Surviving market dislocation in the wake of covid 19

Q3 BIG PICTURE
OUTLOOK
Surviving Market Dislocation in the
Wake of COVID-19
HOSTED BY: J.S. Ferraro
DATE: July 23, 2020
Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
WEBINAR

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Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
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ABOUT J.S. FERRARO

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.
3 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.

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 managing director 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.

1. MARKET OUTLOOK | CATTLE & BEEF
• US Market
• Canadian Market
• Panel Discussion
2. MARKET OUTLOOK | HOGS & PORK
• US Market
• Canadian Market
• Panel Discussion
3. LIVE Q&A
DISCUSSION OUTLINE

Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.6 |
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• SUPPLY, DEMAND & PRICING
• INSIGHTS
Q3 BIG PICTURE MARKET OUTLOOK
CATTLE & BEEF | US

Assessing the Backlog in Fed Cattle Supplies
• The covid-related plant shutdowns in April and May
resulted in a large number of un-slaughtered cattle
that were market ready
• We compare actual monthly slaughter with what was
implied by past placements and our pipeline model
• Packers actually got ahead in slaughter during the first
three months of the year.
• April saw a 565,000 head deficit and May had a
325,000 head deficit
• Packers played catch-up in June and are expected to
continue that pattern in July and August

• By our calculation, the backlog reached a
high point close to 800,000 head in May
• Since then, that backlog has been trimmed
as packers managed to get their plants
operating back near full capacity
• As of this week, the backlog stands at close
to 460,000 head
• That should narrow further and by the end of
August would expect it to be less than
400,000 head
• Of course all of this relies on plants
continuing to operate at near capacity
So Where Does the Backlog Stand Today?

Sharp Reduction in Spring Placements Indicates
Tighter Cattle Supplies Ahead
• Cattle feeders reacted to the covid-related
plant shutdowns by sharply reducing
placements in March and April
• Over the 3-month period of Feb, Mar, Apr,
placements were down an average of 17.5%
from the year prior
• These are cattle that will finish from August
to October.
• This creates a “hole” in fed cattle supplies
that should be only partially filled by any
cattle leftover from the backlog
• In total, this coming gap equates to about
one million head of cattle

Carcass Weights are Very Heavy and Adding to
Beef Production
• The plant shutdowns in April and May
disrupted the normal seasonal pattern of
declining carcass weights
• Steer carcass weights are now 35lbs over last
year or about 4.1% heavier
• This factor is greatly adding to fed beef
production presently
• As the backlog gets cleared, carcass weights
should move much closer to last year’s level.
That should be apparent by September or
October
• Heavy cattle limit producer’s bargaining power
with packers in the fed cattle market

De-Trended and De-Seasonalized Carcass
Weights Now Are Declining
• By removing the long-term trend in carcass
weights and the seasonal pattern, we can
examine the “irregular” component of
carcass weights
• This represents the portion of carcass
weights that are caused by things such as
slow or fast marketing rates and weather
influences
• This can be used to gauge how current
feedyards are in their marketings
• The DTDS steer weight peaked at +30 during
the height of the plant shutdowns and is now
declining. That indicates that the worst is
behind us and feedyard currentness is
improving

Packer Margins Have Retraced, but Remain Very
Large
• As the plant shutdowns took hold, beef prices
skyrocketed and cattle prices did not follow
• That created huge packer margins, which
peaked at over $2000/hd.
• As plants came back online, margins fell and
today they are running just over $300/head
• Given that a backlog of cattle still exists and
carcass weights are so heavy, we expect packer
margins to remain really wide ($250-$350/hd)
for the balance of summer
• To be fair, packers are not villains here. They
did not cause this situation and have incurred a
lot of additional costs because of COVID-19

Retail Beef Prices Reached an All-Time High in
June
• Retailers got squeezed by rapidly rising wholesale
beef prices during the plant shutdowns and
responded by sharply increasing retail prices
• There is a lag effect at work here with retail
pricing moving higher in June even though most
plants were back online by then
• These high retail prices will stifle movement at a
time when the industry really needs to push
backlogged product through the system
• Retail prices have now started working lower in
July, but remain relatively high
• Beef feature activity slowed to a crawl during the
height of the crisis but is now slowly returning to
more-normal levels

Retail Beef Features Were Sharply Curtailed, Now
Rebounding
• Beef feature activity dropped off sharply during the stockpiling event, then improved
• Feature activity took another hit after plants shutdown and wholesale prices skyrocketed
• At the same time, retail feature prices escalated to almost $7/lb.
• Those trends are now reversing, but are not nearly back to normal. That will take several more weeks.

