What Does Being a Global Player Mean to the U.S. Dairy Sector?

What Does Being a Global Player Mean to the U.S. Dairy Sector?

Global Considerations Copyright of Daily Dairy Report, Inc. 2

A Decade of Change $8,000 4,500 $7,000 4,000 (Million $) $6,000 $5,000 $4,000 $3,000 $2,000 3,500 3,000 2,500 2,000 1,500 1,000 (Million Lbs.) $1,000 500 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 - Value Volume Copyright Daily Dairy Report, Inc. 3

YTD October 2014 Exports Million Lbs. % vs. 2013 % of ProducPon NDM/SMP 1.034 +1% 54% BuUer/Milkfat 144-10% 9.4% Total Cheese 698 +23% 7.4% Cheddar Cheese 150 +23% 5.5% Dry Whey (human) 435 +2% 61% WPC (< 80%) 189-10% 43% Milk and Whey Protein > 80% 50.4 +29% 72% of WPI producpon Lactose > 99% 394-5% *combined equates Lactose < 99% 238 2% to 65% of lactose producpon Copyright of Daily Dairy Report, Inc. 4

Key U.S. Export Markets SMP/NDM Cheese Butterfat WPC Dry Whey Mexico Mexico Saudi Arabia China China China S. Korea Morocco Mexico Mexico Philippines Japan Iran Canada Canada Indonesia Canada Egypt Japan Japan Copyright of Daily Dairy Report, Inc. 5

Global Milk ProducPon: Select Countries (in billion pounds) 69.7 18.7 202 306.9 76.4 16.7 24.8 127.4 21.5 27 Source: USDA FAS 71.4 Copyright of Daily Dairy Report, Inc. 42.3 6

Global Milk ProducPon: Select Countries 2007 (f) 2013 350 300 30% (Billion Pounds) 250 200 150 20% 13% 100 50 4% 0 Source: USDA FAS 7 Copyright of Daily Dairy Report, Inc. 7

Selected Country Milk ProducPon (2008 to 2013) Compounded Annual Growth Rate (CAGR) India 5.4% New Zealand Argentina 4.2% 4.1% Brazil 3.1% United States 1.2% EU- 27 Mexico Canada Australia China 0.8% 0.7% 0.6% 0.5% 0.2% - 0.6% Russia - 1.0% - 0.8% Ukraine Japan - 2.0% - 1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Source: USDA FAS Copyright of Daily Dairy Report, Inc. 8

Where s the Growth? Change in Milk Supply 2013 vs. 2008 (in billion pounds) India S. American EU 27 United States New Zealand China Former S.U. - 5 0 5 10 15 20 25 30 35 Source: USDA FAS Copyright of Daily Dairy Report, Inc. 9

Where s the Future Growth? Change in Milk Supply (in billion pounds) India S. American EU 27 United States New Zealand China Former S.U. *2015-2020 2008-2013 - 10 0 10 20 30 40 50 10 Copyright of Daily Dairy Report, Inc. 10

Dairy Cost of ProducPon USD$/100kg milk (energy corrected milk) >$60<=$120 >$50<=$60 >$40<=$50 >$30<=$40 >$20<=$30 <=$20 Source: IFCN Copyright of Daily Dairy Report, Inc. 11

Dairy Cost of ProducPon Low Cost (ArgenPna) Feed 37% Purchased Grown Grazed Labor 12% Fuel/Energy 1% Land/Rent 4% Financing 2% Other 37% Overhead 7% Mid Cost (U.S.A) Feed 54% Purchased 34% Grown 20% Grazed 0% Labor 15% Fuel/Energy 3% Land/Rent 0% Financing 0% Other 11% Overhead 17% High Cost (Europe) Feed 20% Purchased 14% Grown 5% Grazed 1% Labor 21% Fuel/Energy 4% Land/Rent 2% Financing 3% Other 41% Overhead 9% Source: USDA, Eurostat, Agrivalue S.A. Copyright of Daily Dairy Report, Inc. 12

Global Dairy Trade: Selected Countries Trade ProducPon Cheese BuUer WMP NDM o o o Over 40% of global NDM and WMP producpon is exported. Meanwhile, only about 10% of global cheese and buuer producpon is exported. FAO espmates that 7% of global milk producpon is traded. 0 5 10 15 20 25 30 35 40 (Billion Pounds) Source: USDA FAS 13 Copyright of Daily Dairy Report, Inc. 13

