1. From information, knowledge Paragon Economics, Inc. 2015 World Pork Expo Outlook Seminars Steve R. Meyer, Ph.D. Vice-President, Pork Analysis EMI Analytics, Inc.

2. From information, knowledge Paragon Economics, Inc. The gospel according to Yogi... “It’s tough to make predictions, especially about the future.”

3. From information, knowledge Paragon Economics, Inc. Key factors for 2015 and beyond  PEDv – or lack of it in U.S. hog herd  HPAI in U.S. poultry – HUGE hit on layers/eggs, only meat impact is turkey, chicken is okay -- so far – but represents the largest risk  Beef herd rebuilding is under way – limiting current supplies  Fewer corn acres, more soybean acres – but the issue is, as usual, weather  U.S. consumer demand has been GREAT – will it hold?  The U.S. dollar

4. From information, knowledge Paragon Economics, Inc. Corn/Soybean Meal Outlook Negative returns for corn and soybeans 2015 Cash Flow Issues Cost adjustments likely in 2016 Rent, Seed, Fertilizer Margins Positive Again EPA Proposed lowering mandate Maybe they will actually follow through this time Brazil, Argentina, US all record production 2015 record forecast for US Expect lower meal prices assuming normal weather Farm Returns Ethanol Soybeans

5. From information, knowledge Paragon Economics, Inc. Adequate Subsoil Moisture for Most of Midwest. Flooding in some areas.

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12. From information, knowledge Paragon Economics, Inc. WASDE Forecast continued increase. Will that happen?

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16. From information, knowledge Paragon Economics, Inc. Domestic demand is strong – export demand has been difficult.

17. From information, knowledge Paragon Economics, Inc. 2014 4-species RPCE: Yr/yr higher since January HUGE positive months in Aug - Dec

18. From information, knowledge Paragon Economics, Inc. Domestic demand remains strong thru March

19. From information, knowledge Paragon Economics, Inc. It appears that preferences have shifted Will this shift hold?

20. From information, knowledge Paragon Economics, Inc. Animal protein demand has been growing since ‘10  ‘14 4-species RPCE +5% vs. ‘13, +9% vs. ‘12  Drivers: o Growing concern about carbs – LeBron? o Fading fat phobia o New appreciation for “good” from fats – Big Fat Surprise o Better view of medical and dietician communities  Can this be sustained? January’s $67.38 the highest since September ‘90

21. From information, knowledge Paragon Economics, Inc. Major trend changes for pork  Pork RPCE is now well ahead of 2004 levels which were driven by Atkins diet November’s $18.91 the highest since December ‘90

22. From information, knowledge Paragon Economics, Inc. Same trend for beef and chicken

23. From information, knowledge Paragon Economics, Inc. ’14 per capita consumption was 201 lbs Forecast to increase to 210 in ‘15 & ‘16

24. From information, knowledge Paragon Economics, Inc. The evidence of strong demand is prices Beef record in March & April; Pork higher, yr/yr thru March

25. From information, knowledge Paragon Economics, Inc. GDP: Yr/yr growth revised to 2.4% in Q4, 2.7% in Q1 Trade was a major drag, consumer spending growing -- some

26. From information, knowledge Paragon Economics, Inc. RPDI growth was MUCH better in ‘14 Up 1.7% for the year; Feb was revised down but YTD ’15 is +3%

27. From information, knowledge Paragon Economics, Inc. Consumer attitudes have improved – Topping? Both indexes are still near their highest levels since 2007

28. From information, knowledge Paragon Economics, Inc. Restaurant Performance Index – highest since ‘04

29. From information, knowledge Paragon Economics, Inc. And now – “cheap” oil and sub-$2 gas? Weekly crude oil futures Monthly RBOB gasoline futures

30. From information, knowledge Paragon Economics, Inc. Current price ratios are WAY out of whack!  Pork seasonal strength is closing wholesale gap  Retail price data is very “laggy” and won’t reflect featuring – volumes?? …especially at the wholesale level – but they are correcting!

