EVOLUTION OF THE US PIG EVOLUTION OF THE US PIG PRODUCTION INDUSTRYPRODUCTION INDUSTRY

- FINANCIAL CHANGES SHAPED - FINANCIAL CHANGES SHAPED THE US PORK INDUSTRY TODAYTHE US PORK INDUSTRY TODAY

Randy StoeckerRandy Stoecker November, 2008November, 2008

PERSONAL HISTORYPERSONAL HISTORY

1947 BORN WESTERN,KS1947 BORN WESTERN,KS

RAISED BY DEPRESSION PARENTSRAISED BY DEPRESSION PARENTS

1958 SOLD 11958 SOLD 1STST SL PIGS FOR $0.11/LB Live SL PIGS FOR $0.11/LB Live

1970 GRAD KANSAS STATE UNIV.1970 GRAD KANSAS STATE UNIV.

BUSINESS CAREERBUSINESS CAREER

1970 - BANKER - FINANCED 600 SOW 1970 - BANKER - FINANCED 600 SOW

UNIT OWNED BY 5 FARMERSUNIT OWNED BY 5 FARMERS

RALSTON PURINA - GREAT TRAININGRALSTON PURINA - GREAT TRAINING

1974 - YEAGER FED 60,000 COMINGLED 1974 - YEAGER FED 60,000 COMINGLED

PIGSPIGS

1975 - TRAVELED TO EUROPE / ENGLAND1975 - TRAVELED TO EUROPE / ENGLAND

BUSINESS CAREERBUSINESS CAREER 1979 - JOINED PIC - TALENTED PEOPLE 1979 - JOINED PIC - TALENTED PEOPLE

AND HIGH PERFORMANCE PIGSAND HIGH PERFORMANCE PIGS

1987 – JOINED WENDELL MURPHY – TWO 1987 – JOINED WENDELL MURPHY – TWO DIFF PEOPLE WITH ONE PLANDIFF PEOPLE WITH ONE PLAN

2000 – MURPHY FARMS BOUGHT BY 2000 – MURPHY FARMS BOUGHT BY SMITHFIELD – A GOOD FITSMITHFIELD – A GOOD FIT

2000-2007 – GROWTH BY ACQUISITION- 2000-2007 – GROWTH BY ACQUISITION- NEW CULTURES & SYSTEMSNEW CULTURES & SYSTEMS

FINANCIAL PRESSURES FINANCIAL PRESSURES CAUSE REAL CHANGECAUSE REAL CHANGE

CHANGES IN PRODUCTION CHANGES IN PRODUCTION PRACTICES ARE THE REACTION!!PRACTICES ARE THE REACTION!!

U.S. Average Corn Price, 1908-2007U.S. Average Corn Price, 1908-2007

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

1908

1912

1916

1920

1924

1928

1932

1936

1940

1944

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

$ Per Bushel

Source: USDA/NASS

1908-1942

35 years

Avg $0.78

1942-1972

30 years

Avg $1.26

1973-200634 years Avg $2.37

OMAHA CORN PRICESWeekly

1.25

2.25

3.25

4.25

5.25

6.25

7.25

8.25

$ Per Bu.

Avg.1999-032006

2007

2008

Pigs Per Litter, 1930-2007Pigs Per Litter, 1930-2007USDA Hogs & Pigs ReportsUSDA Hogs & Pigs Reports

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.519

30

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Head

Average U.S. Hog Carcass Weight, 1930-2007Average U.S. Hog Carcass Weight, 1930-2007 Note: Some Systems Target 100+ kg CarcassNote: Some Systems Target 100+ kg Carcass

110

120

130

140

150

160

170

180

190

200

210

30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05

Pounds

90 kg Carcass

75 kg Carcass

Annual U.S. Pork Production Per Sow, 1930-2007Annual U.S. Pork Production Per Sow, 1930-2007 Note: Top Systems 2,600 to 2800 kgNote: Top Systems 2,600 to 2800 kg

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Pounds

1930-80 growth rate: 2.027%

1980-07 growth rate 2.793%1400 kg Carcass Wt AUS Today?

