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DairyProfit Extra: Dec. 31, 2011

Happy New Year! DairyProfit Weekly’s editor took some time off between Christmas and New Year's Day, but couldn't stay away from his computer. Here's a review of some of the news during the last week of 2011. DairyProfit Weekly returns next week.

 

Proposed ‘class’ denied in Northeast antitrust lawsuit

A Northeast antitrust lawsuit cannot continue as a proposed class-action suit involving all dairy farmers in the region, based on a ruling, Dec. 9, by U.S. District Judge Christina Reiss. The judge's denial means the plaintiffs can pursue another course toward class certification, press individual claims, or drop the action.

 

Last October, plaintiffs in the case formally filed a request that all dairy farmers producing and pooling raw Grade A milk in Federal Order Milk Marketing Order #1 be certified as a ”class” in the lawsuit against Dairy Farmers of America, Inc. (DFA) and Dairy Marketing Services LLC (DMS). FMMO #1 covers Connecticut, Massachusetts, New Hampshire, Vermont, Rhode Island, New Jersey, Delaware, and parts of New York, Pennsylvania, Maryland and Virginia.

 

In her latest decision, Reiss denied class certification to all dairy farmers in the affected region, determining all would not be affected equally in any potential ruling. According to Reiss, current DFA and DMS members could suffer harm which would not be shared by other Northeast farmers who were not DFA/DMS members. 

 

Documents related to the Northeast lawsuit can be found at www.nedairysettlement.com/Courtdocuments.htm.

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NDB regional changes announced

USDA announced a final rule amending the National Dairy Promotion and Research Order, adopting a National Dairy Promotion and Research Board’s proposal:

 

• Region 1 (Alaska, Oregon & Washington) is increased from one member to two members; 

• Region 2 (California and Hawaii) representation is decreased from eight members to seven members; 

• Region 3 (Arizona, Colorado, Montana, Nevada, Utah, Wyoming) is decreased from four members to two members; 

• Former Region 8 (Alabama, Kentucky, Louisiana, Mississippi and Tennessee) and Region 10 (Florida, Georgia, North Carolina, South Caroline and Virginia) are combined to create a new Region 10 with two members, and is comprised of Alabama, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Puerto Rico, South Carolina, Tennessee, and Virginia; 

• New Region 8 is now comprised of Idaho with two members; 

• Former Region 12 (New York) and Region 13 (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont) are combined to create a new Region 12, comprised of Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island and Vermont, with three members.

 

Copies of the final rule may be obtained from USDA, AMS, Dairy Programs, Room 2958-S, Washington, DC 202250-0233, USA from 9 a.m. to 4 p.m., Monday through Friday. The final rule is also available on www.regulations.gov and the AMS website at www.ams.usda.gov/dairy.

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DPW TRENDS, NUMBERS

2011 milk-feed price ratio rivals 2009
Despite annual average milk prices more than $7.00/cwt. higher than 2009, 2011 dairy producer margins will come in just slightly higher than that tumultuous year.

 

Lower milk prices offset declines in corn and soybean prices, leaving December 2011 dairy producer margins even with November 2011 and slightly below December 2010. USDA’s December 2011 milk-feed price ratio was estimated at 1.88, compared to a revised 1.87 in November 2011 and 1.98 in December 2010. The index – representing the pounds of 16% commercially mixed dairy feed equal in value to 1 lb. of whole milk – is based on current prices for a ration of 51% corn, 8% soybeans and 41% alfalfa hay. 

 

The December 2011 preliminary U.S. all milk price was estimated at $19.80/cwt., down from November’s revised average of $20.40/cwt., but $3.10 more than December 2010. Corn averaged $5.44/bushel, down 40¢ from November; soybeans, at $11.10/bushel, were down 60¢; and alfalfa baled hay was $199/ton, up $1 from November, but $78/ton more than December 2010. 

