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Vol. 11, No. 186 / September 30, 2013

Analysts and market participants were left scratching their heads following the release of the latest USDA Hogs and Pigs survey results. Coming into the report, there was broad expectation that: a) the inventory numbers would be lower than a year ago; b) the breeding herd would show some form of expansion with lower feed costs expected in the next 12 months; c) the PEDv impacted the number of pigs saved per litter and reduced productivity during the Jun - Aug quarter; and d) the farrowings for the DecFeb quarter would show solid growth above 1%, implying a little over 2.5% growth in pigs coming to market in late spring and early summer of 2014. USDA survey results contradicted market expectations on all those counts (see table). Below is a recap of the results and the implications for pork supplies going forward. The USDA survey pegged the supply of market hogs as of September 1 at 62.546 million hogs, 0.3% larger than a year ago. This was outside the range of pre-report estimates and emphatically contradicts the view that hog supplies on the ground are lower than a year ago. The inventory of hogs and pigs over 180 pounds was estimated at 11.090 million head, 3.5% lower than a year ago. If this number is correct, then we should see a significant increase in hog slaughter in the next two weeks. Hog slaughter in the first four weeks of September (Sep. 1 - Sep. 28) was 8.524 million head down about 7.7% compared to the same four weeks last year. Weekly hog slaughter has averaged about 2.13 million head in the last four weeks, which is somewhat behind normal but if the survey results are right, then hog slaughter for the next two weeks should run at around 2.4 million head. And if producers truly are behind in their marketings, we should see a significant acceleration in hog carcass weight gains, especially with cooler weather and fresh corn available in October. The USDA survey indicated that the inventory of hogs weighing 120179 pounds was up 1.5% from a year ago while the inventory of hogs 50119 pounds was up 1.1%. These are hogs expected to come to market between mid October through mid January and analysts were watching these categories closely for an indication of the impact from PEDv disease. According to the USDA data, however, the disease has had only a very minimal impact on overall supplies. The number of pigs saved per litter during Jun - Aug was 2% above a year ago - so no impact from PEDv. If the numbers are right, then we should see weekly hog slaughter through the end of the year average above 2.3 million head per week, with a few weeks near or above 2.4 million. This level of hog slaughter coupled with 1.5% to 2% heavier weights would dramatically contradict the price premiums built in the December futures contract. Regardless of what market participants think of the survey results, it is likely that futures will trade the results of this report,

USDA Sep. 1 Hogs and Pigs Results vs. Analyst Estimates

Source: Dow Jones Newswire USDA Actual All hogs and pigs on Sept 1 Kept for breeding Kept for marketing Jun-Aug pig crop Jun-Aug pigs per litter Jun-Aug farrowings Sep-Nov farrowing intentions Dec-Feb farrowing intentions Hogs weighing under 50 lbs Hogs weighing 50 to 119 lbs Hogs weighing 120-179 lbs Hogs weighing 180 and over 100.3 100.4 100.3 101.9 102.0 98.6 100.4 100.9 100.9 101.1 101.5 96.5

Average 98.6 101.5 98.3 99.6 100.0 99.8 101.0 101.1 98.8 98.9 98.3 96.2

Range 96.4 - 100.3 100.6 - 102.0 95.9 - 100.2 98.4 - 101.7 98.5 - 101.8 98.2 - 100.9 100.0 - 101.8 99.9 - 102.1 97.0 - 101.6 96.1 - 100.0 95.9 - 101.1 94.0 - 99.3

at least in the short term. Market participants will keep an eye on hog slaughter in the next two weeks. Slaughter numbers and hog weights will tell the story as to how close the recent survey numbers are to the reality on the ground. The next big surprise from the report was the 0.4% growth in the breeding herd, 1.1 points lower than the average of pre-report estimates. Coming into the report, market participants thought that the reduction in hog slaughter, indications of higher gilt retention in spring and summer, increased sow imports from Canada and prospects of lower feed costs in 2014 would all combine to increase the number of breeding animals. The USDA survey results changes the view on hog supplies for next spring and summer. Sow farrowings for Sep - Dec were pegged at just 0.4% above last year and Dec - Feb farrowing estimates were up 0.9%. It is not unusual for farrowing estimates at inflection points in the cycle to vary dramatically from reality and market participats will likely pay less attention to those numbers. At this point, the farrowing numbers and implied pig crop is supportive of current valuations of hog prices for next summer. And while the futures initially will most likely open sharply lower, the issue remains: Did this report provide more questions than answers?

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The Daily Livestock Report is published by Steve Meyer & Len Steiner, Inc., Adel, IA and Merrimack, NH. To subscribe, support or unsubscribe visit www.dailylivestockreport.com. Copyright 2013 Steve Meyer and Len Steiner, Inc. All rights reserved. The Daily Livestock Report is not owned, controlled, endorsed or sold by CME Group Inc. or its aliates and CME Group Inc. and its aliates disclaim any and all responsibility for the informa on contained herein. CME Group, CME and the Globe logo are trademarks of Chicago Mercan le Exchange, Inc. Disclaimer: The Daily Livestock Report is intended solely for informa on purposes and is not to be construed, under any circumstances, by implica on or otherwise, as an oer to sell or a solicitaon to buy or trade any commodi es or securi es whatsoever. Informa on is obtained from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projec ons of future condi ons are a empted. Futures trading is not suitable for all investors, and involves the risk of loss. Past results are no indica on of future performance. Futures are a leveraged investment, and because only a percentage of a contracts value is require to trade, it is possible to lose more than the amount of money ini ally deposited for a futures posi on. Therefore, traders should only use funds that they can aord to lose without aec ng their lifestyle. And only a por on of those funds should be devoted to any one trade because a trader cannot expect to prot on every trade.

