"We must work together . We must cooperate. We must give up some of our independence."

Why USPB?
• Marketing system broke
• Limited market access
• Demand picture
• Desire to add value

Annual consumer beef demand

Beef industry food chain


Future beef industry food chain
“Virtual Integration”


Keys to successful beef industry
• Value-based pricing
• Carcass information
• Ownership
– Commitment to consumer
– Full value (selling meat and meals)
– Value added
– Market access

Vertical integration
• Pork and poultry (competition)
– Mobile feed source
– Ability to concentrate
– Similar processor/producer investment
• Beef
– Immobile feed source
– Inability to concentrate
– Producer investment greatest

USPB mission
“To increase the quality of beef and long-term profitability of cattle producers by creating a fully integrated producer-owned beef processing system that is a global supplier of high quality value-added beef products responsive to consumer desires.”

USPB mission
To profitably sell meat and meals instead of cattle.

“Alliance”
Any relationship between a producer and a processor beyond spot weekly market.

Producer alliances alternatives
• Formula
• Grid
• Third-party grid
• Direct investment
• New entry direct ownership
• Joint venture

Alliances considerations
• Market access
• Pricing
• Incentives
• Carcass data
• Control
• Ownership
– Return on investment (ROI)
– Expertise
– Start-up

U.S. Premium Beef
• Closed marketing cooperative
– Pooling capital
– Pooling cattle
– Common in nut and fruit industries
– Shares tied to delivery rights

Processing acquisition
• Explored alternatives
• Purchase Farmland National Beef Packing Co. (FNBP)

Acquisition
• Purchase FNBP w/labels
• $104/head total cost
• $55/head producer equity
• $50/head debt equity
• Due diligence
• % ownership = % of total capacity

Farmland National Beef operations
• Fourth-largest U.S. beef packer
– More than 9% of fed-cattle market
• Product sales mix
– 30% of sales are branded or value-added
– 18% of sales are international
• National branded beef labels include
– Farmland Black Angus label
– Farmland Certified Premium Beef label
– Kansas City Steak Company®
– Black Canyon Angus
– Farmland Family Entrees

USPB/Farmland partnership


USPB Summary
• 1,346 members in 28 states
• 353 stockholders in 20 states
• 711 feedyards in 14 states
• 1.5 million cattle
• $20 million grid premiums
• $30 million in earnings
• $1.8 billion in sales

USPB cattle deliveries


Cost
• Membership
– $500 — lifetime
– $100 — annual
• Stock access
– Purchase — $55-$90/share
– Lease right — $10/year/delivery

Benefits


USPB average grid premium


Cattle summary
• After processing 1.5 million head
– Top 25% = $45 > Cash
– Top 50% = $35 > Cash
– Top 75% = $27 > Cash
– Bottom 25% = $10 < Cash
• Paid out more than $20 million in grid premiums
• $13.02/head average

USPB grid premium history


USPB net income


Dollars per head patronage history


USPB stock value


USPB return on investment



USPB ROI comparison
December 1997-December 1999


USPB Results
• Improved cattle quality
• Increased industry move to value-based marketing
• Increased earnings of members
• Provided guaranteed market access
• Increased industry knowledge
• Increased long-term viability

Keys to USPB success
• Value-based pricing
• Carcass information
• Ownership
– Commitment to consumer
– Full value (selling meat and meals)
– Value-added
– Market access

Our latest product
• Farmland Family Entrees

What have we learned?
• Segment coordination adds value and efficiencies
• Extreme value differences in similar cattle
• Grade determined by genetics and production management
• Processing earnings misunderstood
• Processing earnings seasonal
• Low cattle prices don’t result in higher processor earnings
• Prices predominately driven by demand and supply
• Business parallels between segments

U.S. Premium Beef
For additional information on USPB, visit www.uspremiumbeef.com.