Monetary Policy

One of the most important sets of data to follow is the U.S. Dollar Index. The U.S is in a bind. With high debt levels, the U.S. needs to export more products. When the Almighty Dollar was high, we imported a great deal. Monetary policy is a key factor driving the value of the dollar. Under Reagan, interest rates were driven up to slow inflation. As a matter of fact, that policy destroyed manufacturing in America.

So now, interest rates are in the basement, for those who can borrow, and the value of the dollar against other currecies has fallen dramatically.

China's currency is fixed. Essentially, this has created an artificially low exchange rate, which, as long as the U.S. Dollar was high, China's economy grew by leaps and bounds.

The Feds "quantitative easing" has lowed the value of the dollar which in turn impacts china's economy downward. Since, November 12, 2010 corn at the CBOT has lost 8% value. Soy at the CBOT has lost 10%.

Good for those who buy grain.

But, fertilizer imports (quantities)have risen 75% in the first nine months of this year and the prices are rising too. The same can be said of fuel.

While it is all well and good to talk about "risk Management", the total number of risk are unknown. Under those conditions, someone had better get a grip on the activity on the CME.

Legal Term of the Day

http://www.nolo.com/dictionary/adhesion-contract-(contract-of-adhesion)-term.html

adhesion contract (contract of adhesion)

A contract that so strongly favors one party or so unfairly restricts another, that it creates a presumption that one party had no choice when entering into it. If a court determines that the contract is overly unfair, it may refuse to enforce the agreement against the disadvantaged party. An example of a contract of adhesion might be a form contract provided by an unethical leasing company. Adhesion contracts are often evidenced by the comparative strength of the parties-- for example, a giant corporation as compared to an average citizen.

In a very few situations dairy farmers have no contracts with their milk handler. In places where there is competition, the contract in often month-to-month. In the Northeast and elsewhere the contracts are for a year.

So, I suspect that many of the one year contracts are actual "adhesion contracts." The problem with adhesion contracts is the person on the bottom often (usually) has no resources to fight a case in court.

Not Enough

Today USDA released its "Outlook" report, which can be found at: http://www.ers.usda.gov/Publications/LDP/2010/11Nov/LDPM197.pdf

Here is the conclusion for dairy:

Stronger NDM prices should partly offset lower butter prices, keeping Class IV prices firm over the course of 2011. Class IV prices, which are expected to average $14.45 to $15.45 per cwt in 2011, will be only slightly lower than the expected $15.05 to $15.25 per cwt average in 2010. Stronger domestic demand for cheese will boost the Class III price next year. In 2011, the Class III price is expected to average $14.40 to $15.30 per cwt, up from an average $14.35 to $14.45 this year. The all milk price is forecast to average $15.95 to $16.85 per cwt next year, very near the expected 2010 average of $16.30 to $16.40 per cwt.

The report mentions higher feed prices but, there is no mention of the pricing system being broken.

Milk Production & Belief

(click on image to enlarge)

Today, the USDA'S "Milk Production" report came out. According to USDA production in the 23 lead dairy states was up 3.3 percent in October 2010. Who knows. Certainly some expert will use the data to suggest that the drop in price at the CME is justified. Those who believe in this drivel also believe the market system regulates supply and demand through price. Wrong.

Note: The 2011 data is USDA's projections

Heirarchy

(click on image to enlarge)

If you go to Wal-Mart's investor presentation at: http://media.corporate-ir.net/media_files/irol/11/112761/Transcripts/3Q11_transcript.pdf

on page 15 is: "Produce and dairy were our strongest categories." Note above what Dean is saying.

Supermarkets wear the pants in the dairy industry - they are on top. Next comes the processors and the farmers get what is left.

Not Goumet

http://www.stuff.co.nz/business/industries/4332036/Fonterras-added-value-plan-paying-off

Fonterra's added-value plan paying off

Fonterra's strategy of adding value to other countries' milk to bring home fatter returns to New Zealand has made major strides in the United States, and a successful cheese and yoghurt ingredient manufacturing experiment is now being rolled out in Europe.

