The Changing The Changing LandscapeLandscape

May 2008May 2008

John MasswohlJohn MasswohlDirector of Govt & International Director of Govt & International

RelationsRelations

Canadian Cattlemen’s AssociationCanadian Cattlemen’s Association

Facing Competitiveness Facing Competitiveness Challenges:Challenges:

High Canadian dollar High Canadian dollar

High input costs High input costs (feed, labor, (feed, labor, energy)energy)

Impaired market accessImpaired market access

Higher regulatory burdenHigher regulatory burden

Weekly AB Fed Steer Price vs Canadian Dollar

$30

$50

$70

$90

$110

$130

Jan

98

Jan

99

Jan

00

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

Cdn

$ p

er c

wt

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

Cdn

$ -

US

Ter

ms

AB Steer Dollar

Sour c e: C anf ax, B ank of C anada

Break Even vs Market PriceYEARLING STEER

$70

$80

$90

$100

$110J

un

-06

Sep

-06

Dec

-06

Ma

r-0

7

Ju

n-0

7

Sep

-07

Dec

-07

Ma

r-0

8

Ju

n-0

8

Sep

-08

Cd

n $

per

cw

t

Break-even Cash

Sour c e: C anFax T r ends Wes t

Canadian Regulations and Canadian Regulations and Other Government Other Government

InvolvementInvolvement Enhanced Feed Ban Enhanced Feed Ban

Between $5 and $34 per head Between $5 and $34 per head disadvantage versus the USA. disadvantage versus the USA.

Approval of new pharmaceuticalsApproval of new pharmaceuticals Zilmax - $18 to $24 per headZilmax - $18 to $24 per head

Feed Grain and Forage Research and Feed Grain and Forage Research and ApprovalsApprovals KVD / PNTKVD / PNT

Ethanol mandates and tariffsEthanol mandates and tariffs

Market AccessMarket Access   Restricted market access continues to Restricted market access continues to

affect the “cut out” value of our cattle by affect the “cut out” value of our cattle by over $100 per head. over $100 per head.

Korea, Japan, Mexico, Russia, China, others Korea, Japan, Mexico, Russia, China, others

Newer issues with USNewer issues with US

Border testingBorder testing COOL COOL feesfees

• Increased costs and force greater product differentiation• Will widen basis on live cattle prices vs U.S.

How will COOL affect Canadian producers?

• In 2002, USDA acknowledged that COOL was forecast to add $ billions of cost to the North American market with negligible benefits•CCA estimated COOL could cost Canadian cattle producers up to $92 per head, or $300 million annually (due to reduced access)

COOLCOOL Does not apply to food serviceDoes not apply to food service Does not apply to exportsDoes not apply to exports Flexibility on trim will be crucialFlexibility on trim will be crucial

BIC building supplier relationships BIC building supplier relationships since 2001since 2001

Short TermShort Term

Higher costs for feed grainHigher costs for feed grain Lower relative prices due to currencyLower relative prices due to currency Conversion of cultivated pasture to “fuel Conversion of cultivated pasture to “fuel

grains or crops”grains or crops” Reducing numbers Reducing numbers Urgent need to address regulatory Urgent need to address regulatory

inequities and market access restrictionsinequities and market access restrictions Pursue value creation aggressively Pursue value creation aggressively

Longer Term:Longer Term:

Outlook and OpportunitiesOutlook and Opportunities

Canada is still the third largest beef and cattle exporter in the world, and the largest

exporter of grain fed beef.

Source: OECD/FAO Agricultural Outlook

Global beef consumption will continue to grow.

FEED GRAIN PRICESLethbridge and Omaha in barley equivalents

$60

$80

$100

$120

$140

$160

$180

$200

$220

Aug

-97

Aug

-98

Aug

-99

Aug

-00

Aug

-01

Aug

-02

Aug

-03

Aug

-04

Aug

-05

Aug

-06

Aug

-07

Cdn

$/t

onne

Lethbridge BarleyOmaha Corn

Barley and Corn have both reached record highs in 2008 at $220/tonne and $236/tonne; however, the differential has decreased so that COG is comparable.

Canadian boxed beef values higher Canadian boxed beef values higher than U.S. valuesthan U.S. values

US Choice/Canadian AAA spread

-20

0

20

40

60

80May-03

Sep-03

Jan-04

May-04

Sep-04

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Cdn

$/c

wt

Source: CMC,

Industry Positioning:Industry Positioning:Establishing the “Canadian Beef Establishing the “Canadian Beef

Advantage”Advantage” Animal health & beef Animal health & beef

safetysafety Genetics/breedsGenetics/breeds Animal IDAnimal ID Age verification capabilityAge verification capability Production programsProduction programs

(QSH)(QSH) Product quality Product quality

(consistency, palatability)(consistency, palatability) Yield and profitabilityYield and profitability Service and Technical Service and Technical

support support

Canadian Beef AdvantageCanadian Beef Advantage1.1. Maximize the value of every cut and product Maximize the value of every cut and product

from every animal we sell. from every animal we sell.

2.2. Canada’s strength will clearly remain in the Canada’s strength will clearly remain in the production of high quality (grain fed) beef. production of high quality (grain fed) beef. (Likely shorter times on feed)(Likely shorter times on feed)

3.3. Global marketing efforts to differentiate our beef Global marketing efforts to differentiate our beef on the basis of quality and safety.on the basis of quality and safety.

4.4. We need to regain as full a range of market We need to regain as full a range of market access as we can in terms of both the scope of access as we can in terms of both the scope of products and countriesproducts and countries

5.5. Location to U.S. – only just in time fresh beef Location to U.S. – only just in time fresh beef import supplierimport supplier

Advanced Information AlignmentAdvanced Information Alignment Each sector in the value chain providing Each sector in the value chain providing

information to the rest of the chain will information to the rest of the chain will demonstrate cooperation in achieving the demonstrate cooperation in achieving the value proposition with everyone contributing value proposition with everyone contributing and benefiting.and benefiting.

All participating Canadian cattle are age verified All participating Canadian cattle are age verified through the CCIA database (register as being on through the CCIA database (register as being on VBP)VBP)

All participating feedlots report the arrival of All participating feedlots report the arrival of animals to the database and submit specified animals to the database and submit specified performance data (non-proprietary) on close out.performance data (non-proprietary) on close out.

All participating packers and abattoirs submit All participating packers and abattoirs submit specified carcass information linked to the animal specified carcass information linked to the animal ID to the CCIA databaseID to the CCIA database

Effect of Fed Cattle Prices on 550 lb Feeder Price

$141.36$129.09

$116.82$104.55

$92.27$80.00

$67.73

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$75.00 $80.00 $85.00 $90.00 $95.00 $100.00 $105.00

Fed Cattle Price

Fee

der

Cat

tle P

rice

QUESTIONS?QUESTIONS?