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No. of Recommendations: 5
(and practice replying)

Sure Rich, and I'll spice it with a little background on my LWAY insights.

I work for a small dairy distributor in the Northeast.
I have a number of customers who are natural foods retailers.
I am a working member of an excellent natural foods co-op.
I also deal with supermarket chains and have some sense of how they go to market with products generally and natural foods specifically.
LWAY is at the intersection of my profession and my personal passion.

Regarding dairy pricing specifically:
What any dairy processor pays the farmer is set by the USDA and can be tracked at:
Note that prices vary by region of the country, but by percentage, changes are pretty much the same. For anyone who wants to know if a dairy user (whether it be one who makes cheese, ice cream or kefir) is gonna pay more or less can get a rough sense of whether the core ingredient cost is going up or down. Unfortunately, the web stats are not posted for a month or two, but you can go to any small independent grocer type store in your town and the dairy manager can tell you if milk is going up, down, or staying the same (if you take the dude a donut).

That's the basics, but here are a few finer points that may be relevant to LWAY:

1) LWAY apparently buys raw milk and then processes it themselves. This is important for a couple of reasons; if they buy pre-processed milk, the processor will be taking profits and therefor LWAY would be paying more. This must be balanced against the costs associated with processing, which are considerable, but all things being equal it keeps the core cost lower.

2) Butterfat differential: some months cream is more in demand than other months. There is an inverse cost relationship between skim and reduced fat milks and whole milk because of the value of cream. Kefir is mostly low and non-fat milk. That means LWAY can probably make a few bucks on the cream they pull out of the raw milk. If LWAY is buying pre-processed milk, this note does not apply, which gives greater weight to point 1.

3) LWAY is located in the Midwest, home to relatively low dairy prices.

4) germane to Howard's question, LWAY uses conventional milk as well as organic milk. Most of LWAY volume is at supermarkets selling standard LWAY kefir, i.e. conventional milk. Organic milk, strictly speaking, is not tied to the FMO. There was a temporary loosening of government regs regarding organic certification that allowed a whole bunch of farms to be certified in less than the usual 3 years. This created an oversupply of organic milk and prices declined for a while. I believe that the surplus is out of the system now and prices are stable and somewhat lower than at the beginning of the year (on organic only!).

5) actually- this is a different subject, but I want to you readers out there watch the shelf price of Lifeway? I note that at Stop & Shop, a very large retailer in the east has dropped their price on Lifeway. The department manager tells me it has always sold very well, so I can't guess why the price would go down...Stop & Shop does not lower prices unless their cost goes down. As investors this is very important information.

I think I'll leave it at that and if anybody has questions, g'head and I'll try to answer them.

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