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J.S. Ferraro Q1 2021 Big Picture Market Outlook Webinar

COVID-19 hit the meatpacking sector hard, tearing through plants, slashing production numbers, and backing up livestock across the planet. The industry has done a remarkable job, finding solutions, and clearing backlogs. As we pivot into 2021, there remain many challenges and much volatility ahead. View this webinar's slide deck for answers to questions affecting the Q4 markets such as:

The impact of skyrocketing grain prices;
The continued impact of COVID-19; and
The continuing shift in consumer preference.

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J.S. Ferraro Q1 2021 Big Picture Market Outlook Webinar

  1. 1. Q1 BIG PICTURE OUTLOOK Preparing for an Uncertain Future HOSTED BY: J.S. Ferraro DATE: January 20, 2021 Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. WEBINAR
  2. 2. 2 | An integrated sustainable food brand committed to creating the best-tasting fresh protein experience. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. Providing market intelligence, risk management and meat procurement solutions for the meat and livestock industry. ABOUT J.S. FERRARO
  3. 3. SPECIAL GUEST PANELIST | KEVIN BOST KEVIN BOST Analyst Procurement Strategies Inc www.procurementstrategiesinc.com Kevin Bost is a meat and livestock expert with more than four decades of experience. With a Bachelor's Degree in Agricultural Economics from the University of Arkansas and a Master's Degree in Agricultural Economics from the University of Illinois he has dedicated his life to understanding meat operations within wholesale, retail and restaurant segments. He entered the business as a commodities broker in 1981, and moved on to serve as Agricultural Economist for USDA's Economic Research Service; as Director of Procurement Strategy for a nationwide cooperative of supermarket chains and distributors; and as Director of Supply Chain Management for one of the largest restaurant companies in the U.S. 3 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  4. 4. PANELIST | DR. ROB MURPHY DR. ROB MURPHY, BS, MS, PhD Agri Economics Executive Vice President, Research and Analysis J.S. Ferraro www.jsferraro.com An agricultural economist and business leader with over 27 years in the industry, Dr. Rob Murphy has a wealth of experience in the North American meat and livestock industries studying, analyzing and predicting market movements. His expertise spans commodity analysis, econometric modelling, forecasting, futures markets, hedging, and risk management. Rob holds a Ph.D. in Agricultural and Applied Economics from Virginia Tech and has developed his market expertise over the past three decades by serving as an economist with the Chicago Mercantile Exchange, Sparks Companies and Informa Economics. At Informa, Rob held two senior leadership roles (Senior VP of Livestock, Meat, Dairy and Poultry group and Vice President) over 13 years. He focused on the development of risk management programs and directed the division’s work in commodity analysis in the protein sector. He has spoken internationally on many topics, including agri supply chain-development and international protein demand. Currently, Rob is the Executive Vice President, Research and Analysis at J.S. Ferraro & Co. leading the team in commodity analysis, financial modelling, and the development of trading and risk management strategies. 4 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  5. 5. PANELIST | KEVIN GRIER KEVIN GRIER Market Analyst Kevin Grier Market Analysis & Consulting www.kevingrier.com Kevin Grier is a noted Canadian Agriculture & Food Market Analyst providing economic and market outlook for livestock, meat and grocery industries over the last 20+ years. His critical market insight and analysis helps his clients - from government and producer groups to small to large businesses - drive profitable bottom line decisions. Kevin is a regular contributor and respected expert across media platforms throughout North America - Global News, CTV, National Post, Globe & Mail, National Hog Farmer and Grocery Business. Kevin speaks with clarity on a range of topics including market analysis, economic impacts, consumer trends and commodity analysis. He provides regular commentaries on the market and is a national and international keynote speaker known for his approachable yet pragmatic style. His breadth of knowledge was developed over 18 years at the George Morris Centre, a leader in economic research in the agriculture and food industry. Prior to that Kevin was a manager with the Ontario Farm Products Marketing Commission, the supervisory body of the provincially regulated marketing boards. Currently, Kevin is Principal of Kevin Grier Market Analysis and Consulting, a company specializing in livestock, meat, poultry and grocery industry market insight and analysis working across a breadth of organizations internationally. 5 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  6. 6. 1. MARKET OUTLOOK | CATTLE & BEEF • US Beef Market – Kevin Bost • Canadian Market 2. MARKET OUTLOOK | HOGS & PORK • US Market • Canadian Market 3. LIVE Q&A DISCUSSION OUTLINE 6 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  7. 7. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 7 | HOUSEKEEPING Questions can submitted within the Q&A box at the bottom of your screen Participants video and microphones will be muted for the presentation Technical questions can be submitted using the CHAT box at the bottom of the screen. Contact HELP & SUPPORT participant Use the side-by-side view to easily see the speakers and presentation
  8. 8. • BEEF DEMAND & BEEF PRICES Q1 BIG PICTURE MARKET OUTLOOK BEEF | US 8 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. KEVIN BOST ANALYST Procurement Strategies Inc.
