Fernando Palacios February, 2009 Today’s Feed Manufacturing Sector and a Vision for its Future Health and Profitability

Fernando PalaciosFebruary, 2009

Today’s Feed Manufacturing Sector and a Today’s Feed Manufacturing Sector and a Vision for its Future Health and ProfitabilityVision for its Future Health and Profitability

AgendaAgenda

Environment Implications Q&A

EnvironmentEnvironment

2008, What a ride2008, What a ride

Crude oil approached $150 a barrel and dropped below $35 Corn pushed $8 a bushel and fell below $3 Milk prices swung more than $5 per hundredweight Volatility was redefined Bailout became a buzz word

COMPANY1975 SALES

1 Kraftco13,760

2 Esmark13,401

3 Beatrice Foods11,874

4 Greyhound (Dial)10,575

5 General Foods10,410

6 Borden 9,538

7 Ralston Purina 8,920

8 CPC International 7,766

9 Consolidated FoodS7,183

10 General Mills6,427

COMPANY1975 SALES

1 Kraftco13,760

2 Esmark13,401

3 Beatrice Foods11,874

4 Greyhound (Dial)10,575

5 General Foods10,410

6 Borden 9,538

7 Ralston Purina 8,920

8 CPC International 7,766

9 Consolidated FoodS7,183

10 General Mills6,427

COMPANY1999 SALES

1 Philip Morris 31,139

2 ConAgra24,594

3 Cargill 21,400

4 PepsiCo 20,367

5 The Coca-Cola19,805

6 Mars 15,000

7 ADM 14,283

8 IBP14,075

9 Anheuser-Busch11,704

10 Sara Lee10,823

COMPANY1999 SALES

1 Philip Morris 31,139

2 ConAgra24,594

3 Cargill 21,400

4 PepsiCo 20,367

5 The Coca-Cola19,805

6 Mars 15,000

7 ADM 14,283

8 IBP14,075

9 Anheuser-Busch11,704

10 Sara Lee10,823

Competition is changingCompetition is changing

Food Processing – 2006

COMPANY2006 SALES

1 Nestle 80,834

2 Cargill 75,208

3 Unilever 52,338

4 PepsiCo 35,137

5 Kraft 34,356

6 Tyson 25,559

7 The Coca-Cola 24,088

8 Mars21,000

9 SABMiller18,620

10 Sara Lee15,944

COMPANY2006 SALES

1 Nestle 80,834

2 Cargill 75,208

3 Unilever 52,338

4 PepsiCo 35,137

5 Kraft 34,356

6 Tyson 25,559

7 The Coca-Cola 24,088

8 Mars21,000

9 SABMiller18,620

10 Sara Lee15,944

Cooperatives continue to consolidateCooperatives continue to consolidate

Number of U.S. Cooperatives

2101

1280

973764

577

0

500

1000

1500

2000

2500

1990 2005 2010 2015 2020

To

tal U

.S. C

oo

pe

rati

ve

s

As Liquidation Boost 2008 Supplies …As Liquidation Boost 2008 Supplies …

2005 2006 2007 2008 2009 +2% +2.6% +2.2% + 3.2% -1%

Percent change in total meat output

74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 080

5

10

15

20

25

30

35

40

Billion pounds

Beef

Pork

Broilers

1% / 0%

+6% / -1%

2008 / 2009

3% / -1%

* Terry Barr NCFC January, 2009

Export Broilers ….. 17% Beef ………. 7% Pork ……… 22%

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08-3

0

3

6

9

12

15Billion pounds

Imports Exports Balance

… … U.S. Meat Exports Likely to Weaken while …U.S. Meat Exports Likely to Weaken while …


120

130

140

150

160

170

180

190

200

210

Million pounds milk fat basis

Commercial supply Commercial disappearance

… … U.S. Milk Production Outpaces DemandU.S. Milk Production Outpaces Demand

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08


Dollar Strengthens and Global Uncertainty remainsDollar Strengthens and Global Uncertainty remains

U.S. dollar reversal will erode foreign buying power and weaken demand

60

70

80

90

100

110

Indexes of major currencies/US$

80 82 84 86 88 90 92 94 96 98 00 02 04 06 0870 72 74 76 78* Terry Barr NCFC January, 2009

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

-1

0

1

2

3

4

5

6

7

India China Other developing Advanced countries

Contribution to world growth in percent

China/Emerging Markets Limit RecessionChina/Emerging Markets Limit Recession


World Grain Stocks Begin Rebound as Demand World Grain Stocks Begin Rebound as Demand Weakens and …Weakens and …

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

0

100

200

300

400

500

Million metric tons

+51


… … Ethanol Displacing Export and Feed UseEthanol Displacing Export and Feed Use

-14%

-18%

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Billion bushels of corn

Feed and residual

Exports

Food, seed & industrial

Ethanol


Household Net Worth Falling RapidlyHousehold Net Worth Falling Rapidly

76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

-10

-8

-6

-4

-2

0

2

4

6

Change in trillion dollars


Regulators are under increasing pressure to enact Regulators are under increasing pressure to enact broad sweeping regulationsbroad sweeping regulations

Single unified Food/Feed Agency Import Food and Feed legislation FDA Protection Plan

Prevention Intervention Response

Inspection / Audit programs Certification Self Inspection HACCP

Changing markets demand new services of Changing markets demand new services of manufacturersmanufacturers

Vendor Managed Inventory Multiple Manufacturing Locations Global Sourcing Electronic Data Interchange (EDI) Web Order Entry

Other issues to considerOther issues to consider

Lifestyle Growth Ingredients Food like Quality Systems???

Workforce Hiring Retention Diversity

Environmental Sensitivity Local State Federal

* Terry Barr NCFC February, 2008

Other issues to considerOther issues to consider

ImplicationsImplications

As we move into this new economy, we need to:As we move into this new economy, we need to:

Reduce Cost Deliver Value Improve turns / reduces inventories Manage Risk Provide Exceptional Quality Deliver Superior Service Demonstrate Social responsibility

Environment Employees Community

How do we get there?How do we get there?

To achieve and sustain preferred supplier status with all customers through:

Commitment to the process of continuous improvement and simplicity in everything we do

Strong customer orientation - flexible, responsive, proactive behaviorTotal commitment to organization excellenceDemonstrated passion for quality

Must choose who is primary target customer; based on profitability and sustainability Create margin opportunity and value through technology and service Commitment to the process of continuous improvement and simplicity in everything we do Strong customer orientation - flexible, responsive, proactive behavior Total commitment to organization excellence Demonstrated passion for quality

What will success look like?What will success look like?

Recognize customer/ consumer preferences

Optimized total supply chain cost

Improved Customer Service Levels

Sound Safety record Increased market share

Reduced Inventory Robust Quality System

Prevention Suppliers Process capabilities Compliance

Environmental Compliance

Q & AQ & A

Documents

Fernando Palacios February, 2009 Today’s Feed Manufacturing Sector and a Vision for its Future Health and Profitability