Dairy Farm Operating Trends

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1 Dairy Farm Operating Trends December 31, 2007 MOORE STEPHENS WURTH FRAZER AND TORBET, LLP Certified Public Accountants and Consultants Creating New Horizons By Building Relationships and Exceeding Expectations

2 To Our Valued Clients and Other Friends in the Dairy Industry The following pages contain the Moore Stephens Wurth Frazer and Torbet, LLPs Dairy Farm Operating Trends for the year ended December 31, The data is compiled from dairy operations in Southern California, the San Joaquin Valley, Kern County, Arizona, Idaho, New Mexico and the Panhandle with a combined milk production of almost 4.3 billion pounds and more than 210,000 head of mature cows in the current year. This report includes a comparison of the results in the regions listed above for the year ended December 31, 2007 both on a per hundredweight of milk basis and on a per head basis. Also included are selected financial ratios and other information for the period. This publication is designed as a reference tool and a management aid for dairy farm managers and advisors. Moore Stephens Wurth Frazer and Torbet, LLP believes the information to be reliable, but is not responsible for errors in reported source information. Our publication continues to be recognized as the top industry source for relevant dairy statistics. This report is provided to and widely utilized by dairy farmers, lending institutions, universities, colleges and other agribusiness industries. We appreciate all of your past and present support and thank you for your continued reliance on Moore Stephens Wurth Frazer and Torbet, LLP. If you have any comments or questions, please contact Sharon A. Davis or Tim Gulling at our City of Industry office at (909) and Bob Matlick or Mike Edwards at our Visalia office at (559) For more information regarding our firm, our Agribusiness department and our publication, please visit our website at Sincerely, MOORE STEPHENS WURTH FRAZER AND TORBET, LLP Certified Public Accountants and Consultants April 2008

3 DAIRY FARM OPERATING TRENDS TABLE OF CONTENTS DECEMBER 31, 2007 PAGE 2007 in Review 1 Comparison by Area on a Per Head Basis... 3 Comparison by Area on a Per Hundredweight of Milk Basis. 5 Comparison by Area of Financial Statistics.. 7 Southern California. 9 San Joaquin Valley. 16 Kern County Arizona Idaho...35 New Mexico Panhandle 49 Explanation of Income and Cost Factors.. 54 Our Firm and the Dairy Industry... 55

4 2007 IN REVIEW Comparative Net Income (Loss) By Region: Milk prices rose dramatically in 2007 resulting in net income for all regions below. In addition, feed costs, fuel and most other operating costs rose during Net income (loss) Southern San Joaquin Kern New per head: California Valley County Arizona Idaho Mexico Panhandle 2007 $ 576 $ 747 $ 826 $ 694 $ 813 $ 689 $ (302) (308) (167) (267) (123) (143) (183) Change $ 878 $ 1,055 $ 993 $ 961 $ 936 $ 832 $ 725 Comparative Feed Cost By Region: Feed costs continued their rapid price increase brought on by domestic and global competition for these finitely produced commodities, rising fuel costs and the value of the dollar falling world wide also contributed to the increased feed costs. Feed cost Southern San Joaquin Kern New per head: California Valley County Arizona Idaho Mexico Panhandle 2007 $ 1,711 $ 1,700 $ 1,564 $ 1,622 $ 1,663 $ 1,451 $ 1, ,465 1,333 1,336 1,284 1,393 1,234 1,095 Change $ 246 $ 367 $ 228 $ 338 $ 270 $ 217 $ 190 1_

5 Comparative Production By Region: Milk production per cow increased in San Joaquin Valley, Kern County, Arizona and Idaho, while decreasing slightly in Southern California, New Mexico and the Panhandle. Lbs. per milk Southern San Joaquin Kern New cow per day California Valley County Arizona Idaho Mexico Panhandle Change (2.0) (2.7) (2.9) Herd Turnover Rate By Region: Herd turnover rates decreased in all regions in 2007, except in Arizona where it increased slightly. This is a direct reflection of the high milk prices and the dairymen holding on to cows longer. Southern San Joaquin Kern New California Valley County Arizona Idaho Mexico Panhandle % 31.2% 29.5% 35.7% 31.9% 31.4% 27.1% % 35.0% 32.1% 34.7% 32.2% 33.9% 29.1% Change -5.0% -3.8% -2.6% 1.0% -0.3% -2.5% -2.0% Average Cost of Replacement Per Head By Region: The cost of replacements remained relatively stable in 2007, with New Mexico and the San Joaquin Valley showing the largest increase in replacement costs. Southern San Joaquin Kern New California Valley County Arizona Idaho Mexico Panhandle 2007 $ 2,014 $ 2,088 $ 1,869 $ 1,916 $ 1,358 $ 2,050 $ 1, ,107 1,857 1,922 1,849 1,409 1,626 1,687 Change $ (93) $ 231 $ (53) $ 67 $ (51) $ 424 $ 83 2_

6 CONDENSED STATEMENT OF DAIRY FARM INCOME AND COSTS COMPARISON BY AREA FOR THE YEAR ENDED DECEMBER 31, 2007 (BASED ON AVERAGE AMOUNTS PER HEAD) Southern San Joaquin Kern California Valley County Income: Milk sales $ 3,795 $ 4,007 $ 3,675 Calves and other Total income $ 3,844 $ 4,086 $ 3,744 Cost of operations: Feed: Grain $ 1,137 $ 1,160 $ 1,087 Hay and other Total feed $ 1,711 $ 1,700 $ 1,564 Labor, (including fringe costs) $ 377 $ 313 $ 263 Herd replacement costs $ 255 $ 225 $ 236 Other costs: Milk hauling $ 83 $ 68 $ 66 State and association charges Veterinary, breeding, testing, etc Supplies Repairs and maintenance Utilities Occupancy costs Depreciation - equipment Interest Miscellaneous Total other costs $ 925 $ 1,101 $ 855 Total cost of operations $ 3,268 $ 3,339 $ 2,918 Net income $ 576 $ 747 $ See accompanying explanation of income and cost factors.