  9. 9. 2 2.2 2.4 2.6 2.8 3 3.2 3.4 3.6 3.8 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $ per Capita per Week Wholesale Beef Expenditures July - December 9 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  10. 10. 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ratio Choice Ribeyes ÷ Choice Cutout Value July - December 10 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  11. 11. 4 4.2 4.4 4.6 4.8 5 5.2 5.4 5.6 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ratio Choice Tenderloins ÷ Choice Cutout Value July - December 11 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  12. 12. 1.8 1.9 2 2.1 2.2 2.3 2.4 2.5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ratio Choice Loin Steaks ÷ Choice Cutout Value July-December 12 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  13. 13. 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ratio Choice Bottom Sirloin Cuts ÷ Choice Cutout Value July-December 13 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  14. 14. 0.95 1 1.05 1.1 1.15 1.2 1.25 1.3 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ratio Choice Round Cuts ÷ Choice Cutout Value July-December 14 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  15. 15. 1.1 1.12 1.14 1.16 1.18 1.2 1.22 1.24 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ratio Choice Chuck Cuts ÷ Choice Cutout Value July-December 15 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  16. 16. 0.8 0.85 0.9 0.95 1 1.05 1.1 1.15 1.2 1.25 1.3 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ratio Choice Briskets ÷ Choice Cutout Value July-December 16 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  17. 17. 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95 1 1.05 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ratio JULY - DECEMBER S&H Ground Beef ÷ Choice Cutout Value July-December 17 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  18. 18. 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ratio 90/50 Blended Ground Beef ÷ Choice Cutout Value July - December 18 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  19. 19. 1.7 1.8 1.9 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 4 4.1 4.2 4.3 5.40 5.50 5.60 5.70 5.80 5.90 6.00 6.10 6.20 6.30 6.40 6.50 6.60 6.70 6.80 6.90 7.00 7.10 7.20 7.30 $ per Pound Wholesale $ per Pound Retail Retail Wholesale Dec 2019 Dec 2020 Dec 2020 Retail & Wholesale Beef Prices 19 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  20. 20. 1.60 1.80 2.00 2.20 2.40 2.60 2.80 3.00 3.20 3.40 Ratio Data Source: USDA Dec 2019 Dec 2020 Retail Beef Prices ÷ Wholesale Beef Prices 20 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  21. 21. 0.05 0.10 0.15 0.20 0.25 0.30 Index Value Data source: USDA January 2021 Wholesale Beef Demand Index (Seasonally Adjusted, Domestic Only) 21 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  22. 22. 200 205 210 215 220 225 230 235 240 $ per cwt Month 2019 2020 2021 Data source: USDA Combined Choice/Select Cutout Value 22 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  23. 23. • CHANNEL UPDATES • SUPPLY, DEMAND & PRICING • INSIGHTS Q1 BIG PICTURE MARKET OUTLOOK CATTLE & BEEF | CAD 23 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  24. 24. Foodservice Update • Foodservice tanking hard again • New lockdowns sales back to April 2020 levels? 24 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 2.0 3.0 4.0 5.0 6.0 7.0 8.0 J F M A M J J A S O N D Billions $ Canadian Foodservice Sales Monthly 2020, 2019, 2014-2018 Avg 2014-2018 2019 2020 2020 Estimates -70% -60% -50% -40% -30% -20% -10% 0% Total Foodservice Special Services Drinking places Full Service Limited Service Foodservice Sales Change by Venue November 2020 vs 2019
