FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2016: Outlook for Turkey and Layer Recovery and Prices: Will Chicken Expansion Continue? Dr. Thomas E. Elam President FarmEcon LLC Sept. 17,

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President In the interest of full disclosure 2

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Meat Consumption vs. Potential 3

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Higher costs drove U.S. protein consumption far below potential As costs are falling and the economy grows, the gap is starting to close Wholesale prices generally dropping with feed costs Intense competition for this production opportunity Poultry has inherent competitive advantages Likely to see continued poultry share growth Excellent opportunity to further invest for growth Protein Consumption Gap Closing 4

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President U3/U6 Unemployment Rates 5 U3 – Headline Rate: World’s most misleading economic indicator U6 – Total Rate: More complete picture

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Weekly Wages and Hours 6 Average Weekly Hours Index Average Weekly Earnings, $

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 7 Hourly Earnings and Non-Farm Employment Hourly earnings in dollars at record level Total non-farm employment at record level

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 8 The Moose on the Table Labor Force Participation Rate Employment-Population Ratio

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 9 $2009 Per Capita Personal Consumption Expenditures

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Why did protein production recovery take so long? 10

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

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Takes Longer Than This 12

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President HPAI turkey and egg production losses Record large 2013/14 corn and soybean crops Corn and soybean stocks rebuilding Lower and more stable feed costs 2015 pork and poultry production growth, beef flat with 2014 Protein prices adjusting down to lower costs Large, but not record, 2015 feed crops Strong dollar tempering protein export volumes Slow, but positive, domestic meat demand growth Animal Protein Sector Drivers 13

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Feed Cost Drivers: Corn and Soymeal (Dec 2015 futures prices current as of ) 14

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Protein Production Outlook 15 Beef cow herd growing, 2016 first year of more cattle availability Pig expansion will slow dramatically due to lower prices Chicken expansion also slowing as prices and exports decline Turkey growth resumes in 2016 Breeding flock recovery complete by Jan-Feb 2016 % growth looks large because of 2015 decline Egg production slowly growing through the next year+ Limited layer replacement supply Pre-AI level reached in Q Forecasts assume no large scale HPAI outbreaks

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Protein Production Outlook wholesale prices will reflect lower feed costs, production increases, and exports

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Record Protein Production 17

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President U.S. Consumption Trends (Note what happens this year) 18 !

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Cost and price differences Product image Product innovation Export opportunities for less favored cuts Long Term Consumption Share Trends Reflect 19

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Beef/Pork Retail Price Relatives 20 It’s not just lower prices causing poultry share gains!

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Strong dollar/weak Real plus HPAI have reduced total 2015 U.S. protein exports Most significant total export decline since 2004 Net beef exports changed to net imports All poultry exports reduced, turkey suffered proportionally the most Pork has fared relatively well due to lower domestic prices 2016 exports forecast to recover Increased U.S. production Lower domestic prices Diminishing HPAI-related export barriers Total exports forecast to slightly exceed Protein Export Prospects 21

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Protein Trade Forecasts Beef/Pork - Mill. Lbs. Carcass Weight Broilers/Turkey - Mill. Lbs. RTC Eggs - Mill. Doz. Shell Egg Equivalent 22

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Long Term Protein Trade Perspective Beef/Pork - Mill. Lbs. Carcass Weight Broilers/Turkey - Mill. Lbs. RTC 23

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Protein Price Forecasts 2015 Record Highs for Beef, Turkeys, Eggs 24 Cheap feed produces cheap meat - eventually

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Clearly Seeing Chicken Price Effects 25

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2016 Feed Cost Outlook 26

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Another large corn and soybean crop That’s 3 in a row 2016 ethanol mandates likely to be reduced Corn stocks forecast near 1.6 billion bu. Soybean stocks forecast near-record level South American crops got off to a good start Slightly lower and more stable feed costs 2015 Crops Further Boost Feed Supplies 27

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Corn Price Model Forecast /2016 Assumptions: Feedgrains Stocks/Use Ratio = 11.8% Ethanol Production = 12.5 Billion Gallons Ethanol Price = $1.75 per Gallon Predicted 2014/2015 corn average farm price received = $3.75 per bushel Current USDA WASDE forecast = $3.45-$4.05 per bushel

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Feedgrain Stocks and Corn Prices 29

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Corn/Soymeal Price Outlook Corn prices strengthen seasonally through March/April Soymeal prices likely to decline as South America crop becomes available in April/May High corn carryover will buffer summer weather U.S. weather drives Jun-Dec prices 2016 acreages close to 2015 Ethanol producers are losing money, struggle to produce entire 2016 RFS, use carryover RINs Price volatility lower, but summer weather still critical 30

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President 2016 Outlook Summary Beef prices will drop slightly on higher production Beef producers pricing their product out of the market, have been for decades Beef now #3 U.S. meat, was #1 40 years ago 2017 production higher than 2016 by 2-3% Good cow-calf margins encourage expansion Pork expansion will slow in 2016 Expansion well underway this year, prices have dropped Reduced incentive for further expansion Chicken leading the charge on volume increases Another record high share of consumption Lower 2015 pricing will limit 2016 breeder flock expansion Turkey production up substantially, lower prices ahead Total poultry consumption will surpass total red meat Egg production recovers slowly, strong but declining prices for

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Long Run Outlook Demand increasing with income and population Continued live performance improvement required to MAINTAIN poultry’s competitive cost advantage FCR and gain rate potential will improve for at least 5 years out (Avigen forecasting 0.8 lbs. live/tom, same feed) Challenge to maintain meat quality with increasing gain rates AI issues show how vulnerable we are on flock health Product innovation required to further increase share Also vulnerable on food safety Processing plant efficiency can help reduce costs In other words, future in in the hands of the poultry industry 32

FarmEcon LLC A source of information on global farming and food systems Thomas E. Elam, PhD President Questions? Comments? 33