2000 kg Carcass Wt

Exchange Rate: Can $ Per US $Exchange Rate: Can $ Per US $

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70Q

1 90

Q1

91

Q1

92

Q1

93

Q1

94

Q1

95

Q1

96

Q1

97

Q1

98

Q1

99

Q1

00

Q1

01

Q1

02

Q1

03

Q1

04

Q1

05

Q1

06

Q1

07

Q1

08

U.S. Hog Imports from Canada

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Head per mo.

Slaughter Hogs Feeders Pigs

U.S. Pork Imports & Exports

0

500

1,000

1,500

2,000

2,500

3,000

3,5001980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Mill

ion P

ounds

Imports Exports

2007 was the 16th consecutive record year for U.S. pork exports

U.S. Daily Slaughter CapacityU.S. Daily Slaughter Capacity Packer Fall 06 Fall 07 changePacker Fall 06 Fall 07 change **Smithfield 117,600 118,700Smithfield 117,600 118,700 1,100 1,100 **TysonTyson 72,800 72,800 74,000 74,000 1,200 1,200 SwiftSwift 46,000 46,000 47,000 47,000 1,000 1,000 **ExcelExcel 36,000 36,000 36,000 0 36,000 0 **HormelHormel 35,800 35,800 36,800 36,800 1,000 1,000 **Triumph 16,000 Triumph 16,000 17,500 17,500 1,500 1,500 **SeaboardSeaboard 16,000 16,000 16,800 16,800 800 800 **Indiana PackIndiana Pack 14,000 14,000 15,000 15,000 1,000 1,000 **HatfieldHatfield 10,200 10,200 10,600 10,600 400 400 Others 56,475Others 56,475 52,435 52,435 - 4,040 - 4,040

TotalTotal 420,875420,875 424,835 3,960 424,835 3,960 * Owns some pig production* Owns some pig production

Source: Steve Meyer, Paragon Economics

Iowa Farrow to Finish Profits, 1997-2008Iowa Farrow to Finish Profits, 1997-2008Iowa State University Calculations

-70

-50

-30

-10

10

30

50

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

$ Per Head

Source: John Lawrence, Iowa State University

Quarterly

PRODUCTION CHANGES IN PRODUCTION CHANGES IN RESPONSE TO $$ PRESSURERESPONSE TO $$ PRESSURE

1970’s STD was 40 Sows Farrow to Finish 1970’s STD was 40 Sows Farrow to Finish

OROR100- 300 Purchased Co-mingled Feeder Pigs100- 300 Purchased Co-mingled Feeder Pigs

ALMOST ALL WERE CORN FARMERS FIRSTALMOST ALL WERE CORN FARMERS FIRST

STRUCTURESTRUCTURE OWNER- OWNER- Family to Entrepreneur toFamily to Entrepreneur to

SHIPSHIP Business/Corp. & ContractingBusiness/Corp. & Contracting

GRAINGRAIN Produce > fed, Now< 30%, Produce > fed, Now< 30%, Produce enough to matter Produce enough to matter

LABORLABOR Family to Local to National & Family to Local to National & International Mix International Mix

GENETICSGENETICS Pure Bred Boars, own gilts,Pure Bred Boars, own gilts, Buy hybrid Boars & F1 gilts,Buy hybrid Boars & F1 gilts, Now 50% own Multiplier Now 50% own Multiplier

w/ 4 owning G Nucleus herds w/ 4 owning G Nucleus herds

SOW SOW 50-100 50-100 300-500 300-500 2400-7500 2400-7500 FARM FARM Probably 20 Probably 20 ‘Sow Farms’‘Sow Farms’ 10,000 or > 10,000 or >

MATING MATING Natural Natural to All AI since 1995 to All AI since 1995 Auto semen pkg. boar studs 100-600Auto semen pkg. boar studs 100-600

BUILDINGSBUILDINGS One Site – Farrow to Finish One Site – Farrow to Finish Farrow to Feeder w/off-site Finisher Farrow to Feeder w/off-site Finisher Three Site Three Site Now Two Site Now Two Site W to W to

FF FEEDFEED Purchased Purchased Farmer mixed Farmer mixed

Toll Mill Toll Mill Own Mills Own Mills Mash Mash Rapidly moving to all Rapidly moving to all

PelletsPellets FORMULAT’N FORMULAT’N No Involvement No Involvement

Own Nutritionist and R&D FarmsOwn Nutritionist and R&D Farms Statisticians & Quality Trial Mgt.Statisticians & Quality Trial Mgt.

