7/15/ From information, knowledge Hog and Pork Issues and Outlook Steve R. Meyer Paragon Economics, Inc. Midwest, Great Plains & Western Outlook Conference

7/15/ From information, knowledge Assumptions: n U.S. economy continues a slow recovery n No major disruptions of U.S. exports n Resumption of Canadian beef exports will improve the North American meat situation SLOWLY – strong beef prices into 2004 n Chicken production will remain near year- earlier levels through Q n Some degree of rationality holds among pork producers!

7/15/ From information, knowledge ’03 prices are a welcome relief to ’02...

7/15/ From information, knowledge June H & P Report: Tighter supplies in Q3 & Q4... Canadian hogs have worked against this.

7/15/ From information, knowledge BSE situation could have gone either way n Canadians fear beef -Beef demand falls – lower beef prices don’t help since they aren’t the result of supply -Pork is substituted in Canada, more hogs and pork stay north, U.S. pork and hog prices rise n Canadians do not fear beef -Export ban causes Canadian beef supplies to grow – lower beef prices, higher consumption -Beef is substituted for pork in Canada -- lower pork prices, lower hog prices, more pork and hogs to U.S.

7/15/ From information, knowledge The last scenario is what has played out

7/15/ From information, knowledge But Canadian slaughter is still larger than ‘02.. suggests that impact may be through cuts!

7/15/ From information, knowledge More hogs and more pork: Cutouts Down!... killed an expected late summer rally.

7/15/ From information, knowledge June H&P: Some strength but winter trouble Actual Prices: June 1-July 10$65.16 July 11 – Aug 20$61.59 But hog demand has been good – Compare:

7/15/ From information, knowledge Total exports are up 7% through May

7/15/ From information, knowledge Japan - up 9%; Mexico – down 13%... Canada – down 17%

7/15/ From information, knowledge Consumer level pork demand is soft YTD

7/15/ From information, knowledge Imports are up 17.7% through May... will grow more when summer data are in

7/15/ From information, knowledge Pressure has been greatest on loins but is it supply or demand?

7/15/ From information, knowledge The arguments n Loin prices, relative to other cuts, are lagging substantially

7/15/ From information, knowledge The arguments n Loin prices, relative to other cuts, are lagging substantially n Historic price-quantity relationships suggest lower demand for loins

7/15/ From information, knowledge

7/15/ From information, knowledge

7/15/ From information, knowledge The arguments n Loin prices, relative to other cuts, are lagging substantially n Historic price-quantity relationships suggest lower demand for loins n BUT – there are supply factors -Pumping has added 10% or so to each pumped loin -Estimated 70-80% of loins are pumped

7/15/ From information, knowledge Some help – but demand still looks lower

7/15/ From information, knowledge The arguments n Loin prices, relative to other cuts, are lagging substantially n Historic price-quantity relationships suggest lower demand for loins n BUT – there are supply factors -Pumping has added 10% or so to each pumped loin -Estimated 70-80% of loins are pumped -Loins from Paylean-fed pigs are about 2 pounds heavier – 30-40% adoption??? -This summer: How many from Canada? n Generic pork advertising budget is one-third as large as in 1996 in nominal dollars!

7/15/ From information, knowledge Hams demand has stablilized – LOW LEVEL

7/15/ From information, knowledge Quarterly ham scatters are similar

7/15/ From information, knowledge Belly demand has been great! – Health food!

7/15/ From information, knowledge Big moves in Q1 and Q3 – Question on Q4?

7/15/ From information, knowledge Bellies have been TERRIFIC in 2003!

7/15/ From information, knowledge And trimmings are up with beef trim prices

7/15/ From information, knowledge Cutout values near 5-yr avg until last 3 wks..... H & P suggested a late seasonal peak

7/15/ From information, knowledge Recent runs: 1-2% higher than expected... not far from June H & P without Canada

7/15/ From information, knowledge Expectations n Resumption of beef trade will NOT help quickly – backlog of cuts and cattle n Won’t see significant slowing of Canadian hogs until Q4 n Hog in the $56-58 range through August, $52-54 for Q4 (some below $50) n Price pressure on Canadian producers is good for North America in the long run – may increase prices in

7/15/ From information, knowledge Canadian BH: Never down yr-yr since 1997

7/15/ From information, knowledge Expectations n Resumption of beef trade will NOT help quickly – backlog of cuts and cattle n Won’t see significant slowing of Canadian hogs until Q4 n Hog in the $56-58 range through August, $52-54 for Q4 (some below $50) n Price pressure on Canadian producers is good for North America in the long run – may increase prices in n 2004: $3-5 (carcass) higher than 2003 average