This document provides an economic outlook for the pork industry in 2015 and beyond from Steve Meyer, Vice President of Pork Analysis at EMI Analytics. Key points discussed include the impacts of PEDv, avian influenza, beef and grain market dynamics, consumer demand trends, and export issues. Meyer predicts generally positive profits and prices for pork producers in 2015 and 2016, with production expected to increase around 2% annually as the breeding herd rebuilds from PEDv losses. Chicken production is forecast to increase 3-4% in 2015 due to improving productivity and weights. Beef supplies will remain tight in the short-term due to herd rebuilding and weather impacts.

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. CBOT Corn Futures
1.50
2.50
3.50
4.50
5.50
6.50
7.50
8.50
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
DollarsperBushel
nearby futures, roll on first of month
May 2015 forward forecast
We expect Corn futures $3.50-$3.70

6. CBOT Soybean Meal Futures
120
170
220
270
320
370
420
470
520
570
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
DollarsperTon nearby futures, roll on first of month
May 2015 forward forecast
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 1st half
of ‘16
- Med. B/S Breast -- $162-$165 thru Aug, $155 Sept,
$130-$130 rest of ’15, stronger 1st 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 1st 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!
Range of
Estimates
Avg. of
Estimates
Head Implied
by Avg. Est's
(Million Hd.)
On-Feed June 1 99.2 - 102.0 100.9 10,591
Placed in May 86.5 - 96.9 91.4 1,745
Marketed in May 90.0 - 92.4 91.6 1,708
Pre-Report Estimates -- USDA Cattle On Feed
Friday, June 19, 2015
Category
(Percent of year ago)
Source: Urner Barry

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
Inventories on March 1
All hogs and pigs 61494 65934 107.2 106.8 0.4
Kept for breeding 5851 5982 102.2 103.5 -1.3
Kept for marketing 55643 59953 107.7 107.2 0.5
Under 50 lbs. 17336 18959 109.4 108.6 0.8
50-119 lbs. 15487 16509 106.6 106.8 -0.2
120-179 lbs. 12538 13290 106.0 106.1 -0.1
180 lbs. and over 10281 11195 108.9 107.0 1.9
Farrowings
Dec-Feb sows farrowed 2,763 2829 102.4 103.7 -1.3
Mar-May Intentions 2,810 2870 102.1 103.1 -1.0
June-Aug Intentions 2,991 2927 97.9 102.7 -4.8
Dec-Feb Pig Crop 26,326 28758 109.2 109.2 0.0
Dec-Feb pigs saved per litter 9.53 10.17 106.7 105.3 1.4
*Thousand head ** Thousand Litters 1
Source: Urner Barry
Category 2014 2015
'15 as
Pct of
'14
Pre-
Report
Est's1
Actual
minus
Est.
USDA QUARTERLY HOGS & PIGS REPORT
March 27, 2015

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
Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge
2013 Q1 27.870 -0.8%
Q2 26.778 0.4%
Q3 27.668 -1.1%
Q4 29.808 0.8%
Year 112.124 -1.0%
2014 Q1 27.580 -1.0% 27.428 -1.6% 27.214 -2.4% 27.320 -2.0% 27.134 -2.6%
Q2 25.420 -5.1% 25.787 -3.7% 25.572 -4.5% 25.020 -6.6% 25.574 -4.5%
Q3 26.459 -4.4% 26.340 -4.8% 26.173 -5.4% 25.520 -7.8% 25.554 -7.6%
Q4 28.930 -2.9% 28.795 -3.4% 28.826 -3.3% 28.912 -3.0% 28.617 -4.0%
Year* 107.192 -4.4% 107.057 -4.5% 107.088 -4.5% 107.174 -4.4% 106.879 -4.7%
2015 Q1 28.721 5.8% 28.670 28.690 5.7% 28.670 5.7% 28.670 5.7%
Q2 27.238 6.5% 27.185 6.3% 27.358 7.0% 27.236 6.5%
Q3 27.898 9.2% 27.854 9.0% 27.738 8.5% 27.905 9.2%
Q4 29.800 4.1% 30.448 6.4% 30.585 6.9% 29.762 4.0%
Year 113.657 6.3% 114.158 6.8% 114.371 7.0% 113.573 6.3%
2016 Q1 28.928 0.9% 29.645 3.4% 29.845 4.1%
Red figures are analysts' last FORECAST for the given quarter (Q1 done in Dec, Q2 done in Mar, etc.) 3/30/15
Blue figures are estimated using USDA data *Annual total uses actuals to-date plus forecasts for the rest of the year.
Mizzou ISU LMIC Paragon ACTUAL
March 2015 Hogs & Pigs -- Commercial Slaughter Forecasts

72. Price forecasts – I was the bull of the group!
Mizzou ISU LMIC Paragon CME
Producer-Sold
Net Price, All
Methods
Ia-Mn
Producer-Sold
Neg'd Base
National Wtd
Avg. Base Price
National Net
Neg'd Price,
Wtd. Avg.
CME Lean Hog
Futures/Index
2013 Q1 83.53 80.63 81.08 82.73 83.34
Q2 91.80 89.30 89.32 90.83 90.66
Q3 97.90 95.58 95.25 98.00 98.98
Q4 84.99 81.28 82.98 85.26 83.93
Year 89.56 86.70 87.16 89.21 89.23
2014 Q1 93.10 93.10 91.34 93.80 94.91
Q2 113.54 115.36 111.61 116.83 117.48
Q3 111.84 111.77 109.63 114.25 115.70
Q4 91.83 90.49 90.08 91.41 91.85
Year 102.23 101.68 100.31 102.95 104.99
2015 Q1 66.50 64.10 68.95 70.82 68.59
Q2 70 - 74 68 - 73 70 - 74 74 - 78 75.12
Q3 70 - 74 69 - 74 70 - 75 78 - 82 75.05
Q4 64 - 68 61 - 66 60 - 66 70 - 74 64.88
Year 68 - 72 66 - 69 67 - 71 73 - 76 70.91
2016 Q1 64 - 69 62 - 69 70 - 74 67.28
Blue figures are estimated using USDA data 6/19/15
March 2015 Hogs & Pigs -- Price Forecasts

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
Item June July Aug Sept Oct Nov
Hogs, Prod-sold, Net 84 84 83 78 74 72
USDA Cutout 90 92 94 88 85 82
1/4" Trim Loins 126 127 130 122 118 110
1/4" Trim Butts 135 130 124 119 112 111
20-23 Hams 72 78 80 84 84 82
13-17 Derind Belly 123 130 134 120 112 104
42CL Trim 40 42 45 40 33 31
72CL Trim 75 80 76 68 66 60

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?