J.S. Ferraro Q1 2021 Big Picture Market Outlook Webinar

Q1 BIG PICTURE
OUTLOOK
Preparing for an Uncertain Future
HOSTED BY: J.S. Ferraro
DATE: January 20, 2021
Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2021. Not for distribution.
WEBINAR

2 |
An integrated sustainable food
brand committed to creating the
best-tasting fresh protein
experience.
Providing market intelligence, risk
management and meat
procurement solutions for the
meat and livestock industry.
ABOUT J.S. FERRARO

SPECIAL GUEST PANELIST | KEVIN BOST
KEVIN BOST
Analyst
Procurement Strategies Inc
www.procurementstrategiesinc.com
Kevin Bost is a meat and livestock expert with more than four decades of experience. With a
Bachelor's Degree in Agricultural Economics from the University of Arkansas and a Master's Degree in
Agricultural Economics from the University of Illinois he has dedicated his life to understanding meat
operations within wholesale, retail and restaurant segments.
He entered the business as a commodities broker in 1981, and moved on to serve as Agricultural
Economist for USDA's Economic Research Service; as Director of Procurement Strategy for a
nationwide cooperative of supermarket chains and distributors; and as Director of Supply Chain
Management for one of the largest restaurant companies in the U.S.
3 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.

PANELIST | DR. ROB MURPHY
DR. ROB MURPHY, BS, MS, PhD Agri Economics
Executive Vice President, Research and Analysis
J.S. Ferraro
www.jsferraro.com
An agricultural economist and business leader with over 27 years in the industry, Dr. Rob Murphy has
a wealth of experience in the North American meat and livestock industries studying, analyzing and
predicting market movements. His expertise spans commodity analysis, econometric modelling,
forecasting, futures markets, hedging, and risk management.
Rob holds a Ph.D. in Agricultural and Applied Economics from Virginia Tech and has developed his
market expertise over the past three decades by serving as an economist with the Chicago Mercantile
Exchange, Sparks Companies and Informa Economics.
At Informa, Rob held two senior leadership roles (Senior VP of Livestock, Meat, Dairy and Poultry
group and Vice President) over 13 years. He focused on the development of risk management
programs and directed the division’s work in commodity analysis in the protein sector. He has spoken
internationally on many topics, including agri supply chain-development and international protein
demand.
Currently, Rob is the Executive Vice President, Research and Analysis at J.S. Ferraro & Co. leading
the team in commodity analysis, financial modelling, and the development of trading and risk
management strategies.

PANELIST | KEVIN GRIER
KEVIN GRIER
Market Analyst
Kevin Grier Market Analysis & Consulting
www.kevingrier.com
Kevin Grier is a noted Canadian Agriculture & Food Market Analyst providing economic and market
outlook for livestock, meat and grocery industries over the last 20+ years. His critical market insight
and analysis helps his clients - from government and producer groups to small to large businesses -
drive profitable bottom line decisions.
Kevin is a regular contributor and respected expert across media platforms throughout North America -
Global News, CTV, National Post, Globe & Mail, National Hog Farmer and Grocery Business. Kevin
speaks with clarity on a range of topics including market analysis, economic impacts, consumer trends
and commodity analysis. He provides regular commentaries on the market and is a national and
international keynote speaker known for his approachable yet pragmatic style.
His breadth of knowledge was developed over 18 years at the George Morris Centre, a leader in
economic research in the agriculture and food industry. Prior to that Kevin was a manager with the
Ontario Farm Products Marketing Commission, the supervisory body of the provincially regulated
marketing boards. Currently, Kevin is Principal of Kevin Grier Market Analysis and Consulting, a
company specializing in livestock, meat, poultry and grocery industry market insight and analysis
working across a breadth of organizations internationally.

