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EVOLUTION OF THE US PIG PRODUCTION INDUSTRY - FINANCIAL CHANGES SHAPED THE US PORK INDUSTRY TODAY Randy StoeckerNovember, 2008.

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Presentation on theme: "EVOLUTION OF THE US PIG PRODUCTION INDUSTRY - FINANCIAL CHANGES SHAPED THE US PORK INDUSTRY TODAY Randy StoeckerNovember, 2008."— Presentation transcript:

1 EVOLUTION OF THE US PIG PRODUCTION INDUSTRY - FINANCIAL CHANGES SHAPED THE US PORK INDUSTRY TODAY Randy StoeckerNovember, 2008

2 PERSONAL HISTORY 1947 BORN WESTERN,KS 1947 BORN WESTERN,KS RAISED BY DEPRESSION PARENTS RAISED BY DEPRESSION PARENTS 1958 SOLD 1 ST SL PIGS FOR $0.11/LB Live 1958 SOLD 1 ST SL PIGS FOR $0.11/LB Live 1970 GRAD KANSAS STATE UNIV GRAD KANSAS STATE UNIV.

3 BUSINESS CAREER BANKER - FINANCED 600 SOW UNIT OWNED BY 5 FARMERS BANKER - FINANCED 600 SOW UNIT OWNED BY 5 FARMERS RALSTON PURINA - GREAT TRAINING RALSTON PURINA - GREAT TRAINING YEAGER FED 60,000 COMINGLED PIGS YEAGER FED 60,000 COMINGLED PIGS TRAVELED TO EUROPE / ENGLAND TRAVELED TO EUROPE / ENGLAND

4 BUSINESS CAREER JOINED PIC - TALENTED PEOPLE AND HIGH PERFORMANCE PIGS JOINED PIC - TALENTED PEOPLE AND HIGH PERFORMANCE PIGS 1987 – JOINED WENDELL MURPHY – TWO DIFF PEOPLE WITH ONE PLAN 1987 – JOINED WENDELL MURPHY – TWO DIFF PEOPLE WITH ONE PLAN 2000 – MURPHY FARMS BOUGHT BY SMITHFIELD – A GOOD FIT 2000 – MURPHY FARMS BOUGHT BY SMITHFIELD – A GOOD FIT – GROWTH BY ACQUISITION- NEW CULTURES & SYSTEMS – GROWTH BY ACQUISITION- NEW CULTURES & SYSTEMS

5 FINANCIAL PRESSURES CAUSE REAL CHANGE FINANCIAL PRESSURES CAUSE REAL CHANGE CHANGES IN PRODUCTION PRACTICES ARE THE REACTION!! CHANGES IN PRODUCTION PRACTICES ARE THE REACTION!!

6 U.S. Average Corn Price, Source: USDA/NASS years Avg $ years Avg $ years Avg $2.37

7

8 Pigs Per Litter, USDA Hogs & Pigs Reports

9 Average U.S. Hog Carcass Weight, Note: Some Systems Target 100+ kg Carcass 90 kg Carcass 75 kg Carcass

10 Annual U.S. Pork Production Per Sow, Note: Top Systems 2,600 to 2800 kg growth rate: 2.027% growth rate 2.793% 1400 kg Carcass Wt AUS Today? 2000 kg Carcass Wt

11 Exchange Rate: Can $ Per US $

12

13 2007 was the 16 th consecutive record year for U.S. pork exports

14 U.S. Daily Slaughter Capacity Packer Fall 06 Fall 07 change Packer Fall 06 Fall 07 change *Smithfield 117, ,700 1,100 *Smithfield 117, ,700 1,100 *Tyson 72,800 74,000 1,200 *Tyson 72,800 74,000 1,200 Swift 46,000 47,000 1,000 Swift 46,000 47,000 1,000 *Excel 36,000 36,000 0 *Excel 36,000 36,000 0 *Hormel 35,800 36,800 1,000 *Hormel 35,800 36,800 1,000 *Triumph 16,000 17,500 1,500 *Triumph 16,000 17,500 1,500 *Seaboard 16,000 16, *Seaboard 16,000 16, *Indiana Pack 14,000 15,000 1,000 *Indiana Pack 14,000 15,000 1,000 *Hatfield 10,200 10, *Hatfield 10,200 10, Others 56,475 52, ,040 Others 56,475 52, ,040 Total420, ,835 3,960 Total420, ,835 3,960 * Owns some pig production * Owns some pig production Source: Steve Meyer, Paragon Economics

15 Iowa Farrow to Finish Profits, Source: John Lawrence, Iowa State University Quarterly

16 PRODUCTION CHANGES IN RESPONSE TO $$ PRESSURE 1970s STD was 40 Sows Farrow to Finish OR Purchased Co-mingled Feeder Pigs ALMOST ALL WERE CORN FARMERS FIRST

17 STRUCTURE OWNER- Family to Entrepreneur to SHIP Business/Corp. & Contracting OWNER- Family to Entrepreneur to SHIP Business/Corp. & Contracting GRAIN Produce > fed, Now fed, Now< 30%, Produce enough to matter LABOR Family to Local to National & International Mix LABOR Family to Local to National & International Mix GENETICS Pure Bred Boars, own gilts, GENETICS Pure Bred Boars, own gilts, Buy hybrid Boars & F1 gilts, Buy hybrid Boars & F1 gilts, Now 50% own Multiplier w/ 4 owning G Nucleus herds Now 50% own Multiplier w/ 4 owning G Nucleus herds

