Get Together

No one keeps any statistics on how many times dairy farmers are told they need to get together.

Looking at Barry Wilson's "Dairy Industry Newsletter" (on-line and print subscription = $1,000/year)I noticed a further breakdown of the data produced by Hoards on the 50 largest cooperatives.

Barry notes some of the largest producer co-ops, in terms of volume per farm, expanded production in 2009. Continental, for instance, produced 5% more per farm. So much for meaningful markets signals. The average Continental produced 61.44 million pounds in 2009.

Ten of those farm would produce all of the of the milk produced by 727 Lanco farmers.

So, would America be better off if more than 700 Lanco farmers went out of business? I think not.

So what exactly is meant by the idea of all dairy farms getting together? I personally think that is code for there will be no meaningful discussion of the complexities of dairy in high places.

Government

One cannot look at recent trading on the CME without questions coming to mind about the function of government.

Some hold that government is all about protection, particularly property, and those with the most to protect get the lions share of the governments attention. Adam Smith, the so-called father of capitalism, suggested the same and said those with the most to protect should pay the most in taxes. Maybe someone in the Tea Party mentioned Smith's view but, I don't recall hearing such.

Mostly, it seems the big push is for low taxes and less government.

However, Aristotle said, "It is in justice that the ordering of society is centered."

It is quite possible to have tyranny and have the rich and powerful shielded from harm.

A civil society, particularly one which claims to be a democracy, must truly focus on Justice.

I honestly don't see that happening in dairy.

Feed

At: http://usda.mannlib.cornell.edu/usda/current/FDS/FDS-11-12-2010.pdf

is the most recent "Feed Outlook", which begins:

Lower forecast corn yields this month reduce U.S. corn production 124 million bushels to 12.54 billion. Fractional changes are made in sorghum, barley, and oats because of late harvests. Corn used for ethanol production is raised. Corn used domestically for feed and residual and for export are both lowered. These supply and use changes reduce projected ending stocks 75 million bushels. As projected, 2010/11 ending stocks would be the lowest since1995/96 and represent a carryout of 6.2 percent of projected usage. Price prospects for corn and sorghum are up this month. Foreign corn production is projected higher, with increased corn production in China. Rising foreign consumption combines with the smaller U.S. crop to leave global corn stocks at a 4-year low.

I am not confident the current situation will be short term.

The Kansas Cit Federal Reserve just came out with a new report on "farmland investment." The report is at: http://www.kansascityfed.org/publicat/research/indicatorsdata/agcredit/AGCR3Q10.pdf


Here's an interesting quote from a bank, "Land fever is running rampant. It appears that the combination of low investment returns for financial assets and the generally strong farm sector has spurred a voracious appetite for agricultural land.‖ –NE Kansas"

2+2 = ?

The trade data came out yesterday. Altogether, the U.S. exported 4% more dairy product Jan - September 2010 than the same period in 2008.

The most recent "Commercial Disappearance" numbers only cover through August. Close enough. January through August of 2008 the milk equivalent was 127,432
(x 1 million) pounds. In 2010 it was 129,627 (x 1 million) pounds.

The average "all milk" price for January through September 2008 was $18.83 and for January through September 2010 it was $15.52 per hundredweight.

It really does not add up.


"In the case where it is a form of theft, distinguishing between embezzlement and larceny can be tricky." Wikipedia

Trade Data

You can probably go to many sites to see information on September's exports of dairy products. We exported a lot. We exported 3.2% of all cheese production. We exported 75.8% of all NFDM/SMP production.

Of course, we imported 67% more MPCs in September than we imported in September 2009. For the year-to-date we imported 8.3% more MPCs. Made a lot more cheese with all those MPCs.

Dean

http://www.cnbc.com/id/40086665

"These results are clearly disappointing for us and reflect continued significant challenges in our largest business, Fresh Dairy Direct-Morningstar," said Gregg Engles, Chairman and Chief Executive Officer."

Kraft is having cash flow problems and now Dean. Any mystery regarding where they expect the money to come from?

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.

http://www.cnbc.com/id/38241893

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 (http://www.hoogwegtus.com/) 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?