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

Today’s Feed Manufacturing Sector and a Vision for its Future Health and Profitability. Fernando Palacios February, 2009. Agenda. Environment Implications Q&A. Environment. 2008, What a ride. Crude oil approached $150 a barrel and dropped below $35

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

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

  2. Agenda • Environment • Implications • Q&A

  3. Environment

  4. 2008, 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

  5. COMPANY 2006 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 • Mars 21,000 • SABMiller 18,620 • Sara Lee 15,944 Food Processing – 2006 Competition is changing COMPANY 1975 SALES 1 Kraftco 13,760 2 Esmark 13,401 3 Beatrice Foods 11,874 4 Greyhound (Dial) 10,575 5 General Foods 10,410 6 Borden 9,538 7 Ralston Purina 8,920 8 CPC International 7,766 9 Consolidated FoodS 7,183 10 General Mills 6,427 COMPANY 1999 SALES 1 Philip Morris 31,139 2 ConAgra 24,594 3 Cargill 21,400 4 PepsiCo 20,367 5 The Coca-Cola 19,805 6 Mars 15,000 7 ADM 14,283 8 IBP 14,075 9 Anheuser-Busch 11,704 10 Sara Lee 10,823

  6. Cooperatives continue to consolidate

  7. Billion pounds 2008 / 2009 40 3% / -1% 35 30 1% / 0% Beef 25 20 Pork +6% / -1% 15 10 Broilers 5 0 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 As Liquidation Boost 2008 Supplies … * Terry Barr NCFC January, 2009

  8. Billion pounds 15 Imports Exports Balance 12 • Export • Broilers ….. 17% • Beef ………. 7% • Pork ……… 22% 9 6 3 0 -3 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 … U.S. Meat Exports Likely to Weaken while … * Terry Barr NCFC January, 2009

  9. … U.S. Milk Production Outpaces Demand Million pounds milk fat basis 210 Commercial supply Commercial disappearance 200 190 180 170 160 150 140 130 120 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 * Terry Barr NCFC January, 2009

  10. Indexes of major currencies/US$ 110 100 90 80 70 60 82 70 72 74 76 78 80 90 04 06 08 02 84 86 88 92 94 96 98 00 Dollar Strengthens and Global Uncertainty remains U.S. dollar reversal will erode foreign buying power and weaken demand * Terry Barr NCFC January, 2009

  11. Contribution to world growth in percent 7 India China Other developing Advanced countries 6 5 4 3 2 1 0 -1 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 China/Emerging Markets Limit Recession * Terry Barr NCFC January, 2009

  12. World Grain Stocks Begin Rebound as Demand Weakens and … Million metric tons 500 +51 400 300 200 100 0 70 72 76 78 80 82 86 88 90 92 96 98 00 02 08 06 74 84 94 04 * Terry Barr NCFC January, 2009

  13. Billion bushels of corn 6.0 -14% Feed and residual 5.0 4.0 3.0 -18% 2.0 Exports 1.0 Food, seed & industrial Ethanol 0.0 78 80 82 88 90 92 70 72 98 00 02 08 84 86 94 96 74 76 04 06 … Ethanol Displacing Export and Feed Use * Terry Barr NCFC January, 2009

  14. Household Net Worth Falling Rapidly Change in trillion dollars 6 4 2 0 -2 -4 -6 -8 -10 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 * Terry Barr NCFC January, 2009

  15. Regulators are under increasing pressure to enact broad 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

  16. Changing markets demand new services of manufacturers • Vendor Managed Inventory • Multiple Manufacturing Locations • Global Sourcing • Electronic Data Interchange (EDI) • Web Order Entry

  17. Other issues to consider • Lifestyle Growth • Ingredients • Food like Quality Systems??? • Workforce • Hiring • Retention • Diversity • Environmental Sensitivity • Local • State • Federal

  18. Other issues to consider * Terry Barr NCFC February, 2008

  19. Implications

  20. 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

  21. How do we get there? • 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 • 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 behavior • Total commitment to organization excellence • Demonstrated passion for quality

  22. 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 What will success look like?

  23. Q & A

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