DAIRY. and grain. Volume 17 Number 17 May 3, 2013

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1 DAIRY Volume 17 Number 17 and grain Week Year Market 3-May 26-Apr 19-Apr 12-Apr 5-Apr 29-Mar 22-Mar -2% 15% Barrel Cheddar (CME average; lb) $ $ $ $ $ $ $ % 23% Block Cheddar (CME average; lb) $ $ $ $ $ $ $ % 25% Butter (CME average; lb) $ $ $ $ $ $ $ % 41% Nonfat Dry Milk (AMS Central AOM; lb) $ $ $ $ $ $ $ % 7% Dry Whey (AMS Central AOM; lb) $ $ $ $ $ $ $ % -6% WPC (AMS Central/West AOM; lb) $ $ $ $ $ $ $ % 36% Dry Buttermilk (AMS West AOM; lb) $ $ $ $ $ $ $ % 34% Class III Futures (CME 2nd nearby; cwt) $ $ $ $ $ $ $ % 27% Cheese Futures (CME 2nd nearby; lb) $ $ $ $ $ $ $ % 31% Cash Butter Futures (CME 2nd nearby; lb) $ $ $ $ $ $ $ % 32% Dry Whey Futures (CME 2nd nearby; lb) $ $ $ $ $ $ $ % 48% NDM Futures (CME 2nd nearby; lb) $ $ $ $ $ $ $ % 45% Class IV Futures (CME 2nd nearby; cwt) $ $ $ $ $ $ $ % 6% Corn (CBOT nearby; bu) $ $ $ $ $ $ $ % -1% Soybeans (CBOT nearby; bu) $ $ $ $ $ $ $ % 18% Wheat (CBOT nearby; bu) $ $ $ $ $ $ $ % -3% Soymeal (CBOT nearby; ton) $ $ $ $ $ $ $ % -8% Soyoil (CBOT nearby; lb) $ $ $ $ $ $ $ % 4% Cocoa (ICE nearby; ton) $ 2,404 $ 2,364 $ 2,333 $ 2,261 $ 2,130 $ 2,170 $ 2,159 2% -16% Sugar #11 (ICE nearby; lb) $ $ $ $ $ $ $ % 21% Orange Juice (ICE nearby; lb) $ $ $ $ $ $ $ % -19% Coffee (NYMEX; lb) $ $ $ $ $ $ $ % 15% Lean Hogs (CME nearby; lb) $ $ $ $ $ $ $ % 6% Live Cattle (CME nearby; lb) $ $ $ $ $ $ $ % 77% Natural Gas (NYMEX nearby; mmbtu) $ $ $ $ $ $ $ % -3% Crude Oil (NYMEX nearby; bbl) $ $ $ $ $ $ $ % -5% Unleaded Gas (NYMEX nearby; gal) $ $ $ $ $ $ $ % -4% Heating Oil (NYMEX nearby, gal) $ $ $ $ $ $ $ % 15% Dow Jones Industrials 14,974 14,719 14,548 14,865 14,565 14,579 14,512 3% 14% NASDAQ 3,379 3,281 3,206 3,295 3,204 3,268 3,245 2% 18% S&P 500 Index 1,614 1,583 1,555 1,589 1,553 1,569 1,557 1% 0% Euro/Dollar % -1% Canadian Dollar/Dollar % -11% Gold $ 1,470 $ 1,454 $ 1,400 $ 1,487 $ 1,578 $ 1,595 $ 1, East Terrace Drive, Suite 280 Madison, WI info@blimling.com 2013 Blimling and Associates, Inc. This report is prepared for the exclusive use of Blimling and Associates clients. Reproduction in part or in whole without permission is strictly prohibited. This information is carefully compiled, but not guaranteed to be complete or free from error; nor does it constitute a solicitation to buy or sell futures/options contracts. Futures and options trading involves risk. Contact a licensed professional for more information.