 

If the December 2011 preliminary estimate holds, it will mean the annual average milk-feed price index is about 1.89 for 2011, the second-lowest average in the past five years, behind only 2009’s average ratio of 1.78. The difference: While 2009 saw extremely low milk prices, 2011 yielded high milk prices that were offset by high feed prices. The 2009 U.S. average milk price was $12.81/cwt. in 2009. With December’s preliminary estimate, the 2011 annual average will be about $20.14/cwt., $7.33 more than 2009.

 

   Milk-feed price ratio 

                                      Dec.                 Nov.                Dec.

Product                         2011               2011*               2010

Milk (cwt.)                   $19.80             $20.40           $16.70

Corn (bushel)               $5.44               $5.84             $4.82

Soybeans (bushel)     $11.10            $11.70           $11.60

Baled alfalfa (ton)           $199               $198               $121

Milk-feed ratio                 1.88           1.87                 1.98

* Revised from previous month

Source: USDA National Ag Statistics Service

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December FMMO class prices decline

December 2011 federal milk marketing order milk Class II, III & IV prices were announced Dec. 30, as follows:

• Class II – $18.08/cwt. The December price is down $1.18 from November 2011, but $2.31 more than December 2010. The 2011 average Class II price is $19.62/cwt., up $3.60 from 2010.

 

• Class III – $18.77/cwt. The December price is down 30¢ from November 2011, but $4.94 more than December 2010. The 2011 average Class III price is $18.37/cwt., up $3.96 from 2010.

 

• Class IV – $16.87/cwt. The December price is down $1.00 from November 2011, but $1.84 more than December 2010. The 2011 average Class IV price is $19.05/cwt., also up $3.96 from 2010.

 

California's Class 4a and 4b prices will be announced on Jan. 3, 2012.

 

FMMO class prices

                                                                                                             Annual Average

                          December      November       December                January-December

Class                      2011                 2011               2010                  2011                  2010

Federal II             $18.08               $19.26             $15.77              $19.62              $16.02

Federal III            $18.77               $19.07             $13.83              $18.37              $14.41

Federal IV            $16.87               $17.87             $15.03              $19.05              $15.29

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Class I base

The January 2012 federal order Class I base milk price is $18.80/cwt., up 33¢ from December 2011 and $3.60 more than January 2011. The 2011 Class I base averaged $19.13/cwt., compared to $15.35/cwt. in 2010, an increase of $3.78/cwt.

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Cow culling increases

USDA estimated 252,800 culled dairy cows were slaughtered under federal inspection in November 2011, up 10,000 from October 2011 and 11,600 more than November 2010. January-November 2011 dairy cow slaughter was estimated at 2.652 million head, up 110,000 from the same period in 2010.

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Cull cow prices higher

Monthly cull cow (beef and dairy combined) prices rose in December. December 2011 prices averaged $69.00/cwt., up from November’s revised estimate of $66.00/cwt., and still $13.90/cwt. more than the December 2010 average of $55.10/cwt.

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Lower feed costs improve November COP picture somewhat

Lower monthly purchased and homegrown feed costs pushed U.S. national average November 2011 total costs to produce 100 lbs. of milk down to the lowest level since May 2011, according to USDA’s Economic Research Service. However, the year-to-date (Y-T-D) 2011 average remains above the same period a year earlier, and the annual average is likely to surpass the previous high-cost year of 2008.

 

Compared to the previous month, November 2011 total costs declined $1.10/cwt.; all feed costs were down $1.08 (purchased feed down 87¢; homegrown feed costs down 20¢); total operating costs (including feed) declined $1.08; and allocated overhead costs (including labor) declined about 3¢. 

 

Compared to the same month a year earlier, November 2011 total costs declined 1¢; feed costs were down 33¢ (purchased feed down $2.04; but homegrown feed costs up $1.66); total operating costs dropped 15¢; but allocated overhead costs increased 14¢. 

 

Year-to-date, 2011 average costs compared to the same period in 2010 are: total costs – up $1.73; all feed – up $1.33; total operating costs – up $1.55; and allocated overhead – up 18¢.

