market outlook...apr. may. jun. jul. aug. sep. oct. nov. dec. 2017. 2018. 2019. u.s. total cheese...

November 2019MARKET 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• Domestic:

• U.S. milk production strengthened in September, up 1.3% from the prior year

• In preparation for the holiday buying season, production of all major U.S. dairy product categories experienced growth in September

• U.S. dairy export volumes were mixed across production categories but increased overall, led by cheese and powder exports

• Global:• European milk production grew

modestly in September, while Oceanian production trended down

• Through September, China continued to import increasing amounts dairy products, with imports up nearly 10% year to date, with top imports including milk and cream, whole milk powder, skim milk powder and infant milk formula

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

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U.S. MILK PRODUCTION

Source: USDA National Agricultural Statistics Service

MILLION METRIC TONS

• Total milk production in September was 7.9 million metric tons, an increase of 100 thousand metric tons from the prior year.

• In September, cow numbers were reported at 9.32 million head, relatively steady from the prior year.

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2017 2018 2019

September 2019: +1.3% prior year

YEAR-TO-DATE 2019:+0.2% prior year

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2017 2018 2019

U.S. TOTAL CHEESE PRODUCTION


THOUSAND METRIC TONS


YEAR-TO-DATE 2019:+1.1% prior year

• Total cheese production in September was 490 thousand metric tons, up 10 thousand metric tons from the prior year.

• American cheese production was weaker, down 3 thousand metric tons.

• Other-than-American cheese production increased, up 13 thousand metric tons.

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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

MILLION METRIC TONSYTD 2019 DOM. CONSUMPTION:+1.7%

YTD 2019 EXPORTS:+3.2%

• September exports were up 3 thousand metric tons to 27 thousand metric tons.

• Domestic demand also increased in September, up 16 thousand metric tons to 474 thousand metric tons.

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2017 2018 2019

U.S. TOTAL CHEESE INVENTORY

September 2019: -0.8% prior year



• Total cheese inventories increased modestly from August to September.

• Total cheese inventories were reported at 621 thousand metric tons, down 5 thousand metric tons from September 2018.

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2017 2018 2019

U.S. AMERICAN CHEESE INVENTORY




• American cheese inventories remained well below prior year levels.

• American cheese inventories were reported at 350 thousand metric tons, down 15 thousand metric tons from September 2018.

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2017 2018 2019

U.S. OTHER-THAN-AMERICAN CHEESE INVENTORY




• Other-than-American cheese inventories were reported at 271 thousand metric tons, up 10 thousand metric tons from September 2018.

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U.S. VS. GLOBAL CHEESE PRICE

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

$ PER METRIC TON

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

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CME Blocks Oceania Cheese (moist adj) EU Cheese

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2017 2018 2019

U.S. BUTTER PRODUCTIONTHOUSAND METRIC TONS



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

• In September, butter production was reported at 62 thousand metric tons, up less than 1 thousand metric tons from the prior year.

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U.S. BUTTER COMMERCIAL DISAPPEARANCE



YTD 2019 EXPORTS:-31.2%

• After year-over-year strength in August, September domestic consumption declined, weakening 1 thousand metric tons to 66 thousand metric tons from the prior year.

• Exports of butter were reported at 2 thousand metric tons, down 332 metric tons from the prior year.

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2017 2018 2019

U.S. BUTTER INVENTORYTHOUSAND METRIC TONS


September 2019: +7.0% prior year • Butter inventories increased

9 thousand metric tons from the prior year to 137 thousand metric tons in September.

• From August to September, butter inventories were relatively unchanged.

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U.S. VS. GLOBAL BUTTER PRICE


$ PER METRIC TON

• 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 PRODUCTIONTHOUSAND METRIC TONS



YEAR-TO-DATE 2019:-1.1% prior year

• In September, both NFDM and SMP production increased from the prior year.

• NFDM production strengthened 4 thousand metric tons to 56 thousand metric tons.

• SMP production grew 1 thousand metric ton to 22 thousand metric tons.

• Together, NFDM and SMP production grew 5 thousand metric tons from the prior year to 78 thousand metric tons in September.

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2017 2018 2019

U.S. NFDM vs. SMP PRODUCTIONTHOUSAND METRIC TONS


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2017 2018 2019NFDM SMP

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U.S. NFDM & SMP COMMERCIAL DISAPPEARANCE



YTD 2019 EXPORTS:-10.9%

• After ten consecutive months of year-over-year declines, powder exports rebounded in September, increasing 13 thousand metric tons to 65 thousand metric tons.

• Conversely, domestic consumption declined, down 10 thousand metric tons to 20 thousand metric tons.

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U.S. NFDM INVENTORY THOUSAND METRIC TONS



• Inventories were down 3 thousand metric tons from the prior year to 115 thousand metric tons in September.

• Inventories were down 7 thousand metric tons from August to September.

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U.S. NFDM VS. GLOBAL SMP PRICE


$ PER METRIC TON

• 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 September 2019

United States74.6 million MT

+0.2%

European Union120.6 million MT

+0.5%

Oceania18.9 million MT

-3.1%

Total214.1 million MT

+0.0% Sources: USDA National Agricultural Statistics Service, U.S. Dairy Export Council

U.S. DAIRY EXPORTS

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YTD through September 2019

Source: USDA Foreign Agricultural Service

U.S. TOP DAIRY EXPORT DESTINATIONS

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Rank Country September 2019 YTD 2019

1 Mexico 53.8 444.1

2 China 15.3 147.0

3 Indonesia 11.5 80.6

4 Canada 10.2 98.9

5 Philippines 9.9 97.9

6 Vietnam 8.8 64.7

7 Japan 8.5 84.9

8 South Korea 8.3 86.5

9 New Zealand 6.0 58.2

10 Australia 3.9 32.5

THOUSAND METRIC TONS, TOTAL DAIRY PRODUCTS


U.S. TOP DAIRY EXPORT DESTINATIONS

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Rank Country September 2019 YTD 2019

1 Mexico $144.8 $1,127.9

2 Canada $52.0 $502.0

3 China $28.2 $278.6

4 South Korea $26.2 $263.1

5 Indonesia $24.7 $162.5

6 Japan $22.9 $218.8

7 Philippines $20.2 $194.1

8 Vietnam $18.2 $120.7

9 Australia $13.8 $113.0

10 Peru $10.0 $56.4

MILLION DOLLARS, TOTAL DAIRY PRODUCTS


market outlook...apr. may. jun. jul. aug. sep. oct. nov. dec. 2017. 2018. 2019. u.s. total cheese...

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