18 SOW FARM Probably 20 Sow Farms 10,000 or > SOW FARM Probably 20 Sow Farms 10,000 or > MATING Natural to All AI since 1995 MATING Natural to All AI since 1995 Auto semen pkg. boar studs Auto semen pkg. boar studs BUILDINGS One Site – Farrow to Finish BUILDINGS One Site – Farrow to Finish Farrow to Feeder w/off-site Finisher Farrow to Feeder w/off-site Finisher Three Site Now Two Site W to F Three Site Now Two Site W to F FEED Purchased Farmer mixed Toll Mill Own Mills FEED Purchased Farmer mixed Toll Mill Own Mills Mash Rapidly moving to all Pellets Mash Rapidly moving to all Pellets FORMULATN No Involvement FORMULATN No Involvement Own Nutritionist and R&D Farms Own Nutritionist and R&D Farms Statisticians & Quality Trial Mgt. Statisticians & Quality Trial Mgt.

19 PACKER- Adversarial (Live) CARCASS Contracts (prem, window, cut out) QUALITY Alignmt/Ownership (% lean & quality, antibiotic free, etc) PACKER- Adversarial (Live) CARCASS Contracts (prem, window, cut out) QUALITY Alignmt/Ownership (% lean & quality, antibiotic free, etc) FACILITIES Each one difft –low Fixed Asset invest. FACILITIES Each one difft –low Fixed Asset invest. Bought turn key Build their own (lacks innovation) BENCHMARK Lie to neighbor -> listen to Feed Rep ->University systems -> Agri-Stat (Last 12 mths $11.50/hd Profit Av to T25%) BENCHMARK Lie to neighbor -> listen to Feed Rep ->University systems -> Agri-Stat (Last 12 mths $11.50/hd Profit Av to T25%) FINANCING Dad -> Local Banker/Low Debt -> FINANCING Dad -> Local Banker/Low Debt -> Regional –> Natl/Intl/Public Mkts

20 RankOrg # Sows RankOrg 1 Murphy Family 180,0001 Smithfield Foods 1,200,115 2 Carrolls Foods 110,0002 Triumph Foods 399,800 3 Premium Standard 96,8003Seaboard213,600 4 Tyson Foods 95,0004 IA Select Farm 150,000 5Cargill77,0005 Prestage Farms 140, ,0006Pipestone 130,000 N 7 Smithfield Foods 65,0007 The Maschhoffs 116,000 N 8 DeKalb Swine 64,973 X 8Cargill87,000 9 National Farms 34,000 X 9 Maxwell Foods 76,000 10Goldsboro30,00010 AMVC Mngmt 75,000 N 11 Sand Systems 27,150 X 11 Tyson Foods 70, Continental Grain 20,00012Progressive 55,200 N 13 Louis Dreyfus Corp 20,000 X 13 Hormel Foods 51,000 N 14Seaboard20,00014 NE Pork Partners 45,000 N 15 Hastings Pork 18,00015 Wakefield Pork 41,000 N 16 Clougherty Packing 17,60016 Hatfield Meats 36,100 N 17 Gold Kist 16,50017Whitestone 35,000 N 18Farmland 16,000 X 18 Texas Farm 33,500 N 19 Neuhoff Farms 14,00019 Holden Farms 32,000 N 20 Swine Graphics 13,50020 Coharie Farms 31,000 N Total1,009,523Total2,693,650 Pork Powerhouses – Successful Farming Magazine 468,000 Christensen – 170,000 Hanor – 75,000 New Fashion – 48,000 TriOak – 28,100 Eichelberger – 20,000 Allied Prod – 58,700

21

22 BENCHMARKING AGRI STAT RESULTS AGRI STAT RESULTS JULY 2008JULY Months Consolidated12 Months Consolidated

23 AVG vs. Top 25%

24 AVG vs. Top 25%

25 AGRISTAT PRODN COST SUMMARY USA & CANADA JULY 08 & 12 MONTHS USA(43) AVG Top 25%CANADA WEANED PIGMonth /YearMonth /YearVariance YrAvg Yr Cost/head $33.78 / 31.67$29.24 / 29.05$2.62$32.54 P / S / Y23.77 / / Weaned / Lit9.84 / / 9.53(0.12)10.18 Feed $13.04$11.39$2.43$13.81 Cal/Gest/Day Cal/Lact/Day19,98318,0681,91520,432 Total Facility Costs$12.32$10.51$1.81$13.58 Labor$5.92$5.25$0.67$6.21 MILLING – ON COSTS per Ton Mills (80-100% Pel)$8.09$9.48

26 AGRISTAT PRODN COST SUMMARY USA & CANADA JULY 08 & 12 MONTHS USA(43) AVG Top 25%CANADA Month /YearMonth /YearVariance YrAvg Yr Nurs Cost/hd Out$50.74$48.90$1.86$58.65 TOTAL COSTS Total Fin $/100#$58.66 / $49.33$52.19 / $46.49$2.94$52.13 Total Fin $/100kg$129.05/ $108.53$114.82/ $102.28$6.47$ FINISHING PIG Feed Cost/100# $28.39 / $22.76$26.36 / $21.37$1.39$19.35 Fin FCR FC Cal/# Gain ADG gm/day Fin Mort %6.32%4.62%1.70%3.77% Profit/head($.8.20) /($11.20)$11.27 / $0.30$11.50$29.76 [w/o Corp Int and G&A]

27 THANK YOU


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