Export Forecasts / Issues

Financial Update and Outlook for the Pork IndustryMark Greenwood

Can You Relate?

Lets Look at the Past 24 MonthsCorn has went from $3 to $8 per bushel back to below $4 per bushelBreakevens have ranged from $110 a head to $160 a head now around $130 -$135/hd keeps changing rapidly by dayPig prices have went from $120 a head to $170 a head to $90 a head to now $140 a head Are we ever going to settle in a range?What is normal anymore?

AgendaA Historical ReviewWhere are we at today as an industryThe Have Nots vs. the SurvivorsA look ahead for producers and capital availability Q&ALets Look at the PastPrior to the 90s the swine industry was part of the diversification of their farming operationYou had crops so you had livestockSome people farrowed pigs and some people bought feeder pigsSingle site productionFrom a financing standpoint, it was just part of your overall businessThe 90s Things Started to ChangeMany specialized systemsPacker contractsGrower contractsMore leverage was allowed due to contractsVery good program for young beginning farmers to enter into farmingThe 90s ContinuedLate 90s overexpansion$8 hogs and not enough packing capacityLedger contracts grew exponentiallyWindow contracts helped the down sideContracts were available to producers of all sizesMany acquisitions occurred2000-2007The time of specializationFarrow to weanWean to finishLarge Midwest systems huge growthMany acquisitions occurred from 2000-20052004-2007 long run of profitability2006 the game starting changing Higher demand for corn - ethanol

Financing 2004-07Very little operating debt in 2007Strongest financial position ever for many producers Many producers had cash on handClients built facilities out of cashTerm revolvers were createdVery few marketing agreements other than shackle space you could sense the industry was over expanding2008-PresentLargest Equity erosion I have ever seenLargest swing in volatility I have ever seen2009 thank God it is over - 2010 has to be better (does it?)Producers also dont want to leave the industry it is their way of life and will do anything to stay in.Many producers have put all chips on the table

Current Swine Balance Sheets 3 to 12009 Cost of Production2009 Average Cost of Production $135-$1402009 Average Revenue Per Pig$110-$115Average Loss Per Head 2009 ($25)January 2010 could be in the black first time in 26 months for many producers

Swine Portfolio OverviewSwine Gross TLOSwine Portfolio OverviewMany modifications have been doneMany covenant changesAlso producers have put all chips in amazing amount of cash or equity that has been put in to keep raising pigsSeparation from the have not's and survivors

The Have NotsNot a function of sizeFunction of leverage going into 08-presentFunction of risk management on feed risk and hog margin managementCertain models struggled more than others wean pig buyers with contracts got hit firstWean pig producers nextFarrow to finish with the little risk management was next SE was hit harder than the Midwest cost of production is higher in SEThe SurvivorsStill have working capitalCurrent ratio > 1.4:1Have operating line availabilityOwner equity > 40% GAAPLocked in margins for 08 and 09Sometimes minimized losses Tremendous amount of resources were dedicated in this areaHave Lenders that understand risk managementHedge Lines and operating linesAlliance with a packer CFA or marketing agreementSurvivors Financial reporting is very goodMonthly accrual statementsMonthly cost of production many by flowMonthly cost of inventory we look at this number today average cost of inventory wean to finish is in the low $70s after latest downturn in feedIf you dont have this information- access to capital will be difficultManaging Volatility is the NormMarkets have been crazy for the past 24 monthsVolatility will remain for the foreseeable futureRisk management is crucial to survivalMore producers than you think have managed this volatility wellMarket volatility makes producers very cautiousMany producers are looking for a home run not singles and doublesBut things can change quick

Successfully Managing RiskFundamental Information is ImportantThe Flow of Information Leads to VolatilityYou need to a student of your businessHere are some items to look at every day

And Then More InformationPacific Exchange Rate Service

28

30

Source: USDA/FAS31

Source: USDA/FAS32

Source: USDA/FAS

This takes Time and DisciplineYou must be committedYou must know your costsYou must be disciplinedIt is about managing your businessIn looking at our portfolio here are some traits of producers that have managed through the last 2 yearsOutlook for 2010Breakeven on best systems are now $130-135 a headNow corn concern molds affect performanceMight effect gain and reproductive performanceWatch supply and weights

Issues to discussLiquidation values change daily tough decisions for LendersWe will have producers that will not have much debt at the end of 2010 because of their risk managementContract barn owners owning pigsStill not many empty barns nursery first will be emptyAppraised values on facilitiesSow units size and location

Credit AvailabilityVery difficult to switch LendersWhy build versus acquisitionLenders will want less concentration in pork if the industry does not improveBorrowing Base values going forwardMore dollars on hogs that are hedged?Unhedged or locked Sows Max $100 previous $150Grow Fin - $40 Previous $552500 sows operating Max $1.25MM before $1.75MM = $500K more Capital in plus personal signatures less patience

Lesson LearnedYou can never have enough working capitalLeverage will be dirty word for a period of timeYou will need to manage margin risk from now on & it will be as important as production riskVolatility looks like it will be the norm.You will need to be even better and managing your business to survive production costs margin the people that are left are good and getting better everydaySummaryIt might take another 12-24 months for this to be correctedBreakeven is $130 a head we need $70 hogs to be profitable what does supply/demand have to be? We are writing history Producers that can manage risk will grow Lenders will allow them to manage non performing assetsCapital will be very difficult to get until the industry makes money for a period of timeProducer Packer more aligned model in the future in order to have the industry be viable

Questions? PLANT DELIVERED PURCHASE DATA FOR Friday, January 22, 2010 (As of 1:30 PM)

CURRENT VOLUME BY PURCHASE TYPEWESTERN CORNBELT DAILY DIRECT AFTERNOON HOG REPORT BASED ON STATE OF ORIGIN BARROWS & GILTS LIVE AND CARCASS BASIS

Estimated Actual Actual Actual Today Today Week Ago Year AgoProducer Sold Negotiated 15,901 9,792 10,780 19,563 Other Market Formula 39,348 32,741 34,912 4,992 Swine or Pork Market Formula 118,571 67,847 71,013 68,061 Other Purchase Arrangement 48,852 34,515 28,456 7,870Packer Sold (all purchase types) 9,719 4,612 2,837 8,632-------------------------------------------------------------------------------- NEGOTIATED PURCHASE (Including Packer Sold)

Barrows & Gilts (carcass basis): 9,043

Compared to Prior Day's closing weighted average (LM_HG208), 1.34 lower

Base Price Range $59.00 - $68.05, Weighted Average $66.25

Base Price is the price from which no discounts aresubtracted and no premiums are added.---------------------------------------------------------------------------------------------------------------------------------------------------------------- NEGOTIATED PURCHASE (Including Packer Sold)

Barrows & Gilts (live basis, 240-300 lbs): 2,288

Compared to Prior Day's closing weighted average (LM_HG208), 3.23 lower

Price Range $41.06 - $57.00, Weighted Average $54.81