Dr. Thomas E. Elam

PresidentFarmEcon LLC

February 10, 20111

$5.50-7.00 corn, $325-425 soybean meal Slow recession recovery Higher costs and improving economy

working against each other on production But working together to drive wholesale

protein prices higher Likely: 2011 total meat production falls

slightly, much stronger overall pricing

2

$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00

$0$50

$100$150$200$250$300$350$400$450

1/20

007/

2000

1/20

017/

2001

1/20

027/

2002

1/20

037/

2003

1/20

047/

2004

1/20

057/

2005

1/20

067/

2006

1/20

077/

2007

1/20

087/

2008

1/20

097/

2009

1/20

107/

2010

1/20

11

Corn

, $/B

ushe

l, Ce

ntra

l IL

Soyb

ean

Mea

l, $/

Ton,

Cen

tral

IL

Soybean meal, Central Ill. Corn, Central Ill.3

July, 2011 Futures

Crop issues in major producing areas Reduced U.S. and global grain stocks Income/demand recovery Support from subsidized ethanol demand

• Increased ethanol production driven by policy• Historically high crude oil prices, leading to:• High ethanol prices• Both increase value/price of corn• Corn pulls other feeds up

Drops in 2010 corn/soy yield/production

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10

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30

40

50

60

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2

4

6

8

10

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2000

7/20

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2001

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2002

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2003

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2004

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041/

2005

7/20

051/

2006

7/20

061/

2007

7/20

071/

2008

7/20

081/

2009

7/20

091/

2010

7/20

10

Hog

and

Ste

er/H

eife

r Co

rn P

rice

Ratio

s

Broi

ler/

Milk

/Tur

key F

eed

Ratio

s

Broiler-feed Milk-feed Turkey-feed Hog-corn Steer and heifer-corn5

6

Profit/Loss for primary production only, does not include value added operations past RTC, carcass or raw milk

Species Units ProductionProfit/Loss per

UnitTotal Profit/Loss,

$ MillionFed Cattle Million Head 26.2 $30.42 $797Market Hogs Million Head 107 $11.55 $1,236Broilers Billion RTC Pounds 34 $0.030 $1,020Turkeys Billion RTC Pounds 5.6 $0.036 $203Dairy Million Cows 9.1 -$1,128.46 -$10,269

Total -$7,013

7

Sources:Fed Cattle: Iowa State fed yearling budgetMarket Hogs: Iowa State farrow-finish budgetBroilers: Informa Economics broiler margin modelTurkeys: Informa Economics turkey margin modelDairy: Penn State milk margin model2011 Forecast: FarmEcon LLC

Species Units 2007 2008 20092010,

Dec. Est. 2011, Jan.

Fcst.Fed Cattle $/Head, All Costs -$25.51 -$119.94 -$91.81 $30.42 -$50.00Market Hogs $/Head, All Costs $2.30 -$23.64 -$26.04 $11.55 -$5.00Broilers ¢ Per RTC Pound, All Costs 9.17¢ -5.17¢ 2.77¢ 3.00¢ 2.00¢Turkeys ¢ Per RTC Pound, All Costs 5.50¢ -6.13¢ -5.25¢ 3.63¢ 0.00¢Dairy $/Head/Day over Feed Cost -$7 $2.51 $0.87 -$4.23 -$3.09 -$3.00

Beef/pork production will decline Milk production likely flat, at best Broiler and turkey production likely

to grow slightly, at best Wholesale/retail prices for all likely

to increase

8

0

50

100

150

200

250

300

Poun

ds/C

apita

Turkey

Broiler

Pork

Beef

9

High feed costs, resulting in… Production declines Higher exports - 2011 growth is

forecast 1%/year population increase

10

11

12

Improved pricing and low stocks imply modest 2011 turkey industry production growth. However, growth will be muted by record-high feed costs, and the need to recover those costs in wholesale pricing.

Cold storage stocks at record low level 2010 profitability was good until year-end Q1 2011: production up 2-3% Q2: production +1% to +2% Q3/Q4: production +1% to -3% Exports expected to grow slightly Lower competing red meat supply, higher

red meat pricing Broiler pricing not as strong as red meats Feed costs remain the major wild card

13

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

000 P

ounds

Whole Birds Other Turkey14

Record low November & December Stocks

15Based on FarmEcon LLC model of 70% cut-up and 30% whole bird marketing mix. Prices are USDA/AMS. Does not include value-added products.