7 Your December 31, 2007 Arizona Idaho New Mexico Panhandle Amounts $ 4,115 $ 4,073 $ 3,574 $ 3,429 $ $ 4,197 $ 4,126 $ 3,688 $ 3,477 $ $ 996 $ 1,090 $ 1,040 $ 862 $ $ 1,622 $ 1,663 $ 1,451 $ 1,285 $ $ 318 $ 349 $ 314 $ 284 $ $ 368 $ 294 $ 229 $ 306 $ $ 116 $ 60 $ 145 $ 154 $ $ 1,195 $ 1,007 $ 1,005 $ 1,060 $ $ 3,503 $ 3,313 $ 2,999 $ 2,935 $ $ 694 $ 813 $ 689 $ 542 $ 4

8 CONDENSED STATEMENT OF DAIRY FARM INCOME AND COSTS COMPARISON BY AREA FOR THE YEAR ENDED DECEMBER 31, 2007 (BASED ON AVERAGE AMOUNTS PER HUNDREDWEIGHT OF MILK) Southern San Joaquin Kern California Valley County Income: Milk sales $ $ $ Calves and other Total income $ $ $ Cost of operations: Feed: Grain $ 5.53 $ 5.35 $ 5.48 Hay and other Total feed $ 8.31 $ 7.84 $ 7.89 Labor, (including fringe costs) $ 1.83 $ 1.44 $ 1.33 Herd replacement costs $ 1.24 $ 1.04 $ 1.19 Other costs: Milk hauling $ 0.40 $ 0.31 $ 0.33 State and association charges Veterinary, breeding, testing, etc Supplies Repairs and maintenance Utilities Occupancy costs Depreciation - equipment Interest Miscellaneous Total other costs $ 4.51 $ 5.03 $ 4.31 Total cost of operations $ $ $ Net income $ 2.80 $ 3.48 $ See accompanying explanation of income and cost factors.

9 Your December 31, 2007 Arizona Idaho New Mexico Panhandle Amounts $ $ $ $ $ $ $ $ $ $ $ 4.82 $ 4.84 $ 5.42 $ 5.03 $ $ 7.85 $ 7.37 $ 7.57 $ 7.50 $ $ 1.54 $ 1.55 $ 1.63 $ 1.66 $ $ 1.78 $ 1.31 $ 1.19 $ 1.79 $ $ 0.56 $ 0.27 $ 0.75 $ 0.90 $ $ 5.73 $ 4.46 $ 5.20 $ 6.18 $ $ $ $ $ $ $ 3.37 $ 3.81 $ 3.63 $ 3.15 $ 6

10 SUMMARY OF FINANCIAL STATISTICS COMPARISON BY AREA FOR THE YEAR ENDED DECEMBER 31, 2007 Southern San Joaquin Kern California Valley County 1. Current Ratio 1.24:1 1.47:1 1.79:1 2. Debt Per Cow $ 1,046 $ 1,503 $ 1, Debt to Equity Ratio 1.03:1 1.00:1 0.87:1 4. Return on Total Assets 12.7% 11.4% 10.6% The current ratio represents current assets divided by current liabilities. Debt per cow equals the total long-term debt divided by the average total herd size. Heifers are included on a mature equivalent basis. Debt to equity ratio represents total debt divided by total equity. The return on total assets represents the net income divided by the total assets, stated at cost. 7

11 New Your 2007 Arizona Idaho Mexico Panhandle Results 0.89:1 1.94:1 1.06:1 1.05:1 $ 1,161 $ 1,399 $ 880 $ 1, :1 1.00:1 1.03:1 1.92:1 11.9% 14.4% 12.8% 9.7% 8

12 CONDENSED STATEMENT OF DAIRY FARM INCOME AND COSTS FOR THE YEARS ENDED DECEMBER, 2007, 2006, AND 2005 SOUTHERN CALIFORNIA (BASED ON AVERAGE AMOUNTS) PER HEAD Income: Milk sales $ 3,795 $ 2,595 $ 3,046 Calves and other Total income $ 3,844 $ 2,696 $ 3,132 Cost of operations: Feed: Grain $ 1,137 $ 1,052 $ 994 Hay and other Total feed $ 1,711 $ 1,465 $ 1,455 Labor, (including fringe costs) $ 377 $ 397 $ 403 Herd replacement costs $ 255 $ 221 $ 233 Other costs: Milk hauling $ 83 $ 84 $ 71 State and association charges Veterinary, breeding, testing, etc Supplies Repairs and maintenance Utilities Occupancy costs Depreciation - equipment Interest Miscellaneous Total other costs $ 925 $ 915 $ 836 Total cost of operations $ 3,268 $ 2,998 $ 2,927 Net income (loss) $ 576 $ (302) $ See accompanying explanation of income and cost factors.

