Global Pork/Protein Update June 16, 2016 Brett Stuart

Outline Global Pork Update – Weak global economy, global commodity deflation – Key global issues CHINA U.S. Pork Situation / Outlook – ABUNDANT meat & poultry supplies – The Dilemma

U.S. Beef in the Global Markets

Global Pork Update Global Economy Commodity Deflation Brazil EU China

Global Economy Wobbly – IMF reduced 2016 forecasts, again – Negative interest rates? – Big economy difficulties EU: Greece $300+ bil; Italy and Portugal concerns remain Japan: into recession, Abe-nomics, 10-year GDP avg +0.6% China economy slowing – Developing economy difficulties: Brazil recession deepens 3 rd world debt crisis, U.S. dollar pressure

Source: U.S. Federal Reserve Bank

Source: UN/FAO

Global Food Demand +78 million +78 million people per year (global growth) Global middle class to rise from 2 billion to 4.9 billion by 2030 – Asia driving global food demand – But also, less-developed nations globally – New opportunities for further- processed and consumer-ready food products

Source: UN/FAO

Source: USDA/FAS

Key Global Pork Issues Brazil’s economic/political problems Russia now irrelevant to global protein EU pork supplies remain large, prices suppressed China pork Chinese grain policy shifts (250 mmt stocks) prices down -30% from a year ago Cheaper feed (at least in the U.S.) U.S. Expansion – pushing forward – for what markets?

Brazil Pork Recession deepens 19% of pork exported 2016: production +3% exports +7% 35% of exports: Russia – New access: China – Weak currency has increased export demand Feed supplies tight, costs rising

EU Pork Update 2014: Russian ban displaced 400,000+ mt of pork and offal 2015: pork production +2% (467,000 mt) – 2015 Gains: Spain, Denmark, Germany – 2016 Declines: Poland, France Spain is now the #3 pork producer globally – Exporting 40% of production Pork production may decline slightly in 2016 – Producers losing money, but seeking gov’t support Is Russia’s ‘plan’ working?

Source: BPEX, USDA Life with Russia Life without Russia

Source: BPEX, USDA

Source: China, Hong Kong Customs, AgriTrends Forecasts

Source: GTIS, AgriTrends

The Chinese market is diverse and complicated

China Pork 2016 Market RED HOT on tight supplies; liquidation of 2+ mil sows (but not 13 million) Hog prices RECORD HIGH; Piglet prices skyrocketing Imports SURGING (but U.S. constrained) Profits now US$160+/head – Expansion occurring – But longer lag than U.S. Corn policy adjustments: cheaper corn ahead – 250 mmt (9 bil bu) in storage

Source: BPEX, USDA

Source: Average of various Chinese market reports, AgriTrends

Source: GTIS, China NBS (AgriTrends monthly China Pork report)

Chinese hourly pork consumption = 6,355 mt (US is 1,083)

China Pork Outlook What we know – Prices (piglets, hogs, corn) – Margins are incredible – Gov’t regulations have some effect What we don’t know – The overall extent of gov’t regulations – Inventories, sows, expansion What I think – Expansion is inevitable; margins are too good – But could be slower than historical

Source: Canada Customs, pork only, no variety meat

U.S. Pork Situation / Outlook Supplies The Dilemma

Source: May WASDE

Source: USDA/FAS, WASDE

New U.S. Hog Plants ? Production is expanding CDN piglet imports to rise Is this a response to rising demand for pork? Or pigs?

The Dilemma 1.Rising U.S. production – Soft expansion occurring – New plants are seeking/encouraging more production 2.Chinese demand will stall – Chinese expansion will occur But may be slowed by gov’t reg Where will the EU, U.S., and Canadian pork go?

U.S. Production Source: USDA, WASDE forecasts

Source: USDA/ERS, AgriTrends forecasts

Hog Price Forecasts Bullish Short term China demand Summer demand Bearish Medium/Longer term Chinese demand Expansion Beef, poultry expansion

Source: USDA, CME

Summary Current market exuberance – summer demand and China Chinese demand is lapping up add’l world (EU) supplies – expansion will occur and prices will drop (2017) U.S. production is rising; is demand? BUT – don’t forget, market “gravity” is UP, on a longer-term basis (population and incomes)

Denver, Colorado 39 Thank You Brett Stuart