Global Dairy Product ProducPon and Exports 3,000 Nonfat Dry Milk 3,500 Whole Milk Powder 2,500 3,000 2,000 2,500 (Million Lbs.) 1,500 1,000 (Million Lbs.) 2,000 1,500 1,000 500 500 - U.S. EU 27 India N.Z. Aus - NZ China EU 27 Brazil ArgenPna ProducPon Exports ProducPon Exports Source: USDA FAS Copyright of Daily Dairy Report, Inc. 14

Global Dairy Product ProducPon and Exports BuMer Cheese 12,000 25,000 10,000 20,000 (Million Lbs.) 8,000 6,000 4,000 (Million Lbs.) 15,000 10,000 2,000 5,000 - India EU 27 U.S. N.Z. - EU 27 U.S. Aus N.Z. ProducPon Exports ProducPon Exports Source: USDA FAS Copyright of Daily Dairy Report, Inc. 15 15

The China Factor (Million Lbs.) 2,500 2,000 1,500 1,000 500 0 o China s combined imports of NDM and WMP have doubled since 2011. o The milk equivalent of China s espmated 2014 powder imports is nearly 20 billion pounds. Just the increase in China s imports in 2013 was equal to 4 billion pounds of milk. o As New Zealand has become the dominate supplier of WMP to China, that has allowed the U.S. exports of NDM to grow in other Asian markets. WMP NDM Source: USDA FAS Copyright of Daily Dairy Report, Inc. 16 16

The China Factor Chinese SMP Imports Chinese WMP Imports 90 300 80 70 250 60 200 Million Lbs. 50 40 Million Lbs. 150 30 100 20 50 10 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011 2012 2013 2014 2011 2012 2013 2014 Copyright of Daily Dairy Report, Inc. 17

Global Milk Production Milk Production (AR,AU,EU,NZ,US) Chart Title (30- day month, in million lbs.) 60,000 2012 2013 2014 50,000 40,000 JAN APR JUL OCT Copyright Daily Dairy Report, Inc. 18

So how much milk is that? 4,000 (In Billion Pounds) 3,000 2,000 1,000 (1,000) - Jan- 10 Jun Jan- 11 Jun Jan- 12 Jun Jan- 13 Jun Jan- 14 Jun (2,000) (3,000) Copyright of Daily Dairy Report, Inc. 19

U.S. Milk Production U.S. Milk Production (30- day month, in million lbs.) 18,000 17,500 17,000 16,500 16,000 15,500 15,000 14,500 2012 2013 2014 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Copyright of Daily Dairy Report, Inc. 20

October YOY Change in Milk ProducPon November October WPI Change 90 (30- day in in Milk month) Production 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% YOY Chg TX CO UT MI KS ID FL WA SD IA VT PA NY OH MN AR CA WI IN VA NM OR IL 21 Copyright of Daily Dairy Report, Inc. 21

U.S. Dairy Cows U.S. Dairy Cows (in million head) 9.3 2012 2013 2013E 2014 9.2 9.1 JAN APR JUL OCT Copyright Daily Dairy Report, Inc. 22

Fewer Happy Meals? Monthly U.S. Dairy Cattle Slaughter (30- day month, in 1,000 head) 310 290 270 250 230 210 190 170 150 2012 2013 2014 JAN APR JUL OCT Copyright of Daily Dairy Report, Inc. 23

Income Over Feed Key States Regional Actual Dairy Production Margin (in $ per cwt.) National California Wisconsin New York Idaho $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 1H 14 Q3 14 10/1/2014 Copyright Daily Dairy Report, Inc. 24

Income Over Feed Key States Regional Milk Over Feed (in $ per cwt.) Regional Milk Over Feed (in $ per cwt.) $12 California $12 Wisconsin $9 $9 $6 $6 $3 $3 $0 Q1 2012 Q2 2012 Q3 2012 Q4 2012 $0 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Regional Milk Over Feed (in $ per cwt.) Regional Milk Over Feed (in $ per cwt.) $12 Idaho $12 New York $9 $9 $6 $6 $3 $3 $0 $0 Q1 2012 Q2 2012 Q3 2012 Q4 2012 February 2013 Daily Dairy/KLA, Inc. Q1 2012 Q2 2012 Q3 2012 Q4 2012 25

USDA All-Milk Price USDA is forecaspng a 20% reducpon in All Milk Price but New Zealand is looking for a 40% reducpon, which would yield $14 All Milk Price $23 $/cwt $19 $15 $11 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015* Copyright of Daily Dairy Report, Inc. 26