13 PER CWT. OF MILK YOUR 2007 RESULTS PER CWT. PER HEAD OF MILK $ $ $ $ $ $ $ 5.53 $ 4.96 $ $ 8.31 $ 6.90 $ 7.05 $ 1.83 $ 1.86 $ 1.95 $ 1.24 $ 1.05 $ 1.13 $ 0.40 $ 0.39 $ $ 4.51 $ 4.30 $ 4.04 $ $ $ $ 2.80 $ (1.38) $

14 SUMMARY OF FINANCIAL STATISTICS SOUTHERN CALIFORNIA December 31, December 31, December 31, Current Ratio 1.24:1 0.95:1 1.27:1 2. Debt Per Cow $ 1,046 $ 1,280 $ 1, Debt to Equity Ratio 1.03:1 1.86:1 1.24:1 4. Return on Total Assets 12.7% -7.5% 4.7% 1. The current ratio represents current assets divided by current liabilities. 2. Debt per cow equals the total long-term debt divided by the average total herd size. Heifers are included on a mature equivalent basis. 3. Debt to equity represents the total debt divided by the total equity. 4. The return on total assets represents the net income divided by the total assets, stated at cost. 11

15 SUMMARY OF DAIRY FARM STATISTICAL ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 SOUTHERN CALIFORNIA (BASED ON AVERAGE AMOUNTS) PRODUCTION AND PRICE INFORMATION: Annual pounds of milk, per cow (including dry cows) 24,219 21,195 20,645 Daily pounds of milk, per milking cow Butterfat test 3.52 % 3.57 % 3.58 % Solids-non-fat test 8.67 % 8.69 % 8.74 % Blend price per hundredweight $ $ $ Milk receipts, per milking cow $ 4,471 $ 3,057 $ 3,595 HERD INFORMATION: Herd size - total 1,229 1,214 1,348 Percent of dry cows 15.1 % 15.1 % 15.3 % Herd turnover rate 30.3 % 35.3 % 36.4 % Composition of herd: Purchased cows 9 % 9 % 16 % Self-raised cows 91 % 91 % 84 % Cost of purchased cows $ 2,014 $ 2,106 $ 1,948 Beef price received $ 638 $ 606 $ 617 FEED INFORMATION: Cost of feed as a percent of milk income: Grain 29.9 % 40.5 % 32.6 % Hay and other 15.1 % 15.9 % 15.1 % Totals 45.0 % 56.4 % 47.7 % 12

16 PROFITABILITY BY MILK PRODUCTION PER COW Southern California $1,000 $900 NET INCOME PER COW (in dollars) $800 $700 $600 $500 $400 $300 $200 $100 $0 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 MILK PRODUCTION PER COW (in pounds) Milk production per cow is the actual pounds of milk produced for the year divided by the average total cows in the herd (milking and dry) PROFITABILITY BY HERD SIZE Southern California $1,000 $900 NET INCOME PER COW (in dollars) $800 $700 $600 $500 $400 $300 $200 $100 $ ,000 1,200 1,400 1,600 1,800 2,000 NUMBER OF COWS

17 LONG-TERM TREND - ON A "PER HEAD" BASIS SOUTHERN CALIFORNIA INCOME AND OPERATING COSTS ,500 4,000 3,500 3,000 2,500 2,000 1,500 1, TOTAL INCOME 2,116 2,111 2,396 2,409 2,212 2,347 2,250 2,416 2,413 2,851 2,587 3,024 2,889 2,504 2,921 2,310 2,545 3,291 3,132 2,696 3,844 FEED 911 1,021 1,182 1,168 1,085 1,076 1,072 1,255 1,262 1,422 1,389 1,341 1,172 1,067 1,067 1,152 1,258 1,360 1,455 1,465 1,711 LABOR HERD REPLACEMENT INTEREST AND OTHER

18 3,000 LONG TERM TREND - COST OF PURCHASED COWS, BEEF PRICE, AND HERD SIZE SOUTHERN CALIFORNIA 2,500 2,000 Cost of purchased cows (in dollars) Beef price (in dollars) Herd size (number of head) 1,500 1, % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FEED COST vs. MILK INCOME SOUTHERN CALIFORNIA MILK INCOME FEED (as percent of milk income)

19 CONDENSED STATEMENT OF DAIRY FARM INCOME AND COSTS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 SAN JOAQUIN VALLEY (BASED ON AVERAGE AMOUNTS) PER HEAD Income: Milk sales $ 4,007 $ 2,437 $ 3,106 Calves and other Total income $ 4,086 $ 2,515 $ 3,159 Cost of operations: Feed: Grain $ 1,160 $ 971 $ 997 Hay and other Total feed $ 1,700 $ 1,333 $ 1,427 Labor, (including fringe costs) $ 313 $ 305 $ 302 Herd replacement costs $ 225 $ 221 $ 214 Other costs: Milk hauling $ 68 $ 56 $ 59 State and association charges Veterinary, breeding, testing, etc Supplies Repairs and maintenance Utilities Occupancy costs Depreciation - equipment Interest Miscellaneous Total other costs $ 1,101 $ 964 $ 891 Total cost of operations $ 3,339 $ 2,823 $ 2,834 Net income (loss) $ 747 $ (308) $ See accompanying explanation of income and cost factors.

20 PER CWT. OF MILK YOUR 2007 RESULTS PER CWT. PER HEAD OF MILK $ $ $ $ $ $ $ 5.35 $ 4.71 $ $ 7.84 $ 6.47 $ 6.64 $ 1.44 $ 1.48 $ 1.41 $ 1.04 $ 1.07 $ 1.00 $ 0.31 $ 0.27 $ $ 5.03 $ 4.68 $ 4.13 $ $ $ $ 3.48 $ (1.50) $

21 SUMMARY OF FINANCIAL STATISTICS SAN JOAQUIN VALLEY December 31, December 31, December 31, Current Ratio 1.47:1 0.70:1 1.34:1 2. Debt Per Cow $ 1,503 $ 1,370 $ 1, Debt to Equity Ratio 1.00:1 1.81:1 1.18:1 4. Return on Total Assets 11.4% -5.2% 5.3% 1. The current ratio represents current assets divided by current liabilities. 2. Debt per cow equals the total long-term debt divided by the average total herd size. Heifers are included on a mature equivalent basis. 3. Debt to equity represents the total debt divided by the total equity. 4. The return on total assets represents the net income divided by the total assets, stated at cost. 18

