From information, knowledge Paragon Economics, Inc. 2015 World Pork Expo Outlook Seminars Steve R. Meyer, Ph.D. Vice-President, Pork Analysis EMI Analytics,

From information, knowledge

Paragon Economics, Inc.

2015 World Pork ExpoOutlook Seminars

Steve R. Meyer, Ph.D.Vice-President, Pork Analysis

EMI Analytics, Inc.



The gospel according to Yogi . . .

“It’s tough to make predictions, especially about the future.”



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 – limiting current supplies

Fewer corn acres, more soybean acres – but the issue is, as usual, weather

U.S. consumer demand has been GREAT – will it hold? The U.S. dollar



Corn/Soybean Meal Outlook• Negative returns for corn and soybeans 2015

• Cash Flow Issues• Cost adjustments likely in 2016

• Rent, Seed, Fertilizer

• Margins Positive Again• EPA Proposed lowering mandate

• Maybe they will actually follow through this time

• Brazil, Argentina, US all record production• 2015 record forecast for US• Expect lower meal prices assuming normal weather

Farm Returns

Ethanol

Soybeans



Adequate Subsoil Moisture for Most of Midwest. Flooding in some areas.



US Ethanol Average Profitability Model CBOT Corn and Ethanol

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USDA EMI EMIForecast Forecast Forecast

CORN 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017

Planted (million acres) 91.9 97.2 95.4 90.6 89.2 88.0

Harvested 84.0 87.4 87.5 83.1 81.7 80.7

Yield (bu./acre) 147.2 123.4 158.1 171.0 166.8 167.4

Beginning Stocks (mill bu.) 1,128 989 821 1,232 1,851 1,851 Production 12,360 10,780 13,829 14,216 13,628 13,509 Imports 29 162 36 25 25 25 Total Supply 13,516 11,932 14,686 15,472 15,504 15,385

Feed and Residual 4,548 4,335 5,036 5,250 5,300 5,300 Food, Seed and Industrial 6,437 6,044 6,501 6,547 6,560 6,450 Ethanol 5,011 4,648 5,134 5,200 5,200 5,150 Total Domestic 10,985 10,379 11,537 11,797 11,860 11,750 Exports 1,543 731 1,917 1,825 1,900 1,950 Total Use 12,527 11,111 13,454 13,622 13,760 13,700 Ending Stocks 989 821 1,232 1,851 1,744 1,685

STOCKS TO USE 7.89% 7.39% 9.16% 13.59% 12.67% 12.30%



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Argentina Brazil EU 27

World Coarse Grain Ending StocksUSDA

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2015 Forward Forecast



World Coarse Grain Stocks and CBOT Price

2014

R2 = 0.8246

R2 = 0.8868

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World Coarse Grain Stocks (Excludes China)

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CBOT Corn Futures

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May 2015 forward forecast





WASDE Forecast continued increase. Will that happen?



USDA EMI EMIForecast Forecast Forecast

SOYBEANS 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017

Planted (million acres) 75.0 77.2 76.8 83.7 84.6 82.0Harvested 73.8 76.2 76.3 83.1 83.7 81.0Yield (bu./acre) 41.9 39.8 44.0 47.8 46.0 46.2

Beginning Stocks (mill bu.) 215 169 141 92 350 500 Production 3,094 3,034 3,358 3,969 3,850 3,743 Imports 16 36 72 30 30 17 Total Supply 3,325 3,239 3,570 4,091 4,230 4,260

Crushings 1,703 1,689 1,734 1,805 1,825 1,825 Exports 1,360 1,320 1,647 1,800 1,775 1,800 Seed 90 89 98 98 92 90 Residual 2 1 - 38 38 74 Total Use 3,155 3,098 3,478 3,741 3,730 3,789 Ending Stocks 169 141 92 350 500 471

STOCKS TO USE 5.35% 4.54% 2.65% 9.35% 13.40% 12.44%



CBOT Soybean Meal Futures

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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May 2015 forward forecast





Domestic demand is strong – export demand has been difficult.



2014 4-species RPCE: Yr/yr higher since January HUGE positive months in Aug - Dec



Domestic demand remains strong thru March



It appears that preferences have shiftedWill this shift hold?



Animal protein demand has been growing since ‘10

‘14 4-species RPCE +5% vs. ‘13, +9% vs. ‘12

Drivers:o Growing concern about

carbs – LeBron?o Fading fat phobia o New appreciation for

“good” from fats – Big Fat Surprise

o Better view of medical and dietician communities

Can this be sustained?

January’s $67.38 the highest since September ‘90



Major trend changes for pork

Pork RPCE is now well ahead of 2004 levels which were driven by Atkins diet

November’s $18.91 the highest since December ‘90



Same trend for beef and chicken



’14 per capita consumption was 201 lbsForecast to increase to 210 in ‘15 & ‘16



The evidence of strong demand is pricesBeef record in March & April; Pork higher, yr/yr thru

March



GDP: Yr/yr growth revised to 2.4% in Q4, 2.7% in Q1Trade was a major drag, consumer spending growing --

some



RPDI growth was MUCH better in ‘14Up 1.7% for the year; Feb was revised down but YTD ’15

is +3%



Consumer attitudes have improved – Topping?Both indexes are still near their highest levels since

2007



Restaurant Performance Index – highest since ‘04



And now – “cheap” oil and sub-$2 gas?

