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					FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




                             2011 Turkey and
                             Protein Outlook
                                       Dr. Thomas E. Elam
                                       President
                                       FarmEcon LLC
                                       November 30, 2010
                                                            1
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Headline issues for 2011
        Recession has officially ended, but it does not feel
        like a recovery
        $3.2 trillion consumer debt write-off, and climbing
        Feed costs – large crops, huge demand, likely
        record-high feed costs
        Total protein supplies reduced enough to stop the
        losses – until the October corn yield “surprise”
                 Improved pricing may lead to overexpansion
                 But likely not until 2012


                                                               2
         FarmEcon LLC
         A source of information on global
         farming and food systems
         Thomas E. Elam, PhD
         President



                                                       Globally: More Spending = More Meat
                                                       On average +10% Spending = +9% more meat
                                                                                                                                         350
                                                       35
                 Consumer Spending, Trill. $2000




                                                                 $1 trillion increase in spending = 9 mmt more meat produced             300
                                                       30




                                                                                                                                               Million Tons Total Meat
                                                                                                                                         250
                                                       25
                                                                                                                                         200
                                                       20
                                                                                                                          R2 = 0.9988
                                                       15                                                                                150

                                                       10                                                                                100

                                                       5                                                                                 50

                                                   -                                                                                     -
                                                        61
                                                             64
                                                                   67
                                                                        70
                                                                             73
                                                                                  76
                                                                                       79
                                                                                            82
                                                                                                 85
                                                                                                      88
                                                                                                           91
                                                                                                                94
                                                                                                                     97
                                                                                                                          00
                                                                                                                               03
                                                                                                                                    06
                                                   19
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                                                                                                                             20
                                                                                                                                  20
                                                                 Global Consumer Expenditures (constant 2000 US$Trillion)
                                                                 Global Total Meat Production, Million Tons
Sources: Consumer Spending: World Bank; United Nations. Meat Production: UN/FAO
                                                                                                                                                                         3
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Headline (U1) unemployment rate




                                    4
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Actual (U6) unemployment rate




                  U1 + marginally attached + discouraged potential workers
                  Does not include those who have totally given up looking for work   5
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Labor force participation rate, %




Recent decline includes mainly those who have totally given up looking for work
                                                                                  6
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Private sector employment




                                    The business sector is leading the jobs recovery.
                                                                                        7
  FarmEcon LLC
  A source of information on global
  farming and food systems
  Thomas E. Elam, PhD
  President




Government sector employment




The government sector is reducing jobs due to state and local financial issues.
The spikes are temporary Census workers in 2000 and 2010.
                                                                                  8
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Why are these statistics important?
      Issues for long term income recovery
      Work = consumer income = spending =
      MEAT DEMAND
      Weak 2010/2011 protein demand increase
      2010 protein price strength almost totally
      due to supply reductions
      If meat supplies increase in the face of low
      income growth, prices will decline
                                                     9
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Protein supply headlines
             Money finally ran out for pig and cattle
             operators
             Thus, sow reductions and fewer fed cattle
             Turkey producers made large cuts
             Even 2009 broiler production dropped
             Wholesale meat prices pushed higher to
             cover $3+ corn and $300+ soybean meal
             Now need to think about $5 corn!
                                                         10
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Informa model broiler margins




                                    11
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Informa model turkey margins




                                    12
 FarmEcon LLC
 A source of information on global
 farming and food systems
 Thomas E. Elam, PhD
 President




Farrow-Finish returns, IA State budget




                                         13
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Yearling steer returns, IA State budget




                                      14
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Downsizing meat production
        All feed users adjusting to a new reality
        Beef/pork had 2009 overcapacity issues
        When could we get back to the 2008 peak?
                 Turkey: 2012-13
                 Chicken: 2011-12
                 Fed Beef: 5-10 years, if ever
                 Pork: 2012/2013

                                                    15
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




2003-2011 total meat production:
2.5 billion pounds went away in 2009
                        94,000

                        92,000

                        90,000
       Million Pounds




                        88,000

                        86,000

                        84,000

                        82,000

                        80,000
                                    2003 2004 2005 2006 2007 2008 2009 2010f 2011f

                                                                                     16
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




                                    TURKEY OUTLOOK
                                        2010/11


                                                     17
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Turkey and parts prices
 Overproduction in 2008/early 2009 killed
 pricing across the spectrum
 Frozen stocks got “out of control”
 Reduced 2009/2010 production has restored
 demand/supply balance
 Prices now high enough to about cover costs
 Did prices increase enough to encourage
 2011/2012 overproduction?
                                               18
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Turkey cold storage 2007-2010
                  700,000
                  600,000
                  500,000
                  400,000
     000 Pounds




                  300,000
                  200,000
                  100,000
                                -