1. MARKET OUTLOOK | CATTLE & BEEF
• US Beef Market – Kevin Bost
• Canadian Market
2. MARKET OUTLOOK | HOGS & PORK
• US Market
• Canadian Market
3. LIVE Q&A
DISCUSSION OUTLINE

7 |
HOUSEKEEPING
Questions can submitted within the Q&A box at the bottom of your
screen
Participants video and microphones will be muted for the
presentation
Technical questions can be submitted using the CHAT box at the
bottom of the screen. Contact HELP & SUPPORT participant
Use the side-by-side view to easily see the speakers and
presentation

• BEEF DEMAND & BEEF PRICES
Q1 BIG PICTURE MARKET OUTLOOK
BEEF | US
KEVIN BOST
ANALYST
Procurement Strategies Inc.

2
2.2
2.4
2.6
2.8
3
3.2
3.4
3.6
3.8
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$
per
Capita
per
Week
Wholesale Beef Expenditures July - December

2.5
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Ratio
Choice Ribeyes ÷ Choice Cutout Value
July - December

4
4.2
4.4
4.6
4.8
5
5.2
5.4
5.6
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Ratio
Choice Tenderloins ÷ Choice Cutout Value
July - December

1.8
1.9
2
2.1
2.2
2.3
2.4
2.5
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Ratio
Choice Loin Steaks ÷ Choice Cutout Value
July-December

1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Ratio
Choice Bottom Sirloin Cuts ÷ Choice Cutout Value
July-December

0.95
1
1.05
1.1
1.15
1.2
1.25
1.3
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Ratio
Choice Round Cuts ÷ Choice Cutout Value
July-December

1.1
1.12
1.14
1.16
1.18
1.2
1.22
1.24
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Ratio
Choice Chuck Cuts ÷ Choice Cutout Value
July-December

0.8
0.85
0.9
0.95
1
1.05
1.1
1.15
1.2
1.25
1.3
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Ratio
Choice Briskets ÷ Choice Cutout Value
July-December

0.6
0.65
0.7
0.75
0.8
0.85
0.9
0.95
1
1.05
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Ratio
JULY - DECEMBER
S&H Ground Beef ÷ Choice Cutout Value
July-December

0.6
0.65
0.7
0.75
0.8
0.85
0.9
0.95 2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Ratio
90/50 Blended Ground Beef ÷ Choice Cutout Value
July - December

1.7
1.8
1.9
2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4
4.1
4.2
4.3
5.40
5.50
5.60
5.70
5.80
5.90
6.00
6.10
6.20
6.30
6.40
6.50
6.60
6.70
6.80
6.90
7.00
7.10
7.20
7.30
$
per
Pound
Wholesale
$
per
Pound
Retail
Retail Wholesale
Dec 2019
Dec 2020
Dec 2020
Retail & Wholesale Beef Prices

1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
Ratio
Data Source: USDA
Dec 2019
Dec 2020
Retail Beef Prices ÷ Wholesale Beef Prices

0.05
0.10
0.15
0.20
0.25
0.30
Index
Value
Data source: USDA
January 2021
Wholesale Beef Demand Index
(Seasonally Adjusted, Domestic Only)

200
205
210
215
220
225
230
235
240
$
per
cwt
Month
2019
2020
2021
Data source: USDA
Combined Choice/Select Cutout Value

• CHANNEL UPDATES
• SUPPLY, DEMAND & PRICING
• INSIGHTS
CATTLE & BEEF | CAD

Foodservice Update
• Foodservice tanking hard again
• New lockdowns sales back to April 2020 levels?
2.0
3.0
4.0
5.0
6.0
7.0
8.0
J F M A M J J A S O N D
Billions
$
Canadian Foodservice Sales
Monthly 2020, 2019, 2014-2018 Avg
2014-2018 2019 2020 2020 Estimates -70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Total
Foodservice
Special
Services
Drinking
places
Full Service Limited
Service
Foodservice Sales Change by Venue
November 2020 vs 2019

