1. MPC ANNUAL MEETING 9 TH April 2014 Annual Outlook Karl Kynoch, Chair MPC

2. 2

3. Source: USDA Pig Report March 2014 USDA REPORT MARCH 2014

4. Source: USDA Pig Report December 2013 PIG REPORT USDA MARCH 2014 ….. numbers did show impact of PEDv

5. Rabobank Report: impact estimates on production

6.  US production estimated to decline 6-7% in 2014  US hog weights to increase by 3%  Lower corn prices below $5/bu. will impact weights  Summer temperatures could affect weights Rabobank report:

7. IMPACT OF PEDv ON PRICES IN MANITOBA Prices also affected by retail demand, exchange rates, and seasonality of production Source: H@MS 4 th April 2014

8. IMPACT OF HIGHER PRICES:  Improved cash flows  Ability to service debt  Ability to catch up with repairs and maintenance  Rebuild Equity position in business  Reduce cost of working capital

9. FINANCIAL OUTLOOK Lessons from past 5 years:  Impact of losses or no profits  Cash is king  Reduced equity  Difficult to borrow against old assets  Average value of barns is declining  Cannot rely on government to bail out industry  Need to develop private capital sources

10. As farms go out of production for normal reasons (retirement, older barns being closed, etc.), their production capacity is not being replaced. Experiencing an immediate decline in hog production with significant impact on the provincial economy. Producers should be replacing about 20-30 barns per year with modern, new, larger and more efficient facilities just to retain CURRENT capacity. Only 4 barns have been built in 2008-2013 10 BARN REPLACEMENT

11. Impact on Processing Capacity Manitoba Plants are operating at 80-83% of capacity Comparable US plants operate at 97% capacity Plants are short about 1.5 million finished pigs Need equivalent of 250 finisher barns with 2000 finisher places in addition to existing finishing capacity Potential impact of declining supplies will be the closing of Brandon’s second shift, losing about 1000 jobs. Without the 2 nd shift, the plant becomes un-economic to operate, jeopardizing all 2300 jobs 11

12. INVESTMENT CHALLENGE 1.Existing producers have maxed out their lines of credit because of last 5 years of low or negative margins 2.For new construction Financial Institutions lend at 65% of appraised value based on equivalent sales of existing barns which are currently $200-250 /place 3.Actual costs are about $500 -600/finisher place 4.Producer has to find difference equivalent to 70% of cost 5. FI will lend working capital based on previous 3 years of income …not good indicator of future income 5. Pork sector is stuck in fiscal trap….similar to rental property construction in Winnipeg for 10 years after rent controls were imposed 12

13. MPC is requesting assistance from government to provide: 1.Hog Price Stabilization Plan  Guarantee on $75 million 2. Pork Chain Development Plan  Partial Guarantee on 50% of loan debt incurred by producers from financial institutions for the construction and operation of equivalent of 250 barns capable of producing 1.5 m finished pigs per year:  Capital debt guarantee on $60m (est.)  Working capital debt guarantee on $10m(est.) MPC PROGRAM PROPOSALS 13

14. HOG STABILIZATION PLAN Concept Objective is to ensure producers have sufficient cash to cover most of their costs to finish pigs through long term stabilization program Features Payment based on difference between market returns and production costs (feed costs + specific fixed costs) Payment is calculated monthly on individual marketings Payment is a loan repayable through an assigned refundable universal levy on market hogs 14

15. Pork Chain Development Plan Manitoba Pork Credit Corporation (MPCC) will administer a partial government guarantee on: 1.50% of the debt incurred long-term by a producer to build a new hog finisher barn on his/her own property 2.50% of the medium term debt required to start the operation until it can generate its own working capital 3.Producer has to put in as cash 33% of building cost and operating capital, all land for building site, and sufficient land for manure 15

16. OUTCOMES $400million in new private sector investment in pig finishing capacity Create 1500-1700 new jobs on-farm, in the service sector and in pork processing in Brandon, Winnipeg and Neepawa Provide stability to a cyclical industry Processors would be at capacity, competitive with US plants Processors should be better able to match US prices paid to producers Create additional pork product sales for export of at least $300m per year Model for other provinces or other livestock sectors. 16

17. MANITOBA BALANCED PRODUCTION MODEL 1. Producer would not be able to raise pigs in Manitoba without a license from the Manitoba Pork Council. 2. Producer would have to show that he/she had a buyer for those pigs under contract 3. Processor cannot buy pigs from unlicensed producer 17

18. ENVIRONMENT Discussions with government: key points  For new construction only  Must be able to separate P in manure with double or triple cell EMS  All manure to be injected  Must have sufficient land base to apply at annual P removal rates over 4 year period  P level in soil cannot exceed 60ppm

19. ANIMAL CODE OF PRACTICE  New dry sow barns after July 2014 have to use loose housing  Existing producers are grandfathered in  Small changes in space requirements  Dry sows in crates must have some exercise…July 2024  Pain mitigation for small pig husbandry…1st July 2016 Research Barn design Husbandry techniques Feeding equipment Barn management

21. TRADE DEALS  EUROPEAN UNION  SOUTH KOREA HUGE MARKETS WHERE PORK IS MEAT OF CHOICE WORLD DEMAND IS INCREASING BY CANADA’S TOTAL PRODUCTION…….. EACH YEAR MB MOST AFFECTED BECAUSE 90% OF PRODUCTION IS EXPORTED

22. DISEASES  Need to prepare for continuous outbreaks of new diseases …..nothing new  Better disease management technologies becoming available: chick embryo antibodies, probiotics, vaccines Better pig genetics to resist all diseases  Basic prevention is still critical  Top-notch bio-security least cost option

24. THANK YOU