FEED

Analyst: Victor Sula, Ph.D. Initial Report June 5th, 2009

FEED daily

6/04/09

8 7 6 5 4 3 2 1 0 © BigCharts.com

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Apr

May

Jun

Millions

volume

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MARKET DATA

Share Statistics (01-Jun-09) Symbol Current price Low/ High 52 weeks Average Volume Market Cap Dil. Shares Outstanding

FY2007

FY2008

% Chg

FEED

Revenues, $ Mn.

7.7

24.8

174.9%

$6.87

Gross margin

28.7%

23.9%

-480 bp

$0.90 –17.07

Operating margin

17.4%

17.2%

-20 bp

3,323,620

Net margin

18.5%

11.8%

-670 bp

0.25

0.53

$263.07 Mn 38.3 Mn

EPS, $

Recommendation The Company doubled annual profits in 2008, has no net debt and trades for less than nine times earnings. In addition, China’s vast feed and hog raising industries and adoption of the Food Safety Law which goes into effect on June 1, 2009 will enhance the Company`s animal nutrient business by removing competing substandard products from the market. FEED is in a strong position to continue its focus on increasing profitability and gaining market share in China’s premix animal feed and hog production businesses and, accordingly, we rate it with a Buy rating.

Highlights FEED is the largest commercial hog producer and the largest premix feed company in China. Its hog farms and feed plants are strategically located in south China where some of the most profitable feed and hog markets are located. The Company`s operations are comprised of 30 farms, 2,000 employees and 5 feed manufacturing plants. FEED has strong brand loyalty in the farming communities it serves, namely: the Coastal and Southern provinces AgFeed Industries, Inc. (Nasdaq: FEED)

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Analyst: Victor Sula, Ph.D. Initial Report June 5th, 2009

AgFeed Industries, Inc., through its subsidiaries, engages in the research and development, manufacture, marketing, and sale of fodder and blended feed for use in the domestic animal husbandry markets primarily in the People`s Republic of China.

The Company also involves in raising, breeding, and selling hogs for use in China`s pork production and hog breeding markets.

Its products primarily include additive premix fodder for use in all stages of a pig`s life, and blended feeds.

As of December 31, 2008, the Company had 1 breeder farm and 29 meat hog producing farms in the Jiangxi, Shanghai, Hainan, Guangxi, and Fujian provinces. In addition, the Company operates five premix feed manufacturing facilities located in the cities of Nanchang, Shandong, Shanghai, Nanning, and Hainan.

FEED distributes its feed products through 1,000+ independently owned retail chain stores, distributors and large-scale hog farms.

FEED was founded in 1995 and is headquartered in Nanchang City, the People`s Republic of China. The Company’s common stock is included in the Russell 2000, Russell 3000, Russell Global Index and the Russell Microcap indexes.

of Jiangxi, Fujian, Guangxi, Guangdong and the Shanghai area.

In the last year the Company has added over 500 independentlyowned distribution outlets across 5 provinces resulting in a total of over 1,000 by year end of 2008. The Company distributes premix products to 660 large industrial farms.

The Company entered the hog farming business in November, 2007 as a result of acquisition of 90% of the capital stock of Lushan Breeder Pig Farm Co., Ltd. which owns and operates a breeder hog farm occupying 258,000 square meters located in the town of Hualin in Xingzi County, Jiangxi Province. In 2008, FEED acquired at least a majority interest in 29 meat hog producing farms in the Jiangxi, Shanghai, Hainan, Guangxi, and Fujian provinces.

As a result, in just one year, the hog production revenue surpassed nearly twice that of the Company`s 13 years-established premix and blended animal feed business.

FEED`s 2008 profit more than doubled thanks to a steep increase in its hog production capacity. The Company reported earnings of $16.9 million, or 53 cents per share, up from $6.7 million, or 25 cents per share, in 2007. Excluding $6.26 million in one-time charges related to investor conversion of a note offering, the Company posted a 2008 profit of $23.2 million, or 74 cents per share.

Revenues nearly quadrupled, to $143.7 million, from $36.2 million the year before. Analysts are expecting 2009 and 2010 earnings of 41 cents and 55 cents a share, respectively.

FEED`s strategic plan calls for development of a platform for the production and sale of approximately 2,000,000 hogs into the Chinese market during 2010-2011. The key element to this future growth is scientific breeding. The Company is in the final stages of completing the construction of the “Nucleus” farm near Wuning China and will stock the farm with pure lines in the third quarter.

