Dr. Thomas E. Elam President FarmEcon LLC February 8, 2017 2017-18 Turkey Outlook Dr. Thomas E. Elam President FarmEcon LLC February 8, 2017 Download is available from the home page of farmecon.com

2017-2018 Market Drivers Turkey breeding flock recovery complete Near-record December 2016 placements Turkey production capacity increasing – how will it be used? Large competing meat supply, slow 2017-18 growth Turkey exports recovering, strong dollar a barrier Prices have declined in line with domestic meat supply Feed costs very likely to remain near current levels Four successive large crops Larger inventories Ethanol mandate also increasing, helping support a floor price

2017-2018 Feed Costs Favorable soil moisture for a good start – best in years Increasing carryover stocks Strong dollar and increasing corn/soybean export demand Lower corn prices have offset the strong dollar Ethanol demand basically flat, but still supporting corn Adds up to stable corn and meal prices through mid-2017 Futures are predicting an uptick Normal pattern for weather risks Summer weather is always a concern

Corn and Soybean Sept. 1 Stocks

Corn and Soybean Crop Year Exports

Feed Cost Drivers: Corn and Soymeal (July and December futures current as of 2-7-2017)

2017 Total Protein Outlook Feed and animal protein prices are correlated Four successive good corn and soybean crops Record 2015-2016-2017 meat production and consumption Per capita consumption up 7 pounds in 2 years Most rapid increase on record Almost back to pre-ethanol level So, weakening prices are inevitable

Record 2015-17 Protein Production

2015 Turkey outlook

2017-18 Assumptions Feed costs stay near recent levels Turkey export recovery accelerates Economy remains in growth mode No significant policy-based trade disruptions Continued beef, pork and broiler production increases TDET beginning to grow demand

2017-2020 Turkey Production Almost flat 2005-2015 production trend Per capita consumption also flat 2017 USDA forecast: Production 6.12 billion pounds, up 2.3% Per capita consumption 16.9 pounds, up 1.2% Exports 630 million pounds, up 10.5% Exports still struggling to get back to potential 2017 TDET straight line projection vs. 2016 Production 6.423 billion pounds, up 7.3% Per capita consumption 17.4 pounds, up 4.2% Exports 750 million pounds, up 31.2%

TDET Turkey Production, RTC Weight

2017-2020 Turkey Production 2017 production and consumption appear to be realistic numbers, may be on the low side Will demand keep up? Past 2017 there are other questions to be answered: Can the industry create supply fast enough? Significant investments are required Product development and demand creation Live production Processing

2017-2020 Turkey Demand Evidence on spot price versus consumption All else equal, consumers buy more turkey at lower prices But all else is not equal Weak prices in 2009 despite large drop in consumption Stronger 2010-2015 prices as costs increased and the economy recovered Much weaker 2016 prices as production increased Prices still higher than historical at 2016 consumption level Demand has increased, but not as fast as supply Slow export recovery has also played a role

Consumption and Spot Prices

Turkey Feed Cost Forecast Summary Grower Ration, Monthly Averages

2016 Turkey Forecast Overview (Production, Use and Stocks in Million Pounds)

December 31 Turkey Stocks

Urner Barry Frozen Hen Spot Quote 2015 Boosted to Record High by HPAI Losses

Urner Barry Fresh Tom Meat Spot Quote 2015 Boosted to New Record by HPAI Losses

Urner Barry Fresh Thigh Meat Spot Quote Export Losses Weighing on Dark Meat Complex

U.S. Market RTC Turkey Consumption Per Capita Feed costs + High stocks! Unprofitable Profitable 27

Mexico Accounts for Most of Export Decline

2015-2016 Monthly Exports YoY

Sharp Drop from 2015 Record-High (USDA Cash Cutout and Whole Birds)

Summary 2017: lower pricing than 2016, very tight margins Production recovery continuing through summer 2017 production breaks 2008 6.25 billion lb. record? Increases in 2016 and 2017 per capita consumption Need to get exports back ASAP Beyond 2016 TDET goals will require 5%+ annual production capacity growth to succeed Please send any questions to thomaselam@farmecon.com Download is available from the home page of farmecon.com