1. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2008 Turkey Outlook: Costs and Prices on a Collision Course? Dr. Thomas E. Elam President FarmEcon LLC February 9, 2008

2. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Think of the cooler space you could save if you could breed this gene into a turkey!

3. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2004-2007 Four Good Years in a Row! Based on FarmEcon LLC model of 70% cut-up and 30% whole bird marketing mix. Does not include value-added products.

4. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Why the String of Profits? Production growth in line with demand U.S. demand increased Export demand also growing, esp. 2005-2007 Low feed costs until late 2006 Excellent pricing in 2007, but… Higher 2007 costs offset by higher prices Net result – drop in 2007 margins despite average higher prices received

5. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Clouds on the Horizon? Feed costs have moved to a new plateau 2008-2009 recession looming Record-high total beef/pork supplies Turkey and broiler production increasing Brazil has targeted turkey exports Bottom line – in the face of larger supplies demand growth will not be as robust

6. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Annual Average Prices – Raw Data

7. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Annual Average Prices: Index shows real strength in dark meat

8. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Exports - Major Source of Strength

9. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Exports Show China Growth Source: U.S. Census Exports December 2007 estimated

10. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Average Export Value/lb. Source: U.S. Census Exports December 2007 estimated

11. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Value of the Export Market* *At port of exit Source: U.S. Census Exports December 2007 estimated

12. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Brazil Mounting a Challenge Strategic export market targeting 1. Broilers 2. Pork (broiler companies heavily involved) 3. Beef 4. Turkeys (integral part of broiler companies) Build a modern production system Leverage inherent cost advantages Labor Land Feed costs Attack high cost competitors Develop new export business in new areas

13. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Targeting of the Turkey Market Not a traditional meat in Brazil Development is by broiler companies Promoted in domestic market first Export promotion started about 2000 Exports growing as % of production Temporary setback from AI outbreak 2007 exports up 50% of 2007 production exported Same model as used for all other meats

14. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Brazil Turkey Consumption and Exports Source: USDA/FAS PS&D Database

15. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Summary Brazil is the #1 challenger in turkey exports Major customer is the EU Focus is on value-added products Cost advantages appear to be long run U.S. ethanol program is indirectly aiding their meat export program

16. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Export Demand Increase 2001-2007 Source: U.S. Census Exports December 2007 estimated Higher Volume at Higher Prices

17. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2008 U.S. and Overall Outlook

18. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2008 OUTLOOK Bottom line: A deteriorating balance of higher costs, increasing production, and a more difficult demand growth scenario.

19. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Estimated Value of the U.S. Market* *ex-processor, 30% whole birds, 70% cutout X Domestic Consumption Prices & Consumption Up

20. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2007 Domestic Demand Increase

21. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Poult Placements, UB, Weekly Early 2008 Production +3.6%?? Placements through January 30, 2008

22. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President U.S. Turkey Production 2000-2008 2% Increase?

23. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2008 Turkey Forecast Details (Production, Use and Stocks in Million Pounds)

24. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2008/09 – Higher Costs Will Hurt Margins Based on FarmEcon LLC model of 70% cut-up and 30% whole bird marketing mix. Does not include value-added products.

25. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2008 Outlook Summary Demand growth will be more challenging Recession more likely every day Large supplies of competing meats, esp. pork Feed costs will be record-high U.S. turkey production growth 2-3%? Bird numbers will be up more than production? Feed costs argue for lighter average weights Exports look healthy, weak dollar helping Prices likely need to fall to use more turkey Margins will shrink, losses likely for some companies Could look like 2002-2003, or worse Declining demand was the main problem then Feed cost increases are the major issue today

26. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Feed Cost Outlook 2008/2009

27. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President It’s not ALL Ethanol Ending global grain stocks trending down from 2001 Economic growth adding to demand Subsidized ethanol demand on top of robust food demand

28. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Feed Outlook – Ethanol Links Ethanol production has reached a level where price rationing for feed use is happening 3 major demand sources: Feed Exports Food, Seed and Industrial Ethanol is the only growing piece Ethanol demand growth is not market-driven Who will cut back to make room for ethanol? How much additional corn can we produce?

29. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Ethanol Facts Every 20 gallons tank of E10 (10% ethanol) uses about enough corn to feed a 25 pound turkey or 7 five pound broilers. Universal use of E85 in the U.S. would consume almost the entire global grain supply Mandated 2008 U.S. ethanol production will use the same amount of grain as produced by Australia and Indonesia If all current and planned Iowa ethanol plants are operating they will use more than the entire Iowa corn supply

30. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Corn/Ethanol Plant Locations

31. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Corn Value to Ethanol Producers

32. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Reality check – 2-5-2008 Use the DTN model ethanol plant, “Neeley Biofuels”, in South Dakota U.S. average ethanol price = $2.27/gal NY regular gasoline = $2.24/gal Corn at DTN model plant = $4.50 Model plant profit = -3.1¢/gal http://www.dtnethanolcenter.com/index.cfm

33. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President At breakeven on 2-5-2008 $2.24 $2.27$4.50

34. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Summary: We cannot produce enough corn to depress the price significantly below the level set by the value of corn to ethanol producers. If corn prices drop, ethanol producers will expand until the corn price increases enough to make further expansion unprofitable.

35. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Ethanol Projections Ethanol demand limited in short run by distribution and blending capacity Long run limitation is feedstock (corn) supply Demand is almost unlimited in the long run E85 could use 500+ million acres of corn Crude oil price and ethanol subsidy level will set long term corn prices Use of cellulose also has many issues and limitations

36. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Mandated U.S. Ethanol Production And Corn Required

37. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2008/2009 Ethanol Effects Increased corn acreage has already doubled soybean meal prices 2008 battle for acres Corn acres need to increase Soybean prices may prevent that Further effects on global grain/oilseed prices Food riots in China and Asia – already China banned further use of grain for ethanol EU and Canada withdrawing support for biofuels Increasing use of DDGS in U.S. feeds Long term advantage for Latin American corn and soybean producers

38. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Corn Outlook – 2008/2009 Potential ethanol demand for corn About 3.33 billion bushels in CY 2008 Going to be 4+ billion in CY 2009 2008 corn acres likely to decrease Historic collision of ethanol and food is coming, and sooner rather than later Mandated use creates price insensitivity 2008/09 corn price could go to $6-8/bushel How much acreage goes to beans + weather? 2008 crop failure could take corn to over $10

39. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Corn/Meal Price Outlook – 2008/2009 Corn prices remain at $4.25-$5.00, meal at $325-375, through May-June Weather drives prices after that 2009 price outlook is “higher” Biofuel production will increase We are out of unused productive acres There are limits to what biofuel producers can pay unless mandate becomes effective Food prices will become a national issue

40. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Corn Outlook – 2007/2008* * September 1 Crop Year

41. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Soybean Outlook – 2007/2008* * September 1 Crop Year

42. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Feed Cost Outlook – 2007/2008* *Add $0.50/bu. for corn and $20/ton for soybean transportation and handling Based on 2.6:1 FCR, 65% corn, 22.5% SBM, 5% meat and bone meal, 5.5% grease diet Current cash markets for ingredients imply a live feed cost of about 34-35¢ per pound and RTC cost of about 43-44¢. December, 2008 futures imply about 1¢ higher for both.

43. FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Summary: 2004-2005: improved profits = lower production In 2006-2007 it all came together: Excellent U.S. demand growth Production issues that restrained 2006 supply Higher turkey prices that offset higher feed costs What will it take in 2008? Continued demand growth in a worsening economy Limited production growth No HPAI in the U.S. Despite best efforts on demand, higher feed costs will likely result in negative margins for the year for many producers