PACKER- PACKER- Adversarial (Live) Adversarial (Live) CARCASSCARCASSContracts (prem, window, cut out) Contracts (prem, window, cut out) QUALITYQUALITYAlignm’t/Ownership (% lean & Alignm’t/Ownership (% lean & quality, antibiotic free, etc)quality, antibiotic free, etc)

FACILITIESFACILITIES Each one diff’t –low Each one diff’t –low Fixed AssetFixed Asset invest. invest.

Bought turn keyBought turn key

Build their own (lacks innovation)Build their own (lacks innovation)

BENCHMARKBENCHMARK Lie to neighbor -> listen to Feed Rep Lie to neighbor -> listen to Feed Rep ->University systems -> Agri-Stat ->University systems -> Agri-Stat

(Last 12 mths $11.50/hd Profit Av to T25%)(Last 12 mths $11.50/hd Profit Av to T25%)

FINANCINGFINANCING Dad -> Local Banker/Low Debt ->Dad -> Local Banker/Low Debt ->

Regional –> Nat’l/Int’l/Public MktsRegional –> Nat’l/Int’l/Public Mkts

19941994 20062006

RankRank OrgOrg # Sows# Sows RankRank OrgOrg # Sows# Sows

11 Murphy FamilyMurphy Family 180,000180,000 11 Smithfield FoodsSmithfield Foods 1,200,1151,200,115

22 Carroll’s FoodsCarroll’s Foods 110,000110,000 22 Triumph FoodsTriumph Foods 399,800399,800

33 Premium StandardPremium Standard 96,80096,800 33 SeaboardSeaboard 213,600213,600

44 Tyson FoodsTyson Foods 95,00095,000 44 IA Select FarmIA Select Farm 150,000150,000

55 CargillCargill 77,00077,000 55 Prestage FarmsPrestage Farms 140,000140,000

66 Prestage FarmsPrestage Farms 74,00074,000 66 PipestonePipestone 130,000 130,000 NN

77 Smithfield FoodsSmithfield Foods 65,00065,000 77 The MaschhoffsThe Maschhoffs 116,000 116,000 NN

88 DeKalb SwineDeKalb Swine 64,973 64,973 XX 88 CargillCargill 87,00087,000

99 National FarmsNational Farms 34,000 34,000 XX 99 Maxwell FoodsMaxwell Foods 76,00076,000

1010 Goldsboro Goldsboro 30,00030,000 1010 AMVC MngmtAMVC Mngmt 75,000 75,000 NN

1111 Sand SystemsSand Systems 27,150 27,150 XX 1111 Tyson FoodsTyson Foods 70,000 70,000

1212 Continental GrainContinental Grain 20,00020,000 1212 ProgressiveProgressive 55,200 55,200 NN

1313 Louis Dreyfus CorpLouis Dreyfus Corp 20,000 20,000 XX 1313 Hormel FoodsHormel Foods 51,000 51,000 NN

1414 SeaboardSeaboard 20,00020,000 1414 NE Pork PartnersNE Pork Partners 45,000 45,000 NN

1515 Hastings PorkHastings Pork 18,00018,000 1515 Wakefield PorkWakefield Pork 41,000 41,000 NN

1616 Clougherty PackingClougherty Packing 17,60017,600 1616 Hatfield MeatsHatfield Meats 36,100 36,100 NN

1717 Gold KistGold Kist 16,50016,500 1717 WhitestoneWhitestone 35,000 35,000 NN