22 SUMMARY OF DAIRY FARM STATISTICAL ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 SAN JOAQUIN VALLEY (BASED ON AVERAGE AMOUNTS) PRODUCTION AND PRICE INFORMATION: Annual pounds of milk, per cow (including dry cows) 21,686 20,615 21,507 Daily pounds of milk, per milking cow Butterfat test 3.58 % 3.86 % 3.65 % Solids-non-fat test 8.80 % 8.79 % 8.74 % Blend price per hundredweight $ $ $ Milk receipts, per milking cow $ 4,655 $ 2,895 $ 3,627 HERD INFORMATION: Herd size - total 2,361 3,327 2,724 Percent of dry cows 13.9 % 15.8 % 14.4 % Herd turnover rate 31.2 % 35.0 % 34.9 % Composition of herd: Purchased cows 11 % 23 % 15 % Self-raised cows 89 % 77 % 85 % Cost of purchased cows $ 2,088 $ 1,857 $ 1,747 Beef price received $ 624 $ 619 $ 620 FEED INFORMATION: Cost of feed as a percent of milk income: Grain 29.0 % 39.8 % 32.1 % Hay and other 13.5 % 14.8 % 13.8 % Totals 42.5 % 54.6 % 45.9 % 19

23 PROFITABILITY BY MILK PRODUCTION PER COW San Joaquin Valley NET INCOME PER COW (in dollars) $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 -$100 -$200 -$300 -$400 -$500 -$600 14, , , , , , , , , , , ,00 0 MILK PRODUCTION PER COW (in pounds) Milk production per cow is the actual pounds of milk produced for the year divided by the average total cows in the herd (milking and dry) 26, , , , ,00 0 PROFITABILITY BY HERD SIZE San Joaquin Valley $2,000 NET INCOME PER COW (in dollars) $1,500 $1,000 $500 $0 -$500 -$1, ,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 NUMBER OF COWS

24 LONG-TERM TREND - ON A "PER HEAD" BASIS SAN JOAQUIN VALLEY INCOME AND OPERATING COSTS ,500 4,000 3,500 3,000 2,500 2,000 1,500 1, TOTAL INCOME 2,051 2,044 2,305 2,312 2,176 2,253 2,316 2,399 2,546 2,863 2,756 3,064 2,931 2,577 3,037 2,599 2,602 3,271 3,159 2,515 4,086 FEED ,037 1, ,023 1,185 1,183 1,313 1,365 1,217 1,165 1,086 1,200 1,298 1,267 1,399 1,427 1,333 1,700 LABOR HERD REPLACEMENT INTEREST AND OTHER ,101

25 LONG TERM TREND - COST OF PURCHASED COWS, BEEF PRICE, AND HERD SIZE SAN JOAQUIN VALLEY 3,500 3,000 2,500 Cost of purchased cows (in dollars) Beef price (in dollars) Herd size (number of head) 2,000 1,500 1, FEED COST vs. MILK INCOME SAN JOAQUIN VALLEY 100% 80% 60% 40% 20% 0% MILK INCOME FEED (as percent of milk income)

26 CONDENSED STATEMENT OF DAIRY FARM INCOME AND COSTS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 KERN COUNTY (BASED ON AVERAGE AMOUNTS) PER HEAD Income: Milk sales $ 3,675 $ 2,376 Calves and other Total income $ 3,744 $ 2,434 Cost of operations: Feed: Grain $ 1,087 $ 932 Hay and other Total feed $ 1,564 $ 1,336 Labor, (including fringe costs) $ 263 $ 267 Herd replacement costs $ 236 $ 235 Other costs: Milk hauling $ 66 $ 53 State and association charges Veterinary, breeding, testing, etc Supplies Repairs and maintenance Utilities Occupancy costs Depreciation - equipment Interest Miscellaneous Total other costs $ 855 $ 763 Total cost of operations $ 2,918 $ 2,601 Net income (loss) $ 826 $ (167) 23 See accompanying explanation of income and cost factors.

27 PER CWT. OF MILK YOUR 2007 RESULTS PER CWT. PER HEAD OF MILK $ $ $ $ $ $ $ $ $ 5.48 $ 4.80 $ $ $ 7.89 $ 6.89 $ $ $ 1.33 $ 1.37 $ $ $ 1.19 $ 1.21 $ $ $ 0.33 $ 0.27 $ $ $ 4.31 $ 3.92 $ $ $ $ $ $ $ 4.16 $ (0.87) $ $ 24

28 SUMMARY OF FINANCIAL STATISTICS KERN COUNTY December 31, December 31, Current Ratio 1.79:1 1.14:1 2. Debt Per Cow $ 1,507 $ 1, Debt to Equity Ratio 0.87:1 0.91:1 4. Return on Total Assets 10.6% -2.3% 1. The current ratio represents current assets divided by current liabilities. 2. Debt per cow equals the total long-term debt divided by the average total herd size. Heifers are included on a mature equivalent basis. 3. Debt to equity represents the total debt divided by the total equity. 4. The return on total assets represents the net income divided by the total assets, stated at cost. 25

29 SUMMARY OF DAIRY FARM STATISTICAL ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 KERN COUNTY (BASED ON AVERAGE AMOUNTS) PRODUCTION AND PRICE INFORMATION: Annual pounds of milk, per cow (including dry cows) 19,828 19,433 Daily pounds of milk, per milking cow Butterfat test 3.71 % 3.90 % Solids-non-fat test 8.78 % 8.76 % Blend price per hundredweight $ $ Milk receipts, per milking cow $ 4,451 $ 2,900 HERD INFORMATION: Herd size - total 2,955 2,845 Percent of dry cows 17.4 % 18.1 % Herd turnover rate 29.5 % 32.1 % Composition of herd: Purchased cows 10 % 15 % Self-raised cows 90 % 85 % Cost of purchased cows $ 1,869 $ 1,922 Beef price received $ 555 $ 559 FEED INFORMATION: Cost of feed as a percent of milk income: Grain 29.6 % 39.2 % Hay and other 13.0 % 17.1 % Totals 42.6 % 56.3 % 26