Milk Price Comparisons 48 Germany - Bayern New Zealand United States (Euro Cents per Liter) 44 40 36 32 28 24 20 Jan- 10 Mar May Jul Sep Nov Jan- 11 Mar May Jul Sep U.S. 2012 Drought Higher Cheese & Butter Prices Nov Jan- 12 Mar May Jul Sep Nov Jan- 13 2013 Lower European Production & New Zealand Drought Higher Global Powder Prices Mar May Jul Sep Nov Jan- 14 Mar May Jul Sep Copyright Daily Dairy Report, Inc. 27

Global Dairy Product Price Comparisons World Bi- Weekly Butter Price (in USD per lb.) Oceania German CME GDT $3.40 $3.15 $2.90 $2.65 $2.40 $2.15 $1.90 $1.65 $1.40 $1.15 $0.90 Jan- 14 Mar- 14 May- 14 Jul- 14 Sep- 14 Nov- 14 Weekly World Cheese Price Title (in USD per lb.) $2.65 Oceania German (Edam) CME $2.40 $2.15 $1.90 $1.65 $1.40 Jan- 14 Mar- 14 May- 14 Jul- 14 Sep- 14 Nov- 14 Copyright of Daily Dairy Report, Inc. 28

Dairy Product Production, Stocks, and Exports Copyright Daily Dairy Report, Inc. 29

U.S. Cheese Production & Stocks Total U.S. WPI Cheese Sour Lactose 90 (30- day Cream Production Stocks month) (30- day month, in million lbs.) 1,000 2012 2013 2014 950 900 850 800 JAN APR JUL OCT 1,200 1,150 1,100 1,050 1,000 950 900 U.S. Stocks of Total Cheese (in million lbs.) 2012 2013 2014 JAN APR JUL OCT Copyright Daily Dairy Report, Inc. 30

American Cheese Production & Stocks American Cheese (30- day month, in million lbs.) U.S. Stocks of American Cheese (in million lbs.) 390 380 370 360 350 340 330 320 310 2012 2013 2014 JAN APR JUL OCT 750 700 650 600 550 2012 2013 2014 JAN APR JUL OCT Copyright Daily Dairy Report, Inc. 31

US Cheese Exports U.S. WPI Cheese 90 (30- day & Curd month) Exports (30- day month, in million lbs.) U.S. U.S. WPI Cheese Cheddar 90 (30- day & Curd Exports month) Exports (30- day month, in million lbs.) 80 70 60 50 40 30 20 10 0 2012 2013 2014 JAN APR JUL OCT 30 20 10 0 2012 2013 2014 JAN APR JUL OCT Copyright of Daily Dairy Report, Inc. 32

Mozzarella Production & Fresh Cheese Exports WPI 90 (30- day month) Mozzarella (30- day month, in million lbs.) U.S. Fresh Cheese Exports (30- day month, in million lbs.) 340 2012 2013 2014 35 2012 2013 2014 330 30 320 310 300 25 20 290 15 280 270 260 10 5 250 0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Copyright Daily Dairy Report, Inc. 33

The Power of Pizza South Korea Indonesia Saudi Arabia Shanghai, China Copyright Daily Dairy Report, Inc. 34

NDM Production and Stocks U.S. NDM/SMP Production (30- day month, in million lbs.) U.S. Manufacturers' Stocks of NDM (in million lbs.) 240 220 200 180 160 140 120 100 2012 2013 2014 JAN APR JUL OCT 300 250 200 150 100 50 0 2012 2013 2014 JAN APR JUL OCT Copyright of Daily Dairy Report, Inc. 35

NDM/SMP Exports U.S. WPI Exports NDM/SMP 90 (30- day NDM/SMP month) Exports (30- day month, in million lbs.) WPI NZ SMP 90 (30- day Exports month) (30- day month, in million lbs.) 150 100 50 0 2012 2013 2014 JAN APR JUL OCT 140 120 100 80 60 40 20 0 2012 2013 2014 JAN APR JUL OCT Copyright of Daily Dairy Report, Inc. 36

What about Russia? 200 EU WPI Cheese 90 (30- day Exports month) 30- day month, in million lbs.) 2012 2013 2014 150 100 50 0 JAN APR JUL OCT Copyright of Daily Dairy Report, Inc. 37

Reality Check o The U.S. is a player in the global dairy market o This brings opportunipes as well as challenges o The real quespon is whether we want to play J.V., Varsity or Professional. Copyright of Daily Dairy Report, Inc. 38