------------------------------------
Shareholders' Equity
Share capital (Note 7) 460,049 460,532 459,957
Contributed surplus 1,163 642 1,044
Retained earnings (deficit) (2,292) 23,663 18,390
---------------------------------------------------------------------
458,920 484,837 479,391
---------------------------------------------------------------------
$1,508,646 $1,559,638 $1,449,622
---------------------------------------------------------------------
---------------------------------------------------------------------


Consolidated Statements of Earnings and Retained Earnings

For the periods ended January 31
(in thousands, except per share amounts) Three Months
(Unaudited) 2005 2004
---------------------------------------------------------------------

Sales and revenue from services (Note 4) $548,110 $650,983

---------------------------------------------------------------------
Gross profit and net revenue from services (Note 4) 81,252 80,872
Operating, general and administrative
expenses (Note 4) (82,712) (70,136)
---------------------------------------------------------------------
Earnings (losses) before the undernoted (Note 4) (1,460) 10,736
Depreciation and amortization (Note 4) (15,534) (15,942)
---------------------------------------------------------------------
(16,994) (5,206)
Gain (loss) on disposal of assets (5) 75
Interest and securitization expenses (12,947) (14,473)
---------------------------------------------------------------------
(29,946) (19,604)
Recovery of income taxes 10,462 5,978
---------------------------------------------------------------------
Loss for the period (19,484) (13,626)
Retained earnings, beginning of period 18,390 38,648
Dividends (1,198) (1,359)
---------------------------------------------------------------------
Retained earnings (deficit), end of period $(2,292) $23,663
---------------------------------------------------------------------
---------------------------------------------------------------------

Basic and diluted loss per share (Note 1) $(0.44) $(0.31)
---------------------------------------------------------------------
---------------------------------------------------------------------


Consolidated Statements of Cash Flows

For the periods ended January 31 (in thousands) Three Months
(Unaudited) 2005 2004
---------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:

Loss for the period $(19,484) $(13,626)
Adjustments for:
Depreciation and amortization 15,534 15,942
Employee future benefits 789 740
Future income taxes (12,340) (7,644)
Equity earnings from investments,
net of distributions (398) (952)
Stock-based compensation 119 -
Loss (gain) on disposal of assets 5 (75)
Other long-term liabilities 656 820
---------------------------------------------------------------------

Cash flow used in operations (15,119) (4,795)
Changes in non-cash working capital (3,685) (35,611)
---------------------------------------------------------------------
(18,804) (40,406)
---------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:

Property, plant and equipment expenditures (10,693) (8,371)
Proceeds from disposal of property, plant
and equipment 1,415 867
Increase in other assets - (4,337)
---------------------------------------------------------------------
(9,278) (11,841)
---------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:

Increase in bank and other loans 58,030 62,226
Proceeds from long-term debt 301 -
Long-term debt repayments (14,495) (10,371)
Deferred financing expenditures - (274)
Decrease in other long-term liabilities (24) (413)
Share capital issued 92 23
Dividends (2,464) (2,464)
---------------------------------------------------------------------
41,440 48,727
---------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS 13,358 (3,520)
Cash and cash equivalents at beginning of period 50,214 53,919
---------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $63,572 $50,399
---------------------------------------------------------------------
---------------------------------------------------------------------

SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash payments of interest $(14,414) $(15,684)
---------------------------------------------------------------------
---------------------------------------------------------------------
Cash payments of taxes $(3,546) $(2,651)
---------------------------------------------------------------------
---------------------------------------------------------------------


Notes to the Consolidated Financial Statements
(Unaudited)

1. Earnings Per Share

Three months ended January 31
(in thousands, except
per share amounts 2005 Per 2004 Per
- unaudited) Loss Shares Share Loss Shares Share
---------------------------------------------------------------------

Loss for the period $(19,484) $(13,626)
Less:
Preferred share
dividend (276) (276)
---------------------------------------------------------------------
Basic & diluted
loss per share $(19,760) 45,326 $(0.44) $(13,902) 45,313 $(0.31)
---------------------------------------------------------------------
---------------------------------------------------------------------


Basic earnings per share is derived by deducting the pro rata share of
annual dividends on preferred shares from earnings for the period and
dividing this total by the weighted average number of Limited Voting
Common Shares outstanding for the period.

