FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2011 Turkey and Protein Outlook Dr. Thomas E. Elam President FarmEcon LLC November 30,

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Headline issues for 2011 Recession has officially ended, but it does not feel like a recovery $3.2 trillion consumer debt write-off, and climbing Feed costs – large crops, huge demand, likely record-high feed costs Total protein supplies reduced enough to stop the losses – until the October corn yield “surprise” Improved pricing may lead to overexpansion But likely not until

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Globally: More Spending = More Meat On average +10% Spending = +9% more meat Sources: Consumer Spending: World Bank; United Nations. Meat Production: UN/FAO $1 trillion increase in spending = 9 mmt more meat produced R 2 =

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Headline (U1) unemployment rate 4

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Actual (U6) unemployment rate U1 + marginally attached + discouraged potential workers Does not include those who have totally given up looking for work 5

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Labor force participation rate, % 6 Recent decline includes mainly those who have totally given up looking for work

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Private sector employment 7 The business sector is leading the jobs recovery.

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Government sector employment 8 The government sector is reducing jobs due to state and local financial issues. The spikes are temporary Census workers in 2000 and 2010.

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Issues for long term income recovery Work = consumer income = spending = MEAT DEMAND Weak 2010/2011 protein demand increase 2010 protein price strength almost totally due to supply reductions If meat supplies increase in the face of low income growth, prices will decline Why are these statistics important? 9

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Money finally ran out for pig and cattle operators Thus, sow reductions and fewer fed cattle Turkey producers made large cuts Even 2009 broiler production dropped Wholesale meat prices pushed higher to cover $3+ corn and $300+ soybean meal Now need to think about $5 corn! Protein supply headlines 10

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Informa model broiler margins 11

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Informa model turkey margins 12

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Farrow-Finish returns, IA State budget 13

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Yearling steer returns, IA State budget 14

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President All feed users adjusting to a new reality Beef/pork had 2009 overcapacity issues When could we get back to the 2008 peak? Turkey: Chicken: Fed Beef: 5-10 years, if ever Pork: 2012/2013 Downsizing meat production 15

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President total meat production: 2.5 billion pounds went away in

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President TURKEY OUTLOOK 2010/11 17

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Turkey and parts prices Overproduction in 2008/early 2009 killed pricing across the spectrum Frozen stocks got “out of control” Reduced 2009/2010 production has restored demand/supply balance Prices now high enough to about cover costs Did prices increase enough to encourage 2011/2012 overproduction? 18

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Turkey cold storage

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Wholesale Value of the U.S. Market* *ex-processor, 30% whole birds, 70% cutout X Domestic Consumption 20

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Large drops in consumption needed to improve pricing 21

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Poult placements, UB, weekly, point to production restraint in early 2010 Placements through week of July 9,

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2010 Feed Costs and Weighted Prices 23

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2010/11 Turkey Forecast Summary (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 2010/11 Turkey Outlook Summary Demand will continue to be a major challenge Economy expanding, but at 50% of typical recovery rate Competing red meat supplies shrinking in 2010 and 2011 Chicken supplies are headed up next year, at least early Feed cost outlook has deteriorated 2011 turkey prices likely close to 2010 Excellent 2010 margins will fade, but not turn to losses 2012 could be a difficult year if expansion continues 25

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2011 Feed Cost Outlook 26

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Long term perspective on corn prices

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Corn Stocks/Price Curve Shifts Up 28

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Weather and acreage still play a major role Export and feed demand also still important Prices elasticities – in decreasing rank Ethanol is near 0, or infinity Food and seed use near 0 Exports – very low response to price Feed use – all that’s left to adjust But ethanol is not everything 29

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Corn/Meal Outlook – 2011 Cash corn prices remain at $4-$7, meal at $ , through next March (basis Illinois cash markets) 2011 crops and demand drive prices after that Ethanol production will grow due to RFS More DDGS production - DDGS becomes #2 feed ingredient Ethanol use mandate = increased corn demand Volatile energy prices are critical to outlook More volatility in feed ingredients likely 30

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Feed balance, including DDGS* * September 1 Crop Year 31

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Share of Grains, DDGS and Soybean Meal Feed Use (Numbers in the Bars are Metric Tons of Feed Use) 32

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Long term issue – No new acres since

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Summary: Higher feed costs now in protein prices $4+ corn and $300+ soybean meal=normal Feed cost volatility an ongoing issue Likely to see another 2008 in the next 5 years Increasing RFS and limited acreage are on a collision course 34

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President What basics created the business? Quality products Safe products Production system control Competitive pricing vs. other proteins Innovation in production and processing Being close to the customer and consumer Access to world markets Excellent animal husbandry and disease prevention Environmental stewardship And more…

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President U.S. Meat Protein Shares Reflect Long Term Market Competition Source: USDA/ERS 36

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Higher feed costs = need for efficient production Broilers 2:1 (or better) Turkeys 2.6:1 (or better) Hogs 3:1 (including sows, at best) Fed cattle 6:1 Grass fed cattle 0:1 Beef cow herd likely to shrink for 4-5 years Total protein production can increase if the mix changes enough! That is, less beef and pork and more poultry Likely winners and losers 37