Farmland Industries, Inc. - Page 19




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             was extracting enough oil from its active wells to meet 18               
             percent of its refineries’ needs.                                        
                  Throughout its existence, CRA obtained crude oil from               
             its own production facilities, from other entities owned by              
             petitioner, and from unrelated third parties.  CRA refined               
             this oil into finished petroleum products which it sold to               
             petitioner for resale to its patrons.  CRA and its                       
             subsidiaries also maintained inventories of crude oil and                
             refined petroleum products.  CRA shipped finished products               
             from its refineries directly to petitioner’s customers.                  
             CRA would generally send invoices to petitioner, and                     
             petitioner would send invoices to its customers.                         
             Petitioner charged competitive market prices for the                     
             petroleum products it sold to its patrons.  Petitioner’s                 
             management believed that its patrons would derive their                  
             benefits through the receipt of patronage refunds rather                 
             than through discount purchases.  Petitioner’s management                
             always intended to generate a net profit at the cooperative              
             level without undercutting prevailing market prices.                     
                  From 1943 until mid-1992, petitioner was the largest                
             interest holder in a refinery located in McPherson, Kansas,              
             which was operated by the National Cooperative Refinery                  
             Association (NCRA).  Mr. Cowden was the first president of               
             NCRA, and its other members were, like petitioner, regional              






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Last modified: May 25, 2011