The effect of potentially dilutive securities (convertible unsecured
subordinated debentures and preferred shares) was not included in the
calculation of diluted earnings per share for three months ended January
31, 2005 and 2004 as the result would be anti-dilutive. In addition,
executive stock options have been excluded from the calculation of
diluted earnings per share as the exercise price exceeds the average
trading value of the shares in the respective periods.

2. Accounting Principles

These interim unaudited consolidated financial statements are based on
accounting principles consistent with those used and described in the
October 31, 2004 annual consolidated financial statements except as
described in Note 8. However, these financial statements do not include
all of the information and disclosures required for annual financial
statement presentation. The interim consolidated financial statements
should be read in conjunction with the Company's consolidated financial
statements for the year ended October 31, 2004.

3. Seasonal Nature of Business

The Company's earnings follow the seasonal activity pattern of Prairie
grain production. Activity peaks in the spring as new crops are sown and
in the fall as mature crops are harvested. Sales of Crop Production
Services products (seed, crop nutrients and crop protection products)
peak during May through July, corresponding with the start of the
growing season, followed by increased levels of crop nutrient sales in
the late fall. Although relatively steady throughout the year, Livestock
Services feed sales tend to peak during the winter months as feed
consumption increases. Financial Markets agency fees follow the related
pattern of sales of the underlying activity of either Crop Production
Services or Livestock Services. Sales patterns have a significant impact
on the level of earnings and generally result in lower earnings
throughout the early months of the fiscal year, with significant
increases occurring in the third quarter ended July 31.



4. Segment Information

For the periods ended January 31 (in thousands) Three Months
(Unaudited) 2005 2004
---------------------------------------------------------------------

SALES AND REVENUE FROM SERVICES
Grain Handling $410,745 $532,582
Crop Production Services 72,821 60,509
Livestock Services 69,835 62,704
Financial Markets & Other Investments 2,254 2,892
---------------------------------------------------------------------
555,655 658,687

Less: Intersegment Sales(i) (7,545) (7,704)
---------------------------------------------------------------------
$548,110 $650,983
---------------------------------------------------------------------
---------------------------------------------------------------------

GROSS PROFIT AND NET REVENUE FROM SERVICES
Grain Handling $51,892 $46,459
Crop Production Services 13,268 20,927
Livestock Services 13,838 10,594
Financial Markets & Other Investments 2,254 2,892
---------------------------------------------------------------------
$81,252 $80,872
---------------------------------------------------------------------
---------------------------------------------------------------------

OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
Grain Handling $(38,431) $(30,749)
Crop Production Services (25,452) (21,963)
Livestock Services (8,767) (8,015)
Financial Markets & Other Investments (1,326) 73
Corporate (8,736) (9,482)
---------------------------------------------------------------------
$(82,712) $(70,136)
---------------------------------------------------------------------
---------------------------------------------------------------------

EBITDA
Grain Handling $13,461 $15,710
Crop Production Services (12,184) (1,036)
Livestock Services 5,071 2,579
Financial Markets & Other Investments 928 2,965
Corporate (8,736) (9,482)
---------------------------------------------------------------------
$(1,460) $10,736
---------------------------------------------------------------------
---------------------------------------------------------------------

DEPRECIATION & AMORTIZATION
Grain Handling $(7,775) $(7,972)
Crop Production Services (4,866) (4,990)
Livestock Services (1,058) (813)
Financial Markets & Other Investments (46) (20)
Corporate (1,789) (2,147)
---------------------------------------------------------------------
$(15,534) $(15,942)
---------------------------------------------------------------------
---------------------------------------------------------------------

EBIT
Grain Handling $5,686 $7,738
Crop Production Services (17,050) (6,026)
Livestock Services 4,013 1,766
Financial Markets & Other Investments 882 2,945
Corporate (10,525) (11,629)
---------------------------------------------------------------------
$(16,994) $(5,206)
---------------------------------------------------------------------
---------------------------------------------------------------------

(i)INTERSEGMENT SALES
Grain Handling $(7,545) $(7,676)
Crop Production Services - (28)
---------------------------------------------------------------------
$(7,545) $(7,704)
---------------------------------------------------------------------
---------------------------------------------------------------------


5. Change in Accounting Estimate

In accordance with its existing accounting policy, the Company defers
the recognition of gross profit from inter-company sales until product
is sold to a third party. During 2005, the Company modified its method
of estimating deferred gross profits on fertilizer products sold by its
subsidiary, Western Cooperative Fertilizers Limited ("Westco"), to the
Company and still held by the Company pending sale to third parties to
more accurately reflect the amount of gross profit deferred and the
timing of when the gross profit is realized. As a result, the amount of
gross profit deferred for the quarter ended January 31, 2005 increased
by $8.4 million to $14 million. Since the sale of fertilizer to third
parties is substantively completed by the Company's third quarter ending
July 31 following the spring sales season, the effect of the change in
estimate is to decrease the recognition of gross profit in the first
quarter and increase the recognition in the Company's second and third
quarters.

