Dairy Outlook - Conference Call Replay through 10/27: 800-925-0904 (US);Passcode: 8465

8/14/2019 Dairy Outlook - Conference Call Replay through 10/27: 800-925-0904 (US);Passcode: 8465

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Dairy, Commodities & The Global Economy

Blimling and Associates, Inc.October 2009

Phil Plourd ([email protected])Bill Curley ([email protected])

Duane Banderob ([email protected])Dallas Sipes Chapman ([email protected])

800-726-9928

SITUATION AND OUTLOOK


2/21

2

DOMESTIC CHEESE Market has moved

over the $1.40/lbmark that has

served as a keysupport/resistancearea for the pastseveral years

Is the current peek

above the line apreview of comingattractions aswas the case in thelast part of 2003and 2006?


3/21

3

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

30-May 25-Jul 19-Sep 14-Nov 9-Jan 6-Mar 1-May 26-Jun 21-Aug 16-Oct

CHEDDAR: US vs OCEANIA

US Block Oceania

weekly

source: CME, USDA/AMS

GLOBAL CHEESE US product is a bit

more competitivein the world

market vis--visOceania

Major differencebetween now and2007/08: Australia

and New Zealandseem likely to havesome product


4/21

4

DOMESTIC BUTTER


5/21

5

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

30-May 18-Jul 5-Sep 24-Oct 12-Dec 30-Jan 20-Mar 8-May 26-Jun 14-Aug 2-Oct

GLOBAL BUTTER PRICES

US Oceania EU

GLOBAL BUTTER Fat market is in a

bit of disarray,with significant

increases inEurope since earlysummer, a recentrally in Oceaniaand the US flat andin the middle

Stocks seem to beample between USholdings and EUintervention/PSA


6/21

6

GLOBAL NDM/SMP Just like that,

powder prices areup 25-30% globally

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

Oct 24 Dec 19 Feb 13 Apr 10 Jun 5 Jul 31 Sep 25

NONFAT DRY MILK/SKIM MILK POWDER

AMS Central

NASS

Europe

Jan-Jun

Oceania


7/21


8/21


9/21

MILK OUTPUT A BIT SOFTER

9

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09

MILK PRODUCTION: YEAR-OVER-YEAR CHANGE

California

Wisconsin

United States

Production downyear-over-year inAugust and

September firstback-to-backdeclines sinceMay/June 2004

Interesting and

telling divergencebetween the Westand the Midwest


10/21

10

1,600

1,650

1,700

1,750

1,800

1,850

1,900

1,950

2,000

2,050

2,100

2,150

2,200

2,2502,300

2,350

2,400

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

YTD DAIRY COW SLAUGHTER

40 weeks/thousand head

Source: USDA/AMS

HEAVY CULLING Year-to-date

slaughter activityis at the highest

levels since 1996


11/21

Year began withwidespreadagreement that US

herd was too large by250,000-400,000 head

Herd contraction sofar: about 175,000head through August

Heifer pipeline stillstrongmeansslaughter activity hasto be all the greater

to get cow numbersdown

11

COW NUMBERS DOWN


12/21

In reality, the currentperiod of low prices is

not especiallyextended relative tohistorical price troughs

Now, however, we arein month 11 of the lowprice periodbyvirtue of the passageof time alone we areprobably getting

closer to the periodsend

12

IT ALWAYS TAKES TIME

$8

$10

$12

$14

$16

$18

$20

$22

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

FMMO CLASS III MILK


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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 F 2010 F*

Margin 7.84 7.48 6.13 7.68 5.69 5.91 8.03 7.66 6.05 9.29 7.57 4.99 7.36

-

1

2

3

4

5

6

7

8

9

10

"IMPLIED MARGIN OVER FEED"

US MARGIN OVER FEED Implied Margin Over Feed is an index of

dairy producer milk revenue remainingafter accounting for feed costs

Years in which the index is less than 6corresponds to years of supply-sidecontraction, while years above 6 tend tobe expansionary

Producers have been getting mixedsignals for months. Real-time marginsare exceedingly poor, with Junes IMOF

reading of 3.72 the lowest in ourhistorical dataset. Meanwhile, futuresprices portend better days ahead, with2010 IMOF projecting to about 7.4. Thepresumptive challenge: continuing tosurvive today to get a taste of that bettertomorrow.

Of course the better tomorrow hasbeen elusive, with prices consistentlyfailing to live up to expectationsconveyed by futures 60-to-90 dayspreviously.

13


14/21

14

0

50

100

150

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

NDM: AUGUST STOCKS

million pounds/commercial holdings

-

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 20 06 2 007 2008 2009

BUTTER STOCKS

CME

Other

Million Pounds/August 31

HEAVY STOCKS

600

650

700

750

800

850

900

950

1000

1050

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

TOTAL CHEESE STOCKS 2004-

million pounds


15/21

15

-10% -5% 0% 5% 10% 15% 20%

Frozen Pizza

Yogurt

Cheese

Butter

Fresh Milk

Ice Cream Bulk

Fresh Meat

Refrig Bacon

Pasta

Refrig EntreesJuices/Drinks

Orange Juice

Cereal

Cookies

Can Vegetables

Frozen Entrees

Soup-Canned

RETAIL SALES (VOLUME): 4 WEEKS ENDING 10/3

Source: JP Morgan/AC Nielsen

Excludes Wal-Mart, club stores

RETAIL: SOLID


16/21

16

Restaurant sales have beenup some in dollar terms

Jan: +2.7% Feb: +2.8% Mar: +2.5% Apr: +1.7% May: +1.4% Jun: +0.6%

Jul: +0.0% Aug: +0.8% Sep: +0.6% 2004-2008 avg: +5.6%

Customer counts down

Knapp-Track (Aug): -5%

-2%

0%

2%

4%

6%

8%

10%

12%

2006 2007 2008 2009

RETAIL SALES

Food and Drinking Place

Grocery

FOOD SERVICE SOFT


17/21

WORLD WEATHERIndia has been

dry,reportedlycreating

shortfalls inmilkproductionand escalationin dairyproductpricesbutfirst two

weeks of newseason wereimproved

Australiaremains indrought,limitingpotential

New Zealandseasonreportedly ontrack after aslow start

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18/21

18

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Cheese 0.6% 0.7% 0.7% 0.7% 0.8% 0.7% 0.9% 1.2% 1.5% 1.0%

NDM/SMP 1.5% 1.4% 1.1% 1.7% 3.3% 3.9% 3.9% 3.4% 5.1% 2.6%

0%

1%

2%

3%

4%

5%

6%

7%

EXPORTS AS % OF MILK PRODUCTION

Source: USITC data; Blimling estimates

2009 through August

EXPORT GAP: STILL BIG Is this the chart that

explains everythingabout where markets

are at today?


19/21

CURRENCY

Few are bullish the US Dollar

Sense in some quarters is that the Administration is not especially eager to defendthe US Dollars valuesome even suspect that some sort of stealth devaluation is

one way out of the mounting debt situationWe would view currency has having a generally positive bias for US dairy prices,

though the impact is not the same for every commodity

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20/21

FORECAST

20


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Documents

Dairy Outlook - Conference Call Replay through 10/27: 800-925-0904 (US);Passcode: 8465