July 2009 Patron Newsletter

To: FDA Members, Association Creamery Members, Employees, and Milk Haulers

FDA was pleased to revolve the first half of 2009 equity payments to members totaling $1,752,044 in June. The second half 2009 member equity payment is scheduled to be paid at the First District annual meeting on Saturday, December 12, 2009. Please be assured that the FDA Board of Directors and management are well aware of the deplorable market conditions impacting the dairy industry and that we understand your struggle to meet basic economic needs.

I recently responded to a number of questions in the June 27 "Dairy Star" publication pertaining to the question: "What has FDA done to help producers?" Admittedly, I was not aware that a number of other COOP Managers were presented with the same questions allowing dairy farmers to review various insights and responses side by side. I believe FDA members have good reason to be proud of your cooperative’s past accomplishments along with its current strong financial position and grass roots producer owned philosophy. Without dwelling on the past, perhaps the question should be "What is FDA doing to help producers now and in the future?" I have attempted to outline a partial list of initiatives that FDA is pursuing:

1. FDA continues to remain very active in state and federal policy that support dairy farmers and the Minnesota Dairy Industry. FDA is an active member in the Midwest Dairy Coalition and National Milk Producers Federation. Programs such as MILC, DEIP, DPPSP and others have been established with our attentive involvement and leadership.

2. FDA has been selected by the National Milk Producers Federation to serve on a 21 member task force focused on future price stabilization and sustainability. The task force members include industry leaders (Cooperative Directors and Managers) throughout the nation. The task force met on June 8 and meets again for two full days on July 20 and 21.

3. FDA will continue to place significant focus on dairy producer milk prices despite the terrible market conditions. We believe FDA has been a leader in this category despite the poor market conditions. This action will, unfortunately, impact short-term fiscal year end cooperative earnings but NOT First District Association’s fundamental financial strength.

4. FDA will continue to use sound business management principles and maintain its strong financial position in order to assure members a sound and secure market for milk with respectable return on member equity that is revolved twice (unique to FDA) annually.

5. FDA’s production continues to operate at record volumes with minimal additional fixed expenses (including labor) which we believe will continue to support FDA’s ability to return more available dollars back to member owners.

6. The new whey evaporator complex is under construction. This project will provide the first essential phase needed to improve process reliability and future efficiency enhancement. FDA is pursing this large and complex project during a time when many fabricators and building construction companies are competing aggressively for business. We hope to complete this project by May 2010 under budget.

7. The City of Litchfield has awarded the bids for upgrading the city wastewater treatment plant that will provide FDA the ability to "sustain" long-term and expand operations and efficiencies without environmental and regulatory issues, as the cooperative deems necessary well into the future. FDA has succeeded in helping the city receive $7.8 million federal and state stimulus funds resulting in significant savings that significantly impact our cooperative. The upgraded treatment plant will meet FDA current and future operational and regulatory requirements.

8. FDA sales remain strong and we continue to successfully find methods to maximize returns on value added commodity dairy products produced and sold to long time loyal customers domestically and abroad. FDA’s dry product sales manager recently returned from a successful visit in China and will soon be going to Japan with the goal of further enhancing sales and customer relationships.

We realize that nothing matters without healthy and sustainable dairy producers. Please feel free to contact me directly at 320-593-4204 or cfall@firstdistrict.com with any suggestions you may have. We need and appreciate your input.

Our FDA fiscal year ends on September 30, 2009. As we begin to make plans for year end, your Board of Directors and Unit Officers will be meeting soon to discuss many details. The following Director terms are up for nomination in 2009:

Dan Hallberg, Kandiyohi, MN; Unit D

Tom Middendorf, Freeport, MN; Unit C

Keith Overman, Freeport, MN; Unit B

In the event you may be interested in being nominated for a Board of Director position, please contact one of your Unit Officers, FDA Field Service Representatives, or the FDA office.

USDA announced the June Class III price at $9.97/cwt., up 13 cents from May. FDA ytd all milk prices have averaged $2.10/cwt. higher than the announced Class III through May, 2009. The MILC estimated payment for June is $1.8111/cwt. and for July $1.7742/cwt.

U.S. milk production remained strong during May 2009 in the top 23 dairy producing states with an increase of 0.20% over the same month in 2008. May, 2009 cow numbers were actually reported down by 25,000 less than a year ago. Another 100,000+ cows are in the process of being retired under the first 2009 CWT Herd Retirement Program mostly impacting western states. On July 10, 2009; CWT announced another round of the Herd Retirement program with the intent of removing more cows with bids due by July 24; only providing 2 weeks for producers to submit applications. For the top 23 states in the Upper Midwest, Minnesota was up 2.9%, Wisconsin +1.9%, Iowa +2.1%, and Michigan +3.11. Declines were found in California (-1.9%), Arizona (-6.2%) and Vermont (-3.1%).

We all continue to question and often times try to predict when prices will recover. Our troubled domestic and world economy has every expert searching for the right answer. Unfortunately, the level of supply in comparison to demand is clearly out of balance primarily due to the significant reduction in exports in comparison to the past 2 years. According to economist, Bill Brooks "To align supply with demand, only a 1% decline in milk production is needed". I have little doubt that a recovery is inevitable and opportunities for long term growth in the U.S. to supply the world (especially China) with quality nutritious food is very strong. A number of reports indicate that the global economy is showing signs of stabilization and possible recovery. Analysts are also predicting that U.S. Exports are expected to rise through the third quarter as a result of the USDA "Dairy Export Incentive program (DEIP)" which will help make exports more economically viable.

FDA milk receipts have remained strong which I believe may be a result of cool and dry weather conditions along with producers’ innovative ability to make the best out of a bad economic situation. On behalf of FDA staff, we thank each of you for the extraordinary quality milk being delivered. FDA is processing nearly 3.9 million pounds of milk daily in comparison to less than 3.5 million pounds one year ago.

We continue to hope for an improved economic time period but most importantly, we hope that each day may be filled with good health and happiness!

The YC family picnic will be held Sunday, July 19 on the Arnie and Kris Gruenes farm. Lunch will be served from 11:00 a.m. - 2:00 p.m. Please plan on attending. Everyone is welcome.

Reminder: Please consider applying for the FDA YC’er of the Year. Application form is enclosed.

First District Association will forward contract milk based on Class III futures for FDA members and customers who desire to lock in base values for milk. First District Association also provides a valuable option for interested and qualified members to "Average Price" a portion of their deliveries. This process allows for a smooth cash flow with level prices. Market information can be obtained by accessing the FDA Internet web page at www.firstdistrict.com, calling our voice mail system toll-free at 1-866-593-4235 or locally dial 593-4235, phoning Blimling and Associates at 1-800-726-9928, or contact Glenn Kaping at (320) 593-4239.

For Sale: Alfalfa hay, big square bales, no rain, stored inside and big round bales, no rain, stored outside. Contact Glen at 320-310-0879.

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