  25. 25. Supermarket Update • 10-15% boost in retail sales • Food price inflation Canada vs. U.S. major difference 25 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 5.0 6.0 7.0 8.0 9.0 10.0 J F M A M J J A S O N D Billions Canadian Supermarket Sales 2014-2018 Average, 2019, 2020 Monthly 2014-2018 Average 2019 2020 2020Estimate 0% 1% 2% 3% 4% 5% 6% 2019 Fe Mr Ap My Jn Jl Au Se Oc Nv De 2020 Fe Mr Ap My Jn Jl Au Se Oc Nv Nv Year over Year Change Food From Stores Inflation Canada and United States Monthly Latest 12 Months United States Canada
  26. 26. Cdn Quarterly Cattle Slaughter 2018-2020 • Q4 down 2.5% • 2020 down 3% • Q1 ample supplies of cattle; slaughter up 2% 26 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 400 500 600 700 800 900 1,000 Q1 '19 Q2 Q3 Q4 Q1 '20 Q2 Q3 Q4 Q1 '20 Thousand Head
  27. 27. Alberta and Ontario Steer Price Spread 2020, 2019 and 2014-2018 Avg 27 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. -20 -15 -10 -5 0 5 10 15 JA FE MR AP MY JN JL AU SE OC NV DE C$/cwt Alberta-Texas Panhandle Price-Spread Weekly 2020, 2021, 2015-2019 Average 2015-2019 Avg 2020 2021 -30 -20 -10 0 10 20 30 JA FE MR AP MY JN JL AU SE OC NV DE C$/cwt Live Ontario-Texas Panhandle Fed Steer Price-Spread Weekly 2020, 2021, 2015-2019 Average 2015-19 Avg 2020 2021
  28. 28. Weekly Beef Wholesale Price Differential vs 2017-2019 Average 28 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% Nov 7 Nov 14 Nov 21 Nov 28 Dec 5 Dec 12 Dec 19 Dec 26 Jan 2 Jan 9 Jan 16 Jan 23 Price Differential Canadian Beef Versus Chicken and Pork Wholesale Price Differential Compared to the 2017-2019 Average Differential Beef-Chicken Beef-Pork
  29. 29. Retail Beef Margins vs 2017-19 Average Latest 12 weeks 29 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. -4% -2% 0% 2% 4% 6% 8% 10% 12% Nov 7 Nov 14Nov 21Nov 28 Dec 5 Dec 12Dec 19Dec 26 Jan 2 Jan 9 Jan 16 Jan 23 Margin vs. Average Retail Grocery Beef Margins 2020-2021 Weekly Compared to 2017-2019 Average
  30. 30. Ontario Beef Feature Share Monthly vs 2014-2018 Average 30 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. -35% -25% -15% -5% 5% 15% 2020 Fe Mr Ap My Jn Jl Au Se Oc Nv De Ontario Beef Features Monthly Share of Fresh Meat Features Vs 2014-2018 Average Share
  31. 31. Ontario Chicken Feature Share Monthly vs 2014-2018 Average 31 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. -20% -10% 0% 10% 20% 30% 40% 2020 Fe Mr Ap My Jn Jl Au Se Oc Nv De Ontario Chicken Features Monthly Share of Fresh Meat Features Vs 2014-2018 Average Share Latest 12 Months
  32. 32. INSIGHTS: Beef Summary Points • Cdn beef supplies should stay abundant in Q1 • Beef will be competitive on costs and margins 32 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  33. 33. • SUPPLY, DEMAND & PRICING • CHINA INSIGHTS • INSIGHTS Q1 BIG PICTURE MARKET OUTLOOK HOGS & PORK | US 33 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  34. 34. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 34 | Bigger-Than-Expected Hog Supply in Q1 • Currently the industry is killing the Jun/Aug pig crop which USDA revised upward by almost a million head in the recent H&P report. • The original estimate was -3.5% YOY, but the revision brought that up to only -0.9% YOY. Big change. • The new estimate appears to be supported by the weekly kill data • With five weeks left to go in the quarter, the pig crop implies weekly average slaughter at 2.61 million head
  35. 35. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 35 | Hog Carcass Weights are Record High • Last week, USDA reported barrow & gilt carcass weights at 220 lbs. That is the heaviest weight ever recorded. • Packer sold hogs are heavier than producer sold hogs. This matters mostly for the cutout since all product must clear the market • Negotiated hogs are much lighter (about 15 lbs) than formula-priced hogs. This matters for the LHI calculation since the negotiated hogs drive that • Hopefully, big kills in January will help to reduce weights substantially !