Supermarket Update
• 10-15% boost in retail sales
• Food price inflation Canada vs. U.S. major difference
5.0
6.0
7.0
8.0
9.0
10.0
J F M A M J J A S O N D
Billions
Canadian Supermarket Sales
2014-2018 Average, 2019, 2020 Monthly
2014-2018 Average 2019 2020 2020Estimate
0%
1%
2%
3%
4%
5%
6%
2019
Fe
Mr
Ap
My
Jn
Jl
Au
Se
Oc
Nv
De
2020
Fe
Mr
Ap
My
Jn
Jl
Au
Se
Oc
Nv
Nv
Year
over
Year
Change
Food From Stores Inflation Canada and United States
Monthly Latest 12 Months
United States Canada

Cdn Quarterly Cattle Slaughter 2018-2020
• Q4 down 2.5%
• 2020 down 3%
• Q1 ample supplies of cattle;
slaughter up 2%
400
500
600
700
800
900
1,000
Q1 '19 Q2 Q3 Q4 Q1 '20 Q2 Q3 Q4 Q1 '20
Thousand
Head

Alberta and Ontario Steer Price Spread
2020, 2019 and 2014-2018 Avg
-20
-15
-10
-5
0
5
10
15
JA FE MR AP MY JN JL AU SE OC NV DE
C$/cwt
Alberta-Texas Panhandle Price-Spread
Weekly 2020, 2021, 2015-2019 Average
2015-2019 Avg 2020 2021
-30
-20
-10
0
10
20
30
JA FE MR AP MY JN JL AU SE OC NV DE
C$/cwt
Live
Ontario-Texas Panhandle Fed Steer Price-Spread
Weekly 2020, 2021, 2015-2019 Average
2015-19 Avg 2020 2021

Weekly Beef Wholesale Price Differential vs
2017-2019 Average
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Nov 7 Nov 14 Nov 21 Nov 28 Dec 5 Dec 12 Dec 19 Dec 26 Jan 2 Jan 9 Jan 16 Jan 23
Price
Differential
Canadian Beef Versus Chicken and Pork Wholesale Price Differential
Compared to the 2017-2019 Average Differential
Beef-Chicken Beef-Pork

Retail Beef Margins vs 2017-19 Average
Latest 12 weeks
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Nov 7 Nov 14Nov 21Nov 28 Dec 5 Dec 12Dec 19Dec 26 Jan 2 Jan 9 Jan 16 Jan 23
Margin
vs.
Average
Retail Grocery Beef Margins 2020-2021 Weekly
Compared to 2017-2019 Average

Ontario Beef Feature Share Monthly vs
2014-2018 Average
-35%
-25%
-15%
-5%
5%
15%
2020 Fe Mr Ap My Jn Jl Au Se Oc Nv De
Ontario Beef Features Monthly Share of Fresh Meat
Features Vs 2014-2018 Average Share

Ontario Chicken Feature Share Monthly vs
2014-2018 Average
-20%
-10%
0%
10%
20%
30%
40%
2020 Fe Mr Ap My Jn Jl Au Se Oc Nv De
Ontario Chicken Features Monthly Share of Fresh Meat
Features Vs 2014-2018 Average Share Latest 12 Months

INSIGHTS: Beef Summary Points
• Cdn beef supplies should stay abundant in Q1
• Beef will be competitive on costs and margins

• CHINA INSIGHTS
• INSIGHTS
HOGS & PORK | US

34 |
Bigger-Than-Expected Hog Supply in Q1
• Currently the industry is killing the
Jun/Aug pig crop which USDA revised
upward by almost a million head in
the recent H&P report.
• The original estimate was -3.5% YOY,
but the revision brought that up to
only -0.9% YOY. Big change.
• The new estimate appears to be
supported by the weekly kill data
• With five weeks left to go in the
quarter, the pig crop implies weekly
average slaughter at 2.61 million
head

35 |
Hog Carcass Weights are Record High
• Last week, USDA reported barrow &
gilt carcass weights at 220 lbs. That
is the heaviest weight ever recorded.
• Packer sold hogs are heavier than
producer sold hogs. This matters
mostly for the cutout since all
product must clear the market
• Negotiated hogs are much lighter
(about 15 lbs) than formula-priced
hogs. This matters for the LHI
calculation since the negotiated hogs
drive that
• Hopefully, big kills in January will
help to reduce weights substantially
!