The Recession is Expected to Temper Beef
Demand in the Second Half of 2020
• The US unemployment rate stands at 11.1%
after running at a very low 3.5% prior to the
COVID-19 crisis
• High unemployment means less disposable
income that can be spent on beef.
Recessions typically see a softening in beef
demand
• JSF’s forecasts for the second half of 2020
impound about a 4% decline in beef demand
• Not all cuts will be affected equally.
Consumers will likely “trade down” from high
priced middle meats toward lower priced
end cuts and grinds

Beef Exports Look Sluggish at Present
• The US economy is not the only economy to be
crippled by the COVID-19 crisis. Almost all other
countries are in recession as a result of this global
pandemic
• That means consumers in nations that traditionally
import US beef have less disposable income and
fewer can afford high priced US beef
• USDA reported beef exports in May down over
30% from last year
• Of course beef pricing was extraordinarily high
during May, so that played a major role
• JSF sees beef exports improving as price levels
come down but for 2020 as a whole beef exports
may only be flat with 2019

Beef Cutouts are Expected to Bottom in July and
Slowly Work Higher
• The Choice cutout averaged $263/cwt in April
and $420/cwt in May, by far the highest
monthly beef prices ever seen
• As plants re-opened and production
increased, the cutouts moved quickly lower
• July is expected to be the low point, with
prices slowly increasing as fall approaches
• Price strength in October and November is
expected to arise from tighter supplies caused
by the elimination of the backlog and the
“hole” created by light placements this spring
• Soft demand due to the recession could limit
how high beef prices can get in Q4

As Supplies Tighten this Fall, Cash Cattle Prices
Should Recover
• Cash cattle markets bottomed near
$95/cwt in early July and now appear to
be slowly improving
• Gains will be small in July and August and
their may be some setbacks along the
way, but the general direction should be
higher
• As cattle supplies tighten this fall, packer
margins should compress, implying that
cash cattle prices strengthen
• Packer margins are not expected to go
negative, but they could be cut in half
from today’s level

The Futures Market Isn’t Buying It (Yet)
• Given the supply and demand
fundamentals laid out in this presentation,
the front four futures contracts look too
cheap relative to what our read on the
fundamentals suggests
• Since packers reference the futures market
when setting pricing for fixed-price
forward deals, this means that beef buyers
should be able to lock in advantageous
pricing for fall right now
• The reliability of these price forecasts
declines considerably beyond Dec since
the 2021 supply depends upon feedyard
placements that haven’t happened yet.

INSIGHTS: Cattle & Beef Main Take-Aways
• The cattle and beef complex has returned to near normalcy following a tumultuous spring, but a
backlog of un-slaughtered cattle hangs over the market.
• We expect the backlog to be cleared by October, with help from a “hole” in cattle supplies that
was created this spring as cattle feeders slashed placements in response to the COVID-19 crisis
• Between now and the end of summer beef pricing is expected to stay relatively soft as packers
slaughter aggressively in order to clear out the backlogged cattle
• Both domestic and international demand are expected to be soft due to the global recession
spawned by the crisis, but the tighter supply situation this fall is expected to dominate weaker
demand and thus push price levels higher
• The futures market is still not fully reflecting the impact of tighter supply this fall and thus beef
buyers may find it advantageous to book fall needs now while the futures are relatively low
• With COVID-19 infections on the rise again in many parts of the US, market participants need to
be on guard for plant slowdowns due to covid. We think the probability of that is low, but it is
not zero.