6. Securitization

At January 31, 2005, grain held for the account of the CWB is reported
net of securitized amounts of $56.2 million (2004 - $64 million). The
table below summarizes certain cash flows related to the transfer of
receivables during the period:



As at January 31, 2005 (in thousands)
(Unaudited)
---------------------------------------------------------------------
Proceeds from new securitizations $48,400
Proceeds from collections reinvested $7,764
---------------------------------------------------------------------
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The net cost of these transactions is included in interest and
securitization expense in the Consolidated Statements of Earnings and
Retained Earnings.

7. Share Capital

The issued and outstanding Limited Voting Common Shares with securities
convertible into Limited Voting Common Shares are as follows:



As at January 31
(Unaudited) 2005 2004
---------------------------------------------------------------------

Issued and outstanding Limited Voting
Common Shares 45,327,735 45,312,720
Securities convertible into Limited
Voting Common Shares:

9% convertible unsecured subordinated
debentures, maturing November 30, 2007,
convertible at 133.3333 shares per $1,000
principal amount 14,000,000 14,000,000

Series "A" convertible preferred shares,
non-voting, $1 dividend per share,
cumulative, convertible (1:1 basis),
callable at $24 1,104,387 1,105,151

Stock options 895,519 565,752
---------------------------------------------------------------------
61,327,641 60,983,623
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---------------------------------------------------------------------


As at January 31, 2005, the Company had reserved a further 140,114
Limited Voting Common Shares (January 31, 2004 - 469,881) for granting
under the Executive Stock Option Plan and 13,286 Limited Voting Common
Shares (January 31, 2004 - 32,727) for granting under the Directors
Share Compensation Plan.

At its Annual General Meeting on February 9, 2005, the Company's
shareholders approved two resolutions increasing the number of Limited
Voting Common Shares available for granting under the Executive Stock
Option Plan by 200,000 shares and the number of Limited Voting Common
Shares available for granting under the Directors Share Compensation
Plan by 100,000 shares.

Stock options outstanding at January 31, 2005 have a range of exercise
prices from $7.64 to $11.50 and a weighted average life of 7.06 years.



Weighted
Average
For the three months ended January 31, 2005 Number of Exercise
(Unaudited) Options Price
---------------------------------------------------------------------

Outstanding at the beginning of the period 732,045 $9.96
Granted 165,000 7.64
Forfeited (1,526) 9.70
---------------------------------------------------------------------

Outstanding at end of period 895,519 $9.53
---------------------------------------------------------------------

Exercisable at end of period 485,327 $10.05
---------------------------------------------------------------------


8. Commitments, Contingencies and Guarantees

a) Letters of Credit - The Company has provided banking letters of
credit to third parties for activities that are inherent in the nature
of the agriculture industry. The terms range in duration and expire at
various dates from March 2005 to March 2006. The amounts vary depending
on underlying business activity or the specific agreements in place with
the third parties. As at January 31, 2005, the outstanding banking
letters of credit were $104 million.

b) Indemnification of Accounts Receivable - Under the terms of an
agreement with a Canadian Schedule One chartered bank (as described in
note 4 of the October 31, 2004 annual consolidated financial
statements), the Company indemnifies the bank for 50% of future losses
under AU Financial to a maximum limit of 5% of the aggregate qualified
portfolio balance. As at January 31, 2005, the Company has provided $3.1
million (2004 - $1.1 million) for actual and expected future losses.

Under the terms of an agreement with a Schedule One chartered bank, the
Company indemnifies the bank for credit losses under Unifeed Financial
based on the first 20% to 33% of new credit issued on an individual
account, depending on the account's underlying credit rating, with
losses in excess of these amounts shared on an equal basis with the bank
up to 5% on the aggregate qualified portfolio balance. As at January 31,
2005, the Company had provided $136,000 for actual and expected future
losses.

c) Loan Guarantees - The Company is contingently liable under several
guarantees given to third-party lenders who have provided long-term
financing to certain independent hog producers. As at January 31, 2005,
the current outstanding balance of these guarantees was $4.1 million.
These guarantees reduce as the underlying loans are repaid and expire
between 2006 and 2014.