                                    Whole Birds   Other Turkey
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




    Wholesale Value of the U.S. Market*
                      $5,000
                      $4,500
                      $4,000
                      $3,500
                      $3,000
          $Million




                      $2,500
                      $2,000
                      $1,500
                      $1,000
                        $500
                          $0
                                    2000

                                           2001

                                                  2002

                                                         2003

                                                                2004

                                                                       2005

                                                                              2006

                                                                                     2007

                                                                                            2008

                                                                                                   2009

                                                                                                          2010F

                                                                                                                  2011F
                     *ex-processor, 30% whole birds, 70% cutout X Domestic Consumption
                                                                                                                          20
 FarmEcon LLC
 A source of information on global
 farming and food systems
 Thomas E. Elam, PhD
 President




   Large drops in 2009-2010 consumption
   needed to improve pricing
                                    100¢
Wtd. Average: Whole Birds (30%) &




                                              2010f
                                                      2011f                                       2007
                                    90¢
                                                                   2005
                                                                                                         2008
                                    80¢
          Cutout (70%)




                                                                                 2004
                                                                   2006
                                    70¢          Drop in production/
                                                                          2009
                                                                                        2000
                                                                                                2001
                                                 consumption needed to
                                                 recoup higher costs
                                    60¢
                                                                                                            2002
                                    50¢
                                                                                               2003

                                    40¢
                                       16.0           16.5         17.0           17.5                             18.0
                                                 U.S. Turkey Consumption, Pounds per Person
                                                                                                                          21
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Poult placements, UB, weekly, point to
production restraint in early 2010
     6,500,000
     6,000,000
     5,500,000
                                                                                                                              2006
     5,000,000
                                                                                                                              2007
     4,500,000
                                                                                                                              2008
     4,000,000                                                                                                                2009
     3,500,000                                                                                                                2010
     3,000,000
                                                              1-May
                                              1-Mar
                                      1-Feb




                                                                              1-Jul



                                                                                              1-Sep
                                                                                      1-Aug


                                                                                                      1-Oct
                                                      1-Apr




                                                                                                              1-Nov
                                                                      1-Jun




                                                                                                                      1-Dec
                              1-Jan




 Placements through week of July 9, 2009
                                                                                                                                     22
         FarmEcon LLC
         A source of information on global
         farming and food systems
         Thomas E. Elam, PhD
         President




 2010 Feed Costs and Weighted Prices
      120¢

      100¢                                   Weighted Cutout

              80¢                            Weighted Whole Birds
Cents/Pound




              60¢                            Feed Cost
              40¢
                                             Weighted Product Price -
              20¢                            Feed Costs

              0¢


                                                                        23
   FarmEcon LLC
   A source of information on global
   farming and food systems
   Thomas E. Elam, PhD
   President




  2010/11 Turkey Forecast Summary
  (Production, Use and Stocks in Million Pounds)
                                                                                          Pct.
                                         2007     2008     2009   2010fcst 2011 fcst   Change
Beginning Stocks                         218      261      397       262       230       -12%
Production                             5,914    6,216    5,626     5,550     5,625          1%
Total Supply                           6,132    6,477    6,023     5,812     5,855          1%
Exports                                  554      676      534       540       550          2%
U.S. Consumption                       5,318    5,404    5,226     5,042     5,055          0%
 Per Capita (Lbs.)                       17.6     17.7     17.0      16.3      16.1        -1%
Total Use                              5,871    6,080    5,760     5,582     5,605          0%
Ending Stocks                            261      397      262       230       250          9%
USDA Hen Price, $/lb.                  $0.821   $0.876   $0.794    $0.895    $0.900         1%
USDA Tom Price, $/lb.                  $0.820   $0.873   $0.794    $0.890    $0.900         1%
USDA Breast Meat, $/lb                 $2.306   $1.699   $1.370    $2.100    $2.000        -5%
USDA Thigh Meat, $/lb                  $0.957   $1.013   $0.940    $1.230    $1.200        -2%
USDA MDT, $/lb                         $0.246   $0.255   $0.330    $0.270    $0.300       11%
Margin over Feed, ¢                     51.4¢    31.6¢    30.1¢     53.0¢     48.0¢        -9%
                                                                                            24
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




         2010/11 Turkey Outlook Summary
 Demand will continue to be a major challenge
          Economy expanding, but at 50% of typical recovery rate
          Competing red meat supplies shrinking in 2010 and 2011
          Chicken supplies are headed up next year, at least early
 Feed cost outlook has deteriorated
 2011 turkey prices likely close to 2010
 Excellent 2010 margins will fade, but not turn
 to losses
 2012 could be a difficult year if expansion
 continues

                                                                     25
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




2011 Feed Cost Outlook



                                    26
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Long term perspective on corn prices
                                                                                     Corn price driven by RFS,
                                  800                                                feed value, ethanol tax       400
                                                                                     credit, corn production




                                                                                                                         Regular Gasoline, NY, Cents/Gal.
                                  700                                                                              350
    Corn, Central IL, Cents/Bu.