• INSIGHTS
CATTLE & BEEF | CAD

Foodservice Update
• First glimpse of data on lockdown impact

Cdn Quarterly Cattle Slaughter
2018-2020
• Q2 -20%
• Q3 +10%?
400
500
600
700
800
900
1,000
Q1 '19 Q2 Q3 Q4 Q1 '20 Q2 Q3
ThousandHead

550
650
750
850
950
1050
1150
1250
J F M A M J J A S O N D
c$/CKG
Canadian Beef Cutout Monthly 2019, 2020 2014-2018 Average
2014-2018 Average 2019 2020
Canadian Beef Cutout
Monthly 2020, 2019 and 2014-2018 Avg

Weekly Beef Wholesale Price Differential vs
2017-2019 Average
-20%
20%
60%
100%
140%
180%
220%
Apr 4 Apr
11
Apr
18
Apr
25
May
2
May
9
May
16
May
23
May
30
June
6
June
13
June
20
June
27
July 4 July
11
July
18
PriceDifferential
Beef-Chicken Beef-Pork

Retail Beef Margins vs 2017-19 Average
Weekly Feb-April
-55%
-45%
-35%
-25%
-15%
-5%
5%
15%
25%
May 2 May 9 May
16
May
23
May
30
Jun 6 Jun 13 Jun 20 Jun 27 Jul 4 Jul 11 Jul 18
Marginvs.Average

Ontario Beef Feature Share Monthly vs
2014-2018 Average
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
2019 Mr Ma Jl Se No 2020 Mr Ma

Ontario Chicken Feature Share Monthly vs
2014-2018 Average
-20%
-10%
0%
10%
20%
30%
40%
2019 Mr Ma Jl Se No 2020 Mr Ma

INSIGHTS: Beef Summary Points
• Suddenly very competitive on costs
• Suddenly very competitive on margins
• Beef merchandising should increase in
Sept and Q4

• INSIGHTS
HOGS & PORK | US

March-May Slaughter Levels Greatly Depressed
by Plant Shutdowns
• The slaughter deficiency started in mid-April as COVID-19 infections forced plants to close
• The deficit was the largest in the last week of April when packers under-killed the pig crop by a
million head in a single week
• Slowly plants came back online and slaughter levels increased, but even at the end of May hog
slaughter was short of what the prior pig crop implied

June-Aug (Q3) Slaughter Rebounds as Plants
Recover
• Finally, in mid-June packers were able to over-kill the pig crop and start clearing some of the
backlogged hogs
• That should continue through July, but the number of hogs killed above what the pig crop implied is
too small to put much of a dent in the backlog
• August may not see any over-kill because more pigs were targeted to that month than in June and
July

The Backlog has Been Eased Slightly But It Is Still
Huge
• At its worst, the hog backup reached about 3.8
million head
• Strong kills in June and July whittled away at
some of that backlog but it is still estimated to be
over 3 million head
• The prospects for further clearing of the backlog
look poor beyond July because kills would
normally expand moving from July to August
• With the new COVID protocols, chain speeds are
slower and plants won’t be able to reach the
same level of slaughter as they could prior to
COVID
• This could be a problem in Nov/Dec when kills
above 2.8 million head will be necessary

The June Hogs & Pigs Report Indicated a High
Level of “Other Disappearance”
• The “other disappearance” category is a calculated
number from Hogs & Pigs inventory data that
captures the normal death loss in the production
sector
• Q2 saw an abnormally high level of other
disappearance and we must assume that this
reflects hogs that were euthanized by producers
• By this measure, producers may have euthanized
up to 1 million hogs, still leaving over 2 million in
the backlog
• Expect another big number in this category for Q3
• By the time Q4 rolls around, we expect that
backlog will be gone. Some hogs may just simply
vanish

• With such a large backlog of hogs in the
system, one would expect to see excessively
heavy carcass weights
• This was observed up until about the middle
of June, but since then carcass weights have
resumed their normal seasonal downtrend
• Since the heaviest hogs are killed first, this
offers a partial explanation
• Also, producers changed hog rations to slow
or stop weight gains in the wake of the plant
shutdown
• Still, these data lead me to believe that
perhaps the backlog of hogs is not as severe
as advertised
Hog Carcass Weights Don’t Support a Huge
Backlog

