Turkey Industry Outlook for 2011-2012

1. Turkey Industry Outlook for 2011-2012 Dr. Thomas E. Elam President FarmEcon LLC September 21, 2010

2. Headline issues for 2011/12 Recession has officially ended, but it does not feel like a recovery Feed costs – large crops, but huge demand Inventories of frozen meats under control Protein and dairy supplies reduced enough to restore profitability Improved pricing may lead to overexpansion But likely not until 2012

3. Globally: More Spending = More MeatOn average +10% Spending = +9% more meat $1 trillion increase in spending = 9 mmtmore meat produced R2 = 0.9988 Sources: Consumer Spending: World Bank; United Nations. Meat Production: UN/FAO

4. Headline (U1) unemployment rate

5. Actual (U6) unemployment rate U1 + marginally attached + discouraged potential workers Does not include those who have totally given up looking for work

6. Labor force participation rate, % Labor force (employed and unemployed) divided by the civilian population 16 years of age and over. 8

7. Private sector employment

8. Government sector employment Total government sector employment has not grown since 2008 either.The 2000 and 2010 blips are temporary U.S. Census workers.

9. Why are these statistics important? Issues for long term income recovery Work = consumer income = spending = MEAT DEMAND Weak 2010/2011 protein demand increase 2010 protein price strength almost totally due to supply reductions If meat supplies increase in the face of low income growth, prices will decline

10. Protein supply headlines Money finally ran out for pig and cattle operators Thus, sow reductions and fewer fed cattle Turkey producers made large cuts Even 2009 broiler production dropped Wholesale meat prices pushed higher to cover $4+ corn and $300+ soybean meal

11. Informa model broiler margins

12. Informa model turkey margins

13. Farrow-Finish returns, IA State budget

14. Yearling steer returns, IA State budget

15. 2003-2011 total meat production:2.5 million pounds have gone away

16. Turkey Outlook2010/12

17. Turkey and parts prices Overproduction in 2008 and early 2009 killed pricing across the parts spectrum Frozen stocks got “out of control” Reduced 2009/2010 production has restored demand/supply balance Prices now high enough to cover costs Have prices increased enough to encourage 2011/2012 overproduction?

18. Frozen toms, 16-22 pounds, UB

19. Fresh tom breast meat, UB

20. Fresh thigh meat, UB

21. MDT, UB

22. Turkey cold storage 2007-2010

23. 2009 turkey exports drop with global recession Mexico and China remain leading destinations Source: U.S. Census Exports

24. Large drops in 2009-2010 consumption needed to improve pricing

25. Poult placements, USDA, monthly,show production restraint in 2010 Placements through July, 2010

26. The story behind higher placements…lower poults destroyed Source: Urner Barry Weekly Hatch Report

27. 2010/11 Turkey Forecast Summary(Production, Use and Stocks in Million Pounds)

28. Turkey Feed Cost Outlook – 2010/11 Includes transportation basis for corn, soybean meal, MBM and grease. Based on 2.6:1 FCR, 65% corn, 22.5% SBM, 5% meat and bone meal, 5.5% grease diet

29. 2010/12 Turkey Outlook Summary Demand will continue to be a major challenge Economy expanding, but not a typical recovery rate Competing meat supplies shrinking in 2010, but not 2011/12 Chicken supplies in particular are headed up Feed cost outlook has deteriorated in recent weeks, will remain on higher plateau 2011/12 turkey prices likely to decline Excellent 2010 margins will fade, but not turn to losses in 2011 2012 could be a more difficult year

30. Feed Cost Outlook2010/2011

31. Long term perspective…Corn at parity with gasoline and energy value.

32. But ethanol is not everything… • Weather and acreage still play a major role • No increase in major crop acres since 1989 • Export and feed demand also still important • Prices elasticities – in decreasing rank • Ethanol is near 0 • Food and seed use near 0 • Exports – very low response to price • Feed use – all that’s left to adjust

33. No more acres found since 1990

34. Corn/Meal Price Outlook – 2010/2012 Cash corn prices remain at $4.25-$5.00, meal at $300-375, through Sept-Oct (basis Illinois cash markets) Actual crop size and demand drive prices Ethanol production will grow due to RFS Ethanol use mandate = ethanol price mandate Volatile energy prices are critical to outlook More volatility in feed ingredients likely In 2012 look for more corn acres, less soybean

35. Corn feeding, including DDGS

36. Strategic issues: Feed costs at new, higher, plateau Feed costs also likely to be more volatile than at any time in modern history Constrained total protein production growth Customer value creation still the name of the game!

37. What basics created your business? • Quality products • Safe products • Production system control • Competitive pricing vs. other proteins • Innovation in production and processing • Being close to the customer and consumer • Access to world markets • Excellent animal husbandry and disease prevention • Environmental stewardship • And more…

38. U.S. Meat Protein Shares Reflect Long Term Competitive Strength of Poultry Sources: USDA/ERS