Weekly crude oil futures

Monthly RBOB gasolinefutures



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 level – but they are correcting!



The biggest demand challenge is EXPORTSBeef has struggled in ‘14; pork struggles began in July ‘14



Big issue #1: The low-hanging fruit has been 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 Partnershipo Big impact will be Japan – remove gate price

mechanismo REQUIRES Trade Promotion Authority

TTIP (EU) – still in doubt – and I seriously doubt that it will do us any good as EU are PROFESSIONAL PROTECTIONISTS



Big issue #2: West Coast port slowdown

Began last July and got “serious” in December-

January

Tentative agreement and back to work on

February 22

New contract ratified May 22

Backlog has been partially cleared many do not

expect activity to be normal until late June

Two issues remain: Flood of product is now at

importing countries’ ports, restoring broken

relationships



Big issue #3: The U.S. dollar



Oil and $U.S. are negatively correlated



Total frozen meat/poultry 20.1% on April 30 Feb-Mar surge due to ports; April due to pork, HPAI



On April 30: Pork +20%, Beef +19%, Chicken +32%



Avian Influenza Situation through May 16

o 5.742 mil. turkeys lost– 2.4% of 2014 slaughter = 235 mil.

o Layers – 27.693 mil. total, mostly in IA, MN & WIo Broilers – One flock in CA, one “broiler” breeder

flock in IA??? The Southeast is critical

o Arkansas: #3 for broiler and turkey productiono Eastern TX and OK are not far away!

VERY little actual impact on beef or pork What about this fall?



Locations and types of farms

Source: Steiner Consulting Group



Location of turkeys – USDA NASS Losses are

subsiding ‘14

Slaughtero MN: 19%o AR: 13%o NC: 12%o IN: 8%o MO: 7%



Location of broilers – USDA NASS ‘14

productiono GA: 15%o AL: 12%o AR: 11%o NC: 9%o MS: 9%

BIG FEAR: Fall migration thru AR, TX, OK



Location of layers – USDA NASS Losses are

subsiding ‘14

productiono IA: 16%o OH: 9%o IN: 8%o PA: 8%o TX: 5%



Chicken inventories are burdensome!



Broiler flock: Growth rate is increasingYr/yr growth 1.5 to 2.5% July-March; 3% & 3.5% April &

May



Egg sets, placements are growing steadily

And productiv-ity is finally moving back to long-term norm



Chicken output is sharply higher YTD On modest slaughter growth and HUGE birds!



Prices: Above 5-yr avg except for leg quarters



Expectations for chicken GROWTH – 3 to 4% and that may well be LOW!

o Companies are solving problems, big profit incentive

o BIG increase in bird weights will drive production Chicken priceso 2.5-4.0# WOGs -- $101 to $104 rest of ’15 and 1st half of ‘16o Med. B/S Breast -- $162-$165 thru Aug, $155 Sept, $130-

$130 rest of ’15, stronger 1st half of 2016o Whole wings -- $128 to $140 rest of ‘15, sharply lower in ‘16

(as much as 15% lower in Q2)o Leg quarters -- $31 to $34 rest of ’15, $45-$50 1st half of ‘16



Turkey supplies hit hard by HPAI



Q4 turkey output still up 4% from ‘14



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



The key for beef growth is WEATHER!



Beef: Unprecedented cow/calf profits!But will ‘15 be this good? Feeders are down $30+



But short term – Feeder cattle supplies are still tight



Fed cattle supplies still VERY tight

2014 2015 ActualEsti-

mate*Differ-ence

On-Feed May 1 10554 10,640 100.8 101.7 -0.9Placed in April 1623 1,548 95.4 102.4 -7.0Marketed in April 1778 1,639 92.2 92.4 -0.2Source: USDA NASS, *Urner Barry survey, average responses

USDA Cattle on Feed Report -- May 2015Thous. Hd. 2015 as pct. of 2014



Cattle slaughter was down 10-12% in March-AprilHas increased some in May – but weights have filled the gap



U.S. beef imports: Up 31% in ‘14, 47% YTDBig gain WAS Australia @ +73%, +96%; NZ is +28 in ‘15



Beef consumption/supply -3.7% in ‘14 Down another 0.5% this year and another 1.7% in 2016!

Livestock Marketing Information CenterData Source: USDA-NASS



Cutouts and cattle prices will stay near records

We expect a normal seasonal decline this summer on higher slaughter Short April placements are bullish for fall prices Choice cutout $240-$250 range this summer, challenging record highs

this fall



Cattle continue to get better!

But Choice-grade premium is still “normal”



“The Story” on beef is RECORD middle meats!



Cattle and beef summary . . . Growth – but characteristically slow

o Biology, producer age, capital cost are all limiting factors

o 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?



Exports have been soft – prices, $, ports, etc.



Big factor has been EU pork displaced from Russia

40,000 tonnes of pork had to find a home!