De-Trended and De-Seasonalized Carcass
Weights Slightly Elevated
• The de-trended and de-seasonalized
(DTDS) carcass weight series for hogs
clearly shows the bulge in carcass weights
as plants shutdown this spring
• However, the recovery has been quick
and DTDS weights are rapidly approaching
the zero line
• We won’t consider weights to be back to
“normal” until the DTDS reaches -2. That
could take 6-8 weeks.
• DTDS weights are a good indicator of
producer currentness and as they fall,
producers gain leverage with packers and
hog prices rise

Packer Margins Are Abnormally Strong for Summer
• As packing plants were forced to shutdown,
packer margins swelled to $100/head
• When plants started to reopen, packer
margins retraced, mostly due to the falling
cutout rather than any increase in cash hog
prices
• Margins now sit at about $35/head, which
is well above what is normally seen in the
summer months
• Large margins are needed to incentivize
packers to keep the kill high
• JSF sees margins remaining in the $25-
$35/head range through August

Hog Producers are Suffering Financially
• We calculate farrow-to-finish margins at about
-$45/head currently
• Summer is normally the best margin time of
year for producers, but not this year
• Producers have not had a positive margin since
August of last year. That has created a lot of
financial strain
• Don’t look for much margin improvement until
more of the backlog is cleared. It’s entirely
possible that producers will be in the red for
the remainder of 2020
• This financial stress has caused producers to
pare back the breeding herd, which will mean
tighter pork supplies in 2021

The Economic Signals are Clear: The US Hog
Herd Needs to Be Smaller
• USDA reported the breeding herd down
1.3% in the June Hogs & Pigs report
• This was the first YOY decline in the
breeding herd since the PEDv event back
in 2014.
• Producers had ramped up their herd in
anticipation of meeting huge export
demand from China, but that has not
brought the financial benefits many
envisioned
• We see this as the first of several quarters
where the breeding herd will decline.
This will bring tighter hog and pork
supplies in 2021

Pork Exports to China Have Disappointed
Recently
• Pork exports to China are still very large by
historical standards
• Exports were trending higher in Q1, but it
looks like that trend has reversed here in Q2
• The trend reversal coincides with the point
where plants began to shutdown and pork
prices were escalating
• The YOY comparisons will get much tougher
in the second half of 2020 due to strong
numbers in 2019
• Perhaps low pricing in the balance of summer
and fall will attract renewed interest from
Chinese buyers

The Biggest YOY Gains in Pork Exports are
Behind Us
• Total pork exports are up 33% year-to-date, but
recent months have posted much smaller increases
• We see a weak summer for pork exports, largely
based on what we’ve seen so far in the weekly
export data
• Pork exports to China have posted large YOY gains,
but a good portion of that has been offset by weak
movement to other destinations
• S. Korea, down 18% YTD; Mexico flat with last year;
Canada flat with last year
• JSF projects 2020 pork exports to be up somewhere
in the 15-20% range

Retail Pork Features Were Sharply Curtailed, Slow
to Recover
• Pork feature activity has been on a downtrend since the mid-March stockpiling event
• There are signs that it is recovering, but very slowly
• Pork feature prices have increased, but are highly variable
• With retail prices high and featuring low, it will be difficult to clear all of the pork currently being
produced

• Pork supplies are expected to remain
abundant as long as a backlog exists
• Domestic pork demand is currently weak
and expected to remain that way through
the remainder of summer
• Fall could see some moderate price
increases as the backlog is cleared, but
unless plants start to close again, prices
are not expected to run-away to the
upside
• The recession influence on pork demand
is unknown at this time, but our forecasts
impound a relatively weak demand
environment this fall
Pork Cutout Projected to Remain Weak into
September

Lean Hog Futures Look Too Cheap from December Onward
• August futures look a little too optimistic given
the backlog that needs to be worked through
• Futures traders are projecting the current
supply problems well into 2021 and that looks
like a mistake. One way or another the backlog
will be gone by then and the hog herd will be
smaller
• Of course, some of the weakness in deferred
futures could be based on the idea that
recessionary pressures will keep demand soft
for a long time
• Buyers should remain close bought into
September and then consider booking late-year
needs if the futures are still attractively priced