 

At $23.74/cwt., 2011 Y-T-D average total costs compare to $22.01/cwt. in 2010; $22.61/cwt. in 2009; and $23.61/cwt. in 2008, the previous high-water mark.

 

   Milk: Cost of production

                                                                                                            Y-T-D Average

                                      November        October     November     January-November

Costs                                 2011                 2011           2010            2011        2010

All feed                           $11.08              $12.16        $11.41          $11.65   $10.32

Operating                       $14.71               $15.79        $14.86          $15.18   $13.64

Allocated overhead          $8.86                 $8.89          $8.72            $8.56     $8.37

Total costs                       $23.58             $24.68        $23.59           $23.74   $22.01

Operating costs include feed

Allocated overhead includes labor

Source: USDA Economic Research Service 

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U.S. alfalfa hay exports up in October

October U.S. alfalfa hay exports topped 155,000 metric tons for the second consecutive month, with the United Arab Emirates (UAE) the leading destination, according to USDA’s Foreign Ag Service.

October 2011 U.S. exports totaled 158,627 metric tons, the highest monthly total of 2011, and bringing the year-to-date (Y-T-D) total to 1.291 million metric tons, compared to 1.443 million metric tons for all of 2010.

UAE imported 55,673 metric tons of U.S. alfalfa hay in October, its highest monthly total since December 2010, and bringing its Y-T-D total to 437,967 metric tons, or about 34% of all U.S. exports so far this year.

Japan remains the leading annual U.S. alfalfa hay market, importing 49,500 metric tons in October, bringing its 2011 Y-T-D total to 473,803 metric tons, about 37% of the U.S. Y-T-D total. 

 

On a Y-T-D basis, South Korea ranks third, at 137,839 metric tons (16,188 metric tons in October). China ranks fourth, importing 24,731 metric tons in October, bringing the 2011 Y-T-D total to 119,532 metric tons.

 

According to a monthly dairy outlook report from National Milk Producers Federation’s Roger Cryan, alfalfa hay exports are not driving high alfalfa prices, as some have suggested; lower production is. The total increase in U.S. alfalfa exports from 2007 to 2011 is less than a million tons. This pales beside the 5 million tons of U.S. alfalfa production lost in the same period, as nearly 2 million fewer alfalfa acres have been harvested.

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Corn for ethanol; co-products

Week ending Dec. 23

Ethanol yield (gallons)                  39.6 million/day

Ethanol % of daily gasoline use                   10.78%

Corn used (million bushels)                      14.59/day

DDGS yield (metric tons)                         97,683/day

DDGS = Dried distillers grains w/solubles

Source: Renewable Fuels Association

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Weekly dairy cow culls1

Week ending           Week             Y-T-D*         Change2

Dec. 10                    61,600       2.795 million    +111,200

1/ Slaughtered under federal inspection

2/ Y-T-D compared to same period last year

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NMPF: Market Outlook

U.S. Dairy prices have declined as anticipated—and then some—as the holiday buying season ends and milk production has kept ahead of growing domestic demand. Recent figures from USDA indicate that net dairy income in 2011 overall will be quite healthy, spurring continued milk production as we enter what is supposed to be the down year in the 3-year dairy cycle we’ve seen over the last decade.

 

Export growth has slowed, and U.S. prices are lower to match international competition from growing production in Oceania and Europe. The strengthening dollar and a ‘gloomy’ international economic outlook is likely to dampen overseas demand growth in 2012. In addition, a shift in global interest from whole milk powder to skim milk powder is contributing to weaker butterfat values.

 

The Cooperatives Working Together program (CWT) has been renewed through 2013, following the commitment of producers and cooperative associations representing over 70% of U.S. milk marketings. CWT has budgeted $35 million for 2012 to continue assisting exports of selected U.S. dairy products to selected markets. In 2011 through Dec. 8, CWT committed to assist the export of 91.5 million lbs. of cheese; combined with commitments made in 2010, CWT has already committed to assist 129 million pounds of cheese scheduled for export in 2011 and early 2012, equivalent to about 1.3 billion pounds of milk. 