36 |
High Corn Prices May Not Influence Pork Production
• High corn prices in the 2011-13 period, had little or no effect on hog carcass weights. They
remained near the long-run trend throughout that period
• During these same years, producers did expand the breeding herd, but at a slower rate
that what was seen outside of this period

37 |
Q1 Pork Production Down Slightly YOY
• On a calendar quarter basis, pork
production is expected to be down
1.4% in Q1
• Q2 shows strong YOY growth, but that
is because last year Q2 pork
production was constrained by Covid
plant closures
• The second half of 2021, could see
pork production very near 2020 levels
• The pigs that will make up production
through Q2 are already on the ground
while Q3 & Q4 pigs haven’t been born
yet
-1.4%
+8.3%
-0.2%
+1.5%

38 |
After a Strong Year, Exports Expected to Soften Modestly
• Total pork exports for 2020 are likely up over
15%
• That would be the largest increase in exports
since 2011 when they increased 23%
+15.2%
-2.9%
• Exports ran very strong in Q1, fell back during
the plant closures in the summer
• From mid-year onward, exports tracked last
year much closer

39 |
What About China?
• China has been frantically building commercial
hog facilities in an effort to rebuild their herd in
the wake of ASF
• The Chinese Ministry of Agriculture claims that
the herd as of the end of 2020 was back to
near 90% of pre-ASF levels
• However, hog prices in China suggest otherwise
as they are still very elevated.
• But China has been importing huge volumes of
corn and soybeans, suggesting that there are a
lot more animals to feed.
• We look for China to take less pork from the US
in 2021 than they did last year.
Chart Source: Pig333.com

40 |
Demand Currently Strong, but Fragile
• The demand scatter for January shows the 2021 data
point riding higher than either 2020 or 2019.
• The combined packer + producer margin appears to
be turning lower. That is an ominous sign.

41 |
Pork Also Sees Demand Boost from the Pandemic
• The JSF pork cutout demand index
has been stronger than last year in
many months since the pandemic
began
• Over the full six-month period, the
demand index averaged 2%
stronger than in the pre-Covid year
• As with beef, this suggests that
shift in consumer demand from
the foodservice channel to the
retail channel has been positive for
pork demand
• This means that when foodservice
returns fully, that pork demand
should decline
+2.0%

42 |
Cold Storage Stocks Remain Extremely Tight
• Users drew heavily on cold storage
stocks when plants shutdown back in
Apr/May
• Those stocks were not replenished in
the summer when production
returned to normal
• Normally, users put large volumes into
cold storage during the fall when
production is large and prices are low
• Cold storage stocks act as a buffer
that can keep prices from getting too
high, but that buffer is very small right
now

43 |
Packers Profitable, Producers Not So Much
• Packer margins currently running just above last year,
but expected to follow a normal seasonal in 2021
• For 2021 as a whole packer margins are projected at
about $15.50/hd, very similar to 2018 and 2019
• Producers only saw one month of positive margins in
2020. The current forecast has 2021 margins entirely
in the red due to high corn and averaging -$31/hd in
2021

44 |
Cutout May Soften Near-term, Then Rally
• JSF sees the cutout a little weaker
in the short term as big
production combines with
seasonal softness in demand
• Look for the cutout to be back
solidly over $80 as March
approaches and then move into
the mid $80s through the balance
of spring
• Summer highs on the cutout
could breach $90 on a daily or
weekly average basis, but the
longer run price averages should
hold in the mid to upper $80s.