2 2 C heese prices moved higher this week, that much is clear enough. The path taken? Well, that was not quite so straightforward. And, in the aftermath, the market continues to engender more good questions than good answers. Here are the basics: blocks closed at $ per pound, up five cents to the highest level since November 9. Barrels finished at $1.7300, up $ Trading was comparatively active, with seven cars of blocks and 26 cars of barrels changing hands, the most for the latter since the week ending December 21. Much of the week s intrigue centered on the block/barrel spread. It was wide coming into the week (17.50 cents), wider coming out of the week (18.00 cents) and wider yet at one point mid-week cents, the seventh biggest daily spread since daily trading began in 1999 and a width not seen since December Some observers note that the divergent pricing reflects a reality that, writ large, speaks to the prevailing tension between domestic and global forces. Block market conditions may reflect the world market situation and attendant export opportunities. Global prices remain elevated, a fact highlighted this week by another increase in value at the latest GlobalDairyTrade auction. The auction average was $4,800 per metric ton, or about $2.18 per pound, up 1.0% from the previous session average. So, there still appears to be room for US cheese in the world market. That was certainly the case in March, as US government data showed cheese exports at just over 58 million pounds during the month, up 22% from February, up 5% from March 2012 and the most for any month since May The CWT program remains active, too, with assistance provided for another 1.1 million pounds over the past Cheese prices climbed higher with blocks at $ (+$0.0500) and barrels at $ (+$0.0450). Butter prices softened, falling $ to $ Higher March production (+4.2% year-over-year) and a waning deferred bid may be to blame. NDM markets firmed as March exports jumped, reaching the highest level since August at 86.6 million pounds. Corn prices rose while planting was delayed. May close at $6.9950, up $ Total Cheese Production $19.60 Class III Milk "Packs" 925 $ $19.20 $ $ $ Million Pounds (30-Day Months); USDA $18.40 $18.20 $18.00 Jan Feb Mar Apr Dollars per Hundredweight; Source: CME Jul-Sep 2013 Oct-Dec 2013

3 190 Butter Production $5,400 GlobalDairyTrade Results 175 $4, $4, $3, $3, $2, $2,400 May Jul Sep Nov Jan Mar Million Pounds (30-Day Months); USDA Per Metric Ton; GDT WMP SMP AMF Cheese week with shipment scheduled between May and October. While contacts are not universally citing strong export demand, most report the block market as tight and see inventories held with confidence. Barrel cheddar has a more domestic profile, and may be suffering a little from ample supply and soft-ish demand conditions in the US. Multiple contacts note that processed cheese sales into food service channels appear sluggish, a notion lent credibility by public reports of soft same-store sales being made by some quick-service restaurant operators. In addition, the market s seemingly strong supply profile has perhaps been boosted by heavy imports during the first quarter. USITC data showed cheese imports at about 27 million pounds in March, up 11% from February and up 7% year-over-year. Some of that volume was presumably booked late last year when Oceania looked to be long, and it may be displacing demand for barrels from domestic plants. Production data for all cheese in March showed basically flat performance. The USDA/NASS Dairy Products report showed output at million pounds, down 0.2% year-overyear. Output in the cheddar segment was up 2.6% year-over-year. When that production data is combined with stocks and trade figures, domestic use calculates as being down upwards of two percent. CLASS III FUTURES WERE LOWER even as the cheese market was higher. Value erosion was strongest on Thursday and Friday, perhaps as market participants saw prevailing premiums as a little fat on the front of the board once the April contract expired and rolled off. June and July contracts endured the biggest setbacks, closing at $18.91 and $19.14 per hundredweight, respectively, down 35 and 31 cents. Losses were lighter for fourth-quarter 2013 contracts, which settled at an average of $18.52, down just a penny. THE BUTTER MARKET REMAINS OUT OF BREATH following its month long sprint in April. Losses in cash prices weren t as large as last week but another $ per pound was shaved en route to a settlement of $1.6500, the lowest price since early April and $ off the mid-month high. Futures suffered a sizeable set-back, with the second-half of 2013 declining by $ to $ Results from Wednesday s GlobalDairyTrade didn t help the mood any. The average butter price slipped to $4,409 per metric ton ($2.00 per pound), down 6.6%. Likewise, the average AMF price fell to $4,675 per metric ton, or $1.71 in 80% butter-equivalent terms (-5.8%). Both, however, remain at a premium to domestic prices, and that edge could assist US exporters. According to recent USITC data, the pace did pick up in March with shipments totaling about 13.1 million pounds, a 38% jump from February and a 6% increase from March Exports were the highest for any month since May CWT remains at work, announcing assistance on another 3

4 million pounds. Without solid exports, inventory build could have been larger in March, as production was strong. According to the Dairy Products report, March butter production hit million pounds, up 4.2% year-over-year and up 5.6% from the previous month. In absolute terms, production increased by 9.8 million pounds from February-March (over double the five-year average of 4.7 million pounds). Cream multiples, which were low in March and likely aided in the solid butter output, were slightly higher this week with AMS figures implying a multiple of 124, up a point from last week and up four from last year. WITH RAIN REPLENISHING NEW ZEALAND pastures, the Oceania milk powder markets seem to be gaining a measure of relief. At this week s GDT, both SMP and WMP suffered 10% setbacks, as prices dropped to $4,280 per metric ton ($1.94 per pound) and $4,721, respectively. Despite the softening, a wide wedge still divides SMP prices. In fact, New Zealand product at GDT commanded a more than $1,000 per metric premium over US and European offerings. Gaps also exist in the US as survey and day-to-day prices continue to work toward convergence. AMS/USDA Dairy Market News reports that the Western NDM average added $ to reach $ per pound while the Central states picked up $ to settle at an average of $ Both measures are at their highest average level since December Survey prices still lag, but are catching up. The NDPSR gained $ to reach $ per pound, with the CWAP at $ (+$0.0465). Despite the gains in the day-to-day markets, the futures market which has been priced at a premium offered little excitement. After drifting lower early, the market recovered some as the week wore on. The third quarter 2013 contracts lost $ to an average of $ per pound. With spot and futures markets hovering around the $1.75- mark, product is not being made widely available. Contacts suggest that sellers are committed at least a few months out. The USDA Dairy Products corroborates the theme, with combined March NDM/SMP output at million pounds, down 4.1% versus March The decrease was largely a function of weaker output in California. Manufacturers stocks were also hit, falling 12 million pounds from February to land at 214 in March. Despite the month-overmonth slide, stocks in March were still four million pounds above year-ago levels. Strong exports are likely to continue to pull at inventory levels. According to the USITC, March exports reached a total of about 86.6 million pounds, 12% higher month-over-month. DRY WHEY FUTURES SLUMPED BACK into the high 50s with most of the 2013 contracts seeing decreases by the end of the week. Overall, the second half con- 250 NDM Manufacturers' Stocks 75 Whey Manufacturers' Stocks Million Pounds; USDA Million Pounds; USDA

5 $23 $21 FMMO Milk Prices $7.60 $7.40 CBOT Corn Futures $19 $7.20 $17 $7.00 $15 $6.80 $13 $6.60 $11 $6.40 $ $6.20 Dec Jan Mar Apr Class III Class IV Dollars per Bushel; Source: CME tracts lost $ week-over-week to close at an average of $ per pound. Survey prices were also lower. According to the NDPSR, prices slipped to their lowest point since September 1, dropping more than a penny to $ per pound (-$0.0116). Meanwhile, the day-to-day markets held steady at a similar price level. According to Dairy Market News, both the Western and Central states averages settled unchanged for the third consecutive week at $ per pound and $0.5425, respectively. The Dairy Products report showed March output at 84.1 million pounds, up 9.1% month-over-month but down 4.5% from March Manufacturer s stocks, however, continued to forge higher for the fifth consecutive month. March s total rose to 73.7 million pounds, up 48.8% from last year and at the highest level on record, since at least Meanwhile, recent USITC data showed March whey exports at around 