31. From information, knowledge Paragon Economics, Inc. The biggest demand challenge is EXPORTS Beef has struggled in ‘14; pork struggles began in July ‘14

32. From information, knowledge Paragon Economics, Inc. Big issue #1: The low-hanging fruit has been picked!  Flood of trade agreements in ‘90s – CFTA, NAFTA, Uruguay  Good number of unilateral agreements in ‘00s – CA/DR, Chile, Colombia, Australia – but running out of new partners  Potential game changer: Trans-Pacific Partnership o Big impact will be Japan – remove gate price mechanism o REQUIRES Trade Promotion Authority  TTIP (EU) – still in doubt – and I seriously doubt that it will do us any good as EU are PROFESSIONAL PROTECTIONISTS

33. From information, knowledge Paragon Economics, Inc. Big issue #2: West Coast port slowdown  Began last July and got “serious” in December-January  Tentative agreement and back to work on February 22  New contract ratified May 22  Backlog has been partially cleared many do not expect activity to be normal until late June  Two issues remain: Flood of product is now at importing countries’ ports, restoring broken relationships

34. From information, knowledge Paragon Economics, Inc. Big issue #3: The U.S. dollar

35. From information, knowledge Paragon Economics, Inc. Oil and $U.S. are negatively correlated

36. From information, knowledge Paragon Economics, Inc. Total frozen meat/poultry 20.1% on April 30 Feb-Mar surge due to ports; April due to pork, HPAI

37. From information, knowledge Paragon Economics, Inc. On April 30: Pork +20%, Beef +19%, Chicken +32%

38. From information, knowledge Paragon Economics, Inc. Avian Influenza  Situation through May 16 o 5.742 mil. turkeys lost– 2.4% of 2014 slaughter = 235 mil. o Layers – 27.693 mil. total, mostly in IA, MN & WI o Broilers – One flock in CA, one “broiler” breeder flock in IA???  The Southeast is critical o Arkansas: #3 for broiler and turkey production o Eastern TX and OK are not far away!  VERY little actual impact on beef or pork  What about this fall?

39. From information, knowledge Paragon Economics, Inc. Locations and types of farms Source: Steiner Consulting Group

40. From information, knowledge Paragon Economics, Inc. Location of turkeys – USDA NASS  Losses are subsiding  ‘14 Slaughter o MN: 19% o AR: 13% o NC: 12% o IN: 8% o MO: 7%

41. From information, knowledge Paragon Economics, Inc. Location of broilers – USDA NASS  ‘14 production o GA: 15% o AL: 12% o AR: 11% o NC: 9% o MS: 9%  BIG FEAR: Fall migration thru AR, TX, OK

42. From information, knowledge Paragon Economics, Inc. Location of layers – USDA NASS  Losses are subsiding  ‘14 production o IA: 16% o OH: 9% o IN: 8% o PA: 8% o TX: 5%

43. From information, knowledge Paragon Economics, Inc. Chicken inventories are burdensome!

44. From information, knowledge Paragon Economics, Inc. Broiler flock: Growth rate is increasing Yr/yr growth 1.5 to 2.5% July-March; 3% & 3.5% April & May

45. From information, knowledge Paragon Economics, Inc. Egg sets, placements are growing steadily And productiv- ity is finally moving back to long-term norm

46. From information, knowledge Paragon Economics, Inc. Chicken output is sharply higher YTD On modest slaughter growth and HUGE birds!