  36. 36. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 36 | High Corn Prices May Not Influence Pork Production • High corn prices in the 2011-13 period, had little or no effect on hog carcass weights. They remained near the long-run trend throughout that period • During these same years, producers did expand the breeding herd, but at a slower rate that what was seen outside of this period
  37. 37. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 37 | Q1 Pork Production Down Slightly YOY • On a calendar quarter basis, pork production is expected to be down 1.4% in Q1 • Q2 shows strong YOY growth, but that is because last year Q2 pork production was constrained by Covid plant closures • The second half of 2021, could see pork production very near 2020 levels • The pigs that will make up production through Q2 are already on the ground while Q3 & Q4 pigs haven’t been born yet -1.4% +8.3% -0.2% +1.5%
  38. 38. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 38 | After a Strong Year, Exports Expected to Soften Modestly • Total pork exports for 2020 are likely up over 15% • That would be the largest increase in exports since 2011 when they increased 23% +15.2% -2.9% • Exports ran very strong in Q1, fell back during the plant closures in the summer • From mid-year onward, exports tracked last year much closer
  39. 39. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. 39 | What About China? • China has been frantically building commercial hog facilities in an effort to rebuild their herd in the wake of ASF • The Chinese Ministry of Agriculture claims that the herd as of the end of 2020 was back to near 90% of pre-ASF levels • However, hog prices in China suggest otherwise as they are still very elevated. • But China has been importing huge volumes of corn and soybeans, suggesting that there are a lot more animals to feed. • We look for China to take less pork from the US in 2021 than they did last year. Chart Source: Pig333.com
  40. 40. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 40 | Demand Currently Strong, but Fragile • The demand scatter for January shows the 2021 data point riding higher than either 2020 or 2019. • The combined packer + producer margin appears to be turning lower. That is an ominous sign.
  41. 41. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 41 | Pork Also Sees Demand Boost from the Pandemic • The JSF pork cutout demand index has been stronger than last year in many months since the pandemic began • Over the full six-month period, the demand index averaged 2% stronger than in the pre-Covid year • As with beef, this suggests that shift in consumer demand from the foodservice channel to the retail channel has been positive for pork demand • This means that when foodservice returns fully, that pork demand should decline +2.0%
  42. 42. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 42 | Cold Storage Stocks Remain Extremely Tight • Users drew heavily on cold storage stocks when plants shutdown back in Apr/May • Those stocks were not replenished in the summer when production returned to normal • Normally, users put large volumes into cold storage during the fall when production is large and prices are low • Cold storage stocks act as a buffer that can keep prices from getting too high, but that buffer is very small right now
  43. 43. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 43 | Packers Profitable, Producers Not So Much • Packer margins currently running just above last year, but expected to follow a normal seasonal in 2021 • For 2021 as a whole packer margins are projected at about $15.50/hd, very similar to 2018 and 2019 • Producers only saw one month of positive margins in 2020. The current forecast has 2021 margins entirely in the red due to high corn and averaging -$31/hd in 2021
  44. 44. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 44 | Cutout May Soften Near-term, Then Rally • JSF sees the cutout a little weaker in the short term as big production combines with seasonal softness in demand • Look for the cutout to be back solidly over $80 as March approaches and then move into the mid $80s through the balance of spring • Summer highs on the cutout could breach $90 on a daily or weekly average basis, but the longer run price averages should hold in the mid to upper $80s.
  45. 45. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. 45 | Futures Look Too Optimistic on Recent Rally • Bullish sentiment has recently pushed the futures up to levels that are hard to justify fundamentally. • The late summer and early fall contracts appear to hold a huge amount of downside risk • The new pork cutout futures have gained traction rapidly, with open interest now over 1200 contracts and daily volumes running over 100 contracts traded.