In addition, in April 2009, FEED entered into a genetics program arrangement with Hypor, a Hendrix Genetics Company, world renowned as a leading provider of superior swine genetics and technology. Hypor provides FEED with support in planning this farm, including design, stocking plans as well as maximizing the benefits across the production system.

In May 2090 FEED entered into a letter of intent to form a joint venture with M2P2, a leading US hog production and industry management consulting company which operates in six states throughout the U.S. and owns and operates 28,500 sows and finishes 1,200,000 market hogs annually. The joint venture will be a Pan Asian based production management company focused on introducing the western model of modern production systems.

The management services offered will include facility planning,

AgFeed Industries, Inc. (Nasdaq: FEED)

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Analyst: Victor Sula, Ph.D. Initial Report June 5th, 2009

STOCK PERFORMANCE (%)

3 Mo.

Price Change

487.8

-56.4

Last Qtr.

12 Mo.

3 Yr CAGR

Revenues EPS

174.9 166.7

292.3 112.0

n/m n/m

RETURN ON EQUITY (%)

FEED

Ind Avg

S&P 500

23.0 n/m

3.27 7.42

21.0 20.0

GROWTH (%)

TTM 5 Yr. Avg.

1 Yr.

P/S comparison

Source:Reuters.com

AgFeed Industries, Inc. (Nasdaq: FEED)

3 Yr. (Ann) n/a

international staff training, science based genetics, bio security and interactive information systems to upgrade pork production systems throughout Asia. The joint venture will be majority owned by the Company.

Over the past 52 weeks, the Company’s shares have traded between 90 cents and $17.07, and skyrocketed nearly 400% since the start of the year. FEED`s shares soared 61% just the next day after the Company announced its full-year profit more than doubled.

The surge in first-quarter 2009 profit sent its shares 15% up. In addition, fundamental factors also support the stock`s upward trend.

Financial Analysis In 2008 the Company reported revenues of $143.6 million, as compared to $36.1 million in 2007. The increase in revenues was due to an increase in the volume of feed products that the Company sold and the acquisition of 30 hog farms. Revenue from premix and blended feed sales was $51.75 million, accounting for 36% of revenue. Revenue from hog production was $91.92 million, accounting for 64% of revenue. These results represent a gross margin of 23.97% which decreased from 28.76% during the twelve month period ended December 31, 2008 as compared to the same period last year. The decrease in gross margin can be attributed to the increase in the cost of hog feed during the 2008 last two quarters.

For Q1 2009, revenue nearly tripled to $33.4 million. The Company earned $3 million, or 8 cents a share, compared with $919,297, or 3 cents a share, last year, beating analysts’ estimates that on average were looking for earnings of 5 cents a share on revenue of $37.2 million.

As of March 31, 2009 FEED`s cash and cash equivalents were $20.4 million and working capital was $47.7 million. The Company also had no outstanding loans. In December 2008, FEED aborted a previously announced $10 million share buyback program launched in October 2008 and announced a secondary offering to raise gross proceeds of $8.75 million, citing uncertainty in the capital markets heading into 2009 as the primary reason for the need for new funds. However, recently, the Company announced that depending on market conditions it may chose to restart its currently suspended stock buyback program.

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Analyst: Victor Sula, Ph.D. Initial Report June 5th, 2009

FY07 FY08 31-Dec-2007 31-Dec-2008 INCOME STATEMENT Net Sales ($mil) Gross profit ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil)

36.2 10.4 6.3 6.3 6.7

143.7 34.4 24.7 24.7 17.0

BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil)

7.7 23.1 1.1 19.5

24.8 137.1 3.2 118.8

17.4% 17.4% 2.38 29.0% 34.4%

17.2% 17.2% 1.79 12.4% 14.3%

5.0 5.3% n/m n/m

4.6 2.6% n/m n/m

27.0 0.25 0.72 n/a n/a

37.9 0.53 3.13 10% 611,439

PROFITABILITY EBITDA Margin Operating Margin Asset Turnover Return on Assets Return on Equity DEBT Current Ratio Debt/Capital Interest Expense ($mil) Interest Coverage SHARE DATA Dil. Shar. Outst.(mil) EPS Book value / share Institutional Own % Avg Daily Volume

Source: SEC filings; analyst estimates.