                                                                 Katrina
                                  600                                                                              300
                                  500   Corn price driven by feed value                                            250
                                  400                                                                              200
                                  300                                                                              150
                                  200                                                                              100
                                  100                                                                              50
                                    0                                                                              0




                                        Corn, Central Illinois             New York Harbor Conventional Gasoline
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Corn Stocks/Price Curve Shifts Up
                                            $5.50
                                                         2010 USDA 11/2010 Fcst.
                                            $5.00
                                            $4.50                                                  2007
                                                                                                           2008
Season Average Farm Price, Corn, $/Bushel




                                            $4.00                                                  2009

                                            $3.50
                                                                                            2006
                                            $3.00
                                            $2.50
                                            $2.00
                                            $1.50
                                                                                                   1990-2005 Regression
                                            $1.00              Season Avg. Farm Price = 4.28 - 21.28*S/U + 49.77*S/U2 (R² = 0.83)

                                            $0.50                                                  1990-2009 Regression
                                                               Season Avg. Farm Price = 4.26 - 21.25/U + 50.14*S/U 2 +$1.61*2006/2009 Price Shift (R² = 0.94)
                                            $0.00
                                                    4%




                                                                        8%
                                                              6%




                                                                                   10%




                                                                                                          14%




                                                                                                                            18%

                                                                                                                                     20%




                                                                                                                                                          24%




                                                                                                                                                                      28%
                                                                                             12%




                                                                                                                  16%




                                                                                                                                               22%




                                                                                                                                                                26%
                                                                                           Stocks/Use Ratio, Total Feedgrains, Crop of...
                                                                                                                                                                            28
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




But ethanol is not everything
   Weather and acreage still play a major role
   Export and feed demand also still important
   Prices elasticities – in decreasing rank
            Ethanol is near 0, or infinity
            Food and seed use near 0
            Exports – very low response to price
            Feed use – all that’s left to adjust


                                                   29
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




         Corn/Meal Outlook – 2011
      Cash corn prices remain at $4-$7, meal at $300-
      375, through next March (basis Illinois cash
      markets)
      2011 crops and demand drive prices after that
      Ethanol production will grow due to RFS
               More DDGS production -
               DDGS becomes #2 feed ingredient
               Ethanol use mandate = increased corn demand
               Volatile energy prices are critical to outlook
               More volatility in feed ingredients likely       30
   FarmEcon LLC
   A source of information on global
   farming and food systems
   Thomas E. Elam, PhD
   President




 Feed balance, including DDGS*
                                                                                                 2010/2011 2011/2012
                                                    2005/    2006/    2007/    2008/    2009/     FarmEcon FarmEcon
                                       Item          2006     2007     2008     2009     2010       fcst.   Projected
         Area Planted (Mill. Ac.)                     96.4     92.5    109.0    101.8    100.1         99.6     106.0
         Area Harvested (Mill. Ac.)                   85.9     80.1     98.3     91.0     89.6         89.7      95.5
         Yield (Tons/Ac)                              3.47     3.50     3.56     3.58     3.90         3.69      3.75
         Beg. Stocks (Mill. Tons)                     58.8     54.8     36.2     45.1     47.0         48.0      26.5
         Production (Mill. Tons)                     298.5    279.9    349.7    325.7    349.0        331.0     358.1
         Imports (Mill. Tons)                          1.9      2.4      3.3      3.0      2.2          2.0       2.5
         Total Supply (Mill. Tons)                   359.2    337.1    389.2    373.7    398.2        381.0     387.2
         Feedgrains Feed Use (Mill. Tons)            163.1    148.0    157.8    140.9    137.6        137.0     133.0
           SBM Feed Use (Mill. Tons)                  30.1     31.2     30.1     27.9     27.8         27.5      27.2
           DDGS Feed Use (Mill. Tons)                 12.1     15.8     21.1     25.7     29.3         29.4      30.5
           Grains+DDGS+SBM feed use                  205.3    195.0    209.0    194.5    194.7        193.9     190.7
         FSI Use (Mill. Tons)                         81.6     94.4    116.5    134.8    157.8        164.0     169.5
           Fuel Ethanol Refinery Use (Mill. Tons)     40.7     53.8     76.9     94.2    116.0        121.9     127.0
           Est. DDGS Prod. (Mill. Tons)               13.4     17.7     25.4     31.1     38.3         40.2      41.9
           Est. Corn Used by Ethanol (Mill. Tons)     27.3     36.0     51.5     63.1     77.8         81.7      85.1
           DDGS Exports (Mill. Tons)                   1.3      1.9      4.3      5.4      9.0         10.9      11.4
           Other FSI Use (Mill. Tons)                 40.9     40.6     39.6     40.6     41.8         42.1      42.5
         Exports (Mill. Tons)                         59.8     58.3     69.9     50.9     54.8         53.5      53.5
         Total Use (Mill. Tons)                      304.5    300.9    344.1    326.6    350.2        354.5     356.0
         Ending Stocks (Mill. Tons)                   54.8     36.2     45.1     47.0     48.0         26.5      31.2
         % Feedgrains Used for Fuel Ethanol           14%      19%      22%      29%      33%          37%       35%
         Ending Stocks-to-Use Ratio                   18%      12%      13%      14%      14%           7%        9%
         U.S. Average Farm Corn Price, $/Ton           $79     $120     $165     $160     $140         $201      $167
         DDGS, 10%, Central IL, $/Ton                  $72     $104     $144     $111     $106         $163      $154
         SBM, Hi-Protein, Decatur, IL, $/Ton          $158     $186     $305     $300     $282         $299      $318
* September 1 Crop Year                                                                                                 31
 FarmEcon LLC
 A source of information on global
 farming and food systems
 Thomas E. Elam, PhD
 President

