1. Steve R. Meyer, Ph.D. Vice-President, Pork Analysis EMI Analytics 2015 Pork Management Conference Pork Industry Economic Outlook

2. The gospel according to Yogi... “It’s tough to make predictions, especially about the future.”

3. 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 and likely accelerating – limiting current supplies  Fewer corn acres, more soybean acres – but the issue is weather and it is a mixed bag so far  U.S. consumer demand has been GREAT – will it hold?  The U.S. dollar

4. Grain prices/cost issues and outlook Negative returns for corn and soybeans Cash Flow Issues Cost adjustments likely in 2016 Rent, Seed, Fertilizer Margins positive but MUCH smaller RFS is another nod to reality No ethanol growth or new plants Brazil, Argentina, US all record production 2015 record forecast for US RFS is a boon for biodiesel, SB oil Lower meal prices assuming normal weather Farm Returns Ethanol Soybeans

5. We expect Corn futures $3.50-$3.70

6. And SBM < $300 – some weather risk now

7. ‘15 costs continue to fall; ‘16 under $70/cwt

8. 2014 4-species RPCE: Yr/yr higher Feb-Dec... And HUGE positive months in Aug - Dec

9. All species have gained, pork slowed in April

10. It appears that preferences have shifted...... Will the change last? - - Trans-fat ban

11. Protein demand has been growing since ‘10  4-species RPCE -+5% vs. ‘14/‘13, -+9% vs. ‘14/‘12  Drivers: -Growing concern about carbs -Fading fat phobia -New appreciation for “good” from fats – Big Fat Surprise -Better view of medical and dietician communities...January’s $67.38 the highest since Sept ‘90

12. Major trend changes for pork...  Pork RPCE is now well ahead of 2004 levels which were driven by Atkins diet... Nov’s $18.91 the highest since Dec. ‘90

13. ’14 per capita consumption was 201 lbs....... forecast to increase to 210 in ‘15 & ‘16

14. The evidence of strong demand is prices Beef record high; Pork y/y higher thru March

15. Record-large expenditures – with pork 2nd

16. GDP: Yr/yr revised to +2.4% in Q4, +2.7% in Q1... Trade a bih drag, cons. spending growing

17. RPDI growth was MUCH better in ’14 (+1.7%).. Dec-Feb were all >3%, March 2.7%. YTD is +3%

18. Consumer attitudes still improving-Peaking? Both indexes are near their highs since ‘07

19. Rest’nt Performance Index – best since ‘04

20. And now – “cheap” oil and sub-$2 gas? Weekly crude oil futures Monthly RBOB gasoline futures

21. 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

22. The biggest demand challenge is EXPORTS Beef and pork struggled in 2014 – esp H2

23. Big issue #1: Low-hanging fruit 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 -Big impact will be Japan – remove gate price mechanism -REQUIRES Trade Promotion Authority – passed but...  TTIP (EU) – still in doubt -I’m not optimistic about this one doing pork much good -EU is a block of PROFESSIONAL PROTECTIONISTS

24. Big issue #2: West Coast port slowdown  Began last July and got “serious” in Dec & Jan  Tentative agreement & back to work on Feb. 22  New contract ratified May 22  Backlog began clearing in March but product flow is just now returning to normal  Three issues remain: -Flood of product is now at importing countries’ ports -Broken relationships and trust must be restored -Shelf-space regained/re-earned

25. Big issue #3: U.S. dollar-highest since ‘03

26. Oil and $U.S. are negatively correlated

27. Big Issue #4 for Pork: Russian ban on EU

28. April improvement: Japan, Ch/Hk, Korea, Other

29. Total frozen meat/poultry 20.1% on April 30 Feb-Mar due to ports; April due to pork, HPAI

30. April 30: Pork +20%, Beef +19%, Broiler +32%

31. Avian Influenza – through June 12  Only one new case week of June 12 - 2500 birds  47.091 million birds killed or destroyed -31.454 million laying hens and 5.874 million laying pullets (May 1 inventory was 295.9 million hens) -7.78 million turkeys – 3.3% of 2014 slaughter  The Southeast is critical -Arkansas: #3 for broiler and turkey production -Eastern TX and OK are important and not far away! -Broiler production: GA and AL are #1 & #2, NC is #4  VERY little actual impact on beef or pork yet  What about this fall?