Key Markets: Mexico a clear #1, Japan #1 for value 2014 was a TOUGH

yearo Russia: +495% (but only

37% as large as in ‘13)o Ch/HK: -30%o Japan: -8%o Canada: -6%

2015 has been mixedo Ch/HK: -72%, Japan -20%o Mexico is UP 12%o Korea is UP 43%o Canada is UP 2%



Hog costs are MUCH improved, price rally = PROFITS!

Normal weather: Even lower (upper $60s) in ‘16



Where are the hogs coming from and how long will they

be coming?



Good news-or bad: PEDv losses much smaller

New high wk. of 3/15 at 161 vs. 291 last year Many are “monitoring” and at G/F sites – NOT MUCH DEATH LOSS



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!



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



Hogs & Pigs report: Big market hog supply But growth is slowing – bullish for defered contracts

Inventories on March 1

All hogs and pigs 61494 65934 107.2 106.8 0.4Kept for breeding 5851 5982 102.2 103.5 -1.3

Kept for marketing 55643 59953 107.7 107.2 0.5Under 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 -0.1180 lbs. and over 10281 11195 108.9 107.0 1.9

FarrowingsDec-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 1Source: Urner Barry

Category 2014 2015'15 as Pct of

'14

Pre-Report

Est's1

Actual minus Est.

USDA QUARTERLY HOGS & PIGS REPORTMarch 27, 2015



Productivity measures are critical for ‘15!

Implied farrowing rates- Mar-May rate is equal to past

two years – Low?- Jun-Aug intentions down 2.1%

yr/yr is a reflection of last year’s surge – re-breeds of lost litters

- June-Aug rate is reasonable

Other farrowing rate issues:- Problems in post-PEDv

herds?- Sow herd ages (parity

structure) were/are out of whack due to slow sow turnover in 2014



Will these changes happen? Yr/yr litter growth will slow

sharplyo Dec-Feb was +6.7% – exactly

what we said in Dec if PEDv losses were zero

o Mar-May is +5.7% due to last year

o But Jun-Aug will be only about +2% yr/yr

Back on the 2%/yr growth trend – with a lost year



December slaughter forecasts Too low thru Mar. but then similar to ‘13 the rest of 2015



March H&P: BIG NUMBERS summer and fallBut Jun-Aug crop EQUAL to this year – and Dec-Feb

slaughter



Weights are now yr/yr lower

Weight reduction vs. year ago was a big reason for higher-than-expected slaughter in Q1-- ~2/3 of the total Q1 change

Weights have been stable for 8 weeks after rapid decline but will fall further – seasonal pattern

Normal seasonal: 208 in July – down 3% yr/yr

will REDUCE ‘15 prod by 1.5 to 2%, maybe more



2014 production ended down only 1.4%…but is up 6.8% YTD, 8.2% last week



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 ACTUALMarch 2015 Hogs & Pigs -- Commercial Slaughter Forecasts



Price forecasts – I’m 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 83.34Q2 91.80 89.30 89.32 90.83 90.66Q3 97.90 95.58 95.25 98.00 98.98Q4 84.99 81.28 82.98 85.26 83.93Year 89.56 86.70 87.16 89.21 89.23

2014 Q1 93.10 93.10 91.34 93.80 94.91Q2 113.54 115.36 111.61 116.83 117.48Q3 111.84 111.77 109.63 114.25 115.70Q4 91.83 90.49 90.08 91.41 91.85Year 102.23 101.68 100.31 102.95 104.99

2015 Q1 66.50 64.10 68.95 70.82 68.59Q2 70 - 74 68 - 73 70 - 74 74 - 78 75.93Q3 70 - 74 69 - 74 70 - 75 78 - 82 81.17Q4 64 - 68 61 - 66 60 - 66 70 - 74 70.93Year 68 - 72 66 - 69 67 - 71 73 - 76 74.15

2016 Q1 64 - 69 62 - 69 70 - 74 71.33Blue figures are estimated using USDA data 6/1/15

March 2015 Hogs & Pigs -- Price Forecasts



Packers aren’t enjoying this much either

Big factor is drop value – down by over 40% since end of July Lower drop value has hurt hog bids – they are part of the

cutout-to-live computation by packers



Pork stocks are a problem – ports, output3/31 picnics (+23), butts (+28), trim (+52),



2015 price forecasts: 3-10% below 2013

Same is true for cutout value – normal summer rally from here would put it near $100

Cutout has pulled hogs higher – likely will eclipse $90

…and very near the 5-year averages



“Retail” cut are at or above 5-year averages

…and even better in the case of ribs which did not rise on PEDv scare last year -- BIG stocks!



“Processing” cuts have improved, but still lag retail cuts



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



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

o Domestic: Newly positive preferences continue?o Exports: World economy, strong $U.S.

How much expansion in pigs and chicken? Hogs: Packing capacity – New plant in ’17



Questions and Discussion?

Documents

From information, knowledge Paragon Economics, Inc. 2015 World Pork Expo Outlook Seminars Steve R. Meyer, Ph.D. Vice-President, Pork Analysis EMI Analytics,