Using leased plant and milk supplied from US heavyweight co-operative California Dairies, Fonterra has made a cheddar cheese production breakthrough by applying Kiwi intellectual property from its Palmerston North research centre.

The new products would command premium prices in world food service markets, said Andrei Mikhalevsky, managing director, global ingredients and food services.

The venture has so far cost Fonterra US$7.5 million (NZ$9.6m), mainly to upgrade the ageing plant. Building a new factory would have cost up to US$70m, he said.

The first season's production of the new Cheddar Plus brand was small at about 13,000 tonnes but quickly sold out.

Production of a specialised yoghurt base at the same plant at Los Banos, between Los Angeles and San Francisco, has been similarly successful, though sales had been later starting because of US grading certification requirements.

"The cheese is basically a cheese ingredient that people would put into sliced cheese for application into the food service, where it might be used for hamburgers or cheddar slices for retail," Mr Mikhalevsky said.

He declined to forecast likely earnings from the new venture, but said Fonterra was aiming for a big slice of the US$19 billion world cheese ingredient market. T

he global market for all cheese is estimated to be worth US$91b.

"We have proved the model. We are not just talking about value-add, we have proved the concept. It's not a dream, it's now a reality."

The hunt is on for plants in Europe.

Fonterra ingredient technology + California's cheap milk = profit for someone but, the stuff wont win any prizes.

Straight PR

At:

http://www.prnewswire.com/news-releases/dairy-management-inc-and-americas-dairy-farmers-set-the-record-straight-107951839.html

Is:

Dairy Management Inc. and America's Dairy Farmers Set the Record Straight

ROSEMONT, Ill., Nov. 14, 2010 /PRNewswire/ -- The New York Times and numerous media outlets this past week have inaccurately reported on the nation's farmer-funded dairy promotion program. Much of the reporting is fundamentally wrong. Contrary to the myth that has been perpetuated, Dairy Management Inc. was not created by the U.S. Department of Agriculture (USDA), nor is it an agency of USDA. It is a private, non-profit corporation created -- and run -- by America's dairy farmers who established it to unify national and local dairy promotion efforts.

All of the programs created by Dairy Management Inc. to promote dairy consumption in the U.S. are paid for completely by America's dairy farmers. No taxpayer dollars are used for our domestic marketing efforts. USDA does not contribute money to promote dairy products in the U.S. In fact, dairy farmers actually pay USDA for all of the costs to oversee the promotion program.

USDA performs a congressionally mandated oversight role over the collection and disbursement of dairy farmer's funds, and to ensure that our programs are consistent with the law that set up the program.

America's dairy farmers are proud of the nutritional contributions of milk and cheese to the U.S. diet and support the consumption of a balanced diet which includes room for all foods in moderation. The U.S. government's Dietary Guidelines for Americans, which call for the consumption of three servings of low-fat or fat-free milk products each day, are the cornerstone of Dairy Management's nutrition guidance.

The 56,000 dairy farm families represented by Dairy Management welcome and encourage people to learn more about the important dietary role of dairy in supplying nine key nutrients necessary for healthy bodies and welcome inquiries about their efforts to promote increased dairy consumption so that Americans get their three servings of dairy a day.

Efforts to misrepresent this program, and the federal government's role in administering the program, are an unfortunate and unacceptable assault on the hard work and dedication of America's dairy farmers.

But, but wait... on May 23, 2005 the U.S. Supreme Court:

"Held: Because the beef checkoff funds the Government’s own speech, it is not susceptible to a First Amendment compelled-subsidy challenge."

this case applied to "all" checkoff challenges, including dairy.

There is little doubt but that the top DMI people remember the Supreme Court shoring up their massive salaries. Talk about setting the record straight?