Current Situation “If you owe the bank $1,00 dollars, that’s your problem. If you owe the bank...

Current Situation

U.S. DOLLAR INDEX

Source: Pacific Exchange Rate Service

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Jan

-03

Jun

-03

No

v-03

Ap

r-04

Sep

-04

Feb

-05

Jul-

05

Dec

-05

May

-06

Oct

-06

Mar

-07

Au

g-0

7

Jan

-08

Jun

-08

No

v-08

% C

han

ge

Sin

ce 2

003

Monthly

Key Currencies Versus the U.S. DollarSince Jan 1, 2003

BRZ R, +56%

CAD$, +29%

JP ¥, +21%

EUR €, +20%

AUS$, +15%

SK W, -11%

Dow Jones Average

Crude Oil

Cattle Industry Outlook and Strategies

Florida Cattlemen’s Institute January 2009

+9% 500,000 HEAD IN 2008

Down 2% (650,000) head

U.S. Beef Trade and Forecasts

Exports

Source: U.S. Dept of Commerce, forecasts by CF

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08YEARS

20

21

22

23

24

25

26

27

28

29

30

BIL

LBS

Beef Production and Net Beef Supply

Production Net Supply

2008-2009 projected

Source: USDA

U.S. Dollar Index

Source: USDA, CattleFax Projections

U.S. Meat Exports in 2009

0

10

20

30

40

50

60

70

80

90

100

50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07

Po

un

ds

YearsSource: USDA

Beef

Pork

Broiler

Turkey

-1.7lbs

+0.4lbs

2009 vs 2008-1.9lbs

-0.2lbs

Per Capita Meat Consumption2009 vs. 2008 Total Meat Consumption down 3.4 lbs

Peak Trough Length of Recession(months)

Change in CH Retail

Price

Change in Per Capita

Supply

2008 ??? ??? +2-4% -2-3%

Mar 2001 Nov 2001 8 +10% -1%

Jul 1990 Mar 1991 8 +7% -4%

Jul 1981 Nov 1982 16 +1% +0%

Jan 1980 Jul 1980 6 +2% -2%

Nov 1973 Mar 1975 16 +2% +5%

Recessions

Shifts in Beef Demand Change in values

90s Trimmings +15%

Chuck +10%

Round +9%

Rib +0%

Loin -7%

FEEDGRAINS

$344 $363$386

$414$439

$473

$557

$735

$2.55$2.42

$2.57$2.76 $2.83

$2.96

$3.48

$4.51

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2002 2003 2004 2005 2006 2007 2008F 2009F

Brea

keve

n Co

rn P

rice

$/b

ushe

l

Tota

l Cos

ts/A

cre

Years

Estimated Corn Production Costs in Iowa

Source: Adapted from Iowa State Universityand University of Illinois Extension

Projected break-evencorn price for 2009

Cattle Markets&

Supply

►Fewer feeding companies will finish a higher percentage of the cattle.

►Cattle ownership in feed yards will become more highly concentrated. “The feed yards will own more cattle”

►The feeding industry will remain primarily located in the 5-state area (NE, CO, KS, OK, TX).

►To much capacity, tremendous loss of equity, access to capital, capacity will be idled, some move to grow yards, others will close

►Managing cost and price risk will be an essential ingredient for a successful business model.

Impact on Feeding Industry

Packing Segment● Tighter fed supplies – excess packing capacity

● Hide & Offal value decline to squeeze margins

● Industry is vulnerable to the loss of more packing capacity in 2009-2010

Role of Stocker Operator Inventory shock absorber

Add low cost of gain

Warehouse cattle

Add value and improve quality

High Return Producers Don’t Cheat When it Comes to:

1.Animal Health

2.Nutrition

3.Genetics

Habits of High- Return Producers$

$

$

$

$

$

$

1. Below average annual cow costs2. Lower feed costs

3. Lower than average calf breakeven prices4. Lower interest expense (less debt)

5. Lower general operating expense6. Higher averaging weaning weights7. Higher conception rates

$

8. More pounds weaned per cow exposed

Stair Steps to

Profitability

Strategies for 2009Stocker & Cow-Calf Operations

► Stocker operations must manage profits. It is the cattle feeders turn to make money.

► Narrow feeder to fed spreads. Does this present an opportunity to retain ownership?

► Narrow calf to feeder/fed spreads. Does this present an opportunity to retain ownership?

Impact on Cow/Calf Producers

♦ Cost management hasn’t gone away.

♦ Value capture becomes essential (calves, bred females, open females, cull bulls, etc.

♦ Precision nutritional management when supplemental feeds are being provided.

♦ “No surprises” in terms of animal health, genetics and reproductive performance is the mantra of producers.

♦ Risk management involves long-term grass leases, supply chain contracts, and more focus on managing at least part of the calf crop through the stocker and or finishing phase.

♦ Optimize reproduction – rising feed and input costs will increase sensitivity to the “law” of diminishing returns”, producers are de-incentivized to maximize reproductive rates.

♦ Economies of scale become increasingly important which will force additional consolidation.

♦ Producers will only adopt technologies with very distinct financial advantages.

♦ Estate planning and inter-generational asset transfer become increasingly important.

♦ Labor availability is a limiting factor.

Impact on Cow/Calf Producers

Thank You Have a Profitable 2009