1. Steve Watrin Email: SDWatrin@landolakes.com Cell: 612-875-2512 Minneapolis, Minnesota Nov. 3,4, 2011

2. The Markets We Live With Managing Business Risk Why Risk Management In Dairy Risk Tools, Education and Tracking Business Trends And Risk

3. Supply Demand Fundamentals Review of cheese and NFDM Markets Impacts to Milk Price

4. $1.24 $1.49 $1.65 $1.32 $1.18 $1.44 $1.15 $1.53 5-year Avg. $1.76$1.85 $1.30 $1.50 2001 +25% 2002 -18% 2003 +12% 2004 +25% 2005 -10% 2006 -17% 20087+42% 2008 +5% 2009 -30% 2010 +10%

5. Exports are Picking Up the Slack Total & Domestic Cheese Consumption (USDA data) Total cheese disappearance 2010 3.55% Increase Domestic disappearance 2010 2.21% Increase Export disappearance 2010 1.34% Increase

8. US skim powder exports increase, prices follow Support prices lowered Oceania Blue U.S. Red Spread Green

9. The Outlook for the first half of 2012 is mixed Global Dairy Trade (gDT) trading down Global economic growth slowing 3.2 vs. 3.9% Imports are likely to slow causing prices to moderate Markets more likely unpredictable and volatile

10. Year Class III Change 2000 $9.74 - 28% 2001 $13.10 +26% 2002 $10.42 -26% 2003 $11.42 +9% 2004 $15.39 +26% 2005 $14.05 - 10% 2006 $11.84 -19% 2007 $18.04 +34% 2008 $17.44 - 4% 2009 $11.35 -54% 2010 $14.41 +27% 2011 Avg $ 18.40 $ 1.87 $ 0.50 $.23 $ 0.60 $ 0.76 $ 0.53 $ 1.21 2011 $18.12 +25% 2012 Futures $17.10 - 6.0 % 5 year Avg. $ 14.63

11. A Risk Matrix How in the world did we get this volatility What’s a hedge Explain a potential Strategy

12. The cost will vary but one thing is for sure none of the risk management options will be covered easily or cheaply The payoff can be significant because risk can mean potential as well as peril

13. Apathy Inertia “Doing nothing is easier than doing something ”

14. Assess for: Significance Frequency Capability to handle Keep it Move it

15. Frequency of a risk event High Severity of a risk event High Low Operational Risk Manage for performance.  Dairy  Heifers  Crops Strategic Risk Adjust to participate.  Government  Consumers  Industry Financial Risk Hedge to protect margins  Revenues  Purchasing  Financing Catastrophic Risk Insure to protect assets  Fire  Liability  Death Risk CategoryMitigation Strategic RiskAdjust to it Operational RiskManage it Financial Risk Hedge it Catastrophic Risk Insure it

16. Cost of production Information Actual and forecast Basis Information Actual and forecast Forecasted Production Impact of a change in production per cow Defined Strategy Business Communication Tracking System

17. Agreement on Strategy Agreement on Implementation Plan On-going Market and Futures market updates On-going execution updates

18. Basis Information Monthly Yearly Offered Contracts Accepted Contracts Settled Contracts Price Contracted Volume Type Open Volume

19. Risk Position of 100% open or closed ( hedged or contracted) All right or all wrong Example Risk Strategy 50% contracted 100% of the time 50% correct 100% of the time A determined level of acceptable profit Plan for implementation Who (In the business) When (price points) What ( volume) How (which tools) Where (Co-op, broker)

20. Managerial Accounting Feed Cost Replacements Labor Expenses Financing

22. Basis is defined as: The cash value of milk greater than or less than the Class III settlement price Producer Website Multi Year Average Quarterly Discounting basis value

24. Futures Monthly Quarterly flat price Semi Annual flat price Market Orders Options Puts Calls Fence OTC Cash Contract Product contracts (Cheese, NFDM, Butter) Class Price

25. Social Expectations Food production practices Food Quality (value) Governmental Regulations Food Safety Environmental Protection Volatility Cost of Inputs Global Markets Access to Capital Liquidity Working Capital Solvency Debt to Capital

26. Frequency of an event High Severity of an event High Low Operational Risk Social Expectations  Food Safety  Food Value Strategic Risk Government Regulations  Food Production Practices  Environmental Protection Financial Risk Volatility Cost of Inputs Revenues, Global Markets Catastrophic Risk Capital Access  Liquidity  Solvency Risk CategoryMitigation Strategic RiskAdjust to it Operational Risk Manage it Financial Risk Hedge it Catastrophic Risk Insure it

27. Risk is present in all business Price risk is hear to stay Risk management requires resources Future business risk trends can be cataloged an approached with a management plan

28. Questions