0¢

20¢

40¢

60¢

80¢

100¢

120¢

140¢

Ce

nts

/Po

un

d, R

TC

Ba

sis

Weighted Product Price Feed Cost Weighted Product Price - Feed Costs

17

4,6004,7004,8004,9005,000

5,1005,2005,3005,400

Mill

ion

Poun

ds

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

est

2011

f

18

$0

$1

$2

$3

$4

$5

$Bill

ion

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

est

2011

f

19

15.0

15.5

16.0

16.5

17.0

17.5

18.0

Pounds

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010est

2011f

Profitable

Unprofitable

20

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

6,500,000

6-Ja

n

27-J

an

17-F

eb

10-M

ar

31-M

ar

21-A

pr

12-M

ay

2-Ju

n

23-J

un

14-J

ul

4-Au

g

25-A

ug

15-S

ep

6-O

ct

27-O

ct

17-N

ov

8-D

ec

29-D

ec

2008

2009

2010

2011

21

2007 2008 2009 2010 est 2011 fcstPct.

Change

Beginning Stocks 218 261 397 262 189 -28%Production 5,914 6,216 5,626 5,525 5,650 2%Total Supply 6,132 6,477 6,023 5,787 5,839 1%Exports 554 676 534 545 560 3%U.S. Consumption 5,318 5,404 5,226 5,053 5,029 0% Per Capita (Lbs.) 17.6 17.7 17.0 16.3 16.1 -1%Total Use 5,871 6,080 5,760 5,598 5,589 0%Ending Stocks 261 397 262 189 250 32%

USDA Hen Price, $/lb. $0.821 $0.876 $0.794 $0.920 $0.940 2%USDA Tom Price, $/lb. $0.820 $0.873 $0.794 $0.918 $0.930 1%USDA Breast Meat, $/lb $2.306 $1.699 $1.370 $2.100 $2.050 -2%USDA Thigh Meat, $/lb $0.957 $1.013 $0.940 $1.230 $1.200 -2%USDA MDT, $/lb $0.246 $0.255 $0.330 $0.270 $0.300 11%

Margin over Feed, ¢/lb 51.4¢ 31.6¢ 30.1¢ 53.0¢ 42.0¢ -21%

22

40.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

120.0

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

UB

Hen

s, 1

2 Lb

s. a

nd U

p

2009

2010

2011

Source: Informa, 2009-2010: PL10-03TM Turkey Letter. 2011: PW10-47 Poultry Weekly

23

40

90

140

190

240

290

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

UB

Tom

Bre

astm

eat,

Cent

s/Lb

.

2009

2010

2011

Source: Informa, 2009-2010: PL10-03TM Turkey Letter. 2011: PW10-47 Poultry Weekly

24

World food prices rose to a record in December (2010) on higher sugar, grain and oilseed costs, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt.

25As reported by Bloomberg News, 1/5/2011

Grains – increasing ethanol production Oilseeds – increasing biodiesel

production Sugar – increasing ethanol production

And, all mandated by high income countries government policies

26

New research published December 27 Underlying pre-2006 corn price relative

to stocks and use has not changed Ethanol production and price have

become very important Price analysis has become more complex Significant risk of higher feed costs

27

28

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

4% 6% 8% 10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

Seas

on A

vera

ge F

arm

Pric

e, C

orn,

$/B

ushe

l

Stocks/Use Ratio, Total Feedgrains

2006

20072008

2009

2010 (USDA 12/2010 Fcst.)

Year crops were produced

Note increases in both average price and volatility!

29

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

#2 Ye

llow

Cor

n, C

entr

al IL

, $/B

u.

1/1/05-8/31/06Avg. $1.99, St. Dev. $0.17, Range $0.81

9/1/06-8/31/07Avg. $3.32, St. Dev.$0.48, Range $2.03

9/1/07-1/31/11Avg. $4.14, St. Dev. $0.98, Range $4.39

30

Regression for Season Average Corn Price, Feedgrain Crops of 1990-2005

Variable Coefficient Standard Error t Stat Intercept 4.281 0.329 13.024 Stocks/Use Ratio -21.284 4.358 -4.884 Stocks/Use Ratio2 49.766 13.889 3.583

Regression for Season Average Corn Price, Feedgrain Crops of 1990-2009

Variable Coefficient Standard Error t Stat

Intercept 4.218 0.543 7.763 Stocks/Use Ratio -20.623 7.208 -2.861 Stocks/Use Ratio2 48.087 22.972 2.093 Ethanol Production, Over 4 Billion Gallons 0.199 0.0274 7.271 Ethanol Price, Omaha Blender, over $2/Gallon 1.778 0.589 3.018

•Ethanol production and price are pushing up corn prices above 1990-2005 “normal”•Equation 2 forecasts 2010 crop price of $5.40 vs. $5.30 January USDA forecast•Absent ethanol price/production effects the corn price is about $3.10/bushel

31* September 1 Crop Year, 2011 as of 2/4/2011

2005/ 2006

2006/ 2007

2007/ 2008

2008/ 2009

2009/ 2010

2010/ 2011 FarmEcon

fcst.