  46. 46. INSIGHTS: Hogs & Pork Main Take-Aways • Big upward revisions by the USDA to the Jun/Aug pig crop, now point to ample hog supplies through February. Weekly slaughter levels have reached close to 2.8 million head at times in January, but will likely be pared back toward 2.6 million head per week in February • Heavy carcasses are also a concern, but hopefully big kills and high corn prices will help to bring weights back down into historical ranges over the next few weeks • Demand looks good presently, but there are concerns about it turning lower in February. Export demand remains strong, but China is expected to start scaling back their purchases in 2021 as the recovery in their domestic hog herd progresses • The cutout and Lean Hog Index hold some moderate downside risk over the next few weeks, but then both should turn higher into spring and summer. The futures market however, looks overly optimistic at this point 46 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  47. 47. • SUPPLY, DEMAND & PRICING • INSIGHTS Q1 BIG PICTURE MARKET OUTLOOK HOGS & PORK | CAD 47 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  48. 48. Cdn Quarterly Hog Slaughter 2018-2020 • Q4 -3% • 2020 +4% • Q1 2021 +0-1% 48 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 Q1 '19 Q2 Q3 Q4 Q1 '20 Q2 Q3 Q4 Q1 '21 Million Head
  49. 49. Canadian Pork Exports Monthly • China up 2X • Vietnam 3x 49 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2015 2016 2017 2018 2019 2020e 2021f ('000 t cwe)
  50. 50. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 50 | 0 10 20 30 40 50 60 18 My Se 19 My Se 20 My Se Million Kgs Chinese Exports Monthly 2018-2020
  51. 51. Domestic Availability 2015-2021F 51 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 800 850 900 950 1,000 1,050 1,100 2015 2016 2017 2018 2019 2020e 2021f Availability 000 t CWE
  52. 52. Canadian Producer and Packer Margins Nov 7 to Jan 23 52 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. -30 -20 -10 0 10 20 Nov 7 Nov 14 Nov 21 Nov 28 Dec 5 Dec 12 Dec 19 Dec 26 Jan 2 Jan 9 Jan 16 Jan 23 C$/head Ontario Producer and Packer Margins Latest 12 Weeks Packer Producer
  53. 53. Weekly Canadian Pork Wholesale Price Differential vs 2017-2019 Avg 53 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. -20% -10% 0% 10% 20% 30% Nov 7 Nov 14 Nov 21 Nov 28 Dec 5 Dec 12 Dec 19 Dec 26 Jan 2 Jan 9 Jan 16 Jan 23 Price Differential Pork-Beef Pork-Chicken
  54. 54. Retail Fresh Pork Margins vs 2017-2019 Average November 7 to January 23 54 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 0% 5% 10% 15% 20% 25% 30% 35% Nov 7 Nov 14 Nov 21 Nov 28 Dec 5 Dec 12 Dec 19 Dec 26 Jan 2 Jan 9 Jan 16 Jan 23
  55. 55. INSIGHTS: Pork Summary Points • Robust production • Export Focus • Domestic Availability? • Competitive on margins and costs 55 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  56. 56. Q1 BIG PICTURE MARKET OUTLOOK Q&A SESSION 56 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. ? ? ?
  57. 57. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 57 | AUDIENCE QUESTIONS For pork - is the market going to be able to run ahead of feed price and leave any margin? “ - CANADIAN PRODUCER
  58. 58. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 58 | AUDIENCE QUESTIONS What hard data do we have to confirm that China is successfully rebuilding its hog herd? “ China claims their pork herd is nearly back to pre ASF levels, although pork pricing in China and meat import volumes suggest otherwise. Can you discuss your thoughts on the prospect that they are back near pre ASF levels and, if you think they aren’t, what is the likely timeframe that they will be? “ - CANADIAN PRODUCER - ANALYST
  59. 59. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 59 | AUDIENCE QUESTIONS With La Ninã present over the last few months, what is the probability of a strong drought in 2021 and its effect in the cattle- beef value chain. “ - VALUE ADDED PROCESSOR
  60. 60. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 60 | AUDIENCE QUESTIONS Are European/Asian Hog Markets more affected by Covid or ASF restrictions and what are the implications (i.e. in Germany/China/Vietnam)? How does this in turn affect our US/Canada exports? “ - PACKER
  61. 61. “ Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 61 | AUDIENCE QUESTIONS How will technology support delivery of "experiences" with shift from food service and tourism to at-home cooking environment? “ As we return to some version of normalcy, where do we see foodservice demand with so many operators closing their doors permanently? Will middle meat primals take up more room in freezer stocks or do you think retail features will be enough to allow the Packers to sell through? - ASSOCIATION - ANALYST
  62. 62. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 62 | AUDIENCE QUESTIONS ANY ADDITIONAL QUESTIONS? “
  63. 63. You can email our panelists directly at: • Rob.Murphy@jsferraro.com • Kevin@KevinGrier.com Please complete our brief survey to help us continue to shape great discussions. ADDITIONAL QUESTIONS: SESSION SLIDES: SURVEY: Session recording and deck will be emailed to registered participants 24-48hrs after the session. Please feel free to connect/follow us and our speakers on LinkedIn OR Twitter CONNECT: 63 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. THANK YOU