1818 FarmlandFarmland 16,000 16,000 XX 1818 Texas FarmTexas Farm 33,500 33,500 NN

1919 Neuhoff FarmsNeuhoff Farms 14,00014,000 1919 Holden FarmsHolden Farms 32,000 32,000 NN

2020 Swine GraphicsSwine Graphics 13,50013,500 2020 Coharie FarmsCoharie Farms 31,000 31,000 NN

TotalTotal 1,009,5231,009,523 TotalTotal 2,693,6502,693,650

Pork Powerhouses – Successful Farming Magazine468,000

Christensen – 170,000Hanor – 75,000

New Fashion – 48,000TriOak – 28,100

Eichelberger – 20,000Allied Prod – 58,700

BENCHMARKINGBENCHMARKING

AGRI STAT RESULTS AGRI STAT RESULTS

• JULY 2008JULY 2008• 12 Months Consolidated12 Months Consolidated

Finishing Feed Conversion (6.98,j)

2.60

2.65

2.70

2.75

2.80

2.85

2.90

2.95

3.00

JUL07

AUG07

SEP07

OCT07

NOV07

DEC07

JAN08

FEB08

MAR08

APR08

MAY08

JUN08

JUL08

DEMO=2.97 AvgCo=2.80 TP25%=2.82

AVG vs. Top 25% 0.07 0.07 0.09 0.01 0.01 -0.05 0.08 0.11 0.09 0.14 0.10 0.12 0.01

Comb. - Nsy/Fin. Mort. (ps1.1,d)

3.754.755.756.757.758.759.75

10.7511.7512.7513.75

JUL07

AUG07

SEP07

OCT07

NOV07

DEC07

JAN08

FEB08

MAR08

APR08

MAY08

JUN08

JUL08

DEMO=10.81 AvgCo=10.80 TP25%=8.77

AVG vs. Top 25% 1.49 1.66 3.03 2.85 1.32 1.66 3.14 4.96 4.47 3.98 2.21 2.16 2.03

AGRISTAT PROD’N COST SUMMARYAGRISTAT PROD’N COST SUMMARYUSA & CANADAUSA & CANADA

JULY 08 & 12 MONTHSJULY 08 & 12 MONTHSUSA(43) AVG Top 25% CANADA

WEANED PIG Month / Year Month / Year Variance Yr Avg Yr

Cost/head $33.78 / 31.67 $29.24 / 29.05 $2.62 $32.54

P / S / Y 23.77 / 22.69 23.94 / 22.79 0.10 24.02Weaned / Lit 9.84 / 9.65 9.81 / 9.53 (0.12) 10.18

Feed $13.04 $11.39 $2.43 $13.81Cal/Gest/Day 6882 6416 466 7378Cal/Lact/Day 19,983 18,068 1,915 20,432

Total Facility Costs $12.32 $10.51 $1.81 $13.58Labor $5.92 $5.25 $0.67 $6.21

MILLING – ON COSTS per TonMills (80-100% Pel) $8.09 $9.48

AGRISTAT PROD’N COST SUMMARYAGRISTAT PROD’N COST SUMMARYUSA & CANADAUSA & CANADA

JULY 08 & 12 MONTHSJULY 08 & 12 MONTHSUSA(43) AVG Top 25%

CANADAMonth /Month / YearYear Month /Month / YearYear Variance YrVariance Yr Avg YrAvg Yr

Nurs Cost/hd OutNurs Cost/hd Out $50.74$50.74 $48.90$48.90 $1.86$1.86 $58.65$58.65

TOTAL COSTSTOTAL COSTSTotal Fin $/100# $58.66 / $49.33 $52.19 / $46.49 $2.94 $52.13Total Fin $/100kg $129.05/ $108.53 $114.82/ $102.28 $6.47 $114.69

FINISHING PIGFINISHING PIGFeed Cost/100# $28.39 / $22.76 $26.36 / $21.37 $1.39 $19.35Fin FCR 2.80 2.67 0.13 2.98FC Cal/# Gain 4248 4081 167 4328ADG gm/day 795 860 65 795Fin Mort % 6.32% 4.62% 1.70% 3.77%

Profit/head ($.8.20) / ($11.20) $11.27 / $0.30 $11.50 $29.76[w/o Corp Int and G&A]

THANK YOUTHANK YOU