9. Accounting Policy Changes

a) Asset Retirement Obligations - Effective November 1, 2004, the
Company adopted CICA Handbook Section 3110, Asset Retirement Obligations
("AROs"). The Company identified asset retirement obligations related to
site restoration for certain property leases, however, these obligations
are not material individually and in aggregate and, as such, a liability
for AROs has not been recognized. The majority of these obligations were
provided for under existing merger-related provisions and are expected
to be settled within the next five years.

Westco, a joint venture of the Company, has determined its previously
recognized reclamation obligation (described in Note 11 to the 2004
annual financial statements) qualifies as an ARO and has accounted for
it accordingly. Given the ARO balance approximates the previously
established reclamation provision and that the retroactive income
statement impact to date is insignificant, the Company has recognized
Westco's adoption of AROs prospectively without a restatement of opening
retained earnings. As at November 1, 2004, the Company's proportionate
share of Westco's ARO balance, which represents the discounted future
value of the estimated cash flows required to settle the obligation, was
$18.3 million (previous reclamation provision recognized by the Company
as of the same date was $18.1 million). As of January 31, 2005, the
Company's proportionate share of the estimated undiscounted
inflation-adjusted cash flows required to settle the obligation is $20.6
million, which is expected to be settled between 2005 and 2014. The
total accretion expense included in the Company's first quarter results
is $376,000.

b) Variable Interest Entities - Effective November 1, 2004, the Company
adopted CICA Accounting Guideline AcG-15, Consolidation of Variable
Interest Entities ("VIE"). A VIE is any legal structure used to conduct
activities or hold assets which are not controlled by voting interests
but rather by contractual or other interests that change with that
entity's underlying net asset value. The application of these rules to
specific situations is complex and the interpretation of the rules is
evolving. The Company currently accounts for its subsidiaries in
accordance with the Company's principles of consolidation. Based on its
assessment of the entities in which it has contractual and other
interests, the Company has concluded that these entities are either not
VIEs or the adoption of AcG-15 did not result in a material change to
the consolidated financial statements.

10. Subsequent Events

a) Bank and Other Loans - The Company extended its $425 million
revolving credit facility, which matured February 28, 2005, to March 11,
2005 pending final completion of documentation with regard to a new
facility maturing February 28, 2006. Apart from adding one bank to the
syndicate and modifying the seasonal availability to $425 million
between September 1, and December 31, $475 million between January 1 and
May 31, and $300 million between June 1 and August 31, the financial
terms and underlying security are consistent with those described in
Note 8 to the October 31, 2004 annual consolidated financial statements.

b) Guarantee - On February 8, 2005, the Company issued an unsecured
guarantee in support of financing provided to a wholly owned foreign
subsidiary for a maximum of 2 billion Yen or approximately $24 million.

11. Comparative Amounts

Certain comparative amounts have been reclassified to conform to current
year presentation.



Shareholder Information

For the periods ended January 31 Three Months
Trading Activity (on Toronto Stock Exchange) 2005 2004
---------------------------------------------------------------------

Limited Voting Common Shares (Symbol: AU.LV)
High $9.05 $9.99
Low $7.50 $8.03
Close $8.46 $9.55
Volume 1,665,082 5,227,073

Preferred shares (Symbol: AU.PR.A)
High $14.60 $15.10
Low $14.30 $13.80
Close $14.60 $15.10
Volume 32,183 11,169


9% convertible unsecured subordinated
debentures (Symbol: AU.DB)
High (per $100 principal) $130.00 $147.00
Low (per $100 principal) $118.00 $130.00
Close (per $100 principal) $125.00 $142.00
Volume $3,321,000 $4,597,000
---------------------------------------------------------------------
---------------------------------------------------------------------

As at January 31
(Unaudited)
---------------------------------------------------------------------
Book value per share $9.88 $10.45
---------------------------------------------------------------------
---------------------------------------------------------------------
Fully diluted book value per share $9.33 $9.77
---------------------------------------------------------------------
---------------------------------------------------------------------


Book value per share is derived by dividing the shareholders' equity at
the end of the period by the total number of Limited Voting Common
Shares outstanding at the end of the period as if the preferred shares
had been converted on a 1:1 basis. The fully diluted book value per
share is derived by dividing the shareholders' equity (including the
Debentures and the value of executive stock options) at the end of the
period by the total number of Limited Voting Common Shares outstanding
at the end of the period as if the preferred shares, executive stock
options and the Debentures had been fully converted.


