ii 2010 Allen D. Leman Swine Conference Sponsors Formatting Tina Smith Graphics www.tinasmithgraphics.com CD-ROM David Brown www.davidhbrown.us Logo Design Ruth Cronje, and Jan Swanson; based on the original design by Dr. Robert Dunlop The University of Minnesota is committed to the policy that all persons shall have equal access to its programs, facili- ties, and employment without regard to race, color, creed, religion, national origin, sex, age, marital status, disability, public assistance status, or sexual orientation. We thank the following sponsors: Gold Boehringer-Ingelheim Vetmedica, Inc. Pfizer Animal Health Bronze Alpharma Animal Health Bayer Animal Health Intervet/Schering Plough Animal Health National Pork Board Copper AgStar Financial Services American Association of Swine Veterinarians IDEXX IVESCO Novartis Animal Health US, Inc. Novus International Inc. PIC USA PigCHAMP University of Minnesota Institutional Partners College of Veterinary Medicine University of Minnesota Extension College of Food, Agriculture and Natural Resources Sciences 2010 Allen D. Leman Swine Conference 15 Ke yn ot es Keynotes A Wall Street view of the protein markets Recent ­trends: - Equity markets have been volatile - Hog markets have been tough to predict - Leg quarter prices have been variable - Cattle prices have also vacillated - Grain prices have gone up and down - Protein stocks challenging investments - Investors prefer to rent rather than own - Brazilian protein companies expand  JBS • Brazil ♦ Bertin ♦ JBS Hides • United ­States ♦ Swift Beef ♦ Smithfield Foods Beef ♦ Five Rivers ♦ Pilgrims Pride (64%) • Europe ♦ Inalca • Australia ♦ Tasman  Marfrig • Brazil ♦ Pampeano ♦ Mabella ♦ DaGranja ♦ Pena Branca ♦ Seara • United ­States ♦ Keystone Foods • Europe ♦ Moy Park • Other ­South ­American ♦ Quickfood ♦ Zenda Advantages ­of ­global ­presence  Geographic diversification reduces risk  Scale to optimize production platform  Customer relationships leveraged across markets and proteins Successful ­business ­strategies  Strong balance sheet  Best cost producer  Well defined risk management  Clear growth strategy  Good communication Best ­cost ­producer  Products with adequate ROIC  Consistent capital investments in the right place  Careful site selection for plants  Constant measurement  Aggressive benchmarking Well defined risk management  Predictability is a myth  On any given day, anything can happen  Some events are rare and inconsequential  But others can be rare and catastrophic  Identify and assess risks Farha ­Aslam Stephens ­Inc., ­Food ­& ­Agribusiness ­Equity ­Research 16 2010 Allen D. Leman Swine Conference Ke yn ot es Keynotes Farha ­Aslam Ke yn ot es Keynotes  Know the Numbers  Assess the risk/return ratio  Commit adequate resources  Continually reassess risks Clear ­Growth ­Strategy  Better aligned business organization  Disciplined execution  More efficient capital allocation Good ­communication  Define Sstakeholders  Share success and failure  Consistency key to building credibility Future ­opportunities ­and ­challenges  Consolidation  Environment, animal welfare, sustainability  Population growth  GDP growth  Global trade  Protein sector consolidation  Retail consolidation Protein ­demand ­growth  Population growth  Income expansion Global trade risks  Disease concerns • BSE (mad cow) • Avian influenza (bird flu) • H1N1 (swine flu)  Political issues • Recent russian trade restrictions • Chinese tariffs on US poultry products Global ­trade ­challenges  Brazil expanding production  Russia: Importer to exporter  WTO Doha trade negotiations stalled  Free trade agreements not ratified Conclusion  Protein markets will Become more global  Prices and input costs will be volatile  Good operators have opportunity to grow Ke yn ot es Keynotes 2010 Allen D. Leman Swine Conference 17 Ke yn ot es Keynotes A ­Wall ­Street ­view ­of ­the ­protein ­markets Hog markets have been tough to predict Source: FactSet Research Systems Inc. and Stephens Inc Leg quarter prices have been variable Source: USDA and Stephens Inc. 18 2010 Allen D. Leman Swine Conference Ke yn ot es Keynotes Farha ­Aslam Ke yn ot es Keynotes Grain prices have gone up and down Source: Wall Street Journal and Stephens Inc. Protein stocks challenging investments Source: Company Reports and Stephens Inc. Ke yn ot es Keynotes 2010 Allen D. Leman Swine Conference 