2008 Turkey Outlook: A 5 th Profitable Year?

1. 2008 Turkey Outlook:A 5th Profitable Year? 2007 Elanco Turkey Tech Seminar Dr. Thomas E. Elam, President FarmEcon.com August 23, 2007 Indianapolis, IN

2. Four Incredible Years! (Based on Express Markets formula)

3. Why This String of Success? • Restrained production growth • U.S. demand is growing (slowly, but growing) • Exports are also growing (volume and value) • Feed cost increases but offset by higher selling prices • Net result – 4 years in the black

4. Monthly Turkey PricesUB Eastern Hens, Frozen, 12 lbs. up

5. Monthly Turkey PricesUB Eastern Toms, Frozen, 16-22 lbs.

6. Monthly Turkey PricesUB Breast Meat, Fresh, Toms

7. Monthly Turkey PricesUB Thigh Meat, Fresh

8. Exports – As Goes Mexico, So Go Turkey Exports 2nd Best Year Ever

9. Average Export Value/lb.

10. Estimated Value of the U.S. Market* Prices & Consumption Up, New Record *ex-processor, 60% whole birds, 40% cutout X Domestic Consumption

11. Value of the Export Market* *At port of exit

12. This is What a Demand Increase Looks Like! Rising volume and price

13. 2007 Outlook Summary • Restrained production increases in the face of good profitability • Price momentum going into the fall • Weighted average price likely to be 10-12 cents higher than 2006 • Production costs likely to be 9-11 cents higher, offsetting higher turkey prices • On balance, 2007 likely to be the most profitable on record, despite higher costs

14. Poult Placements, UB, Weekly Late 2007 Production

15. U.S. Turkey Production and Use 2007 = New Record High

16. Per Capita U.S. Turkey Consumption

17. 2007/2008 Forecasts – The Details(Production, Use and Stocks in Million Pounds)

18. ETHANOL = higher costs • Ethanol production has reached a level where price rationing is happening • 3 major corn demand sources: • Feed • Exports • Food, Seed and Industrial • Ethanol is the only growing piece • Who will cut back to make room for ethanol? • How much additional corn can we produce? • Effects on other crop prices?

19. Ethanol Facts • 1 bushel corn = 2.7-2.8 gallons ethanol + 17-18 pounds of DDGS • Ethanol production currently 6 bgy • 2008 production will be 7-8 bgy • “Official” goal was 7.5 bgy by 2012 (10 bgy more likely) • If all Iowa planned plants are built and operational Iowa will need to import corn • Each 1% of U.S. gasoline supply replaced by ethanol = 1% of 2007 global grain production • Ethanol subsidy of $0.51/gallon is important to corn prices • Subsidy is about $1.40 per bushel of corn

21. Corn Value to Ethanol Producers:Effect of Ethanol Subsidy on Corn Price

22. Future Ethanol Projections • Demand limited in short run by distribution and blending capacity • Long run limitation is feedstock supply • Ethanol demand is unlimited in the long run • E85 could use 500+ million acres of corn • Crude oil price and ethanol subsidy level will set corn prices, affect all crops • Use of cellulose is only long term solution, but also has many issues and limitations

23. U.S. Ethanol Production and Corn Use Trends

24. Next Round of Ethanol Effects • Further shifts to corn in the U.S. • Global effects on grains vs. oilseeds • Major effects on all global grain and oilseed prices • Increasing use of DDGS in U.S. feeds • Long term advantage for Latin American corn and soybean producers

25. Feed Cost Outlook – 2007/2008 * October 1 Crop Year

26. Summary: • 2004-2005: improved profits = lower production • In 2006 it all came together: • Excellent U.S. demand • Production issues that restrained supply • Only “disappointment” was exports • What will it take in 2008? • Continued demand growth • No upside production surprises • No HPAI in the U.S. • Despite industry’s best efforts on demand, higher feed costs will hurt margins