HPAI: U.S. Market Impacts DR. TOM ELAM (THOMASELAM@FARMECON.COM)

FARMECON LLC

JUNE 28, 2015

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Glossary APHIS: Animal and Plant Health Inspection Service, a USDA agency

HPAI: Highly Pathogenic Avian Influenza

Breeders: Male and female poultry that produce fertile chicken and turkey hatching eggs

Layers: Female chickens that produce infertile eggs for human consumption

Live Production: Weight of live poultry delivered to a processing plant

RTC Production: Ready-to-cook poultry, basically carcass weight with giblets

Poult: A young sexually immature domestic chicken, turkey, pheasant, or other fowl

Depop/Repop: Depopulation and repopulation of an animal production facility

Shell (Table) Eggs: Eggs sold as intact eggs for human consumption

Breaker (Breaking) Eggs: Eggs processed into a variety of egg products used in food production

Hatching Eggs: Egg produced to be hatched into breeding or meat-type poultry

UB: Urner Barry, a private food price reporting company

Stages of Poultry Reproduction: Pedigree, Great-Grandparent(GGP), Grandparent (GP), Parent

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What we knowThe HPAI outbreak has already claimed 8 million turkeys

These turkeys represent over 3% of projected 2015 slaughter3% loss alone wipes out projected 2015 bird increase

Turkey losses not reflected in April USDA Poultry Slaughter report, did in May

Both turkey and chicken losses need to stop before we know it’s over

Losses are not limited to growout birds, breeding stock is also affected

Breeding stock losses will show up later in the year

Turkey supply chain includes 4 breeding multiplier levels, significant time lags involved

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What we do not knowThe transmission vector, and how to defeat itUltimate 2015 turkey lossesAge and sex of the culled flocksTiming of bringing affected facilities back into productionWill affected facilities break with HPAI again?Current outbreak lossesPotential Fall 2015 outbreak losses

Precise degree to which the supply flock chain will be disruptedDegree to which breeders can and will offset losses via molting hensAre companies willing to place surplus hens to replace lost toms?

5The surplus turkey hen

“resource”

Urner Barry Weekly Hatchery Report

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But, hen meat cost more per poundGenetics innovation has resulted in toms far outperforming hens on daily gain and feed efficiency

20 week old Hybrid Converter Hen weighs 26.5 pounds

20 week old Hybrid Converter Tom weighs 42.7 pounds

Difference in meat production weight is about 38%

20 week feed conversion also better for toms, 2.58 vs. 2.89 for hens, a 12% difference

Each takes the same shackle space and labor to process

To get the same meat production: Need to grow and process 38% more turkeysUsing 12% more feed per pound producedAnd possibly run a processing line on overtime

Explains why we have all these surplus hens in the first place!

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Does not include losses with bird count reported as “pending” by APHIS.

Including estimated “pending” turkey facilities loss brings the current turkey loss over 8 million birds.

Species Birds Lost Flocks AffectedTurkeys 7,978,100 152 Commercial 7,978,100 152 Layer Chickens 34,358,100 35 Pullet Chickens 5,873,700 14 Grand Total 48,088,793 221

As of 6-11-15Reported HPAI Bird Losses

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Current turkey loss is about the same as 2015 planned production increase, but does not include all breeder losses. Turkey and egg losses will extend into 2016.

Turkey loss is significantly more than just the loss of current birds shown in this table. Egg loss is also understated.

Losses from birds killed and destroyed

Species Loss, MillionsTurkeys, RTC Lbs. 191 Eggs, Million Doz 959

Species % Loss% Turkey Meat Lost 3.3%% Eggs Lost 11.4%

Meat and Egg Production Loss

2015 Production Loss as % Total Production

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The replacement schedule gets bunched up in July and August.

We do not have the poult production capacity to make this possible.

Some growout facilities will remain empty longer than 90 days due to no poult supply to repop.

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Estimated further turkey lossesAg Forte (Wilmar) forecasts 20% loss of their tom poults from August through rest of 2015

Industry-wide, poults will be in short supply through early 2016

Tom poult shortage pushes production shortfalls into April-May 2016

Likely to see hen destruction drop to near zero But about 38% fewer live pounds for same weeks on feedHen feed efficacy also 12% worse than tomsSignificant effect on July-December productionHigher costs per pound for processors

Estimates do not include further loss from current or future HPAI outbreaks

Once the outbreak ends, cannot immediately replace all lossesNot enough poults availableResulting surge in market weight birds would exceed processing plant capacity

13Estimated total 2015-16 turkey losses

Currently reported (6-26-2015) flock losses would have produced about 190 million RTC pounds

Second half loss is based on Ag Forte breeder loss and full placement of surplus hensAg Forte breeder loss is 6.5% of the standing breeder inventoryAffects both back half hen and tom poult supplyReduces U.S. turkey poult supply by about 9 million, 51% toms and 49% hensTotal lost production, hens and toms, 210 million RTC pounds After replacing lost hens with surplus hens still have 1.2 million hen surplus leftHens produce only about 62% of pounds as toms at the same ageFeeding those 1.2 million hens to 20 weeks produces 22 million RTC pounds net gain Net effect is still a loss of about 188 million RTC pounds, about same as current death lossLoss extends into 2016

Total loss is about 380 million RTC pounds, 6.2% of pre-loss 2015 USDA RTC forecast

This is a best case estimate, actual loss will be higher

Poult supply flow will not be sufficient to replace all flocks within 90 days

Assumes no further losses, all available “surplus” hens used and fed to 20 weeks

Further losses are uncertain, possible fall outbreak not in these estimates

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ConclusionsNow by far the largest poultry flu outbreak in U.S. history

