Disclaimer 1. Disclaimer 2. An Overview of General Risk Management Tools Available to Dairy Farmers. Northeast Milk Prices at Record High

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1 An Ovvi of Gnl Risk Mngmn Tools Avilbl o Diy Fms Edd Gllgh Psidn Diy Risk Mngmn Svis Diy Fms of Ami, In. Diyl Coopiv In. Dislim 1 DFA nd Diyl do no mk, nd xpssly dislim, ny xpss o implid guny, psnion, o ny gding ny opinions o smns s foh hin. DFA nd Diyl no ing s you onsuln o dviso fo nupos, nd is no poviding dvi gding h vlu o dvisbiliy of ding in ommodiy inss, inluding fuus ons nd ommodiy opions o ny oh iviy hih ould us DFA nd Diyl o ny of is ffilis o b onsidd ommodiy ding dviso und h CEA. Non of h infomion onind hin should b onsud s ding o isk mngmn dvi. Bfo undking ny ding sgy, you (nd you usoms o mmbs) should onsul you on indpndn dvisos. Dislim 2 Nohs Milk Pis Rod High Fuus nd opions ding involv subsnil isk. Th vluion of fuus nd opions my fluu, nd s sul, lins my los mo hn hi oiginl invsmn. In no vn should h onn of his psnion b onsud s n xpssion of n implid pomis, gun o impliion h you ill pofi o h losss n o ill b limid in ny mnn hsov. Ps pfomn is no nssily indiiv of fuu suls. Infomion povidd in his psnion is inndd solly fo infomiv puposs nd is obind fom sous blivd o b libl. Infomion is in no y gund. No gun of ny kind is implid o possibl h pojions of fuu ondiions mpd simd by Edd Gllgh, Oob 2011.

2 Gllgh s Pofibiliy Bom Td Suplus Rmins Lg $4 $2 $0 p s ($2) l o d ($4) ($6) US Diy Fm Avg N Mgins Esimd, Jn 08 - D 11 Fos by Ed Gllgh, Oob 6, 2011 Fos by Ed Gllgh, Oob 6, 2011 Unid Ss Fl 2012 Milk Poduion Goh Agnin Up Modsly Bzil Euopn Union Song Goh Up Modsly Indi Dn Goh Russi Chin Som Goh Ausli Song Goh Song Goh Som Goh N Zlnd p s l o d CNY, NPA, NVT Goss Milk Pi Esims, 2011 nd by Th Piing Lvls fo 2012 $28 Th High 12 nd Lo 12 Rfl 23.5% Mk Voliliy $26 $24 $22 $20 $18 $16 $ High - '12 $12 Fos by Ed Gllgh, Oob 6, 2011 Mid - '12 Lo - '12 J F M A M J J A S O N D

3 So Wh Dos All of This Mn?? Milk Pi Voliliy is Signifin / $ FMMO Clss III Pis, Jn '00 Sp '11 $24 $22 $20 $18 $16 $14 $12 $ y n M J J J J J J J J J J J J $14.00 $ ilk f m $8.00 o $6.00 / $ $4.00 $2.00 $0.00 On h Fd Sid DRMS Fd Indx, Jn '00 Sp '11 $14 $12 ilk m f o p $ Milk Fd Mgins Vy Volil DRMS Non Fd Mgin* Jn '00 Sp '11 $8 $6 $4 $2 *Non fd Mgin = Clss III pi minus DRMS Fd Indx $0 Jn 00 Jn 01 Jn 02 Jn 03 Jn 04 Jn 05 Jn 06 Jn 07 Jn 08 Jn 09 Jn 10 Jn 11

