MARKET OUTLOOK...November was more than 1.1 billion pounds, up 5.2 million pounds from the prior...

January 2020MARKET OUTLOOK

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DISCLAIMERDFA does not make, and expressly disclaims, any express or implied guaranty, representation, or warranty regarding any opinions or statements set forth herein. DFA is not acting as your consultant or advisor, or in a fiduciary capacity, for any purpose, and is not providing advice regarding the value or advisability of trading in commodity interests, including swaps, futures contracts and commodity options or any other activity which would cause DFA or any of its affiliates to be considered a commodity trading advisor under the Commodity Exchange Act. None of the information contained herein should be construed as trading or risk management advice. Before undertaking any trading strategy, you should consult your own independent advisors.

Forward contract for delivery price indications listed throughout these materials, if any, are based on recent market activity for the respective commodity to be delivered and are not actual forward contract offers. Any prices used throughout these materials are subject to change and reflect only the base price of the commodity and do not include any additional overages, premiums, freight or other adjustments. The content of this communication is confidential information and should be maintained confidentially between you and DFA.

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MARKET INSIGHTS

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Sources: USDA, U.S. Dairy Export Council, CLAL

• Domestic:• In 2019, U.S. milk production increased

modestly from 2018• In November, the total U.S. dairy export

volume experienced strength, supported by cheese, nonfat dry milk (NFDM), whole milk powder (WMP) and whey protein concentrate (WPC) exports

• With the exception of whey, domestic consumption of dairy products in November was down year over year

• Global:• Overall global milk supply remains

steady to slightly above prior year levels

• Year to date through November, Chinese dairy import volumes were nearly 10% higher than the same period in 2018

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U.S. MILK PRODUCTION

Source: USDA National Agricultural Statistics Service

BILLION POUNDS

• Total milk production in December was 18.3 billion pounds, an increase of 122 million pounds from the prior year.

• According to preliminary data, 2019 milk production totaled 218.3 billion pounds, up 747 million pounds.

• In December, cow numbers were reported at 9.34 million head, down 14,000 head from the prior year.

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2017 2018 2019

DECEMBER 2019: +0.7% prior year

JAN-DEC 2019:+0.3% prior year

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2017 2018 2019

U.S. TOTAL CHEESE PRODUCTION


MILLION POUNDS

November 2019: +0.5% prior year

YEAR-TO-DATE 2019:+0.8% prior year

• Total cheese production in November was more than 1.1 billion pounds, up 5.2 million pounds from the prior year.

• Both American cheese and Other-than-American cheese production were stronger, up 654,000 and 4.6 million pounds, respectively.

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F

Domestic consumption Exports

U.S. TOTAL CHEESE COMMERCIAL DISAPPEARANCE

Source: USDA Economic Research Service*see disclaimer on slide 2

BILLION POUNDSYTD 2019 DOM. CONSUMPTION:+1.4%

YTD 2019 EXPORTS:+3.8%

• November exports were up 4.3 million pounds to 62.7 million pounds.

• Domestic demand declined slightly in November, down 6.5 million pounds to 1.1 billion pounds.

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2017 2018 2019

U.S. TOTAL CHEESE INVENTORY

December 2019: -2.2% prior year


MILLION POUNDS

• Total cheese inventories decreased from November to December, down 6.9 million pounds.

• Total cheese inventories were reported at 1.32 billion pounds, down 29.2 million pounds from December 2018.

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2017 2018 2019

U.S. AMERICAN CHEESE INVENTORY

December 2019: -7.1% prior year


MILLION POUNDS

• American cheese inventories remained well below prior year levels.

• American cheese inventories were reported at 743.5 million pounds, down 56.8 million pounds from December 2018.

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2017 2018 2019

U.S. OTHER-THAN-AMERICAN CHEESE INVENTORY

December 2019: +5.1% prior year


MILLION POUNDS

• Other-than-American cheese inventories were reported at 572.1 million pounds, up 27.6 million pounds from December 2018.

• December inventory levels were approximately 20% higher than the previous five-year average of 477 million pounds.

