Dairy Market—Situation & Outlook Mark Stephenson, Ph.D. Director of Dairy Policy Analysis $12.00 Oct-15 Jul-15 Apr-15 Jan-15 Oct-14 Jul-14 Apr-14 Jan-14 Oct-13 Jul-13 Apr-13 Jan-13 Oct-12 Jul-12 Apr-12 Jan-12 Oct-11 Jul-11 Apr-11 Jan-11 Oct-10 Jul-10 Apr-10 Jan-10 Remember When… All Milk Price $28.00 $26.00 $24.00 $22.00 $20.00 $18.00 $16.00 $14.00 MPP Ration Value $16 $14 $12 $10 $8 $6 $4 $2 $0 2000 2002 2004 2006 Corn 2008 SBM 2010 Alfalfa 2012 2014 Annual MPP Margin MPP Margin Highest Margin Ever! $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 2000 2002 2004 2006 2008 2010 2012 2014 Average Daily U.S. Milk Production Percent Change in U.S. Milk Production Number of Cows 9,350 9,330 1000s of Cows 9,310 9,290 9,270 9,250 9,230 9,210 9,190 9,170 9,150 Jan Feb Mar Apr May Jun 2012 2013 Jul 2014 Aug Sep Oct Nov Dec 2015 Milk per Cow per Day 65 Milk per Cow per Day 64 63 62 61 60 59 58 57 56 Jan Feb Mar Apr May Jun 2012 2013 Jul 2014 Aug Sep Oct Nov Dec 2015 A Tale of Two Regions… Change in Milk Production—First Three Quarters 0.64% -0.44% -1.55% 1.63% 6.89% 3.95% -1.91% 0.1%-0.47% 1.71% 3.97% 11.16% 2.36% 3.59% 1.74% 4.41% 8.19% 3.88% 1.13% 3.62% -3.09% 2.22% 0.94% 0.29% 0.07% 8.36% 3.05% 1.07% 1.64% -0.38% -1.35% -3.14% 0% -6.99% -5.95% 1.04% -0.27% 3.87% 3.43% 4.77% 3.83% -7.87% -7.87% 3.47%-6.92% 6.89% 4.97% 0.4% -6.37% 2.85% Worst CA Drought in 1200 Years Comparative Feed Cost Data Wisconsin • Price of Hay = $150 • Price of Corn = $3.47 • Price of SBM = $370 California • Price of Hay = $260 • Price of Corn = $5.01 • Price of SBM = $420 Impact of Feed Costs Milk per Cow per Day 72 Average Daily Pounds per Cow 70 68 66 64 62 60 58 California 56 54 Wisconsin 52 50 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 $12.00 Oct-15 Jul-15 Apr-15 Jan-15 Oct-14 Jul-14 Apr-14 Jan-14 Oct-13 Jul-13 Apr-13 CA All Milk Price Jan-13 Oct-12 Jul-12 Apr-12 Jan-12 Oct-11 Jul-11 Apr-11 Jan-11 Oct-10 Jul-10 Apr-10 Jan-10 All Milk Price $28.00 WI All Milk Price $26.00 $24.00 $22.00 $20.00 $18.00 $16.00 $14.00 Opinions Change Over Time Opinions Change Over Time MPP Margin Forecast Opinion as of Sept 30, 2014 Opinion as of Jan 8, 2016 Consumer Confidence 140 Consumer Confidence 120 100 80 60 40 20 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Consumer Confidence Restaurant Performance Index 103 102 101 100 99 98 97 96 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Dairy Products are a Good Buy 240 BLS —Dairy and Related Products 220 200 180 160 140 120 100 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 We Need Exports! 12 Month Rolling Average Trade as a Percent of Solids Produced 16% 14% 12% Exports 10% Imports 8% 6% 4% 2% 0% 2000 2002 2004 2006 2008 2010 2012 2014 U.S. Versus International Prices U.S. Versus International Prices U.S. Versus International Prices U.S. American Cheese Stocks American Cheese Stocks 730,000 710,000 1000s Pounds 690,000 670,000 650,000 630,000 610,000 590,000 570,000 550,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011 2012 2013 2014 2015 Exports Need a Boost U.S. Versus International Prices U.S. Butter Stocks Medical Community Declares Truce CME Spot Butter Prices Global Dairy Trade Index GDT Price Index 1,700 1,500 1,300 1,100 900 700 500 2013 2014 2015 U.S. Farm Milk Prices are Holding Up Better than Most $18.38 $13.61 $10.61 Other Factors Export Competitors’ Milk Supply Change in Milk Produc on First 10 Months of 2015 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% U.S. N.Z. Aus. E.U. 28 Can We Tap on the Brakes? Strongest El Niño in 50 Years! The Option to Producing Milk Cull Cow Price $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 2008 2009 2010 2011 2012 2013 2014 2015 Price Cycles MPP Margin of Recent Price Cycles 18 16 MPP Margin 14 12 2001-2004 2004-2007 2007-2011 2011-2014 2014-2017 10 8 6 4 2 0 1 5 9 13 17 21 25 29 33 37 41 45 Months from Start of Cycle My Forecast… • Our relatively strong U.S. economy is helping consume dairy products • Dairy exports could become more of an issue in the next few months (watch inventory levels) • My deduction is that the MPP margin will be worse than futures forecasts now suggest through the first half of 2016 • Class III down about 60¢, Class IV up $1.00, All-Milk down 30¢ • Maybe more downside potential than upside Questions?