4 Fd Sous Imp Milk Hdging Sgis Going Fd Buying Fd VS / $ Clss III Highly Cold o Goss Fm Milk Pis $24 $22 $20 $18 $16 $14 $12 $8 CNY Goss Milk Pi vs Clss III Pi 0 1 y n M S p J J n02 M y CNY Goss C III S p J n03 M y S p J n04 M y S p J n05 M y S p J n06 M y S p J n07 M y S p J n08 M y S p J n09 M y S p J n10 M y S p J n11 M y S p DRMS Fod Coning Pogm Lin Up Pi Hdg Opions Fod Con Typ Fod Con Adjusmn Opions Clss III Fixd Upsid Rid Clss IV Minimum Cppd Upsid Rid Chs bsd Min/Mx Fd Rid** Tg Blnd Mximum Donsid Rid*** Con* Soybn Ml* M F Mgin Cppd Donsid Rid*** *Fd id ombind ih milk pi fod on **Addd o milk pi fod on ***Fo ons ih fd ids

5 Tg Blnd Pi Pogm Insing Usg $24 $22 $20 $18 / $16 $ $14 $12 $8 FMMO 1 Blnd Pis, Boson Zon Jn 00 Sp 11 0 n J Top 20% g u A M O y M D l Ju F b S p A p N ov J un 7 0 n J g u A M O y M D l Ju F b 40% 35% 30% 25% 20% 15% 10% 5% 0% Png of DFA Mmbs Wih Fod Cons, by Poduion Quil, Q1 Q2 Q3 Q4 Th Wold s W Hv Knon i Hs Chngd Mk Pln Tim Mngmn

6 Th A Mny Chois Vy bsi dsipion of ommon milk pi nd fd pi fod ons Fod Con Fuus Posiion Volum 1 million lbs/monh 1 million lbs/monh Tm Clnd Y Monhly No. Cons On Tlv o mo Pi On pi fo ni piod Tlv o m o Con Filio Coopiv Employ Fo Pofi Bok Fuus Posiions Zo 60 Boks Fs Zo $2,400 Iniil Mgin Zo 8,000 Mgin Clls Non Ponilly Hdg Lin Non $240,000 End of Con Fs Ys No $/ Milk Pi Hdg Giv Up 100% of Upsid (Los Mony on Fuus Td) Pod Agins Lo Pis (Pofi on Fuus Td) Tim Fod Con: Fixd Pi Fuus Aoun: Sll Fuus

7 Milk Pi Hdg Milk Pi Hdg $/ Riv 100% of h Upsid f Pmium (Pu xpis no vlu, bu you sill py h pu pmium) Pod Agins Lo Pis f Pmium (Pu pys off, bu you sill pmium) Tim Fod Con: Minimum Pi Fuus Aoun: Buy Pu $/ Giv Up h Upsid Th Exds h Ciling nd Py N Pmium (Cll loss mony, pu no vlu, py n pmium oo) Riv High Pis Up o h Ciling Pi Af Pying N Pmium (Opions xpi no vlu, bu sill py n pmium) Pod Agins Lo Pis Af Pying N Pmium (Pu pys off, ll no vlu, py n pmium) Tim Fod Con: Min/Mx o Fn Fuus Aoun: Buy Pu/Sll Cll; Risk Rvsl Opions o mng fd isk GROWN Cop Insun P puhs Inpus PURCHASED Con ih supplis Hdg EXAMPLES NO FEED COVERAGE

8 Fd Hdging Loking Bod Pod Agins Rising Bod Pis (Fuus pys off) Buy fd Lo Bod Pi (Fuus posiion loss mony) Fd Hdging Bod Ciling Pod Agins Rising Bod Pis (Cll pys off, bu you sill pmium) Enjoy Lo Bod Pi if Pis Dlin (Cll hs no vlu, bu you sill pmium) Fod Coning: Fixd Pi Fuus Aoun: Buy Fuus Fod Coning: Mx Pi Fuus Aoun: Buy Cll Fd Hdging Bod Fn Pod Agins Rising Bod Pis (Cll pys off, pu hs no vlu, sill py pmiums) Hdg hs no imp, bu sill pmiums (Boh opions hv no vlu, sill pmiums) Bod Pi Lokd in Rgdlss of Dg of Dlin, sill pmiums (Pu loss mony, ll hs no vlu, sill pmiums) Fod Coning: Mx/Min Fuus Aoun: Buy Cll/Sll Pu $/ LGM Mgin Insun Minimum milk pi Minimum milk/fd mgin Mximum fd pi Tim

9 Qusions/Disussion Thnk You!!