2011/ 2012 FarmEcon Projected

Area Planted (Mill. Ac.) 96.4 92.5 109.0 101.8 100.1 99.6 106.0Area Harvested (Mill. Ac.) 85.9 80.1 98.3 91.0 89.6 90.0 95.5

Yield (Tons/Ac) 3.47 3.50 3.56 3.58 3.90 3.67 3.75Beg. Stocks (Mill. Tons) 58.8 54.8 36.2 45.1 47.0 48.0 23.6Production (Mill. Tons) 298.5 279.9 349.7 325.7 349.0 330.0 358.1Imports (Mill. Tons) 1.9 2.4 3.3 3.0 2.2 2.1 2.5Total Supply (Mill. Tons) 359.2 337.1 389.2 373.7 398.2 380.1 384.3Feedgrains Feed Use (Mill. Tons) 163.1 148.0 157.8 140.9 137.6 136.5 133.0 SBM Feed Use (Mill. Tons) 30.1 31.2 30.1 27.9 27.8 27.5 27.2 DDGS Feed Use (Mill. Tons) 12.1 15.8 21.1 25.7 29.3 30.2 31.3 Grains+DDGS+SBM feed use 205.3 195.0 209.0 194.5 194.7 194.2 191.6FSI Use (Mill. Tons) 81.6 94.4 116.5 134.8 157.8 166.4 169.5 Fuel Ethanol Refinery Use (Mill. Tons) 40.7 53.8 76.9 94.2 116.0 124.5 129.5 Est. DDGS Prod. (Mill. Tons) 13.4 17.7 25.4 31.1 38.3 41.1 42.7 Est. Corn Used by Ethanol (Mill. Tons) 27.3 36.0 51.5 63.1 77.8 83.4 86.8 DDGS Exports (Mill. Tons) 1.3 1.9 4.3 5.4 9.0 10.9 11.4 Other FSI Use (Mill. Tons) 40.9 40.6 39.6 40.6 41.8 41.9 40.0Exports (Mill. Tons) 59.8 58.3 69.9 50.9 54.8 53.6 53.5Total Use (Mill. Tons) 304.5 300.9 344.1 326.6 350.2 356.5 356.0Ending Stocks (Mill. Tons) 54.8 36.2 45.1 47.0 48.0 23.6 28.3% Feedgrains Used for Fuel Ethanol 14% 19% 22% 29% 33% 38% 36%Ending Stocks-to-Use Ratio 18% 12% 13% 14% 14% 7% 8%U.S. Average Farm Corn Price, $/Ton $79 $120 $165 $160 $140 $213 $201

32

Commodity 1990 20101990-2010

Change

Corn 66,953 81,263 14,310

Barley 7,529 2,466 (5,063)

Sorghum 9,089 4,658 (4,431)

Oats 5,948 1,263 (4,685)

Net Change, Feedgrains 131

Rapeseed 77 1,421 1,344

Soybeans 56,513 76,823 20,310

Oilseed, Sunflowerseed 1,851 1,873 22

Wheat 69,103 47,637 (21,466)

Net Change, Oilseeds and Wheat 210

Rye 376 264 (111)

Rice 2,822 3,623 801

Total 220,260 221,290 1,030

163.1 148.0 157.8 140.9 137.6 136.5

30.1 31.2 30.1 27.9 27.8 27.7

12.1 15.8 21.1 25.7 29.3 30.2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005/ 2006 2006/ 2007 2007/ 2008 2008/ 2009 2009/ 2010 2010/2011 FarmEcon

fcst.

Mill

ion

Met

ric To

ns

Feedgrain Feed Use Soymeal Feed Use DDGS Feed Use

33

Cash corn prices remain at $5.50-$7.00, meal at $325-425, through March/April (basis Illinois cash markets)

2011 crops and demand drive feed costs after that

Ethanol production will grow due to RFS• More DDGS production, and• DDGS becomes #2 feed ingredient• Ethanol use mandate = increased corn demand• Energy prices are also critical to outlook• High volatility in all feed ingredient prices likely

34

Higher feed costs will drive protein prices higher in 2011-2012

$5+ corn and $300+ soybean meal=normal for 2011/2012

Feed cost volatility an ongoing issue Increasing RFS, weather, and limited

acreage are on a collision course Another 2008 spike in the next 3-5

years Driving higher poultry share of the diet

35

36Source: USDA/ERS

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Chicken

Pork

Beef

Turkey

Questions?Comments?

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