  64. 64. We provide members of the meat & livestock industry with complimentary market intelligence to make smarter procurement decisions. As part of our service suite, access: RED MEAT OUTLOOK: monthly market intelligence reports for both Cattle & Beef and Hogs & Pork markets; BIG PICTURE MARKET OUTLOOK: quarterly market outlook webinars featuring prominent North American meat & livestock analysts; AUTOMATED MARKET ALERTS: reliable and timely information (supply, demand & pricing) to stay abreast of the market. Subscribe Now 64 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. JSF MARKET INTELLIGENCE SERVICES WEEKLY MEAT WRAP NEWSLETTERS: Weekly analysis on beef and pork markets delivered right to your inbox;
  65. 65. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. 65 | No matter where you sit on the supply chain spectrum, rely on market intelligence that provides the Canadian perspective you need. Download a sample report or subscribe now! ACCESS INTELLIGENCE WITH A CANADIAN FOCUS SIGN UP NOW Receive your FREE 2 MONTH TRIAL when you sign up Today! CANADIAN CATTLE MARKET REPORT CANADIAN PORK MARKET REPORT CANADIAN BOXED BEEF REPORT CANADIAN CHICKEN MARKET REPORT CANADIAN GROCERY TRADE REPORT Kevin@KevinGrier.com (519) 823-9868 www.kevingrier.com GET IN TOUCH:
  66. 66. THANK YOU J.S. Ferraro 130 Adelaide Street, Suite 810 Toronto, Ontario M5H 3P5 CANADA 43.6496° N -79.3838° W T: (416) 306-8787 E: marketintel@jsferraro.com | W: www.jsferraro.com 66 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
  67. 67. 67 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. AUDIENCE QUESTIONS: For pork - is the market going to be able to run ahead of feed price and leave any margin? DR. ROB MURPHY Not likely. Consumer demand is expected to be down somewhat in 2021 from the red-hot level of 2020 and that will limit price gains in pork, and by extension, hogs. Consumers won’t care that feed prices are high.
  68. 68. 68 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. AUDIENCE QUESTIONS: What hard data do we have to confirm that China is successfully rebuilding its hog herd? DR. ROB MURPHY No direct hard data on this exists outside of what the Chinese Ministry of Agriculture reports. We can, however, observe price levels and make some inference of how much pork is available to Chinese consumers. From that vantage point, it looks like the industry has a ways to go to return to pre-ASF levels because Chinese hog and pork prices remain very high.
  69. 69. 69 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. AUDIENCE QUESTIONS: With La Ninã present over the last few months, what is the probability of a strong drought in 2021 and its effect in the cattle-beef value chain DR. ROB MURPHY The US is already seeing a strong drought in the Western states and I think the probability of it spreading to the Corn Belt is high—maybe 40% or better. This will affect the beef supply chain by raising costs of gain for feedyards, which will then try to pass those increased costs on to other parts of the supply chain. They don’t have much market power to pass those increases on to packers, so the logical place for them to pass those costs along are through paying less for feeder cattle. That means that in the end, it will be the cow-calf producer that bears the brunt of high feed costs caused by a drought.
  70. 70. 70 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. AUDIENCE QUESTIONS: Are European/Asian Hog Markets more affected by COVID or ASF restrictions and what are the implications (i.e. in Germany/China/Vietnam)? How does this in turn affect our US/Canada exports? DR. ROB MURPHY ASF has been in Europe for decades. The recent outbreaks in Germany may have had a small positive impact on US/Canadian pork exports when it initially happened, but at this point the impact is probably minor.
  71. 71. 71 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. AUDIENCE QUESTIONS: As we return to some version of normalcy, where do we see foodservice demand with so many operators closing their doors permanently? DR. ROB MURPHY Demand for beef and pork from the foodservice sector will probably show a brief surge as restaurants replenish inventory ahead of re-openings this spring and summer, but beyond that, I think that re-opening of foodservice will be a net negative for both beef and pork demand. Foodservice establishments that closed their doors during the pandemic can easily be replaced by new operators if consumer demand warrants it. However, because business travel (which is a significant driver of foodservice demand) is likely to be constrained well after the pandemic has subsided, I would expect foodservice demand to be less than pre- pandemic levels for a long time after the pandemic is resolved.
  72. 72. 72 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. AUDIENCE QUESTIONS: Will middle meat primals take up more room in freezer stocks or do you think retail features will be enough to allow the Packers to sell through? DR. ROB MURPHY Retailers have demonstrated that they can sell a lot of middles during the pandemic. Consumers will have their middle meats regardless of whether they come from the foodservice or retail channel. So, I don’t see much risk that middle meats will back up because of poor movement at retail.
  73. 73. 73 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution. AUDIENCE QUESTIONS: How much of the gain in US pork export is correlated to restrictions placed on Canadian export to China? DR. ROB MURPHY A small portion, maybe like 5-10%.

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