30 PROFITABILITY BY MILK PRODUCTION PER COW Kern County $1,400 NET INCOME PER COW (in dollars) $1,200 $1,000 $800 $600 $400 $200 $0 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 MILK PRODUCTION PER COW (in pounds) Milk production per cow is the actual pounds of milk produced for the year divided by the average total cows in the herd (milking and dry) PROFITABILITY BY HERD SIZE Kern County $1,400 $1,200 NET INCOME PER COW (in dollars) $1,000 $800 $600 $400 $200 $0-1,000 2,000 3,000 4,000 5,000 6,000 7,000 NUMBER OF COWS

31 CONDENSED STATEMENT OF DAIRY FARM INCOME AND COSTS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 ARIZONA (BASED ON AVERAGE AMOUNTS) PER HEAD Income: Milk sales $ 4,115 $ 2,643 $ 3,027 Calves and other Total income $ 4,197 $ 2,726 $ 3,127 Cost of operations: Feed: Grain $ 996 $ 802 $ 822 Hay and other Total feed $ 1,622 $ 1,284 $ 1,292 Labor, (including fringe costs) $ 318 $ 282 $ 278 Herd replacement costs $ 368 $ 291 $ 325 Other costs: Milk hauling $ 116 $ 88 $ 106 State and association charges Veterinary, breeding, testing, etc Supplies Repairs and maintenance Utilities Occupancy costs Depreciation - equipment Interest Miscellaneous Total other costs $ 1,195 $ 1,136 $ 978 Total cost of operations $ 3,503 $ 2,993 $ 2,873 Net income (loss) $ 694 $ (267) $ See accompanying explanation of income and cost factors.

32 PER CWT. OF MILK YOUR 2007 RESULTS PER CWT. PER HEAD OF MILK $ $ $ $ $ $ $ 4.82 $ 3.92 $ $ 7.85 $ 6.28 $ 6.51 $ 1.54 $ 1.39 $ 1.40 $ 1.78 $ 1.42 $ 1.64 $ 0.56 $ 0.43 $ $ 5.73 $ 5.56 $ 4.93 $ $ $ $ 3.37 $ (1.33) $

33 SUMMARY OF FINANCIAL STATISTICS ARIZONA December 31, December 31, December 31, Current Ratio 0.89:1 0.34:1 0.80:1 2. Debt Per Cow $ 1,468 $ 1,828 $ 2, Debt to Equity Ratio 2.13:1 3.49:1 2.63:1 4. Return on Total Assets 11.9% -4.2% 4.6% 1. The current ratio represents current assets divided by current liabilities. 2. Debt per cow equals the total long-term debt divided by the average total herd size. Heifers are included on a mature equivalent basis. 3. Debt to equity represents the total debt divided by the total equity. 4. The return on total assets represents the net income divided by the total assets, stated at cost. 30

34 SUMMARY OF DAIRY FARM STATISTICAL ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 ARIZONA (BASED ON AVERAGE AMOUNTS) PRODUCTION AND PRICE INFORMATION: Annual pounds of milk, per cow (including dry cows) 20,703 20,436 19,847 Daily pounds of milk, per milking cow Butterfat test 3.51 % 3.52 % 3.60 % Blend price per hundredweight $ $ $ Milk receipts, per milking cow $ 5,247 $ 3,112 $ 3,631 HERD INFORMATION: Herd size - total 3,302 3,656 2,315 Percent of dry cows 21.7 % 15.1 % 16.6 % Herd turnover rate 35.7 % 34.7 % 31.3 % Composition of herd: Purchased cows 53 % 50 % 57 % Self-raised cows 47 % 50 % 43 % Cost of purchased cows $ 1,916 $ 1,849 $ 1,845 Beef price received $ 587 $ 570 $ 551 FEED INFORMATION: Cost of feed as a percent of milk income: Grain 24.3 % 30.3 % 27.2 % Hay and other 15.2 % 18.2 % 15.5 % Totals 39.5 % 48.5 % 42.7 % 31

35 PROFITABILITY BY MILK PRODUCTION PER COW Arizona $1,200 NET INCOME PER COW (in dollars) $1,000 $800 $600 $400 $200 $0 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 MILK PRODUCTION PER COW (in pounds) Milk production per cow is the actual pounds of milk produced for the year divided by the average total cows in the herd (milking and dry) PROFITABILITY BY HERD SIZE Arizona $1,200 NET INCOME PER COW (in dollars) $1,000 $800 $600 $400 $200 $0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 NUMBER OF COWS

36 LONG-TERM TREND - ON A "PER HEAD" BASIS ARIZONA INCOME AND OPERATING COSTS ,500 4,000 3,500 3,000 2,500 2,000 1,500 1, TOTAL INCOME 2,253 2,180 2,443 2,577 2,376 2,602 2,542 2,626 2,602 3,003 2,660 2,892 2,840 2,536 2,813 2,491 2,543 3,307 3,127 2,726 4,197 FEED ,135 1,155 1,146 1,055 1,140 1,221 1,226 1,373 1,337 1,234 1,208 1,197 1,091 1,165 1,190 1,262 1,292 1,284 1,622 LABOR HERD REPLACEMENT INTEREST AND OTHER ,136 1,195

37 LONG TERM TREND - COST OF PURCHASED COWS, BEEF PRICE, AND HERD SIZE ARIZONA 4,000 3,500 3,000 Cost of purchased cows (in dollars) Beef price (in dollars) Herd size (number of head) 2,500 2,000 1,500 1, % 80% 60% 40% 20% 0% FEED COST vs. MILK INCOME ARIZONA MILK INCOME FEED (as percent of milk income)

38 CONDENSED STATEMENT OF DAIRY FARM INCOME AND COSTS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 IDAHO (BASED ON AVERAGE AMOUNTS) PER HEAD Income: Milk sales $ 4,073 $ 2,771 $ 3,249 Calves and other Total income $ 4,126 $ 2,850 $ 3,358 Cost of operations: Feed: Grain $ 1,090 $ 899 $ 932 Hay and other Total feed $ 1,663 $ 1,393 $ 1,396 Labor, (including fringe costs) $ 349 $ 328 $ 332 Herd replacement costs $ 294 $ 312 $ 268 Other costs: Milk hauling $ 60 $ 59 $ 55 State and association charges Veterinary, breeding, testing, etc Supplies Repairs and maintenance Utilities Occupancy costs Depreciation - equipment Interest Miscellaneous Total other costs $ 1,007 $ 940 $ 904 Total cost of operations $ 3,313 $ 2,973 $ 2,900 Net income (loss) $ 813 $ (123) $ See accompanying explanations of income and cost factors.