                                      Shares of U.S. Feed Use - Feedgrains/SBM/DDGS
Share of Grains, DDGS and Soybean Meal Feed Use
(Numbers in the Bars are Metric Tons of Feed Use)
         100%                  11.6       15.2        20.3     24.7     28.1          28.2   29.3
          90%                  30.1       31.2        30.1
          80%                                                  27.9     27.8          27.5   27.2
          70%
          60%
          50%
          40%                 163.1       148.0       157.8    140.9    137.6     137.0      133.0
          30%
          20%
          10%
           0%
                         2005/ 2006 2006/ 2007 2007/ 2008 2008/ 2009 2009/ 2010 2010/2011 2011/2012
                                                                                FarmEcon FarmEcon
                                                                                   fcst.  Projected
                                                  Feedgrains   SBM     DDGS
                                                                                                      32
  FarmEcon LLC
  A source of information on global
  farming and food systems
  Thomas E. Elam, PhD
  President




Long term issue – No new acres since 1990
                                                                      1990-2010
                                      Commodity   1990      2010       Change
               Corn                               66,953     81,263      14,310
               Barley                              7,529      2,466       (5,063)
               Sorghum                             9,089      4,658       (4,431)
               Oats                                5,948      1,263       (4,685)
               Net Change, Feedgrains                                        131

               Rapeseed                               77      1,421       1,344
               Soybeans                           56,513     76,823      20,310
               Oilseed, Sunflowerseed              1,851      1,873          22
               Wheat                              69,103     47,637     (21,466)
               Net Change, Oilseeds and Wheat                               210
               Rye                                    376       264        (111)
               Rice                                 2,822     3,623         801
               Total                              220,260   221,290       1,030
                                                                                    33
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




           Summary:
Higher feed costs now in protein prices
$4+ corn and $300+ soybean meal=normal
Feed cost volatility an ongoing issue
Likely to see another 2008 in the next 5 years
Increasing RFS and limited acreage are on a
collision course



                                                 34
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




What basics created the business?
      Quality products
      Safe products
      Production system control
      Competitive pricing vs. other proteins
      Innovation in production and processing
      Being close to the customer and consumer
      Access to world markets
      Excellent animal husbandry and disease prevention
      Environmental stewardship
      And more…
        FarmEcon LLC
        A source of information on global
        farming and food systems
        Thomas E. Elam, PhD
        President



            U.S. Meat Protein Shares Reflect Long Term
            Market Competition
     100%                                   Turkey
       90%
       80%                                  Chicken
       70%
       60%
       50%                                   Pork
       40%
       30%
       20%                                   Beef
       10%
         0%
                  1962
                  1964
                  1966
                  1968
                  1970
                  1972
                  1974
                  1976
                  1978
                  1980




                  1990
                  1992
                  1994
                  1996
                  1998
                  2000
                  2002
                  2004
                  2006
                  1960




                  1982
                  1984
                  1986
                  1988




                  2008
                  2010
Source: USDA/ERS
                                                         36
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President




Likely winners and losers
   Higher feed costs = need for efficient production
            Broilers 2:1 (or better)
            Turkeys 2.6:1 (or better)
            Hogs 3:1 (including sows, at best)
            Fed cattle 6:1
            Grass fed cattle 0:1
   Beef cow herd likely to shrink for 4-5 years
   Total protein production can increase if the mix
   changes enough!
            That is, less beef and pork and more poultry
                                                           37

				
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