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U.S. VS. GLOBAL CHEESE PRICE

Source: USDA Agricultural Marketing Service, CME Group, EU Commission

$ PER POUND

• U.S. cheese prices remain at a premium to global prices as exports and domestic demand remain high

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2017 2018 2019

U.S. BUTTER PRODUCTION MILLION POUNDS



YEAR-TO-DATE 2019:+0.5% prior year

• In November, butter production was reported at 156 million pounds, up 6.5 million pounds from the prior year.

• Butter production was approximately 5% higher than previous five-year average of 148 million pounds.

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U.S. BUTTER COMMERCIAL DISAPPEARANCE



YTD 2019 EXPORTS:-28.6%

• November domestic consumption decreased, down 19.5 million pounds to 210.7 million pounds from the prior year.

• Exports of butter were reported at 3.1 million pounds, down 392,000 pounds from the prior year.

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2017 2018 2019

U.S. BUTTER INVENTORY MILLION POUNDS


December 2019: +5.9% prior year • Butter inventories increased

10.7 million pounds from the prior year to 190 million pounds in December.

• From November to December, butter inventories increased 9.3 million pounds.

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U.S. VS. GLOBAL BUTTER PRICE


$ PER POUND

• As production has increased and stocks have replenished, butter prices have declined in recent months

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2017 2018 2019

U.S. NFDM & SMP PRODUCTIONMILLION POUNDS



YEAR-TO-DATE 2019:0.0% prior year

• In November, NFDM and SMP production increased from prior year.

• NFDM production strengthened 7.7 million pounds to 142.1 million pounds.

• SMP production grew 1.3 million pounds to 43.7 million pounds.

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2017 2018 2019

U.S. NFDM vs. SMP PRODUCTIONMILLION POUNDS


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NFDM SMP

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U.S. NFDM & SMP COMMERCIAL DISAPPEARANCE



YTD 2019 EXPORTS:-4.7%

• Powder exports continued increasing in November, up 42.7 million pounds from the prior year to 148.6 million pounds.

• Domestic consumption decreased, down 3 million pounds to 31.6 million pounds.

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2017 2018 2019

U.S. NFDM INVENTORY MILLION POUNDS


November 2019: -22.8% prior year

• Inventories were down 66.1 million pounds from the prior year to 223.1 million pounds in November.

• Inventories were up 5.2 million pounds from October to November.

• November inventory levels were approximately 25 million pounds lower than the previous five-year average.

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U.S. NFDM VS. GLOBAL SMP PRICE


$ PER POUND

• Global powder demand remains strong, especially from China

• As domestic inventories continue to trend down year over year, prices have strengthened

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GLOBAL MILK PRODUCTION

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YTD through November 2019

United States200.0 billion pounds

+0.3%

European Union320.8 billion pounds

+0.5%

Oceania59.5 billion pounds

-2.8%

Total580.4 billion pounds

+0.1% Sources: USDA National Agricultural Statistics Service, U.S. Dairy Export Council

U.S. DAIRY EXPORTS

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YTD through November 2019

Source: USDA Foreign Agricultural Service

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U.S. TOP DAIRY EXPORT DESTINATIONS

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Rank Country November 2019 YTD 2019

1 Mexico 93.1 1,195.7

2 China 45.0 400.6

3 Philippines 29.2 267.7

4 Canada 27.5 270.8

5 Indonesia 26.6 234.6

6 Japan 20.3 223.3

7 South Korea 19.0 228.1

8 Colombia 16.1 83.2

9 New Zealand 16.0 164.3

10 Vietnam 14.4 172.1

MILLION POUNDS, TOTAL DAIRY PRODUCTS


U.S. TOP DAIRY EXPORT DESTINATIONS

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Rank Country November 2019 YTD 2019

1 Mexico $124.3 $1,405.8

2 Canada $59.5 $620.0

3 China $37.5 $342.9

4 Philippines $29.9 $248.1

5 South Korea $26.0 $312.1

6 Indonesia $24.4 $217.8

7 Japan $24.0 $259.9

8 Colombia $21.5 $117.0

9 Malaysia $15.1 $101.7

10 Vietnam $15.0 $151.1

MILLION DOLLARS, TOTAL DAIRY PRODUCTS


MARKET OUTLOOK...November was more than 1.1 billion pounds, up 5.2 million pounds from the prior...

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