May 2010 Patron Newsletter

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

The USDA announced Class III price for April 2010 is $12.92/cwt., up $2.14/cwt. from April 2009, although down $0.58/cwt. from the previous five year average. MILC payments will be paid to producers in the projected amount of $0.2115/cwt. for the month of April. According to current milk futures prices, the month of April will likely be the only month during 2010 that will trigger MILC payments.

Recent information from dairybusiness.com indicates that the U.S. all milk price averaged $12.93/cwt. in 2009, down nearly 30% from 2008. The average all milk price paid by FDA to FDA members during 2009 was $13.22/cwt. (not including patronage dividends).

The USDA March milk production issued on April 18 indicates that national milk production was up 0.6% over the same month one year ago. Nationally, cow numbers were down 193,000. FDA member milk for our current fiscal year beginning in October 2009 is up an estimated 4% from the same period one year ago. We continue to be pleased with FDA members commitment and reinvestment into their dairy operations. The table below shows March milk production for the top eight milk producing states along with production per cow averages and number of cows (+/-) for March 2009. Minnesota average milk production per cow continues to remain on the low side which may be an indicator of possible and significant financial opportunity:

State March Production March Production Cows vs. 2009

U.S. exports are improving according to U.S. Dairy Export Council. Dairy Market News is reporting cheese prices out of Oceania and Europe significantly higher than U.S. prices. U.S. prices are undoubtedly burdened with high domestic commercial inventories that will likely decline rapidly as we approach the summer months, lower national milk production and upcoming seasonal demand increases. Global demand is slowly increasing and it seems likely that milk prices will follow. According to one analyst "dairy prices around the world are poised to advance until buyer/end user resistance kills sales".

FDA production is operating at full capacity with the exception of scheduled "shut-down" periods as we prepare for start up of the new evaporator equipment within the next couple months. FDA processed over 114 million pounds of milk during April producing nearly 12 million pounds of cheddar cheese. FDA sales remain strong.

FDA is looking forward to the installation of "new state of art" laboratory milk component testing instrumentation. The new equipment will enhance laboratory efficiencies, reliability, and provide FDA members with more information that we hope will provide additional assistance in managing your dairy operations. More information will be forthcoming.

FDA is already half way through it’s fiscal year with reasonably good operational results. I would expect our Board of Directors to approve the first half equity revolvement in mid-June. FDA continues to be a strong and aggressive grass roots cooperative that revolves its member’s equity in a timely basis twice each year without any capital retain from member’s milk checks.

FDA is trying to keep our members current regarding new milk Somatic Cell Count (SCC) requirements on milk received from our members. We have provided a number of articles in the March and April newsletter with the intent of keeping our members up to date regarding changes that were announced by USDA in January requiring farm SCC to be less than 400,000 on a three month rolling geometric average and for bacteria (SPC) to be less than 100,000 on a two month rolling geometric average. Needless to say, FDA is very proud of the excellent effort our members have taken to improve their SCC and bacteria levels in milk over the past several years. We are happy that FDA members who are able to achieve high quality standards also receive well deserved and substantial premium awards exceeding that of most other cooperatives.

FDA, as well as most (possibly all) processors are tied to global market standards. FDA currently markets dairy products to important and valuable customers requiring E.U. Certificates. New and recent information regarding future SCC and bacteria requirements for plants that process milk for global markets now stipulates that every producer will need to be in compliance with meeting the new standard that requires producers to be below 400,000 SCC and 100,000 bacteria on a three month and two month, respectively, rolling geometric average. For example, once a producers three month rolling geometric average SCC exceeds 400,000, First District Association must legally notify the USDA/AMS immediately and within a three month period or less, the producer will be required to obtain a three month rolling geometric mean below 400,000 SCC. In the event the producers SCC falls below 400,000 prior to the end of the three month period, we currently believe the producer may be able to become re-qualified as EU compliant. The same program applies to bacteria exceeding 100,000 on a two month rolling geometric average.

First District Association is not pleased with the rules being mandated by USDA and the EU since it clearly jeopardizes the market for a producers milk that can’t be brought into compliance. It does not appear that segregation of non-compliant milk is feasible. It is FDA’s desire to work with all members regarding this situation to the best of our ability within the capability of our limited resources. FDA currently "trades" milk with other processors who will also require all producer milk to be EU compliant which further complicates the issue. FDA will continue to do its best to keep members informed of any new (and hopefully better) information. Dairy producers and their processor will be required to be compliant with the previous three month rolling geometric average SCC less than 400,000 and two month geometric mean SPC below 100,000 by October 1, 2010. . We strongly encourage all dairy producers to take the necessary action required to comply with the new requirements as soon as possible. On a positive note, we will undoubtedly see FDA members receive higher quality premiums as we have no choice but to meet the new regulatory mandate.

Please feel free to contact your Field Service Representative, FDA Quality Department, or Clint Fall regarding any question or concerns.

FUTURES MARKET

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.

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