2008 Turkey Outlook: A 5

th

Profitable Year?

2007 Elanco Turkey Tech Seminar

Dr. Thomas E. Elam, President FarmEcon.com

August 23, 2007 Indianapolis, IN

FarmEcon.Com

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

Four Incredible Years!

20¢ 15¢ 10¢ 5¢ 0¢ -5¢ -10¢ 1999 2000 2001 2002 2003 2004 2005 2006 2007f Weighted Net Returns (60% whole, 40% cutout)

(Based on Express Markets formula)

FarmEcon.Com

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

Why This String of Success?

Restrained production growth U.S. demand is growing (slowly, but growing) Exports are also growing (volume and value) Feed cost increases but offset by higher selling prices Net result – 4 years in the black

105¢ 100¢ 95¢ 90¢ 85¢ 80¢ 75¢ 70¢ 65¢ 60¢ 55¢ 50¢ FarmEcon.Com

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

Monthly Turkey Prices UB Eastern Hens, Frozen, 12 lbs. up

2004 2005 2006 2007 J F M A M J J A S O N D

105¢ 100¢ 95¢ 90¢ 85¢ 80¢ 75¢ 70¢ 65¢ 60¢ 55¢ 50¢ FarmEcon.Com

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

Monthly Turkey Prices UB Eastern Toms, Frozen, 16-22 lbs.

2004 2005 2006 2007 J F M A M J J A S O N D

Monthly Turkey Prices UB Breast Meat, Fresh, Toms

FarmEcon.Com

A source of information on global farming and food systems Thomas E. Elam, PhD President 400¢ 350¢ 300¢ 250¢ 200¢ 150¢ 100¢ 50¢ 2004 2005 2006 2007 J F M A M J J A S O N D

110¢ 100¢ 90¢ 80¢ 70¢ 60¢ 50¢ 40¢ 30¢

Monthly Turkey Prices UB Thigh Meat, Fresh

J F M A M J J A S O N D FarmEcon.Com

A source of information on global farming and food systems Thomas E. Elam, PhD President 2004 2005 2006 2007

FarmEcon.Com

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

Exports – As Goes Mexico, So Go Turkey Exports

250,000

2 nd Best Year Ever

200,000 150,000 100,000 50,000 Jan-May only 0 2001 2002 2003 2004 2005 2006 2006 2007 Other Dom. Rep.

Haiti Greece Canada Panama Hong Kong Taiwan Russia China Mexico

FarmEcon.Com

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

Average Export Value/lb.

$0.60

$0.50

$0.40

$0.30

$0.20

$0.10

$0.00

2001 2002 2003 2004 2005 2006

FarmEcon.Com

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

Estimated Value of the U.S. Market*

$5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0

Prices & Consumption Up, New Record

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

*ex-processor, 60% whole birds, 40% cutout X Domestic Consumption

FarmEcon.Com

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

Value of the Export Market*

$350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0

*At port of exit

2002 2003 2004 2005

January-May Up 20%

2006 2006 2007

FarmEcon.Com

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

This is What a Demand Increase Looks Like!

95¢ 90¢ 85¢ 80¢ 75¢ 70¢ 65¢ 60¢ 55¢ 16.5

2005 2006 2004 1997 2007 Forecast 2000 2003

Rising volume and price

1999 2001 1998 2002 17.0

17.5

18.0

U.S. Turkey Consumption, Pounds per Person 1996 18.5

FarmEcon.Com

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

2007 Outlook Summary

Restrained production increases in the face of good profitability Price momentum going into the fall Weighted average price likely to be 10-12 cents higher than 2006 Production costs likely to be 9-11 cents higher, offsetting higher turkey prices On balance, 2007 likely to be the most profitable on record, despite higher costs

Poult Placements, UB, Weekly

6,500,000

Late 2007 Production

6,000,000 5,500,000 5,000,000 4,500,000 4,000,000 1/ 3/2 00 7 2/ 3/2 00 3/ 7 3/2 00 7 4/ 3/2 00 7 5/ 3/2 00 7 6/ 3/2 00 7 7/ 3/2 00 7 8/ 3/2 00 7 9/ 3/2 00 10 7 /3 /2 00 11 7 /3 /2 00 12 7 /3 /2 00 7 FarmEcon.Com

A source of information on global farming and food systems Thomas E. Elam, PhD President 2005 2006 2007

FarmEcon.Com

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

U.S. Turkey Production and Use

2007 = New Record High

6,000 5,000 4,000 3,000 2,000 1,000 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Production Exports Domestic Consumption

FarmEcon.Com

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

Per Capita U.S. Turkey Consumption

20 15 10 5 0

FarmEcon.Com

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

2007/2008 Forecasts – The Details

(Production, Use and Stocks in Million Pounds)

2004 2005

Beginning Stocks Production Total Supply Exports U.S. Consumption Per Capita (Lbs.) Total Use Ending Stocks UB Hen Price, $/lb.

