Monday, November 8, 2010

Who Knows?

What is happening on the CME? Last week Kraft came and traded a few loads of cheese. Jerome, which might be simply following has sold the most loads. Mullins has traded a few loads. None of this answers the question of why? I think the following might be a key.

More than 150 companies with market caps above $500 million that claim they have free cash flow—really don't!

That's the word from Ken Hackel, who wrote the just-published tome (and I do mean tome): "Security Valuation and Risk Analysis – Assessing Value in Investment Decision Making."

You should care, because free cash flow is the lifeblood of any company looking to grow.

And free cash flow was touted as a plus quite a bit in the recent round of earnings.

Hackel isn’t impressed. "The term 'free cash flow' has almost gotten to be like the old television show 'What's My Line',” he says. “What free cash flow should be defined as is the maximum amount of cash an entity could distribute to its shareholders without impairing its growth rate. Unfortunately, we've gotten quite a bit away from that."

The free cash flow definition most people use is operating cash flow minus capital spending.

But Hackel says that true free cash flow requires a lot more in the way of adjustments—the kind he believes most analysts simply do not do.

Among companies whose cash flow he believes are flashing red:

Kraft [KFT 31.12 0.04 (+0.13%) ], whose revenues missed estimates and which didn’t include a cash flow statement with its earnings release or discuss it on its earnings call. Still, using available information, Hackel believes he was able to analyze the cash flow and say, “Their backs are really against the wall; they have no room for expansion; they do not have financial flexibility."

Kraft disagrees, saying that over the past few years it has made excellent progress improving free cash flow. "In 2010, there are a number of puts and takes in the equation, due to the acquisition of Cadbury. However, on a more normal run-rate basis, we would expect cash flow to be north of about $3.5 billion.”

Kraft needs cash and it is OK with the government if the powerful take what they need from those with less power.

Near as I can find Hoogwegt ( offered the butter Friday and AMPI bought the load.
The seller does not make butter. The buyer does. Is that a real market? I think NOT.

Today, it appears that Dairygold bid the price back up 12 cents. Probably in an effort to protect the value of their inventory. Once again a producer of butter is bidding.

The 1996 study on the National Cheese Exchange repeatedly referred to "trading against interest" as a sign of market failure.

The election is over and it seems there was a clambering for less government. Is there anyone holding their breathe while the government contemplates the dairy trading on the CME?


  1. Someone made a comment at a meeting last week, that if the government was doing their job, there would be no need for the farmers to take on Dean/DFA in the antitrust suits, so no I am not holding my breath.

    Last year DFA was pushing risk management in the form of "teaching" the farmer how to bet on the CME. Maybe there was not enough interest, because now, Farm Bureau is "helping" the farmer by sponsoring more "training" sessions on how the farmer can gamble, again under the guise of "risk management".

    They never give up trying to milk the farmer dry.

  2. I was but after 30 seconds I realized it was futile so I started breathing again. Guess I just don't have the lung capacity I used to.The above poster's last statement is correct, but too many farmers figured out that futures markets are set up for the benefit of the ones doing the offering not for the ones being offered to.DWCovert

  3. All of the farmers I know ARE milked dry. For one month (Oct) there appeared to be a light at the end of the tunnel, and in a matter of two and a half weeks the pay price has dropped almost three dollars. No sense in asking where the oversight is because obviously there is'nt any. And you're right John when you state there's no use holding your breath because you'll just explode. A post on this subject the other day suggested a milk boycott and it would feel good to have these processors crawling, but we know the reality of that and so do they.

  4. Kraft's cash flow problems are directly related to their loss of market share to other branded cheeses. Have they done anything to correct this like, say, improve the quality of their product above tasteless plastic? No--they'd rather take it out of our hides.


  5. They take out of our hides and put directly into the pockets of a select few at the top. When are they going to realize that doing business this way will surely be the demise of their company?

    But as long as they have insider info and see the writing on the wall and sell their stock before the company goes down the tubes, who cares, eh? Sadly, too many execs have this attitude and there is no regulation to stop them.

  6. Do idiots post on this blog? There is obviously no understanding of risk management. Waiting for your milk check and taking the price is assuming full risk. Hedging a portion of your milk and locking in a profit is less risky. One of our biggest problems is dairymen who have no clue as to how to use what tools are available to them.

  7. Says the employee of the coop who is shoving gambling down the throats of the farmer and hoping that the farmer will be an idiot and hedge so the coop can benefit.

  8. Someone touched a nerve. Why the need to defend if not guilty?

    Notice how the poster says,
    "Waiting for YOUR milk check....." and
    "One of OUR biggest problems...."

    Who is "our"?

    If he was one of us, wouldn't it be,
    "waiting for our milk check"????

  9. Several years ago Cornell Co-Op Ext. conducted an experimental program to introduce the concept of "risk management" by way of "hedging" to dairymen here in southwestern N.Y. The participating dairymen were aided in their hedging strategy by some of Cornell's best and brightest. At the end of the experiment guess what? Surprise, surprise!! Every participant seemed to be of the opinion he had LOST MONEY!!
    Maybe some of number six's "idiots" are amoung the skeptics expressing well founded reservations about the practice...
    All this "risk management" bullshit strikes me as simply another way for crooks in suits to steal from guys in overalls and seed-corn caps... Nate Wilson

  10. This is what Hanman does now that he's retired.

  11. Just the small fact that the poster resorts to name calling (idiots) speaks volumes about the mindset and dignity of the "other side".

  12. That's because it probably affects HIS paycheck.