19 Ke yn ot es Keynotes A ­Wall ­Street ­view ­of ­the ­protein ­markets Protein transaction values Source: Company Reports, Capital IQ and Stephens Inc. 20 2010 Allen D. Leman Swine Conference Ke yn ot es Keynotes Farha ­Aslam Ke yn ot es Keynotes Strong balance sheet Source: Company Reports and Stephens Inc. Protein sector consolidation Source: USDA, WattPoultry and Stephens Inc. Ke yn ot es Keynotes 2010 Allen D. Leman Swine Conference 21 Ke yn ot es Keynotes A ­Wall ­Street ­view ­of ­the ­protein ­markets Retail consolidation Source: U.S. Census Bureau and Stephens Inc. Retailers have garnered share of profit pool Source: USDA and Stephens Inc. 22 2010 Allen D. Leman Swine Conference Ke yn ot es Keynotes Farha ­Aslam Ke yn ot es Keynotes Environment, animal welfare, sustainability Source: Company Reports and Stephens Inc. US GDP growth Source: U.S. Bureau of Labor Statistics and Stephens Inc. Ke yn ot es Keynotes 2010 Allen D. Leman Swine Conference 23 Ke yn ot es Keynotes A ­Wall ­Street ­view ­of ­the ­protein ­markets US per capita protein consumption Source: USDA and Stephens Inc. Exports greater portion of production Source: USDA and Stephens Inc. 24 2010 Allen D. Leman Swine Conference Ke yn ot es Keynotes Farha ­Aslam Ke yn ot es Keynotes Global protein trade trends Source: USDA and Stephens Inc. Global urbanization Source: Bureau of Labor Statistics and Stephens Inc. By 2030, nearly two-thirds of the world’s population will live in urban areas World Africa Asia Europe Latin Am./ Carribbean North America Ke yn ot es Keynotes 2010 Allen D. Leman Swine Conference 25 Ke yn ot es Keynotes A ­Wall ­Street ­view ­of ­the ­protein ­markets US protein trade concentration Source: USDA, USMEF and Stephens Inc. US pork exports Source: Global Agritrends and Stephens Inc. 26 2010 Allen D. Leman Swine Conference Ke yn ot es Keynotes Farha ­Aslam Public companies mentioned in this presentation: Hormel ­Foods ­(HRL-$XX.XX) ­ ­ Sanderson ­Farms ­(SAFM-$XX.XX) JBS SA (JBSAY-$XX.XX Smithfield Foods (SFD-$XX.XX Pilgrims ­Pride ­Cor. ­(PPC-$XX.XX ­ ­ Tyson ­Foods ­(TSN-$XX.XX Private ­and ­foreign ­companies ­mentioned ­in ­this ­presentation: Marfrig ­Alimentos ­SA ­ ­ Keystone ­Foods Perdigao ­ ­ ­ Sadia Campofrio REQUIRED DISCLOSURES The research analyst principally responsible for preparation of this presentation has received compensation that is based on the firm’s overall revenue which includes investment banking revenue. Rating definitions: Company stock ratings: OVERWEIGHT (O) – The stock’s total return is expected to be greater than the total return of the company’s industry sector, on a risk-adjusted basis, over the next 12 months. EQUAL-WEIGHT (E) – The stock’s total return is expected to be equivalent to the total return of the company’s industry sector, on a risk-adjusted basis, over the next 12 months. UNDERWEIGHT (U) – The stock’s total return is expected to be less than the total return of the company’s industry sector, on a risk-adjusted basis, over the next 12 months. VOLATILE (V) – The stock’s price volatility is potentially higher than that of the company’s industry sector. The company stock ratings may reflect the analyst’s subjective assessment of risk factors that could impact the company’s business. Distribution of Stephens Inc.’s Ratings (as of 6/30/10) % Investment Banking Clients Rating ­ % ­ (Past 12 Months) BUY 57 20 HOLD 42 5 SELL 1 0 OTHER DISCLOSURES This presentation has been prepared solely for informative purposes as of its stated date and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a complete description of the securities, markets or developments referred to in the material. Information included in the presentation was obtained from internal and external sources which we consider reliable, but we have not independently verified such information and do not guarantee that it is accurate or complete. Such information is believed to be ac- curate on the date of issuance of the presentation, and all expressions of opinion apply on the date of issuance of the presentation. No subsequent publication or distribution of this presentation shall mean or imply that any such information or opinion remains current at any time after the stated date of the presentation. We do not undertake to advise you of any changes in any such information or opinion. Additional information available upon request.