5,383 5,737 354 442 5,022 17.0

288 5,456 5,744 570 4,968 16.7

5,449 5,538 288 206 $0.694 $0.722

UB Tom Price, $/lb.

$0.679 $0.712

UB Breast Meat, $/lb $1.950 $2.080

UB Thigh Meat, $/lb $0.880 $0.915

2006

206 5,643 5,849 545 5,105 17.0

5,649 200 $0.780

$0.783

$2.160

$0.850

2007fcst

200 5,825 6,025 560 5,250 17.2

5,810 215 $0.830

$0.830

$2.600

$0.880

2008fcst

215 5,900 6,115 600 5,290 17.1

5,890 225 $0.800

$0.800

$2.500

$0.850

Pct. Change

8% 1% 1% 7% 1% -1% 1% 5% -4% -4% -4% -3%

FarmEcon.Com

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

ETHANOL = higher costs

Ethanol production has reached a level where price rationing is happening 3 major corn demand sources: Feed Exports Food, Seed and Industrial • Ethanol is the only growing piece Who will cut back to make room for ethanol?

How much additional corn can we produce?

Effects on other crop prices?

FarmEcon.Com

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

Ethanol Facts

1 bushel corn = 2.7-2.8 gallons ethanol + 17-18 pounds of DDGS Ethanol production currently 6 bgy 2008 production will be 7-8 bgy “Official” goal was 7.5 bgy by 2012 (10 bgy more likely) If all Iowa planned plants are built and operational Iowa will need to import corn Each 1% of U.S. gasoline supply replaced by ethanol = 1% of 2007 global grain production Ethanol subsidy of $0.51/gallon is important to corn prices Subsidy is about $1.40 per bushel of corn

FarmEcon.Com

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

FarmEcon.Com

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

Corn Value to Ethanol Producers: Effect of Ethanol Subsidy on Corn Price

Crude Oil, $/Barrel $40 $50 $60 $70 $80 Wholesale Gasoline $/Gallon

$1.20 $1.49 $1.78 $2.07 $2.46

Ethanol Cost, $/Gallon

$1.65 $1.74 $2.03 $2.32 $2.61

Ethanol Subsidy, $/Gallon

$0.51 $0.51 $0.51 $0.51 $0.51

Net Ethanol Price, $/Gallon

$1.14 $1.23 $1.52 $1.81 $2.10

Price of Corn for Ethanol Breakeven

$2.50 $3.30 $4.15 $4.95 $5.35

Price of Corn for Ethanol Breakeven; No Subsidy

$1.10 $1.90 $2.75 $3.55 $4.55

FarmEcon.Com

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

Future Ethanol Projections

Demand limited in short run by distribution and blending capacity Long run limitation is feedstock supply Ethanol demand is unlimited in the long run E85 could use 500+ million acres of corn Crude oil price and ethanol subsidy level will set corn prices, affect all crops Use of cellulose is only long term solution, but also has many issues and limitations

FarmEcon.Com

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

U.S. Ethanol Production and Corn Use Trends

4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 1997 1998 1999 2000 2001 2002 Grain Used 2003 200 4 200 5 2006 Ethanol Produced 2011 12.0

10.0

8.0

6.0

4.0

2.0

0.0

FarmEcon.Com

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

Next Round of Ethanol Effects

Further shifts to corn in the U.S.

Global effects on grains vs. oilseeds Major effects on all global grain and oilseed prices Increasing use of DDGS in U.S. feeds Long term advantage for Latin American corn and soybean producers

Feed Cost Outlook – 2007/2008

FarmEcon.Com

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

Corn Price ex-farm ($/Bu.) Soybean Meal Price ($/ton , 48%) Turkey feed costs (¢/lb, RTC)

2004/05

$2.06

$183

2005

19¢

2005/06

$2.00

$174

2006

19¢

2006/07

$3.25

$200

2007

30¢

2007/08

$3.75

$250

2008

34¢

* October 1 Crop Year

FarmEcon.Com

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

Summary:

2004-2005: improved profits = lower production In 2006 it all came together: Excellent U.S. demand Production issues that restrained supply Only “disappointment” was exports What will it take in 2008?

Continued demand growth No upside production surprises No HPAI in the U.S.

Despite industry’s best efforts on demand, higher feed costs will hurt margins