39.1 million pounds, down 6% from last year. USDA ANNOUNCED THE APRIL CLASS III PRICE at $17.59 per hundredweight, up 12%, or $1.87, year-overyear and 4% higher than in March. On a multiple component basis, protein was priced at $ per pound, butterfat at $ and other solids at $ The Class IV milk price gained 22%, or $3.31, year-over-year to rise to $18.10 per hundredweight, the highest price since November. The month-overmonth increase amounted to 2%, or $0.35. California Class 4a and 4b prices were announced at $18.02 and $16.92 per hundredweight, respectively. SNOW AND WET WEATHER across the Midwest gripped the grain markets this week. Although planting is well-behind year-ago levels, there is still plenty of time left to grow a good crop. In addition, the nearby forecast is also suggesting that a window could open over the next week or two. The lower ethanol stocks and the higher corn price have also seemed to encourage stronger ethanol production. Meanwhile, the markets inched higher, with May corn picking up $ to reach a settlement price of $ per bushel. Soybean meal exports also rose to a record high of 8.7 million metric tons for the week. Prices were firmer around the soybean complex, with May soybeans up $ to $ ENDQUOTE: If obvious benefits flow from helping the male component of the workforce achieve its potential, why in the world wouldn't you want to include its counterpart? Fellow males, get onboard. The closer that America comes to fully employing the talents of all its citizens, the greater its output of goods and services will be. We've seen what can be accomplished when we use 50% of our human capacity. If you visualize what 100% can do, you'll join me as an unbridled optimist about America's future. -- Warren Buffet 5

6 6 PRICE AND VOLUME DATA Week Year Week Ending 27-Apr 20-Apr 3% 21% NDPSR Block Cheddar (lb) $ $ % 19% NDPSR Barrel Cheddar (lb) $ $ % 21% USDA/NDPSR Butter (lb) $ $ % 32% USDA/NDPSR NDM (lb) $ $ % -1% USDA/NDPSR Dry Whey (lb) $ $ % -18% NDPSR Block Cheese Sales (mil lbs) % -14% NDPSR Barrel Cheese Sales (mil lbs) % -29% NDPSR NDM Sales (mil lbs) Week Year Week Ending 3-May 26-Apr -3% -7% Class III Futures Volume 5,302 5,486-10% -18% Class III Futures Open Interest 21,451 23,844-14% 13% Cash Butter Futures Volume % -15% Cash Butter Futures Open Interest 4,274 4,577-48% 48% Nonfat Dry Milk Futures Volume % -51% Nonfat Dry Milk Futures Open Interest 1,171 1,419-46% 9% Dry Whey Futures Volume % -34% Dry Whey Futures Open Interest 1,449 1,651 CME CASH CHEESE AND BUTTER MARKETS BLOCK CHEDDAR 29-Apr 30-Apr 1-May 2-May 3-May Total High Trade $ $ - $ $ - $ $ - Low Trade $ $ - $ $ - $ $ - Settle $ $ $ $ $ $ Volume Unfilled Bids Uncovered Offers BARREL CHEDDAR 29-Apr 30-Apr 1-May 2-May 3-May Total High Trade $ $ $ $ $ $ - Low Trade $ $ $ $ $ $ - Settle $ $ $ $ $ $ Volume Unfilled Bids Uncovered Offers GRADE AA BUTTER 29-Apr 30-Apr 1-May 2-May 3-May Total High Trade $ $ $ $ $ $ - Low Trade $ $ $ $ $ $ - Settle $ $ $ $ $ $ Volume Unfilled Bids Uncovered Offers Week Year Market 3-May 26-Apr 19-Apr 12-Apr 5-Apr 29-Mar 22-Mar 0% 64% Skim Milk Powder (Dutch Dairy Board) 3,240 3,240 3,200 3,000 2,850 2,770 2,690 0% 57% Whole Milk Powder (Dutch Dairy Board) 3,750 3,750 3,750 3,500 3,370 3,250 3,100 0% 66% Butter (Dutch Dairy Board) 4,070 4,070 4,000 3,750 3,570 3,450 3,360-4% 26% Whey (Dutch Dairy Board) 1,010 1,050 1,060 1, Skim Milk Powder (Kempten, Germany) - 3,200 3,050 2,925 2,800 2,735 2, Whole Milk Powder (Kempten, Germany) - 3,675 3,550 3,410 3,310 3,200 3, Butter 25 kg (Kempten, Germany) - 4,075 4,075 3,900 3,550 3,350 3, Edamer, 40% (Hannover, Germany) - 3,200 3,200 3,200 3,200 3,200 3,225-10% 57% Skim Milk Powder (GlobalDairyTrade) $ 4,280 $ 4,757 $ 4,757 $ 5,142 $ 5,142 $ 4,050 $ 4,050-10% 70% Whole Milk Powder (GlobalDairyTrade) $ 4,721 $ 5,245 $ 5,245 $ 5,100 $ 5,100 $ 5,116 $ 5,116-6% 64% Anhydrous Milk Fat (GlobalDairyTrade) $ 4,675 $ 4,964 $ 4,964 $ 4,695 $ 4,695 $ 4,416 $ 4,416 1% 63% Cheddar Cheese (GlobalDairyTrade) $ 4,800 $ 4,753 $ 4,753 $ 4,622 $ 4,622 $ 4,315 $ 4,315-7% Butter (GlobalDairyTrade) $ 4,409 $ 4,721 $ 4,721 $ 4,425 $ 4,425 $ 4,550 $ 4,550 13% Buttermilk Powder (GlobalDairyTrade) $ 4,500 $ 3,982 $ 3,982 $ 4,595 $ 4,595 $ 3,904 $ 3,904-3% 52% Rennet Casein (GlobalDairyTrade) $ 9,745 $ 10,060 $ 10,060 $ 9,489 $ 9,489 $ 9,242 $ 9,242 0% 5% Rennet Casein (AMS US; lb) $ $ $ $ $ $ $ % 4% Acid Casein (AMS US; lb) $ $ $ $ $ $ $ % -30% Lactose Edible (AMS Central/West AOM; lb) $ $ $ $ $ $ $ All figures are per metric ton unless otherwise noted.