39 PER CWT. OF MILK YOUR 2007 RESULTS PER CWT. PER HEAD OF MILK $ $ $ $ $ $ $ 4.84 $ 3.94 $ $ 7.37 $ 6.11 $ 6.09 $ 1.55 $ 1.43 $ 1.45 $ 1.31 $ 1.37 $ 1.17 $ 0.27 $ 0.26 $ $ 4.46 $ 4.11 $ 3.94 $ $ $ $ 3.81 $ (0.52) $

40 SUMMARY OF FINANCIAL STATISTICS IDAHO Current Ratio 1.94:1 1.14:1 1.40:1 2. Debt Per Cow $ 1,399 $ 1,372 $ 1, Debt to Equity Ratio 1.00:1 1.28:1 1.13:1 4. Return on Total Assets 14.4% -3.6% 14.4% 1. The current ratio represents current assets divided by current liabilities. 2. Debt per cow equals the total long-term debt divided by the average total herd size. Heifers are included on a mature equivalent basis. 3. Debt to equity represents the total debt divided by the total equity. 4. The return on total assets represents the net income divided by the total assets, stated at cost. 37

41 SUMMARY OF DAIRY FARM STATISTICAL ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 IDAHO (BASED ON AVERAGE AMOUNTS) PRODUCTION AND PRICE INFORMATION: Annual pounds of milk, per cow (including dry cows) 22,556 22,824 22,909 Daily pounds of milk, per milking cow Butterfat test 3.13 % 3.59 % 3.51 % Blend price per hundredweight $ $ $ Milk receipts, per milking cow $ 5,042 $ 3,196 $ 3,752 HERD INFORMATION: Herd size - total 2,754 2,887 2,557 Percent of dry cows 19.2 % 13.3 % 13.4 % Herd turnover rate 31.9 % 32.2 % 30.4 % Composition of herd: Purchased cows 15 % 24 % 34 % Self-raised cows 85 % 76 % 66 % Cost of purchased cows $ 1,358 $ 1,409 $ 1,867 Beef price received $ 544 $ 494 $ 613 FEED INFORMATION: Cost of feed as a percent of milk income: Grain 26.8 % 32.4 % 28.7 % Hay and other 14.0 % 17.8 % 14.3 % Totals 40.8 % 50.2 % 43.0 % 38

42 PROFITABILITY BY MILK PRODUCTION PER COW Idaho $2,500 NET INCOME PER COW (in dollars) $2,000 $1,500 $1,000 $500 $0 -$500 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 MILK PRODUCTION PER COW (in pounds) Milk production per cow is the actual pounds of milk produced for the year divided by the average total cows in the herd (milking and dry) PROFITABILITY BY HERD SIZE Idaho $2,500 NET INCOME PER COW (in dollars) $2,000 $1,500 $1,000 $500 $0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 NUMBER OF COWS

43 LONG-TERM TREND - ON A "PER HEAD" BASIS IDAHO INCOME AND OPERATING COSTS ,500 3,000 2,500 2,000 1,500 1, TOTAL INCOME 2,208 2,204 2,129 2,363 2,350 2,497 2,478 2,845 2,747 3,338 3,073 2,871 3,099 2,551 2,635 3,385 3,358 2,850 4,126 FEED ,016 1,102 1,097 1,294 1,354 1,299 1,329 1,159 1,171 1,259 1,159 1,329 1,396 1,393 1,663 LABOR HERD REPLACEMENT INTEREST AND OTHER ,007

44 LONG TERM TREND - COST OF PURCHASED COWS, BEEF PRICE, AND HERD SIZE IDAHO 3,000 2,500 2,000 Cost of purchased cows (in dollars) Beef price (in dollars) Herd size (number of head) 1,500 1, FEED COST vs. MILK INCOME IDAHO % 80% 60% 40% 20% MILK INCOME FEED (as percent of milk income) 0%

45 CONDENSED STATEMENT OF DAIRY FARM INCOME AND COSTS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 NEW MEXICO (BASED ON AVERAGE AMOUNTS) PER HEAD Income: Milk sales $ 3,574 $ 2,351 $ 2,704 Calves and other Total income $ 3,688 $ 2,480 $ 2,800 Cost of operations: Feed: Grain $ 1,040 $ 861 $ 834 Hay and other Total feed $ 1,451 $ 1,234 $ 1,239 Labor, (including fringe costs) $ 314 $ 301 $ 298 Herd replacement costs $ 229 $ 232 $ 214 Other costs: Milk hauling $ 145 $ 121 $ 120 State and association charges Veterinary, breeding, testing, etc Supplies Repairs and maintenance Utilities Occupancy costs Depreciation - equipment Interest Miscellaneous Total other costs $ 1,005 $ 856 $ 835 Total cost of operations $ 2,999 $ 2,623 $ 2,586 Net income (loss) $ 689 $ (143) $ See accompanying explanation of income and cost factors.