INSIGHTS: Hog & Pork Main Take-Aways
• The hog and pork complex is currently struggling due to hogs backed-up in the pipeline and that
will take some time to clear. However, we suspect that the backlog will be gone by the time Q4
arrives and price levels should improve
• The COVID-in-packing-plants problem has largely been solved, but users should continue to be
vigilant as the virus is surging again in many parts of the US
• Domestic pork demand is expected to be weak through the dog days of summer and recessionary
pressures could also weigh on demand this fall
• Pork exports are up considerably compared to last year, but that hasn’t been enough to lift US
pork prices to the level that would make hog producers profitable
• The industry is in the process of scaling back its production base and that will lead to stronger
pricing in 2021
• As long as the backlog of hogs remains in place pork buyers would do well to remain close bought,
but should consider forward pricing for late 2020 needs

• INSIGHTS
HOGS & PORK | CAD

Cdn Quarterly Hog Slaughter
2018-2020
• Q2 +3%
• Q3 +4%
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Q1 '19 Q2 Q3 Q4 Q1 '20 Q2 Q3
MillionHead

Canadian Pork Exports Monthly
• YTD up 17%
• China up 55%
75
80
85
90
95
100
105
110
115
120
125
MillionKilograms
2014-2018 Average 2019 2020

Domestic Availability
2018-2020 Jan to March
• -18% 2020 YoY
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2018 2019 2020
Tonnes

Canadian Pork Cutout
2020, 2019 and 2014-2018 Average
130
150
170
190
210
230
250
c$/CKG
2014-2018 Average 2019 2020

Weekly Canadian Pork Wholesale Price Differential
vs 2017-2019 Avg
-200%
-150%
-100%
-50%
0%
50%
May 2 May 9 May 16 May 23 May 30 June 6 June 13June 20June 27 July 4 July 11 July 18
PriceDifferential
Pork-Beef Pork-Chicken

Retail Fresh Pork Margins vs 2017-2019 Average
Feb-April
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
May 2 May 9 May 16May 23May 30 June 6 June
13
June
20
June
27
July 4 July 11 July 18

INSIGHTS: Pork Summary Points
• Robust production
• Export Focus
• Domestic Availability?
• Competitive

Q & A SESSION
?
?
?

AUDIENCE QUESTION:
What pricing method is used in calculating hog producer margin?
DR. ROB MURPHY
We calculate the producer's breakeven using corn and meal cash prices (basis Western Iowa) over the production period,
including an amount for fixed costs (labor, etc.), then subtract that from the Lean Hog Index and put it on a per-head
basis using current carcass weights.

AUDIENCE QUESTION:
Rob, with the larger numbers of feeder cattle outside feedlots, when do they come into the feedlots and
when do they get shipped to the slaughter plants? What is your outlook for Q1 2021 beef supplies?
DR. ROB MURPHY
I think those feeder cattle will come into the feedyards in a big way during October, November & December. By then, the
backlog should be cleared and cattle prices will be higher, providing some optimism for cattle feeders. They will respond
by placing aggressively in Q4. Right now, I'm projecting Q1 2021 commercial beef production to be down 2.5% from
the year prior. I have per capita disappearance in Q1 down 4%.

AUDIENCE QUESTION:
Where did non-placed feeders go? Did they disappear?
DR. ROB MURPHY KEVIN GRIER
They did not disappear. They are currently out on
pasture and will likely be moved into feedyards this fall.
I expect larger numbers than usual will be marketed in
the fall that should have been placed in the early
spring.

AUDIENCE QUESTION:
How much do promotions impact sales at the food service level vs. volumes? Will there be a lot of
discounting to get consumers back into restaurants?
DR. ROB MURPHY
I'm not sure that there will be a lot of discounting at foodservice in order to bring customers back. If consumers fear for
their health, discounting won't do much to bring them back in. That said, I would expect that QSRs, which have drive-
thru capability, would be more likely to discount than dine-in operations.

AUDIENCE QUESTION:
Do you think the US pork industry will run into a capacity constraint in Q4?
DR. ROB MURPHY
Great question. I think its possible. Right now pork packers don't seem to be able to do more than 2.6 million head per
week, likely because COVID protocols have reduced chain speeds. If 2.6 million is the most they can handle, then there
will be some capacity problems this fall because my models project that the industry will need several weeks of 2.7-2.8
million head kills to clear all of the animals targeted to Q4.