47. From information, knowledge Paragon Economics, Inc. Prices: Above 5-yr avg except for leg quarters

48. From information, knowledge Paragon Economics, Inc. Expectations for chicken  GROWTH – 3 to 4% and that may well be LOW! o Companies are solving problems, big profit incentive o BIG increase in bird weights will drive production  Chicken prices o 2.5-4.0# WOGs -- $101 to $104 rest of ’15 and 1 st half of ‘16 o Med. B/S Breast -- $162-$165 thru Aug, $155 Sept, $130-$130 rest of ’15, stronger 1 st half of 2016 o Whole wings -- $128 to $140 rest of ‘15, sharply lower in ‘16 (as much as 15% lower in Q2) o Leg quarters -- $31 to $34 rest of ’15, $45-$50 1 st half of ‘16

49. From information, knowledge Paragon Economics, Inc. Turkey supplies hit hard by HPAI

50. From information, knowledge Paragon Economics, Inc. Q4 turkey output still up 4% from ‘14

51. From information, knowledge Paragon Economics, Inc. Turkey prices mixed due to HPAI & exports  16-24 Toms and 8-15 Hens both $113 - $120 rest of 2015 – some topside risk  4-8 frozen breasts -- $128 - $130  Frozen thigh meat -- $130 - $142 (far below last year’s $175  MD turkey (frozen) -- $26 to $30

52. From information, knowledge Paragon Economics, Inc. The key for beef growth is WEATHER!

53. From information, knowledge Paragon Economics, Inc. Beef: Unprecedented cow/calf profits! But will ‘15 be this good? Feeders are down $30+

54. From information, knowledge Paragon Economics, Inc. But short term – Feeder cattle supplies are still tight

55. From information, knowledge Paragon Economics, Inc. Fed cattle supplies still VERY tight

56. From information, knowledge Paragon Economics, Inc. Cattle slaughter was down 10-12% in March-April Has increased some in May – but weights have filled the gap

57. From information, knowledge Paragon Economics, Inc. U.S. beef imports: Up 31% in ‘14, 47% YTD Big gain WAS Australia @ +73%, +96%; NZ is +28 in ‘15

58. From information, knowledge Paragon Economics, Inc. Beef consumption/supply -3.7% in ‘14 Down another 0.5% this year and another 1.7% in 2016! Livestock Marketing Information Center Data Source: USDA-NASS

59. From information, knowledge Paragon Economics, Inc. Cutouts and cattle prices will stay near records  We expect a normal seasonal decline this summer on higher slaughter  Short April placements are bullish for fall prices  Choice cutout $240-$250 range this summer, challenging record highs this fall

60. From information, knowledge Paragon Economics, Inc. Cattle continue to get better!  But Choice-grade premium is still “normal”

61. From information, knowledge Paragon Economics, Inc. “The Story” on beef is RECORD middle meats!

62. From information, knowledge Paragon Economics, Inc. Cattle and beef summary...  Growth – but characteristically slow o Biology, producer age, capital cost are all limiting factors o Growth means tighter near term supply  HIGH prices through 2015 and 2016 will provide oppor- tunities for competitors  Winter futures selloff was technicals – not supported by product or cattle  Question: Long-term impacts of VERY HIGH prices on beef consumers?

63. From information, knowledge Paragon Economics, Inc. Exports have been soft – prices, $, ports, etc.

64. From information, knowledge Paragon Economics, Inc. Big factor has been EU pork displaced from Russia 40,000 tonnes of pork had to find a home!

65. From information, knowledge Paragon Economics, Inc. Key Markets: Mexico a clear #1, Japan #1 for value  2014 was a TOUGH year o Russia: +495% (but only 37% as large as in ‘13) o Ch/HK: -30% o Japan: -8% o Canada: -6%  2015 has been mixed o Ch/HK: -72%, Japan -20% o Mexico is UP 12% o Korea is UP 43% o Canada is UP 2%

66. From information, knowledge Paragon Economics, Inc. Hog costs are MUCH improved, price rally = PROFITS! Normal weather: Even lower (upper $60s) in ‘16

67. From information, knowledge Paragon Economics, Inc. Where are the hogs coming from and how long will they be coming?

68. From information, knowledge Paragon Economics, Inc. Good news-or bad: PEDv losses much smaller  New high wk. of 3/15 at 161 vs. 291 last year  Many are “monitoring” and at G/F sites – NOT MUCH DEATH LOSS

69. From information, knowledge Paragon Economics, Inc. Key development: Few sow herd breaks  Data from 746 sow farm, 18 of 19 large systems reporting, 2.1 million sows!  Worst weeks in ‘15: 9 sow herds broke in two week in late February  Anecdotal: MUCH smaller piglet losses even on farms that broke this year!