 

Class III futures prices for the next six months (January through June) averaged $17.22 per hundredweight on December 22, and they project averages of $18.36 for 2011, $17.19 for 2012, and about $16.05 for 2013. The Class III price is the minimum price paid for cheese milk pooled on Federal orders. 

 

November’s Class IV price was $17.87, down 54¢ from October, and up $1.19 from last year. December is projected to be down again to about $17.10. Futures markets project Class IV milk to average about $17.00 for the next six months, $19.05 for 2011, $17.10 for 2012, and $15.00 for 2013. The Class IV price is the minimum price for pooled milk used to make butter or milk powder. The Class II price was $19.26 in November, down 15¢ from October. December is projected at $18.10. This is the minimum price for pooled milk used to make soft dairy products and in most food processing.

 

December’s Class I base price is $18.47, up 2¢ from November; January’s Class I base price is projected at about $18.90, then Class I base prices are projected to fall to below $17.50 by April and remain below $17.50 through the rest of 2012 and below $16.50 through most of 2013. The Class I base price plus a location differential is the minimum price processors pay at the plant for bottling milk pooled on a November milk production in the U.S. was 15.78 billion lbs., up 1.8% from a year ago. This follows substantial increases in August (2.1%), September (1.6%), and October (2.1%). November’s increase was the product of this year’s growth in cow numbers (1% more than a year ago) and a 0.8% increase in milk per cow. USDA still projects milk output to grow 1.7% in 2011 overall, which looks about right. (See graph.) For 2012, USDA projects a 1.2% increase in production.

 

This is consistent with current and projected margins. November’s Class III price was announced

at $19.07, up $1.04 from October (and exactly back to the September price), and up $3.63 from last November. December’s Class III is Federal order.

 

November’s all-milk price was estimated at $19.90, unchanged from October. December is projected at $19.40. The futures markets project the all-milk price to average $18.33 for the next 6 months, $20.05 in 2011 overall, $18.30 in 2012, and $17.30 in 2013. USDA now projects an average all-milk price of $20.10 in 2011 and $18.50 in 2012.

 

Feed costs: Corn, soy, and soymeal prices are down: near-month corn futures are $6.17 per bushel (down 42¢ since our last report); soy is $11.62 per bushel (down 14¢); and soymeal is $298/ton (down $5). Futures markets project annual averages for corn about $6.00 in 2011 and in 2012, and $5.75 in 2013; and for soymeal at about $345 in 2011, $305 in 2012, and $315 in 2013. USDA now forecasts corn prices at $6.40 per bushel in 2011/2012; and soybeans at $11.70 per bushel and soymeal at $295 per ton in 2011/12.

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DPW INDUSTRY

Chobani sales growing in Idaho

Published reports indicate Chobani Greek yogurt sales are climbing in Idaho, even before the company has begun producing yogurt there. In November, the New York-based company announced it will build a yogurt plant in Twin Falls, Idaho.

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Demand grows for Domino’s Stuffed Cheesy Bread

Sales of Domino’s Pizza® Stuffed Cheesy Bread, which contains as much cheese as a medium pizza, are exceeding the chain’s initial expectations. The success of Stuffed Cheesy Bread, which launched in late November, builds on a partnership between the dairy checkoff and the chain to help grow category sales.

 

Many consumers are purchasing Stuffed Cheesy Bread in addition to their pizza orders – and not replacing existing pizza sales. Domino’s, the recognized world leader in pizza delivery, will continue promoting this item in 2012.

 

“This new offering represents another way we’re keeping dairy top-of-mind with consumers through this successful partnership,” said Paul Rovey, Arizona dairy producer and chair of Dairy Management Inc.™, which manages the national dairy checkoff. “Stuffed Cheesy Bread gives consumers more of what they want – flavorful cheese in an innovative way.”

