January 2010 Patron Newsletter

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

The USDA announced Class III milk price for the month of December reached a 2009 high of $14.98/cwt., down $0.30/cwt. from December 2008 but $0.90/cwt. higher than November. December market values for cheddar blocks and barrels were $1.6532/lb and $1.4511/lb resulting in a month average spread of $0.2021/lb. The extreme abnormal spread was primarily the result of strong CME buying support for block cheddar (by a limited number of buyers) for just a few weeks during December. My personal opinion is the December CME block market value reflected a wishful but false cheese market leading to confusion and overall dairy industry market disruption.

As of January 12, the cheddar block and barrel market was $1.4350/lb and $1.4100/lb respectively with an inverted spread of $(0.0250)/lb. The immediate halt by a very limited number of buyers on the CME prior to Christmas resulted in the block market tumbling below the current barrel market. There have undoubtedly been many questions circulating the industry regarding the December cheese, "true market value", "true demand", and reasons for the short run up in block prices immediately followed by a sudden crash. Unfortunately, we may never know the true reason and rationale that led to the misleading (my personal opinion) December cheese market fiasco.

I believe FDA reacted responsibly to the best of our ability to a very difficult situation during December considering commitments to our valued barrel cheese customers. FDA was able to produce a limited number of 40 pound blocks as well as more than our usual amount of specialty cheddar barrels that modestly helped mitigate some of the challenges resulting from the inequitable market value of barrel cheese. Regardless, the impact of the ridiculous and lengthy unprecedented spread resulted in a less than desirable short term financial impact for FDA for the month of December.

Milk production during 2010 will likely be flat or down from 2009 and domestic/global demand should increase. U.S. milk production in November was down 1.0% from a year ago and the national herd was down 242,000 cows. Minnesota milk production was up +1.1%, Wisconsin +4.5%, Michigan +2.1%, California (-5.4%), New Mexico (-1.6%), and Arizona (-10.7%). We are pleased that Minnesota is holding its own with modest growth during 2009. International whey markets are currently strong adding some additional nice support to the current milk prices. I continue to remain cautiously optimistic about 2010 milk prices for dairy producers and analysts continue to forecast increased market values, particularly during the second half of 2010. We all hope for improved markets soon!

One thing for certain, FDA enters the new year focussed on continuous improvement. As emphasized in the December newsletter, FDA’s top priority will be to continue focussing on future strategic investments in an effort to assure long-term independence, enhanced operating efficiency, diversification, updated process technology, worn equipment replacement, and smart growth without sacrificing strong competitive milk prices and financial health. Our Whey Evaporator project is moving forward nicely with the building portion nearing external completion. Process piping and additional equipment installation will likely require the next five months of aggressive work with the hope of commissioning the new system in early summer. We believe the new system willbe a tremendous asset and add value for FDA members for many years to come and will undoubtedly be a complex we may all take pride in.

Wishing each of you a Happy, Healthy, & Prosperous New Year!

Mark your calendars for February 5, 6 & 7 for the annual Young Cooperator’s weekend conference which will be held at the Holiday Inn in Alexandria. There will be a variety of excellent speakers throughout the weekend and great fellowship for everyone. All FDA members are invited and encouraged to attend the Saturday sessions including lunch. Cost for rooms are $60.00/per night. To register contact Chad Thorsten at 320-221-3739 or e-mail at chadt@hutchtel.net. Entertainment will be provided Friday and Saturday nights by Gig Noonan.

Each year FDA awards six $500.00 scholarships to students pursuing further education and career goals in agriculture. If you are interested in applying for this scholarship, please contact FDA at 320-693-3236 or your field service representative at the number listed below. These scholarships are available to association creamery members and direct FDA members. April 6 is the deadline for receiving all applications.

Thank You, Thank You

On behalf of FDA, I would like to express our thanks to each FDA member, milk hauler, and employee who helped keep FDA operating throughout the Holiday storms. We are grateful that our milk haulers were safe and did an outstanding job without the need for any milk being disposed due to weather. We also thank each FDA member for your diligent effort required during the challenging winter climate.

First District Association encourages members to contact FDA staff with questions, concerns, comments, and/or recommendations.

First District Association Direct Line....320-693-3236

First District Association Lab................320-593-4219 and 320-593-4220

Clint Fall................................................320-593-4204

Chuck Nelson (Department Manager)..........320-894-5558

Nate Mohr.....................................................320-894-5555

Randy Ostendorf...........................................320-894-5557

Harold Shepersky..........................................320-221-0877

Chad Thorsten...............................................320-221-3739

FUTURES MARKET

Back