Dr. Thomas E. Elam President FarmEcon LLC February 10,

 $ corn, $ soybean meal  Slow recession recovery  Higher costs and improving economy working against each other on production  But working together to drive wholesale protein prices higher  Likely: 2011 total meat production falls slightly, much stronger overall pricing 2

3 July, 2011 Futures

 Crop issues in major producing areas  Reduced U.S. and global grain stocks  Income/demand recovery  Support from subsidized ethanol demand Increased ethanol production driven by policy Historically high crude oil prices, leading to: High ethanol prices Both increase value/price of corn Corn pulls other feeds up  Drops in 2010 corn/soy yield/production 4

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6 Profit/Loss for primary production only, does not include value added operations past RTC, carcass or raw milk

7 Sources: Fed Cattle: Iowa State fed yearling budget Market Hogs: Iowa State farrow-finish budget Broilers: Informa Economics broiler margin model Turkeys: Informa Economics turkey margin model Dairy: Penn State milk margin model 2011 Forecast: FarmEcon LLC

 Beef/pork production will decline  Milk production likely flat, at best  Broiler and turkey production likely to grow slightly, at best  Wholesale/retail prices for all likely to increase 8

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 High feed costs, resulting in…  Production declines  Higher exports growth is forecast  1%/year population increase 10

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Summary Improved pricing and low stocks imply modest 2011 turkey industry production growth. However, growth will be muted by record- high feed costs, and the need to recover those costs in wholesale pricing.

Cold storage stocks at record low level 2010 profitability was good until year-end Q1 2011: production up 2-3% Q2: production +1% to +2% Q3/Q4: production +1% to -3% Exports expected to grow slightly Lower competing red meat supply, higher red meat pricing Broiler pricing not as strong as red meats Feed costs remain the major wild card 13

14 Record low November & December Stocks

15 Based on FarmEcon LLC model of 70% cut-up and 30% whole bird marketing mix. Prices are USDA/AMS. Does not include value-added products.

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19 ProfitableProfitable UnprofitableUnprofitable

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22 Source: Informa, : PL10-03TM Turkey Letter. 2011: PW10-47 Poultry Weekly

23 Source: Informa, : PL10-03TM Turkey Letter. 2011: PW10-47 Poultry Weekly

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World food prices rose to a record in December (2010) on higher sugar, grain and oilseed costs, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt. 25 As reported by Bloomberg News, 1/5/2011

 Grains – increasing ethanol production  Oilseeds – increasing biodiesel production  Sugar – increasing ethanol production  And, all mandated by high income countries government policies 26

 New research published December 27  Underlying pre-2006 corn price relative to stocks and use has not changed  Ethanol production and price have become very important  Price analysis has become more complex  Significant risk of higher feed costs 27

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Note increases in both average price and volatility! 29

30 Ethanol production and price are pushing up corn prices above “normal” Equation 2 forecasts 2010 crop price of $5.40 vs. $5.30 January USDA forecast Absent ethanol price/production effects the corn price is about $3.10/bushel

31 * September 1 Crop Year, 2011 as of 2/4/2011

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 Cash corn prices remain at $5.50-$7.00, meal at $ , through March/April (basis Illinois cash markets)  2011 crops and demand drive feed costs after that  Ethanol production will grow due to RFS More DDGS production, and DDGS becomes #2 feed ingredient Ethanol use mandate = increased corn demand Energy prices are also critical to outlook High volatility in all feed ingredient prices likely 34

 Higher feed costs will drive protein prices higher in  $5+ corn and $300+ soybean meal=normal for 2011/2012  Feed cost volatility an ongoing issue  Increasing RFS, weather, and limited acreage are on a collision course  Another 2008 spike in the next 3-5 years  Driving higher poultry share of the diet 35

36 Source: USDA/ERS

Questions? Comments? 37