46 PER CWT. OF MILK YOUR 2007 RESULTS PER CWT. PER HEAD OF MILK $ $ $ $ $ $ $ 5.42 $ 4.35 $ $ 7.57 $ 6.24 $ 6.31 $ 1.63 $ 1.52 $ 1.52 $ 1.19 $ 1.17 $ 1.09 $ 0.75 $ 0.61 $ $ 5.20 $ 4.30 $ 4.26 $ $ $ $ 3.63 $ (0.72) $

47 SUMMARY OF FINANCIAL STATISTICS NEW MEXICO December 31, December 31, December 31, Current Ratio 1.06:1 0.81:1 1.07:1 2. Debt Per Cow $ 880 $ 988 $ 1, Debt to Equity Ratio 1.03:1 1.33:1 1.19:1 4. Return on Total Assets 12.8% -3.3% 4.7% 1. The current ratio represents current assets divided by current liabilities. 2. Debt per cow equals the total long-term debt divided by the average total herd size. Heifers are included on a mature equivalent basis. 3. Debt to equity represents the total debt divided by the total equity. 4. The return on total assets represents the net income divided by the total assets, stated at cost. 44

48 SUMMARY OF DAIRY FARM STATISTICAL ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 NEW MEXICO (BASED ON AVERAGE AMOUNTS) PRODUCTION AND PRICE INFORMATION: Annual pounds of milk, per cow (including dry cows) 19,191 19,821 19,611 Daily pounds of milk, per milking cow Butterfat test 3.21 % 3.51 % 3.47 % Blend price per hundredweight $ $ $ Milk receipts, per milking cow $ 4,386 $ 2,908 $ 3,264 HERD INFORMATION: Herd size - total 3,044 3,290 3,203 Percent of dry cows 18.5 % 19.1 % 17.2 % Herd turnover rate 31.4 % 33.9 % 34.8 % Composition of herd: Purchased cows 16 % 22 % 30 % Self-raised cows 84 % 78 % 70 % Cost of purchased cows $ 2,050 $ 1,626 $ 1,793 Beef price received $ 590 $ 565 $ 653 FEED INFORMATION: Cost of feed as a percent of milk income: Grain 29.1 % 36.6 % 30.8 % Hay and other 11.5 % 15.9 % 15.0 % Totals 40.6 % 52.5 % 45.8 % 45

49 PROFITABILITY BY MILK PRODUCTION PER COW New Mexico $1,300 $1,200 NET INCOME PER COW (in dollars) $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 MILK PRODUCTION PER COW (in pounds) Milk production per cow is the actual pounds of milk produced for the year divided by the average total cows in the herd (milking and dry) PROFITABILITY BY HERD SIZE New Mexico $1,400 $1,200 NET INCOME PER COW (in dollars) $1,000 $800 $600 $400 $200 $0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 NUMBER OF COWS

50 LONG-TERM TREND - ON A "PER HEAD" BASIS NEW MEXICO INCOME AND OPERATING COSTS ,500 3,000 2,500 2,000 1,500 1, TOTAL INCOME 2,620 2,643 2,345 2,304 2,369 2,377 2,210 2,552 2,405 2,849 2,781 2,393 2,756 2,361 2,285 2,888 2,800 2,480 3,688 FEED 1,088 1,119 1, ,025 1,064 1,071 1,226 1,253 1,205 1,176 1,008 1,006 1,051 1,102 1,202 1,239 1,234 1,451 LABOR HERD REPLACEMENT INTEREST AND OTHER ,005

51 LONG TERM TREND - COST OF PURCHASED COWS, BEEF PRICE, AND HERD SIZE IDAHO 3,000 2,500 2,000 Cost of purchased cows (in dollars) Beef price (in dollars) Herd size (number of head) 1,500 1, FEED COST vs. MILK INCOME IDAHO % 80% 60% 40% 20% MILK INCOME FEED (as percent of milk income) 0%

52 CONDENSED STATEMENT OF DAIRY FARM INCOME AND COSTS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 PANHANDLE (BASED ON AVERAGE AMOUNTS) PER HEAD Income: Milk sales $ 3,429 $ 2,370 Calves and other Total income $ 3,477 $ 2,462 Cost of operations: Feed: Grain $ 862 $ 702 Hay and other Total feed $ 1,285 $ 1,095 Labor, (including fringe costs) $ 284 $ 265 Herd replacement costs $ 306 $ 304 Other costs: Milk hauling $ 154 $ 148 State and association charges Veterinary, breeding, testing, etc Supplies Repairs and maintenance Utilities Occupancy costs Depreciation - equipment Interest Miscellaneous Total other costs $ 1,060 $ 981 Total cost of operations $ 2,935 $ 2,645 Net income (loss) $ 542 $ (183) 49 See accompanying explanation of income and cost factors.

53 PER CWT. OF MILK YOUR 2007 RESULTS PER CWT. PER HEAD OF MILK $ $ $ $ $ 5.03 $ $ 7.50 $ 5.84 $ 1.66 $ 1.41 $ 1.79 $ 1.62 $ 0.90 $ $ 6.18 $ 5.24 $ $ $ 3.15 $ (0.99) 50

54 SUMMARY OF FINANCIAL STATISTICS PANHANDLE December 31, December 31, Current Ratio 1.05:1 0.77:1 2. Debt Per Cow $ 1,842 $ 1, Debt to Equity Ratio 1.92:1 2.25:1 4. Return on Total Assets 9.7% -3.7% 1. The current ratio represents current assets divided by current liabilities. 2. Debt per cow equals the total long-term debt divided by the average total herd size. Heifers are included on a mature equivalent basis. 3. Debt to equity represents the total debt divided by the total equity. 4. The return on total assets represents the net income divided by the total assets, stated at cost. 51

