1. T HE N ATIONAL P ROGRAM ON D AIRY M ARKETS AND P OLICY MPP-Dairy Update Overview of margin forecast for the year ahead Updates to MPP-Dairy Decision Tool Understanding financial risks farmers face Demonstrate new “Advanced Features” of decision tool

2. Remember When…

3. MPP Ration Value

4. Annual MPP Margin Highest Margin Ever!

5. Average Daily U.S. Milk Production Millions of Pounds

6. Percent Change in U.S. Milk Production

7. A Tale of Two Regions…

8. Worst CA Drought in 1200 Years

9. Comparative Feed Cost Data Wisconsin Price of Hay = $150 Price of Corn = $3.47 Price of SBM = $370 California Price of Hay = $260 Price of Corn = $5.01 Price of SBM = $420

10. Impact of Feed Costs

11. All Milk Price

12. Opinions Change Over Time

14. MPP Margin Forecast Opinion as of Sept 30, 2014 Opinion as of Sep 2, 2015

15. Consumer Confidence

16. We Need Exports!

17. U.S. Versus International Prices

19. Global Dairy Trade Index

20. U.S. Farm Milk Prices are Holding Up Better than Most $18.38 $13.61 $10.61

21. Exports Need a Boost

22. Other Factors

23. Around the World

24. Can We Tap on the Brakes? Strongest El Niño in 50 Years!

25. The Option to Producing Milk

26. My Forecast… Our strong U.S. economy is helping consume dairy products Dairy exports will become more of an issue in the next few months I think that the MPP margin will be worse than futures forecasts now suggest through the first half of 2016

27. OLD APPROACH TO DAIRY RISK MANAGEMENT I KNOW WHERE PRICES ARE GOING! – You selectively hedge only when you disagree with the market consensus. Let’s be frank, you’re speculating. DAIRY POLICY AS A PROFIT OPPORTUNITY – If subsidies are high, sign up, otherwise skip it. “LEARN RISK MANAGEMENT!” – Extension, DMaP, brokers and policy makers all shoving risk management down your throat.

28. NEW APPROACH TO DAIRY RISK MANAGEMENT FRAGILE – If your farm would have serious problems surviving a major downturn in profit margins. ROBUST – If your financial position and cost of production allow you to withstand a very large and prolonged unexpected downturn in profit margins. ANTIFRAGILE – If your farm benefits from milk and feed price volatility. For example, if you have very strong financial position, low cost of production, and have protected against downside in margins. Then as your competitors go out of business, you will have an opportunity to buy their farm at a great price.

29. NEW APPROACH TO DAIRY RISK MANAGEMENT Our goal today, is to give you a tool to answer one key question: Is my farm fragile, robust, or antifragile? To answer that question, you need to: 1)Know your farm (costs of production, financials) 2)Execute a ruthless stress-test analysis

30. NEW APPROACH TO DAIRY RISK MANAGEMENT Our goal today, is to give you a tool to answer one key question: Is my farm fragile, robust, or antifragile? To answer that question, you need to: 1)Know your farm (costs of production, financials) 2)Execute a ruthless stress-test analysis

31. K NOW YOUR FARM : PLANS, COSTS AND FINANCIALS

32. FARM - SPECIFIC DASHBOARD : PRODUCTION & PRICES Basis tends to be lower in regions where costs of production are lower.

33. MPP-D AIRY : INCOME OVER FEED COSTS MARGIN BASIS

34. O THER OPERATING COSTS ( EXCLUDING FEED, HERD REPLACEMENT, DEPRECIATION )

35. DASHBOARD : PRODUCTION & PRICES – K EY P OINTS Historical average MPP-Dairy margin is approx. $8.50/cwt. Basis tends to be lower in western United States. Basis tends to be lower in regions where costs of production are lower. Most dairies, across the entire country, will have MPP- Dairy cash-flow break-even point below $8.50/cwt.

36. K NOW YOUR FARM : PLANS, COSTS AND FINANCIALS

37. FARM - SPECIFIC DASHBOARD : FARM FINANCIALS Working capital per cow: Any losses will first be absorbed by cash reserves or by utilizing operating lines of credit. Debt-to-Asset Ratio: If losses are deep and cannot be absorbed by working capital, long-term debt will be increased. Assets Per Cow: Farms will more land will be able to spread losses over more assets.

38. NAME YOUR OWN PRICE ( BE RUTHLESS )

40. K NOW YOUR FARM : PLANS, COSTS AND FINANCIALS

41. FARM - SPECIFIC DASHBOARD : RISK MANAGEMENT Some common question include: Do I need to hedge if I use MPP-Dairy? How much? Should % hedged plus coverage percentage be lower than total milk production? When should I hedge?

42. FARM - SPECIFIC DASHBOARD : RISK MANAGEMENT

44. DASHBOARD : RISK MANAGEMENT – KEY POINTS MPP-Dairy and private risk management tools may be combined to keep profitability, liquidity and solvency above desired thresholds at least hedging costs.

45. Questions?