 

Stuffed Cheesy Bread, which will be a permanent menu item, is available in three flavors: Bacon & Jalapeno, Spinach & Feta and Cheese only. Each includes mozzarella and shredded cheddar.

 

Dairy producers’ partnership with Domino’s is critical to growing sales. Adding one more ounce of cheese per pizza would require an additional 2.5 billion pounds of milk each year. Over the past few years, dairy producers have invested an average of $12 million annually in the Domino’s partnership. Domino’s invests tens of millions of dollars annually to help grow pizza (and cheese) sales.

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UDIA leaders announce 2012 officers

Producer leaders of the United Dairy Industry Association (UDIA) announce the following dairy producers as officers.

 · Chair – William Siebenborn, Trenton, Mo.

· 1st Vice Chair – Neil Hoff, Windthorst, Texas

· 2nd Vice Chair, Chair of ADA – Michael Ferguson, Senatobia, Miss.

· 2nd Vice Chair, Chair of NDC – Lester Hardesty, Greeley, Colo.

· 2nd Vice Chair, Member Relations – Paul Broering, St. Henry, Ohio  

· Secretary – Steve Frischknecht, Manti, Utah

· Treasurer – Allen Merrill, Parker, S.D.

UDIA is a federation of state and regional dairy producer-funded promotion organizations that provide marketing programs that are developed and implemented in coordination with its members. The UDIA is overseen by a board comprised of dairy producers elected by their respective boards of their member organizations.

 

For more information about the checkoff, visit www.dairycheckoff.com

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DPW WASHINGTON

 

Lugar blasts DOL youth farm labor rules

U.S. Sen. Dick Lugar (R-Ind.) criticized the U.S. Department of Labor (DOL) for considering new regulations on youth farm and agricultural labor under the Fair Labor Standard Act. In a letter to DOL Secretary Solis, signed by 29 other Senators, Lugar asked that the Department withdraw the proposed rule. Lugar and 33 colleagues previously wrote to Secretary Solis to request a 60-day extension of the comment period on the proposed changes.

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Judge rules California's low-carbon fuel standard unconstitutional

Judge Lawrence J. O'Neill, in Federal District Court in Fresno, Calif., sided with the U.S. ethanol industry in ruling California's Low Carbon Fuel Standard (LCFS) is in violation of the Commerce Clause the U.S. Constitution. 

 

In a joint statement, Renewable Fuels Association (RFA) president and CEO Bob Dinneen and Growth Energy CEO Tom Buis said: "The state of California overreached in creating its low carbon fuel standard by making it unconstitutionally punitive for farmers and ethanol producers outside of the state's border. With this ruling, it is our hope that the California regulators will come back to the table to work on a thoughtful, fair, and ultimately achievable strategy for improving our environment by incenting the growth and evolution of American renewable fuels."  

 

The groups filed their suit on Dec. 24, 2009 and asserted that the California LCFS violates the Commerce Clause by seeking to regulate farming and ethanol production practices in other states.  The Commerce Clause specifically forbids state laws that discriminate against out-of-state goods and that regulate out-of-state conduct.  With its original filing, the groups noted, "The LCFS imposes excessive burdens on the entire domestic ethanol industry while providing no benefit to Californians. In fact, in disadvantaging low-carbon, domestic ethanol, the LCFS denies the people of California a genuine opportunity to clean their air, create jobs, and strengthen their economic and national security. One state cannot dictate policy for all the others, yet that is precisely what California has aimed to do through a poorly conceived and, frankly, unconstitutional LCFS."

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USDA deregulates Monsanto's drought-tolerant corn

Monsanto received USDA Animal and Plant Health Inspection Service (APHIS) deregulation for MON 87460, the company's first-generation drought-tolerant trait for corn. Monsanto plans to conduct on-farm trials in 2012 to give Western Great Plains farmers experience with the product, while generating data to help inform the company's commercial decisions.

