Renewal of the Quebec Marketing ConventionA new pricing formula

Alberta Pork’s Annual General Meeting

November 20th, 2019

Vincent Cloutier, agr.

Quebec Pork Producers Association

2

3

Profile of Quebec Hog Farms, 2018

4

Source : La Financière Agricole du Québec

351 Farrow-to-finish farms

155 000 sows3,8 million hogs

177 Farrowers134 000 sows

317 Finishers2.7 million hogs

Farrowers

Finishers Farrow-to-finish

5

131 $139 $

123 $

202 $ 185 $ 174 $

$100

$150

$200

$250

$300

$C

AD

/ 1

00

kg

carc

ass

Prix du porc Valeur du cutoutHog Price Cutout value

Compared Evolution of Price for Live Hogs and Cutout

Source: USDA

6

Quaterly Changes in Live Hogs/Cutout Ratio

95%

85%

65%

75%

85%

95%

105%

T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4

2013 2014 2015 2016 2017 2018 2019

Downturn since October 2015

Historic drop in Fall 2016

Source: USDA. Pork carcass prices (LM_HG201). Meat prices (LM_PK602 et NW_LS500). Compiled by The Quebec Pork Producers Association

Two major changes in 2019

1

• Window contract based on cutout’svalue (floor and cap prices)

• 2$ premium for hogs meeting Quebec Quality criteria

Price

• Higher expectations – and therefore penalties – for unproperlyfasted, untatooed and dirty pigs

Penalties for quality issues

Importance of Legal Framework

8

Collective Marketing : The Legal FrameworkMarketing of Agricultural, Food and Fish

Products ActSets the rules allowing orderly production and marketing

of agricultural products

.

9

Quebec Pork Producers Joint PlanTool that allows producers to collectively

negotiate marketing conditions for their product

Marketing Board Les Éleveurs de porcs du Québec

Administration of Joint Plan

Hog Production Marketing RegulationTerms and conditions of production and

marketing that pork producers must respect

Hog Marketing AgreementGoverns relations between producers

and Buyers

Régie des marchés agricoles et alimentaires du Québec(Quebec agriculture and food marketing bureau)

Convention 2009-2015

AbattageTransport

Paiement aux producteurs

Closer business links between farmers and slaughterhouses

Marks major changes from previous conventions

Attribution and assignment of all pigs to slaughterhouses

Premiums in recognition for « specific hogs »,

which meet specific criteria

10Source: https://www.vecteezy.com">Graphics by: www.vecteezy.com</a>

Assignment of all hogs to Buyers

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Guarantees supplies to Buyers

• Quebec pork producers are required to deliver all their hogs to Buyers

Guarantees supply flows for pork producers

• Buyers are required to give Quebec-grown hogs priority

Special agreements

→ Base price(final price based on cutoutand quality premium)

“Quebec Quality” pigs

meet standards for basic characteristics

→ Base price+ specific premiums

(production, transport, etc.)

Pigs subject to special agreements

meet standards for certain characteristics

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Assignment of all hogs to Buyers

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7 Buyers (slaughterhouses) in Quebec

Olymel(4 plants)

AgromexLes Viandes du

BretonAliments Asta

Oly-Robi Transformation

Abattoir Lamarche

L.G. Hébert

distributed to

6.9 million hogs produced in Quebec

Pricing14

Two fundamental objectives for the 2019-2022 Convention

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1. Ensure a fair and equitable distribution of revenue between farmers and buyers

2. Recognize quality of Quebec hogs and their value on North American and export markets

Novelties in the 2019-2022 Hog Marketing Convention• Risk-sharing mechanism (hog prices vs cutout value) • Recognition of quality of Quebec hogs

2019-2022 Agreement

Continuation of 2016-2019 Agreement

Introduction of a new price formula

• US benchmark price adjustment based on pork meat (cutout)

• $2/100 kg in recognition of the distinct characteristics of “Quebec Quality” pork

Introduction of strict requirements respecting animal tattoos, fasting time, and cleanliness

• The Régie considers that higher price and premium justify stricter standards

• Financial penalties apply in cases of non-compliance

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Price formula

• 90 % to 100 % “cutout” window

The US benchmark price (LM_HG201) should be within a range of 90 % to 100 % of the reassembled carcass (LM_PK602) (“cutout”).

100 % LM_PK602 = cap price (maximum)US benchmark price →

LM_HG20190 % LM_PK602 = floor price (minimum)

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2019-2022 Agreement

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3 different situations

LM_HG 201 is above 100 % of the cutout

Cap price applies

LM_HG 201 is between 90 % and 100 % of the cutout

LM_HG 201 sets the price

LM_HG 201 is below 90 % of the cutout

Floor price applies

Sources: USDA – Live Hogs (LM_HG201) – Cutout (LM_PK602) Compiled by Les Éleveurs 20

60.00%

65.00%

70.00%

75.00%

80.00%

85.00%

90.00%

95.00%

100.00%

105.00%

110.00%

Fév Mars Avril Mai Juin Juillet Aout Sept Oct Nov

Daily Evolution of the Live Hogs/Cutout ratio(From February 7th)

% cutout % cutout ajusté Fenêtre Fenêtre

Before the decision of the Régie – April 30th 2019

Price formula

• CAD $2/100 kg premium• In recognition of the quality characteristics defined in article 4.1 :

• Weight requirements

• CQA (or CPE) certified

• Fasting, tattooing and cleanliness of pigs

• Antibiotics declaration

• Without immunocastrator21

2019-2022 Convention

Our Priorities for the Implementation of the ActualConvention

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Regular meetings with the Buyers

Working committee

Working meeting

Technical committee

Marketing committee – Finishers of Les ÉleveursDirections

A long process…

Hearings

Decision

Implementation

2018Nov/Dec

2018

April 30th2019

2019 2020-2022

Preparing for the next

Convention!

Negociations

Conclusion24

Slaughter and Slaughter Capacity in Quebec

7,77,1

0,3 1,4

8,4

9,8

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019p

Mill

ion

s o

f h

ead

s

Quebec Atlantic Ontario Slaughter capacity

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And for the Future

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Growing concentration

Distance with US reality

• Product

• Market access

• Proportion of volumes exported in variousdestinaitons

• Supply & Demanddynamics

Need for a strongpartnership

Thank you

Special agreements

Heavy pigs

Lean pigs

Genetic record

Specific feed program

Pig certifications

• Organic

• Antibiotic-free

• Certified humane

• Nagano

Different types of special agreements

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Impact of the decision on the liquidity of hog companies (M$) Based on the Farrow to finish model under the Farm Income Stabilization Insurance (knownas ASRA)

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Additional cash

Without ASRAWithout ASRA

(2/3)Without

contribution (1/3)With Incorme Total

2015 48 M$ 32 M$ 16 M$ 16 M$

2016 97 M$ 64 M$ 32 M$ 25 M$ 57 M$

2017 - M$ - M$ - M$ 89 M$ 89 M$

2018 75 M$ 50 M$ 25 M$ 25 M$

2015-2018 220 M$ 147 M$ 73 M$ 113 M$ 187 M$

Sources : La Financière Agricole du Québec, Les Éleveurs de porcs du Québec