Mark Greenwood
 Corn
has went from $3 to $8 per bushel back to
below $4 per bushel
 Breakevens have ranged from $110 a head to
$160 a head now around $130 -$135/hd – keeps
changing rapidly by day
 Pig 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?
A
Historical Review
 Where are we at today as an industry
 The Have Not’s vs. the Survivors
 A look ahead for producers and capital
availability
 Q&A
 Prior
to the 90’s the swine industry was part of
the diversification of their farming operation
 You had crops so you had livestock
 Some people farrowed pigs and some people
bought feeder pigs
 Single site production
 From a financing standpoint, it was just part of
your overall business
 Many
specialized systems
 Packer contracts
 Grower contracts
 More leverage was allowed due to
contracts
 Very good program for young beginning
farmers to enter into farming
 Late
90’s overexpansion
 $8 hogs and not enough packing capacity
 Ledger contracts grew exponentially
 Window contracts helped the down side
 Contracts were available to producers of all
sizes
 Many acquisitions occurred
 The
time of specialization
1. Farrow to wean
2. Wean to finish
 Large Midwest systems huge growth
 Many acquisitions occurred from 20002005
 2004-2007 long run of profitability
 2006 the game starting changing
 Higher demand for corn - ethanol
 Very
little operating debt in 2007
 Strongest financial position ever for many
producers
 Many producers had cash on hand
 Clients built facilities out of cash
 Term revolvers were created
 Very few marketing agreements other than
shackle space – you could sense the industry
was over expanding
 Largest
Equity erosion I have ever seen
 Largest swing in volatility I have ever seen
 2009 – thank God it is over - 2010 has to be
better (does it?)
 Producers also don’t 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
 <35%
Owners Equity
 70% October 2007
 Working Capital ratio 1.3 to 1
 October 2007 > 3 to 1
 2009
Average Cost of Production
$135-$140
 2009 Average Revenue Per Pig $110$115
 Average Loss Per Head 2009
($25)
 January 2010 could be in the black first
time in 26 months for many producers
AgStar Gross
$1,800,000,000
$1,606,816,667
$1,600,000,000
$1,440,281,629
$1,400,000,000
$1,200,000,000
$1,347,308,190
$1,387,466,906
$1,145,303,547
$1,000,000,000
AgStar Gross
$800,000,000
$600,000,000
$400,000,000
$200,000,000
$12/31/05
12/31/06
12/31/07
12/31/08
YTD
 Many
modifications have been done
 Many covenant changes
 Also producers have put all chips in –
amazing amount of cash or equity that
has been put in to keep raising pigs
 Separation from the have not's and
survivors
Not a function of size
 Function of leverage going into 08-present
 Function of risk management on feed risk and hog
margin management
 Certain models struggled more than others – wean
pig buyers with contracts got hit first
 Wean pig producers next
 Farrow to finish with the little risk management was
next – SE was hit harder than the Midwest – cost of
production is higher in SE
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Still have working capital
Current ratio > 1.4:1
Have operating line availability
Owner equity > 40% GAAP
Locked in margins for 08 and 09
Sometimes minimized losses
Tremendous amount of resources were dedicated in this
area
Have Lenders that understand risk management
Hedge Lines and operating lines
Alliance with a packer – CFA or marketing agreement
 Financial
reporting is very good
 Monthly accrual statements
 Monthly cost of production – many by flow
 Monthly cost of inventory – we look at this
number – today average cost of inventory wean
to finish is in the low $70’s after latest downturn
in feed
 If you don’t have this information- access to
capital will be difficult
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Markets have been crazy for the past 24 months
Volatility will remain for the foreseeable future
Risk management is crucial to survival
More producers than you think have managed this
volatility well
Market volatility makes producers very cautious
Many producers are looking for a home run not singles
and doubles
But things can change quick
“Successfully Managing Risk”
 Fundamental
Information is Important
 The Flow of Information Leads to Volatility
 You need to a student of your business
 Here are some items to look at every day
PLANT DELIVERED PURCHASE DATA FOR Friday, January 22, 2010 (As of 1:30 PM)
CURRENT VOLUME BY PURCHASE TYPE
WESTERN 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
Ago
Producer 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
7,870
Packer 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 are
subtracted 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
Pacific Exchange Rate Service
28
Million MT
60
Pork Production, 2000-2010 F
50
40
30
20
10
0
China
EU-27
U.S.
Brazil
Russia
Vietnam Canada
Source: USDA/FAS
30
85
Sow Inventories - Global Total
82.0
-410k hd,
-0.5%
Million Head
80
75
70
65
60
Source: USDA/FAS
31
120
Pork Production - Global Total
+1.65 mmt
+1.6%
Million MT
100
80
60
-153 kmt
-0.3%
Rest of World
40
20
China
+1.8 mmt
+3.7%
0
Source: USDA/FAS
32
 You
must be committed
 You must know your costs
 You must be disciplined
 It is about managing your business
 In looking at our portfolio here are some
traits of producers that have managed
through the last 2 years
 Breakeven
on best systems are now $130-135 a
head
 Now corn concern – molds affect performance
 Might effect gain and reproductive
performance
 Watch supply and weights
 Liquidation
values – change daily – tough
decisions for Lenders
 We will have producers that will not have much
debt at the end of 2010 because of their risk
management
 Contract barn owners owning pigs
 Still not many empty barns – nursery first will
be empty
 Appraised values on facilities
 Sow units size and location
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Very difficult to switch Lenders
Why build versus acquisition
Lenders will want less concentration in pork if the
industry does not improve
Borrowing Base values going forward
More dollars on hogs that are hedged?
Unhedged or locked Sows Max $100 previous $150
Grow – Fin - $40 Previous $55
2500 sows operating
Max $1.25MM before $1.75MM = $500K more Capital
in – plus personal signatures less patience
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You can never have enough working capital
Leverage will be dirty word for a period of time
You will need to manage margin risk from now on & it
will be as important as production risk
Volatility 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
everyday
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It might take another 12-24 months for this to be corrected
Breakeven 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 assets
Capital will be very difficult to get until the industry makes
money for a period of time
Producer – Packer more aligned model in the future in order
to have the industry be viable