APHIS also announced:

• deregulation of Monsanto’s MON 87705 Soybean, genetically engineered to have a modified fatty acid profile and for tolerance to the herbicide glyphosate. 

• seeking public comment regarding deregulation of Monsanto’s MON 87769 soybean, genetically engineered to produce stearidonic acid, an omega-3 fatty acid that helps to prevent a wide variety of adverse health conditions and not typically found in soybean oil.

• seeking public comment regarding deregulation of  DAS-40278-9 corn, genetically engineered to provide tolerance to 2,4-D and aryloxyphenoxypropionate (AOPP) acetyl coenzyme A carboxylase (ACCase) inhibitors, also known as “fop” herbicides.  

Visit www.aphis.usda.gov/biotechnology/news.shtml for more information.

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EPA finalizes 2012 Renewable Fuel Standards

The U.S. Environmental Protection Agency (EPA) finalized the 2012 percentage standards for four fuel categories that are part of the agency’s Renewable Fuel Standard program (RFS2). 

 

The Energy Independence and Security Act of 2007 (EISA) established the RFS2 program and the annual renewable fuel volume targets, which steadily increase to an overall level of 36 billion gallons in 2022. To achieve these volumes, EPA calculates a percentage-based standard for the following year. Based on the standard, each refiner and importer determines the minimum volume of renewable fuel that it must ensure is used in its transportation fuel.

For 2012, the program is implementing EISA’s requirement to blend more than 1.25 billion gallons of renewable fuels over the amount mandated for 2011. The final 2012 overall volumes and standards are:

• Biomass-based diesel (1.0 billion gallons; 0.91 percent)
• Advanced biofuels (2.0 billion gallons; 1.21 percent)
• Cellulosic biofuels (8.65 million gallons; 0.006 percent)
• Total renewable fuels (15.2 billion gallons; 9.23 percent)

Last spring EPA had proposed a volume requirement of 1.28 billion gallons for biomass-based diesel for 2013. EISA specifies a one billion gallon minimum volume requirement for that category for 2013 and beyond, but enables EPA to increase the volume requirement after consideration of a variety of environmental, market, and energy-related factors. EPA is continuing to evaluate the many comments from stakeholders on the proposed biomass based diesel volume for 2013 and will take final action next year.

More information on the standards and regulations: http://www.epa.gov/otaq/fuels/renewablefuels/regulations.htm

More information on renewable fuels: http://www.epa.gov/otaq/fuels/renewablefuels/index.htm

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DairyProfit Weekly returns next week. For a sample copy of Dairy Profit Weekly, or subscription information, visit www.dairyprofit.com or phone: 800-334-1904, ext. 244. 

 

Dave Natzke, Editor

 

Saudi dairy buys Argentina farmland

Saudi Arabia's largest dairy company, Almarai Co. said it is buying an Argentine farm, Fondomonte, for $83 million in a bid to secure access to animal feed.

The acquisition will give the Riyadh-based company control of roughly 12,140 hectares of farmland in South America. Fondomonte operates three farms dedicated to producing corn and soybeans, according to Almarai. The Argentine company's website says it also grows barley, rice and sorghum.

 Almarai is one of the Middle East's largest food companies. It traditionally focused on milk and other dairy products like yoghurt and cheese, but it has recently begun expanding into new product lines such as juices, baked goods and poultry products.

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Saudi dairy buys Argentina farmland

Saudi Arabia's largest dairy company, Almarai Co. said it is buying an Argentine farm, Fondomonte, for $83 million in a bid to secure access to animal feed.

The acquisition will give the Riyadh-based company control of roughly 12,140 hectares of farmland in South America. Fondomonte operates three farms dedicated to producing corn and soybeans, according to Almarai. The Argentine company's website says it also grows barley, rice and sorghum.

 Almarai is one of the Middle East's largest food companies. It traditionally focused on milk and other dairy products like yoghurt and cheese, but it has recently begun expanding into new product lines such as juices, baked goods and poultry products.

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