45 |
Futures Look Too Optimistic on Recent Rally
• Bullish sentiment has recently pushed the futures up to
levels that are hard to justify fundamentally.
• The late summer and early fall contracts appear to hold a
huge amount of downside risk
• The new pork cutout futures have gained traction
rapidly, with open interest now over 1200 contracts
and daily volumes running over 100 contracts
traded.

INSIGHTS: Hogs & Pork Main Take-Aways
• Big upward revisions by the USDA to the Jun/Aug pig crop, now point to ample hog supplies
through February. Weekly slaughter levels have reached close to 2.8 million head at times in
January, but will likely be pared back toward 2.6 million head per week in February
• Heavy carcasses are also a concern, but hopefully big kills and high corn prices will help to bring
weights back down into historical ranges over the next few weeks
• Demand looks good presently, but there are concerns about it turning lower in February. Export
demand remains strong, but China is expected to start scaling back their purchases in 2021 as
the recovery in their domestic hog herd progresses
• The cutout and Lean Hog Index hold some moderate downside risk over the next few weeks, but
then both should turn higher into spring and summer. The futures market however, looks overly
optimistic at this point

• INSIGHTS
HOGS & PORK | CAD

Cdn Quarterly Hog Slaughter 2018-2020
• Q4 -3%
• 2020 +4%
• Q1 2021 +0-1%
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Q1 '19 Q2 Q3 Q4 Q1 '20 Q2 Q3 Q4 Q1 '21
Million
Head

Canadian Pork Exports Monthly
• China up 2X
• Vietnam 3x
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2015
2016
2017
2018
2019
2020e
2021f
('000
t
cwe)

50 |
0
10
20
30
40
50
60
18 My Se 19 My Se 20 My Se
Million
Kgs
Chinese Exports Monthly 2018-2020

Domestic Availability 2015-2021F
800
850
900
950
1,000
1,050
1,100
2015
2016
2017
2018
2019
2020e
2021f
Availability
000
t
CWE

Canadian Producer and Packer Margins
Nov 7 to Jan 23
-30
-20
-10
0
10
20
Nov 7 Nov
14
Nov
21
Nov
28
Dec 5 Dec
12
Dec
19
Dec
26
Jan 2 Jan 9 Jan 16 Jan 23
C$/head
Ontario Producer and Packer Margins Latest 12 Weeks
Packer Producer

Weekly Canadian Pork Wholesale Price Differential
vs 2017-2019 Avg
-20%
-10%
0%
10%
20%
30%
Price
Differential
Pork-Beef Pork-Chicken

Retail Fresh Pork Margins vs 2017-2019 Average
November 7 to January 23
0%
5%
10%
15%
20%
25%
30%
35%

INSIGHTS: Pork Summary Points
• Robust production
• Export Focus
• Domestic Availability?
• Competitive on margins and costs

Q&A SESSION
?
?
?

57 |
AUDIENCE QUESTIONS
For pork - is the market going to be able to
run ahead of feed price and leave any
margin?
“
- CANADIAN PRODUCER

58 |
AUDIENCE QUESTIONS
What hard data do we
have to confirm that
China is successfully
rebuilding its hog herd?
“ China claims their pork herd is
nearly back to pre ASF levels,
although pork pricing in China and
meat import volumes suggest
otherwise.
Can you discuss your thoughts on
the prospect that they are back
near pre ASF levels and, if you think
they aren’t, what is the likely
timeframe that they will be?
“
- CANADIAN PRODUCER
- ANALYST

59 |
AUDIENCE QUESTIONS
With La Ninã present over the last few
months, what is the probability of a strong
drought in 2021 and its effect in the cattle-
beef value chain.
“
- VALUE ADDED PROCESSOR

60 |
AUDIENCE QUESTIONS
Are European/Asian Hog Markets more affected
by Covid or ASF restrictions and what are the
implications (i.e. in Germany/China/Vietnam)?
How does this in turn affect our US/Canada
exports?
“
- PACKER

