JIM LONG'S PORK COMMENTARY

GENESUS is a registered trademark of Keystone Pig Advnacement Inc.

January 28, 2008

Pork Commentary By Jim Long, President and CEO, Genesus Inc

Iowa Pork Congress Report

Last week we were at the Iowa Pork Congress in Des Moines, Iowa. The Iowa Pork Congress is the premier state show and this year had more exhibitors than a year ago. Congratulations to Doug Fricke and those that work with him on increasing participation in a less than ideal market environment. Our Iowa Pork Congress report:

• Attendees were not overly negative, despite a marketplace that is losing upwards of $50.00 per head. We believe that this can be attributed to the fact that those who are quitting (loading sows) and those who are negative do not want or need to come to a tradeshow. The attendees are people committed and believing in their future and of industry.

• We talked to several veterinarians and producers that have been and are being afflicted by this new aggressive strain of PRRS. Outbreaks are limited to Southern Minnesota and Northern Iowa. A couple veterinarians suggested it was a European strain possibly brought in from Europe by imported breeding stock. Reports of 20% plus breeding herd mortality, abortion storms, higher pre-weaning and finisher mortality were common. It was characterized as the worst PRRS outbreak ever seen. One finishing system of 50,000 plus hogs on feed said they would lose 25% of hogs this turn. There is some thought it is hitting systems hardest that had PRRS and Circo under control. One large system expects a cut-back of 4-6% to market. It is devastating and spreading. It appears to be moving quickly. Several suggested that it was worst than any Circo outbreak that they have seen. The effects will be market-altering. Everyday it makes fewer hogs come to market. (There is always a new disease or variant).

• There are economists and producers saying that the US is expanding and will continue to expand for the next several quarters. We’d ask “What are you smoking!?” Liquidation is underway at an accelerated pace. Some sows last week were 4¢ lb. They are not that low for any other reason. That’s what the sow buyers have to pay to get all the sows that now can be killed. Planned expansion is being stopped or delayed as cash dwindles. The March Canada-US inventory will show fewer sows than December. Write it on the wall.

• In 1998-1999, when we had losses similar, there were some dynamics in the marketplace that shielded many producers from market reality. These included packer programs such as Hormel cost of production, Tyson (IBP) ledgers, Swift floor and cost of production programs, etc. Also, the feed companies were active at that time, taking market risk from the producer. Purina, Land of Lakes, etc. all were thinking that they were pig farmers. All these programs absorbed 100’s of millions losses and cash flow needs. Alas, few of these types of programs exist now. Now, most producers are funding their own losses. The knife is closer to the bone. This will accelerate liquidation.

• In 1998 and 1999 grain and hog farmers did not have the economic option of stop growing hogs and selling $5.00 corn. This option is attractive for producers over 50 with dated barns. Everyone knows that it is easier to work 4 weeks in the spring and 6 in the fall compared to the 24/7 responsibility of hog production. This scenario is accelerating liquidation.

• In January 1998, if we had said that in the not to distant future, Murphy Farms or Carroll Foods, two of at the time titans of the swine industry would be selling out, you would have thought us crazy. Do not assume that today’s titans are immune. Several are not hedged either, on feed or market. Multiply -$40.00 by amount of hogs per week. It all spells UGLY.

• The hog to corn ratio is now barely 10 to 1. Historically at fewer than 20 to 1 there is liquidation. We believe the effects of the hog to corn ratio is greater than ever. Now, most producers (75% plus) buy their corn, they do not produce it. Consequently, there is little cushion from feeding their own corn. This puts even greater pressure on systems. In 1996, the last time corn was high priced, more of our industry grew their feed. We also believe it is somewhat of a myth that producers made huge amounts of money the last couple of years. The profitability models failed to take in the cost of the losses from Circo. We do not believe, as some do, that there are huge cash reserves to withstand these losses. There is no way the money came in as fast as it’s going out.

Country of Origin Labeling – COOL – will come in but the wording is not finished. The future for marketing Canadian raised hogs does not look good. The good news for Canadian small pig producers is that by the time COOL is implemented, the need for packers, retailers, food service and exporters to find every pig will be huge. Everyday there are fewer pigs being produced. An infrastructure that can routinely handle 2.4 million hogs will be scrambling at 2 million. No packer wants to allow their competitors to get a competitive edge from killing Canadian pigs. It’s a game of chicken between packers, each trying to head fake their competitors into showing their hand. None are biting in an absolute way.

Summary

Canada-USA is liquidating. There will be fewer hogs in the future. Losses of $50.00 per head are being felt in Europe. In Europe, corn is $8.00 US a bushel. South America and Mexico are hurting too. Asia is struggling. Never before has so much of the world been losing big money all at the same time (misery loves company). We are in uncharted waters. The global supply of pork is declining. US pork exports are expanding, pushed by a low dollar. As we move ahead we see the Northern Hemisphere planting every acre possible this spring. We see Northern Hemisphere having record crops by this fall. In 2008 livestock production will decline globally due to financial losses. By the summer, we will be at 70¢ lean with little decline through the fall. By February 2009, 90¢ lean, by the summer 2009, $1.20 lean. The lower the low, the higher the high. It’s really tough right now. As tough as it has ever been. A case in point, eggs were 75¢ dozen a year ago and producers were losing money. The producers cut back 2%, yes only 2%. Eggs are now $1.50 dozen. A small cut in supply, global demand and abracadabra – record profits. The hog industry is on the same track.

Congratulations Camrose The First 30 plus herd in the United States

Last year Genesus customer Woodland was the first 30 plus weaned herd in North America and Canada.*

Now we are proud and honored to announce that Camrose of Ledger, Montana is the first 30 plus weaned herd in the United States*. Congratulations Camrose.

Genesus Duroc boars are bred to Genesus KS-11 (Yorkshire-Landrace F1’s)

It’s a testament to the daily execution of basic livestock husbandry that Camrose achieves these extraordinary results. It takes knowledge, genetic capacity, perseverance, a little luck and God’s blessings. Everything needs to go right. The take home message – The bar is being raised. Productivity realities continue to rise. The producer who prospers will be ones that utilize the tools available. Genesus Genetic capacity is one such tool.