AUDIENCE QUESTION:
What is the actual level of governmental support that US hog producers receive?
DR. ROB MURPHY
This is hard to quantify because there have been several rounds of assistance provided to hog producers and there may
be more to come (it’s an election year after all). My best guess at this point is somewhere between $30-50/head, all
total, but not all producers received assistance.

AUDIENCE QUESTION:
Will we see further relief in lean trimmings both domestic (USA / Canada) and imported (Australia, New
Zealand et al.)?
DR. ROB MURPHY
I think lean trim prices will continue to work slowly lower, both domestic and imported. Bigger cow kills in North
America this fall will help to make that happen. Of course the risk is that the recession causes consumers to up their
demand for ground beef as they trade down from higher-priced options. So, supply gets bigger but demand could also
be stronger as the recession deepens. I see supply winning, but not by much, and thus prices drift very slowly lower.

AUDIENCE QUESTION:
How will pork exports to Mexico be impacted for the remainder of the year?
DR. ROB MURPHY
I think pork exports to Mexico will strengthen as we move into fall. Right now those exports are about flat with last
year, but I could easily see us finishing 2020 with exports to Mexico up somewhere in the 3-6% range YOY.

AUDIENCE QUESTION:
What effects will there be from packers asking pork families to settle for a lower price mechanism,
understanding that these families have been seeing losses since Aug. 2019?
DR. ROB MURPHY
Unfortunately for hog producers, their bargaining power is limited at present. With packers in the driver's seat, they will
attempt to negotiate pricing mechanisms that are less favorable for producers. In many cases, producers don't have a
lot of options for places to sell their hogs and thus could be forced to accept less favorable terms. The only thing I can
recommend to producers is to keep the contract short, because hog numbers should be tighter in 2021 and thus they will
have more leverage when it comes time to re-up the contract.

AUDIENCE QUESTION:
How long will it be before the cattle backlog to be negated?
With the impending "hole" in cattle supplies that was
caused by the sharp reduction in placements this spring,
I would argue that the backlog should be gone by early
October, maybe sooner.
Alberta should be clear by October at the latest.

AUDIENCE QUESTION:
Do you anticipate the Canadian pork breeding herd to shrink like it did in the US?
KEVIN GRIER
The Canadian herd did not grow as fast as the U.S. Growth in Canada has been tepid. I would be surprised if the Jan.
2021 herd is down more than 3%.

AUDIENCE QUESTION:
What are your Q4 pork export projections to China? How much euthanization of the US hog herd do you believe occurred
during the packing plant closures? Do you believe US weekly hog slaughter can get 100% to pre-COVID levels by Q4?
DR. ROB MURPHY
I think China will remain a major export destination for US pork for a long time to come. I have total US pork exports in
Q4 up 13% and it's likely that Q4 exports to China alone will be up 20% or more. The risk there is if trade frictions
between the US and China flare up again before we get to Q4. Right now, I'd say the government data suggests that a
little over 1 million hogs were euthanized during Q2. I believe that COVID will still be a problem in Q4 and packing plants
will still find it necessary to keep precautions in place. Thus it's not likely that plants will be running at 100% of their
COVID speed even in Q4.

AUDIENCE QUESTION:
What’s the estimated backlog of finished cattle in Canada? USA? When can we expect the backlog
to end?
Right now, I estimate the cattle backlog in the US to be
about 450,000 head. I think Kevin indicated that for
Canada it was between 80,000 and 90,000 head. My
guess is that the backlog will be eliminated by October,
if not sooner.
I estimate about 80,000 head in Alberta now and
cleared by October.

AUDIENCE QUESTION:
What impact will COVID have on meat consumption overall and by category (beef, pork and chicken)?
DR. ROB MURPHY
In the meat business, consumption is a direct result of production. We consume everything we produce and don't throw
any away. So the real question is how will COVID affect production. Beef herds are on the decline in the US and pork
producers are also likely to scale back production. Chicken may take up some of the slack, but probably not all of it.
Overall, I'd expect COVID to reduce red meat production and thus reduce red meat consumption.

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• Kevin@KevinGrier.com
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