55 SUMMARY OF DAIRY FARM STATISTICAL ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 PANHANDLE (BASED ON AVERAGE AMOUNTS) PRODUCTION AND PRICE INFORMATION: Annual pounds of milk, per cow (including dry cows) 17,140 18,757 Daily pounds of milk, per milking cow Butterfat test 3.82 % 3.67 % Blend price per hundredweight $ $ Milk receipts, per milking cow $ 4,282 $ 2,837 HERD INFORMATION: Herd size - total 2,573 2,268 Percent of dry cows 19.9 % 16.5 % Herd turnover rate 27.1 % 29.1 % Composition of herd: Purchased cows 48 % 50 % Self-raised cows 52 % 50 % Cost of purchased cows $ 1,770 $ 1,687 Beef price received $ 544 $ 514 FEED INFORMATION: Cost of feed as a percent of milk income: Grain 25.1 % 29.6 % Hay and other 12.3 % 16.6 % Totals 37.4 % 46.2 % 52

56 PROFITABILITY BY MILK PRODUCTION PER COW Panhandle $1,200 NET INCOME PER COW (in dollars) $1,000 $800 $600 $400 $200 $0 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 MILK PRODUCTION PER COW (in pounds) Milk production per cow is the actual pounds of milk produced for the year divided by the average total cows in the herd (milking and dry) PROFITABILITY BY HERD SIZE Panhandle $1,200 NET INCOME PER COW (in dollars) $1,000 $800 $600 $400 $200 $ ,000 1,500 2,000 2,500 3,000 3,500 4,000 NUMBER OF COWS

57 EXPLANATION OF INCOME AND COST FACTORS Basis of presentation Information is included both on a "per head" basis and a "per hundredweight of milk" basis. The "per head" statistics are based on the total average number of milking and dry cows in a herd for the period. The Panhandle region includes the triangle from Clovis, New Mexico to Amarillo to Lubbock, Texas. Milk sales Includes milk income, quality and production bonuses, patronage dividends, USDA program payments, and milk futures. Calves and other income This is primarily composed of the sale of calves, heifers, other livestock and equipment, and miscellaneous other income. Feed Grain includes all minerals and BST expense. Labor Includes wages and fringe costs such as payroll taxes, workers compensation insurance, medical insurance, union benefits, etc. Compensation to owner-employees or partners is not included. Herd replacement cost Represents the difference between the actual price paid for purchased cows (or estimated cost of self-raised cows) at the time the cows were added to the milking herd less the sales price received for cows disposed of. This difference is amortized over the productive life of the cows. Occupancy cost Includes property taxes and depreciation of buildings on owner occupied facilities, rent paid and depreciation of improvements on leased facilities. It does not include interest paid on real property. Miscellaneous cost Includes auto, truck and fuel expenses, insurance, professional fees, quality penalties and other dairy expenses not specifically classified in another category. Net income Is stated before a provision for income taxes or a return on the dairy owners investment. 54

58 OUR FIRM AND THE DAIRY INDUSTRY Moore Stephens Wurth Frazer and Torbet, LLP has been associated with the dairy industry since the early 1950's. At that time, many immigrants from Europe were arriving in Californias Dairy Valley and establishing their farming operations. These early dairies averaged 50 cows and the families provided most of the labor. Moore Stephens Wurth Frazer and Torbet, LLPs partners, situated in Dairy Valley, were instrumental in the creation of federal and state laws to help dairymen. We have consistently supported pro-agricultural organizations in their efforts to help shape policy and better the living and working environments for dairy families. As development expanded in the dairy farming area, our firm helped many dairies relocate throughout California and other Western states. Many families we are servicing now have their third generation stepping into the operations management. We have grown with these families into their multiple operations, often totaling 10,000 cows or more. Today, Moore Stephens Wurth Frazer and Torbet, LLP has clients in California, Arizona, Texas, New Mexico, Colorado, Idaho, Nevada, Oregon, Washington, Nebraska and Kansas. Also, we actively consult with many dairies throughout the United States. As we look to the future, the trend to larger more efficient dairies will continue. Along with this trend, the dairy industry is facing continued challenges in its expansion and relocation activities including the ability to construct new dairies. The dairy industry brings many jobs to an area and allows associated businesses to grow and flourish. This creates further conflict between the local communities and the environmentalists. The environmental issues are extremely important and the dairies need to monitor and control the impact on the surrounding community including air quality, water quality and odor issues. The regulatory controls and enforcement will increase in impact to the dairies in As we are aware the dairy industry faces volatility in both milk prices received and costs incurred. All producers are faced with these inevitable market fluctuations. Following 2004 and 2005 which provided welcome relief to the dairy industry with higher milk prices and fairly stable operating costs, we hit This was a devastating year of low milk prices and increasing costs was a complete turnaround of the highest milk prices the industry has ever seen. This was combined with increasing costs especially feed, fuel, insurance and other costs. The milk prices have decreased heading into 2008 and feed costs have risen dramatically with no let up in sight. While starting the year on a positive note, 2008 could end up being another loss year unless milk prices rise again to compensate for the ever increasing operating costs. All of these factors culminate in a substantial amount of capital required to maintain a dairy farm and will put increasing pressure on dairy operators to make critical financial decisions. Moore Stephens Wurth Frazer and Torbet, LLP will be instrumental in providing the assistance needed to make these decisions. We are proud of our dairy clients' social, political and charitable contributions to their communities. 55

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62 MOORE STEPHENS WURTH FRAZER AND TORBET, LLP Certified Public Accountants and Consultants Creating New Horizons By Building Relationships and Exceeding Expectations 1199 South Fairway Drive, 2nd Floor, Walnut, California P.O. Box 3949, City of Industry, California (909) Fax (909) West Main St., Suite B, Visalia, California (559) Fax (559) S. Anita Drive, Suite 100, Orange, California (714) Fax (714) An independently owned and operated member of Moore Stephens North America, Inc. - members in principal cities throughout North America Moore Stephens North America, Inc., is a member of Moore Stephens International Limited - members in principal cities throughout the world M S