“
61 |
AUDIENCE QUESTIONS
How will technology support
delivery of "experiences"
with shift from food service
and tourism to at-home
cooking environment?
“
As we return to some version of
normalcy, where do we see
foodservice demand with so
many operators closing their
doors permanently?
Will middle meat primals take up
more room in freezer stocks or
do you think retail features will
be enough to allow the Packers
to sell through?
- ASSOCIATION
- ANALYST

62 |
AUDIENCE QUESTIONS
ANY ADDITIONAL QUESTIONS?
“

You can email our panelists directly
at:
• Rob.Murphy@jsferraro.com
• Kevin@KevinGrier.com
Please complete
our brief survey to
help us continue to
shape great
discussions.
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AUDIENCE QUESTIONS:
For pork - is the market going to be able to run ahead of feed price and leave any margin?
DR. ROB MURPHY
Not likely. Consumer demand is expected to be down somewhat in 2021 from the red-hot level of 2020 and
that will limit price gains in pork, and by extension, hogs. Consumers won’t care that feed prices are high.

AUDIENCE QUESTIONS:
What hard data do we have to confirm that China is successfully rebuilding its hog herd?
DR. ROB MURPHY
No direct hard data on this exists outside of what the Chinese Ministry of Agriculture reports. We can,
however, observe price levels and make some inference of how much pork is available to Chinese consumers.
From that vantage point, it looks like the industry has a ways to go to return to pre-ASF levels because Chinese
hog and pork prices remain very high.

AUDIENCE QUESTIONS:
With La Ninã present over the last few months, what is the probability of a strong drought in 2021 and its
effect in the cattle-beef value chain
DR. ROB MURPHY
The US is already seeing a strong drought in the Western states and I think the probability of it spreading to
the Corn Belt is high—maybe 40% or better. This will affect the beef supply chain by raising costs of gain for
feedyards, which will then try to pass those increased costs on to other parts of the supply chain. They don’t
have much market power to pass those increases on to packers, so the logical place for them to pass those
costs along are through paying less for feeder cattle. That means that in the end, it will be the cow-calf
producer that bears the brunt of high feed costs caused by a drought.

AUDIENCE QUESTIONS:
Are European/Asian Hog Markets more affected by COVID or ASF restrictions and what are the implications
(i.e. in Germany/China/Vietnam)?
How does this in turn affect our US/Canada exports?
DR. ROB MURPHY
ASF has been in Europe for decades. The recent outbreaks in Germany may have had a small positive impact
on US/Canadian pork exports when it initially happened, but at this point the impact is probably minor.

AUDIENCE QUESTIONS:
As we return to some version of normalcy, where do we see foodservice demand with so many operators
closing their doors permanently?
DR. ROB MURPHY
Demand for beef and pork from the foodservice sector will probably show a brief surge as restaurants
replenish inventory ahead of re-openings this spring and summer, but beyond that, I think that re-opening of
foodservice will be a net negative for both beef and pork demand. Foodservice establishments that closed
their doors during the pandemic can easily be replaced by new operators if consumer demand warrants it.
However, because business travel (which is a significant driver of foodservice demand) is likely to be
constrained well after the pandemic has subsided, I would expect foodservice demand to be less than pre-
pandemic levels for a long time after the pandemic is resolved.

AUDIENCE QUESTIONS:
Will middle meat primals take up more room in freezer stocks or do you think retail features will be enough to
allow the Packers to sell through?
DR. ROB MURPHY
Retailers have demonstrated that they can sell a lot of middles during the pandemic. Consumers will have
their middle meats regardless of whether they come from the foodservice or retail channel. So, I don’t see
much risk that middle meats will back up because of poor movement at retail.

AUDIENCE QUESTIONS:
How much of the gain in US pork export is correlated to restrictions placed on Canadian export to China?
DR. ROB MURPHY
A small portion, maybe like 5-10%.

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