70. From information, knowledge Paragon Economics, Inc. PRRS was much quieter in ‘13-’14 – and now  U.M.’s PRRS sample does not cover N.C. where 174 strain is causing significant losses in February-April

71. From information, knowledge Paragon Economics, Inc. Hogs & Pigs report: Big market hog supply But growth is slowing – bullish for defered contracts

72. From information, knowledge Paragon Economics, Inc. Productivity measures are critical for ‘15!  Implied farrowing rates -Mar-May rate is equal to past two years – Low? -Jun-Aug intentions down 2.1% yr/yr is a reflection of last year’s surge – re-breeds of lost litters -June-Aug rate is reasonable  Other farrowing rate issues: -Problems in post-PEDv herds? -Sow herd ages (parity structure) were/are out of whack due to slow sow turnover in 2014

73. From information, knowledge Paragon Economics, Inc. Will these changes happen?  Yr/yr litter growth will slow sharply o Dec-Feb was +6.7% – exactly what we said in Dec if PEDv losses were zero o Mar-May is +5.7% due to last year o But Jun-Aug will be only about +2% yr/yr  Back on the 2%/yr growth trend – with a lost year

74. From information, knowledge Paragon Economics, Inc. December slaughter forecasts Too low thru Mar. but then similar to ‘13 the rest of 2015

75. From information, knowledge Paragon Economics, Inc. March H&P: BIG NUMBERS summer and fall But Jun-Aug crop EQUAL to this year – and Dec-Feb slaughter

76. From information, knowledge Paragon Economics, Inc. Weights are now yr/yr lower  Weight reduction vs. year ago was a big reason for higher-than-expected slaughter in Q1-- ~2/3 of the total Q1 change  Weights have been stable for 8 weeks after rapid decline but will fall further – seasonal pattern  Normal seasonal: 208 in July – down 3% yr/yr will REDUCE ‘15 prod by 1.5 to 2%, maybe more

77. From information, knowledge Paragon Economics, Inc. 2014 production ended down only 1.4% …but is up 6.8% YTD, 8.2% last week

78. From information, knowledge Paragon Economics, Inc. Slaughter forecasts from March H&P Q1-Q3 revised higher, Q4 revised lower

79. From information, knowledge Paragon Economics, Inc. Price forecasts – I’m the bull of the group!

80. From information, knowledge Paragon Economics, Inc. Packers aren’t enjoying this much either  Big factor is drop value – down by over 40% since end of July  Lower drop value has hurt hog bids – they are part of the cutout-to-live computation by packers

81. From information, knowledge Paragon Economics, Inc. Pork stocks are a problem – ports, output 3/31 picnics (+23), butts (+28), trim (+52),

82. From information, knowledge Paragon Economics, Inc. 2015 price forecasts: 3-10% below 2013  Same is true for cutout value – normal summer rally from here would put it near $100  Cutout has pulled hogs higher – likely will eclipse $90 …and very near the 5-year averages

83. From information, knowledge Paragon Economics, Inc. “Retail” cut are at or above 5-year averages …and even better in the case of ribs which did not rise on PEDv scare last year -- BIG stocks!

84. From information, knowledge Paragon Economics, Inc. “Processing” cuts have improved, but still lag retail cuts

85. From information, knowledge Paragon Economics, Inc. Key pork cuts

86. From information, knowledge Paragon Economics, Inc. Risks – and some are reality  MCOOL retaliatory tariffs  Major export disruption – with a capital D!  Weather – always a concern in spring  PEDv impact this coming winter – immunity levels???  Demand weakening o Domestic: Newly positive preferences continue? o Exports: World economy, strong $U.S.  How much expansion in pigs and chicken?  Hogs: Packing capacity – New plant in ’17

87. From information, knowledge Paragon Economics, Inc. Questions and Discussion?