(1) Earnings before interest, taxes, depreciation and amortization,
gains or losses on asset disposals, discontinued operations net of tax
and unusual items ("EBITDA") and earnings before interest, taxes, gains
or losses on asset disposals, discontinued operations net of tax and
unusual items ("EBIT") are provided to assist investors in determining
the ability of the Company to generate cash from operations to cover
financial charges before income and expense items from investing
activities, income taxes and items not considered to be in the ordinary
course of business. A reconciliation of such measures to net income is
provided in the Consolidated Statements of Earnings and Retained
Earnings and Note 4 to the Consolidated Financial Statements below. The
items are excluded in the determination of such measures as they are
non-cash in nature, income taxes, financing charges or are otherwise not
considered to be in the ordinary course of business. EBITDA and EBIT
provide important management information concerning business segment
performance since the Company does not allocate financing charges or
income taxes to these individual segments. Such measures should not be
considered in isolation of or as a substitute for (i) net income or
loss, as an indicator of the Company's operating performance or (ii)
cash flows from operating, investing and financing activities, as a
measure of the Company's liquidity. Such measures do not have any
standardized meanings prescribed by Canadian generally accepted
accounting principles ("GAAP") and are therefore unlikely to be
comparable to similar measures presented by other companies.

(2) The pro forma adjustments and financial information (which
adjustments have been applied and which financial information has been
presented on a non-GAAP basis) have been provided to assist investors in
comparing results between periods after giving effect to the Company's
modification of its estimate of deferred gross profits on fertilizer
products sold by its subsidiary, Westco. The 2004 financial results for
the Company have been adjusted on a pro forma basis to show the
Company's financial results as if the modification of its estimate of
deferred gross profits, applied prospectively in accordance with GAAP
beginning in 2005, had been applied in fiscal 2004.

(3) See Footnote 2 concerning the inclusion of pro forma adjustments and
financial information for the comparative quarter for fiscal 2004.

(4) Including staff related to its wholly owned subsidiaries and joint
venture in Cascadia Terminal.

(5) Book value per share is derived by dividing the shareholders' equity
at the end of the period by the total number of Limited Voting Common
Shares outstanding at the end of the period as if the Series A
convertible preferred shares had been converted on a 1:1 basis. The
fully diluted book value per share is derived by dividing the
shareholders' equity (including the Debentures and the value of
executive stock options) at the end of the period by the total number of
Limited Voting Common Shares outstanding at the end of the period as if
the Series A convertible preferred shares, executive stock options and
the Debentures had been fully converted.

Certain statements in this report may constitute forward-looking
statements. The results or events predicted in these statements may
differ materially from actual results or events. These forward-looking
statements can generally be identified by the use of statements that
include phrases such as "believe", "expect", "anticipate", "intend",
"plan", "likely", "will" or similar words or phrases. Similarly,
statements that describe the Company's objectives, plans or goals are or
may be forward-looking statements.

These forward-looking statements are based on the Company's current
expectations and its projections about future events. However, whether
actual results and developments will conform with the Company's
expectations and projections is subject to a number of risks and
uncertainties, including, among other things, the risks and
uncertainties associated with poor weather, agricultural commodity
prices, international trade and political uncertainty, competition,
domestic regulation, environmental risks, labour disruptions, credit
risk and foreign exchange risk. For a more detailed discussion of these
risks and their potential impact, see the Company's 2004 AIF and the
MD&A included on pages 18 to 33 of its 2004 Annual Report. These are not
necessarily all of the important factors that could cause actual results
to differ materially from those expressed in any of the Company's
forward-looking statements. Other known and unpredictable factors could
also harm its results. Consequently, there can be no assurance that the
actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the
expected consequences to, or effects on, the Company. Unless otherwise
required by applicable securities laws, the Company disclaims any
intention or obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Agricore United
    David Carefoot
    Vice President, Corporate Finance and Investor Relations
    (204) 944-5651
    dcarefoot@agricoreunited.com