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Vol. 11, No. 186 / September 30, 2013

PRODUCTION & PRICE SUMMARY

Item Units Current Week 28-Sep-13 Total Red Meat & Poultry C A T T L E & B E E F FI Slaughter FI Cow Slaughter ** Avg. Live Weight Avg. Dressed Weight Beef Production Live Fed Steer Price Dressed Fed Steer Price OKC Feeder Steer, 600-700 Choice Beef Cutout Hide/Offal Rib, Choice Round, Choice Chuck, Choice Trimmings, 50% Trimmings, 90% FI Slaughter FI Sow Slaughter ** Avg. Dressed Weight Pork Production Iowa-S. Minn. Direct Natl. Base Carcass Price Natl. Net Carcass Price Pork Cutout Hams Loins Bellies 72CL Pork Trim Young Chicken Slaughter * Avg. Weight (Live) Chicken Production (RTC) Eggs Set Chicks Placed 12-City Broiler Price Georgia Dock Broiler Price Northeast Breast, B/S Northeast Legs Young Turkey Slaughter * Avg. Live Weight Turkey Production (RTC) Eastern Region Hen Price Corn, Omaha DDGs, Minnesota Wheat, Kansas City Soybeans, S. Iowa Soybn Meal, 48% Decatur mil lbs., cwe Thou. Head Thou. Head Lbs. Lbs. Million Lbs. $ per cwt $ per cwt $ per cwt $ per cwt $ per cwt, live wt $ per cwt $ per cwt $ per cwt $ per cwt $ per cwt Thou. Head Thou. Head Lbs. Million Lbs. Wtd. Avg. Wtd. Avg. Wtd. Avg. 200 Lbs. $ per cwt $ per cwt $ per cwt $ per cwt Million Head Lbs. Million Lbs. Million Million Head Composite 2.5-3 Lbs. $/cwt $/cwt Million Head Lbs. Million Lbs. 8-16 Lbs. $ per Bushel $ per Ton $ per Bushel $ per Bushel $ per Ton 1,759 632 124 1315 799 503.9 124.31 195.24 N/A 193.43 13.95 305.68 166.83 162.25 89.31 198.98 2,190 59.2 204.0 446 92.68 93.31 95.90 101.19 86.94 104.11 157.31 79.33 160.7 5.81 709.7 190.7 165.0 92.60 105.58 144.38 78.09 4.178 29.76 99.4 102.88 4.56 209.00 7.32 13.24 448.90 Last Week 21-Sep-13 1,741 633 103 1315 800 505.5 124.07 195.65 165.74 192.94 13.94 303.46 164.72 162.08 94.46 204.06 2,180 49.0 203.0 443.32 94.87 93.50 96.07 98.88 86.04 100.54 153.34 67.79 157.8 5.75 689.8 194.0 166.0 93.3 104.28 146.79 72.76 4.342 29.57 102.7 99.18 5.03 209.00 6.90 13.87 475.60 1.02% -0.16% 20.76% 0.00% -0.13% -0.32% 0.19% -0.21% N/A 0.25% 0.07% 0.73% 1.28% 0.10% -5.45% -2.49% 0.46% 20.62% 0.49% 0.60% -2.31% -0.20% -0.18% 2.34% 1.05% 3.55% 2.59% 17.02% 1.82% 1.04% 2.89% -1.70% -0.61% -0.75% 1.25% -1.64% 7.33% -3.78% 0.64% -3.18% 3.73% -9.34% 0.00% 6.09% -4.54% -5.61% Pct. Change

Week Ending

9/28/2013
Y/Y % Change

Source: Various USDA Agricultural Marketing Service reports. Some data are preliminary.
Last Year 29-Sep-12 1,772 649 128 1318 798 517.0 122.45 190.75 151.79 191.77 13.41 286.87 171.30 166.87 49.04 203.40 2,341 64.9 202.0 473.2 74.77 74.50 76.96 NA NA NA NA 52.43 154.2 5.76 670.7 187.9 159.5 81.47 95 131.73 71.03 4.657 29.89 111.3 110.86 7.13 270.00 8.81 15.83 490.10 -0.75% -2.63% -2.96% -0.23% 0.13% -2.53% 1.52% 2.35% N/A 0.87% 4.03% 6.56% -2.61% -2.77% 82.12% -2.17% -6.44% -8.84% 0.99% -5.75% 23.95% 25.25% 24.61% #VALUE! #VALUE! #VALUE! #VALUE! 51.31% 4.21% 0.87% 5.81% 1.46% 3.47% 13.66% 11.14% 9.60% 9.94% -10.29% -0.43% -10.67% -7.20% -36.04% -22.59% -16.91% -16.36% -8.41% 65,388 23,938 4,447 1,310 794 18,925 0.6% -1.4% 0.6% 0.9% 0.8% -0.9% Pct. Change YTD

H O G S

81,228 2,061 206 16,707

-1.0% -1.6% -0.1% -1.1%

C H I C K E N

5,850 5.79 25,755 7,586 6,276

1.0% 1.3% 3.2% 2.1% 0.9%

T U R K G R A I N

163.372 30.65 4,002

-2.1% 0.7% -1.5%

* Chicken & turkey slaughter & production are 1 week earlier than the date at the top of this sheet. ** Cow and sow slaughter reflect levels from two weeks ago due to reporting lag.

The Daily Livestock Report is made possible with support from readers like you. If you enjoy reading this report and would like to sustain it going forward, consider becoming a contributor by going to our website: www.DailyLivestockReport.com

Thank you for your support!