Brett Stuart June 19, 2014 Global Pork/Protein Update

Overview Key Global Protein Trends U.S. Pork/Protein Exports Watchlist

Key Macro Assumptions: 2014 Cheaper Feed: – Shift downward to U.S. corn at and below $5/bushel is significant – All livestock sectors are seeing improved margins – When will broiler production accelerate? – The current margins will fuel broiler expansion initially, followed by hog and cattle expansion – We expect corn prices to average well below US$5/bushel for USDA’s latest WASDE report suggests corn prices averaging US$4.45 to $4.65/bushel in the 2013/2014 crop year, and US$3.85 to $4.55 for the 2014/2015 crop year. – These levels completely shift margins and optimism toward expansion.

Source: USDA

Key Macro Assumptions: 2014 Economic Growth: – We cautiously note that world economies are improving. – April 2014 IMF World Economic Outlook: “Global activity has broadly strengthened and is expected to improve further into 2014/2015…. Downside risks identified in previous World Economic Outlook reports have diminished somewhat.” – Overall economic growth is one of the two key drivers of protein consumption globally (the other is population growth) Global population is growing at 78 million/year Global GDP growth has averaged US$1.43 trillion/year

Source: USDA, AgriTrends

Key Macro Assumptions: 2014 Tightening Global Beef Supplies: – The world basically stopped producing additional beef in 2007 and the result has been rapid appreciation in beef prices – From 2012 to 2013 Chinese demand sucked up an additional 700,000 metric tons (carcass weight equivalent) further straining tight supplies; Chinese imports will top 1 mmt in 2014 – The U.S. cowherd is beginning an expansion phase which will tighten supplies here over the next 2-3 years – Brazil and India are the only producers actively expanding production (but note our article on Indian beef on the back page).

Source: USDA/FAS Global Meat and Broiler Production

Source: GTIS, AgriTrends

Key Macro Assumptions: 2014 PED Virus: – What began as a game-changer in the U.S. pork sector is now a world phenomenon. PED virus has been reported in 13+ markets and has proven incredibly difficult to contain. – U.S. markets have went to stratospheric levels on supply fears and those fears are becoming reality. U.S. gilt/barrow slaughter is now down –3% over the past 9 months and the market gap is rapidly approaching. – Considering the PEDv difficulties in the U.S. expectations are for serious challenges in Mexico, Canada, Japan, S. Korea, and abroad. The extent of this swath is unknown but tight supplies will move global prices higher.

Source: USDA Down mil head over the past 9 months

PEDv 2014 Assumptions Slaughter: -5.5% (-5.9 mil pigs) – Down -8% Jun-Aug Production: -3.5% (-815 mil lbs) Weights: +4.2 lbs (+7 lbs Jan-May), decline as summer hits and hogs are marketed early Exports: -1% (-35 mil lbs) – Now up 10% YTD, but down -7% from 2012 Net U.S. consumption: -4% – Per capita consumption drops -2.4 lbs PEDv Now in 13+ countries

Source: Japan ALIC

Source: CME

Source: Various market reports, AgriTrends

China New FSIS Regs Demand and Potential

Source: Average of various Chinese regional reports, AgriTrends

Source: China MOA, AgriTrends

Source: USDA/FAS, beef and pork in carc. wt. equiv Imports = 2% of Chinese consumption

Source: USDA/FAS Chinese Self-Sufficiency: Food

China Self-Sufficiency A 1% decline in China’s self sufficiency equals: 2.1 mmt of corn 1.45 mmt of rice 1.21 mmt of wheat 538 kmt of pork 135 kmt of broilers 58 kmt of beef Source: USDA/FAS, AgriTrends

Global Population Density

U.S. Pork/Protein

Source: USDA

Source: GTIS, Global AgriTrends

Source: USDA/ERS

Source: USDA, AgriTrends

Source: USDA, Global AgriTrends Forecasts Total exports will surpass US$17.5 billion in 2013

Issues / Watchlist

February 18, 2014: Russia Bans EU Pork over ASF in Lithuania

Source: GTIS, AgriTrends

Trade Access Trans-Pacific Partnership (JAPAN) What will Japan be allowed to keep “sensitive”? – Rice, dairy, pork, & beef? That’s a long list… Potential for U.S. beef (38.5% duty) and U.S. pork (gate price)

Trade Access MCOOL WTO to notify by summer (?) if U.S. revisions bring it into compliance; if so, its over If not, retaliation to pressure U.S. congress – Short term impacts could be HUGE – Likely in 2015

Watchlist Tight global beef & tight N. American pork supplies = Higher Prices PEDv New FSIS certification requirements (pork to China) China beef (and poultry) Global dairy markets cooling? MCOOL – WTO ruling by late summer? ASF / Russian politics (meat and Ukraine) Highest global meat prices ever

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