32. Locations and types of farms hit by HPAI Source: Steiner Consulting Group

33. Location of turkeys – USDA NASS  Losses are subsiding  ‘14 Slaughter -MN: 19% -AR: 13% -NC: 12% -IN: 8% -MO: 7%

34. Location of broilers – USDA NASS  ‘14 production -GA: 15% -AL: 12% -AR: 11% -NC: 9% -MS: 9%  BIG FEARS -HPAI in the Atlantic flyway -Fall migration thru AR, TX, OK

35. Location of layers – USDA NASS  Losses are subsiding  ‘14 production -IA: 16% -OH: 9% -IN: 8% -PA: 8% -TX: 5%

36. Chicken inventories are burdensome!

37. Broiler flock: Growth rate is increasing... Yr/yr: +1.5 to 2.5% July-Mar; 3% April, 3.5% May

38. Egg sets, placements are growing steadily And productivity is finally moving back to long-term norm

39. Chicken output is sharply higher YTD... On modest slaughter growth and HUGE birds!

40. Prices: Under pressure except for wings

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

42. Current turkey supplies reduced by 2-3%...... Longer term: Breeder flock losses

43. Q4 turkey output still up 4% from ’14...

44. 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

45. The key for beef growth is WEATHER!

46. PDI shows SW, N. Plains MOIST-EXTR. MOIST!

47. Beef: Unprecedented cow/calf profits!

48. Prices of all bovines are nearing records!

49. Feeder cattle supplies are still very tight

50. Ditto for fed cattle – and may be tighter yet!

51. Cattle slaughter: Down 10-12% in Mar-Apr Closer to ‘14 in May but -11% last 2 weeks

52. U.S. beef imports: Up 31% in ‘14, 41% YTD ‘15 Big gain WAS Aust’lia @ +73%; NZ is +28% YTD

53. Beef consumption/supply -3.7% in ’14... Down another 0.5% in ‘15, another 1.7% in ‘16! Livestock Marketing Information Center Data Source: USDA-NASS

54. Female slaughter implies continuing growth... And -6% cow slaughter keeps grinds high!

55. Cutouts, cattle prices will stay near records  We expect a normal seasonal decline – now begun -- this summer on higher slaughter  Short April placements are bullish for fall prices & May placements may add to the bullishness  Choice cutout $240-$250 range this summer, challenging record highs this fall

56. “The Story” on beef is RECORD middle meats!

57. ~60% of beef is sold GROUND UP...

58. Cattle and beef summary...  Growth – but characteristically slow -Biology, producer age, capital cost are all limiting factors -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?

59. Record profits in ‘14 – even with PEDv losses... profits most of ‘16 in spite of selloff

60. Good news-or bad: Far fewer PEDv accessions  ‘14-’15 high wk. of 3/15 at 161 vs. 291 last year  Many are G/F “monitoring” – NOT MUCH DEATH LOSS

61. 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!

62. 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

63. Hogs & Pigs report: Big market hog supply Slower BH growth: bullish for fall contracts

64. Breeding herd in context...  The larger March 1 BH (5.982M) is still near the smallest ever  Dec & Mar growth rates are SMALL vs. history but the largest since ‘97-’98

65. Productivity measures are critical for ‘15!  Mar-May rate is equal to past two years – Is it too low?  Jun-Aug intentions at -2.1% yr/yr is a reflection of last year’s surge – re-breeds of lost litters  We think the June-Aug farrowing rate and June-Aug intentions are reasonable

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

67. March H&P: BIG NUMBERS summer and fall...Jun-Aug PC & Dec-Feb slghtr EQUAL to ’14-’15

68. Weights are now yr/yr lower and falling...  Weight reduction vs. year ago was a big reason for higher- than-expected slaughter in Q1-- ~2/3 of total Q1 change  Weights fell last week after 2 weeks higher – Weather will have an impact from here on  Normal seasonal: 208 in July – down 3% yr/yr.. will REDUCE ‘15 prod by 1.5-2%, maybe more

69. 2014 production ended down only 1.4%... but is up 7.2% YTD and 9.3% last week

70. ‘15 Profits: -$6/hd in April, +$9/hd early June... And first stab at all of ‘16: +$6.21/hd.

71. Slaughter forecasts from March H&P Q1-Q3 revised higher, Q4 revised lower

72. Price forecasts – I was the bull of the group!

73. Packers aren’t enjoying this much either  Big factor is drop value – down by over 40% since July ‘14 but has stabilized since March – ports  Lower drop value has hurt hog bids – they are part of the cutout-to-live computation by packers

74. Pork stocks are a problem – ports, output 3/31 picnics (+23), butts (+28), trim (+52),

75. 2015 price forecasts: 3-10% below 2013  Same is true for cutout value – normal rally to August 1 would add about $3.50  ~$90  Cutout has pulled hogs higher – still a shot at $90? -Not with these HUGE slaughter runs! …and very near the 5-year averages

76. “Retail” cuts are at or above 5-yr. averages …and even better in the case of ribs which did not rise on PEDv scare last year -- BIG stocks!

77. “Processing” cuts have improved...

78. Key pork cuts

79. 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 -Domestic: Newly positive preferences continue? -Exports: World economy, strong $U.S.  How much expansion in pigs and chicken?  Hogs: Packing capacity – New plant in ’17

80. Questions and Discussion?