Significant financial impact for affected turkey and layer flock growers/owners

Export losses will help reduce production impacts on overall domestic turkey and egg prices

White meat turkey has no significant export market, entire shortfall falls on U.S. consumption, higher prices

Positive for whole bird turkeys and breast meat prices, new record highs for May/June

Dark meat turkey and chicken parts prices to remain depressed

Sufficient holiday whole bird turkey supply, prices will be somewhat higher

Significant impact on egg and egg products supply and prices11+% loss for period while all affected flocks out of production25+% loss of breaking supply affects bread, pasta, ice cream and other food itemsWill take up to 12-24 months to get back to full production – limited pullet supply and need for staged replacementTable eggs likely to be diverted to breakingEgg product spot prices far above prior records, some imports coming in

15February NTF Outlook

Summary2015 Turkey Forecast Overview

(Production, Use and Stocks in Million Pounds)

Item 2012 2013 2014

Feb 2015f

2014/15 Pct.

Change

Beginning Stocks 211 296 237 193 -18.6%

Production 5,889 5,729 5,755 6,075 5.6%

Total Supply (Inc Imports) 6,124 6,047 6,021 6,296 4.6%

Exports 798 759 804 800 -0.5%

U.S. Consumption 5,030 5,051 5,024 5,221 3.9%

Per Capita (Lbs.) 16.0 16.0 15.8 16.2 2.5%

Total Use 5,828 5,810 5,828 6,021 3.3%

Ending Stocks 296 237 193 275 42.5%

UB 12 Lb Hen Price, $/lb. $1.096 $1.042 $1.120 $1.060 -5.4%

UB 16 lb Tom Price, $/lb. $1.101 $1.036 $1.120 $1.060 -5.4%

UB Breast Meat, $/lb $2.067 $1.850 $3.430 $2.400 -30.0%

UB Thigh Meat, $/lb $1.232 $1.298 $1.684 $1.200 -28.7%

UB MST, $/lb $0.353 $0.380 $0.409 $0.275 -32.7%

16June 10, 2015 NTF Outlook

Summary2015 Turkey Forecast Overview

(Production, Use and Stocks in Million Pounds)

Item 2012 2013 2014

Feb 2015f

2014/15 Pct.

ChangeJune 2015f

2014/15 Pct.

Change

Beginning Stocks 211 296 237 193 -18.6% 193 -18.6%

Production 5,889 5,729 5,755 6,075 5.6% 5,600 -2.7%

Total Supply (Inc Imports) 6,124 6,047 6,021 6,296 4.6% 5,822 -3.3%

Exports 798 759 804 800 -0.5% 675 -16.0%

U.S. Consumption 5,030 5,051 5,024 5,221 3.9% 4,947 -1.5%

Per Capita (Lbs.) 16.0 16.0 15.8 16.2 2.5% 15.4 -2.5%

Total Use 5,828 5,810 5,828 6,021 3.3% 5,622 -3.5%

Ending Stocks 296 237 193 275 42.5% 200 3.6%

UB 12 Lb Hen Price, $/lb. $1.096 $1.042 $1.120 $1.060 -5.4% $1.200 7.1%

UB 16 lb Tom Price, $/lb. $1.101 $1.036 $1.120 $1.060 -5.4% $1.200 7.1%

UB Breast Meat, $/lb $2.067 $1.850 $3.430 $2.400 -30.0% $3.700 7.9%

UB Thigh Meat, $/lb $1.232 $1.298 $1.684 $1.200 -28.7% $1.300 -22.8%

UB MST, $/lb $0.353 $0.380 $0.409 $0.275 -32.7% $0.350 -14.4%

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HPAI Flock Infection and Poultry Export Restriction Resources

Flocks affected: http://www.aphis.usda.gov/wps/portal/aphis/ourfocus/animalhealth/sa_animal_disease_information/sa_avian_health/ct_avian_influenz

a_disease/!ut/p/a1/lZHLcoJAEEW_xUWW1IzDewm-QCUmGoOwodoBZKpgoGC0Sr8--EjKLCRmdt1979Tt0yhEGxRyOLAdCFZyyM91qEXThUP6NibuZGWOsPv6OfaMuS4vHKUVBK1gMLEcRZ9jjBWDYHdoO0Pd9DB2tef8-MGz8F9-H4UopFxUIkMBVBlrIlpykXAR5WxbQ318wQ1E5b6O0pLum0sFnBWQR1kCucjuOzFrEmiSiPG0rIsLhOv4wID_6Km4NVpZvk_4Cb6N5zAVZTEKtsRMsUYSSTb6ICl0K0uggioRNU7jmFJdlvVr-F_7TUZ2u994_qbPpgTP1Jugi-9F0AEwaAnrDxGaClr9M_X0iZuS2ht4u_ZbEJl0pok2nZSv4zvKaNNB2bdR-O4vVc1CVbFeF4asLZ3TR1r4w6PV630Bp5beKA!!/?1dmy&urile=wcm%3apath%3a%2Faphis_content_library%2Fsa_our_focus%2Fsa_animal_health%2Fsa_animal_disease_information%2Fsa_avian_health%2Fsa_detections_by_states%2Fct_ai_pacific_flyway

Export restrictions by country of destination:

http://www.fsis.usda.gov/wps/portal/fsis/topics/international-affairs/exporting-products/export-library-requirements-by-country

FarmEcon HPAI Impact analysis updates:

http://www.farmecon.com/Documents/HPIA%20Update.pptx