Q1 08 Q1 09 31-Mar-2008 31-Mar-2009 INCOME STATEMENT Net Sales ($mil) Gross profit ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil)

12.2 3.4 1.7 1.7 0.9

33.4 5.8 3.2 3.2 3.0

BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil)

36.9 66.4 16.5 44.1

20.4 136.7 3.3 121.6

Source: SEC filings

AgFeed Industries, Inc. (Nasdaq: FEED)

Industry analysis According to the China Feed Industry Association, China will surpass the U.S. as the world’s largest animal feed market reaching $50 billion in annual sales by 2010. Meat consumption has risen dramatically in China over the past two decades. Over 65% of total meat consumed in China is pork. The pork consumption has risen 19% since 2003. With over 600 million hogs produced each year, compared to 100 million in the U.S., China represents more than 50% of the world’s annual hog production as well as the world’s largest and most profitable pork consumer markets.

Hog production in China enjoys income tax free status. The premix feed market in which FEED operates is an approximately $1.6 billion segment.

Today, a total of 30 countries have had infections with the new flu strain that is a genetic mixture of swine, bird and human viruses.

The Chinese government had taken necessary steps to insulate the country from any risk. China has banned the import of pork from some U.S. States, Alberta, Canada, and from Mexico, so demand could rise as people seek out alternative sources. However, prices of pork have been falling for the past 18 weeks, according to Ministry of Agriculture figures. The national average pork price was about more than 40% less than when the fall began. According to analysts, hog prices will continue at low levels until late summer and will begin to climb in Autumn as the Chinese economy accelerates.

Grain prices – the main food for hogs - have soared in the past year, driven by world demand for wheat, corn, oats and soybeans to feed people and livestock. Crops were further battered by bad weather around the globe. Commodity prices in 2009 are poised to further surpass historical averages. However, although commodity prices likely will rise next year, the costs of some key ingredients including corn wheat and soybeans have retreated recently, and they could moderate further as farmers prepare to increase output to meet stronger demand.

Analyst opinion AgFeed Industries operates two product segments in China. Its premix animal feed line is the China’s largest in terms of sales, while the Company is hog production segment is one of the most dynamic. Including the Company’s newest additions, it now owns controlling interest in 30 producing commercial hog farms throughout China with annual hog production capacity of 650,000 hogs. The Company has also reached important milestone in the last few months investing in its science-based genetics programs 4

Analyst: Victor Sula, Ph.D. Initial Report June 5th, 2009

Consensus Estimates XOMA EPS, $ Revenue, $Mil

FY 2009 31-Dec-09

FY 2010 31-Dec-10

0.55 216.3

0.41 175.3

consensus estimates are provided by Thomson Financial

Rev. consensus estimates, $Mil. Ticker Symbol

Revenue, $ Mn

2009 781.0 12,680 1,677 26,695 7,031

HOGS SFD SAFM TSN HRL

2010

%Chg

927.9 12,712 1,784 27,248 7,339

19% 0% 6% 2% 4%

175.3

216.3

Zhongpin Inc. Smithfield Foods, Inc Sanderson Farms Inc Tyson Foods, Inc Hormel Foods Corporation

EPS, $

2009 1.56 -1.23 2.4 0.00 2.24

Ticker Symbol HOGS SFD SAFM TSN HRL

Price per Share, $ 10.63 13.29 42.09 13.52 34.70

P/E Mrkt. Cap. $ Mn 2009 2010 294 1,908 854.8 5,104 4,659

Median

2010

%Chg

1.87 0.93 3.85 0.82 2.48

20% n/m 60% n/m 11%

AgFeed Industries, Inc.

FEED

6.17

236.3

6.81 n/m 17.54 n/m 15.49

5.68 14.29 10.93 16.49 13.99

15.49

13.99

15.05

11.22

Source: Thomson Reuters; Yahoo! Finance.

20%

Median FEED

Comparative analyses Company Name May-27-2009

EPS. consensus estimates, $

HOGS SFD SAFM TSN HRL

Shares fetch from $0.90 to $6.86 in less than three. Since 2006, revenues have grown from $9 million to $143 million and net income has gone from $1.2 million to $17 million. Despite the solid growth prospects FEED is traded with unwarranted discount to peer group forward P/E multiples.

23%

Source: Thomson Reuters.

Ticker Symbol

China represents remarkable opportunities for global companies in the feed and hog production industries. Increasing urbanization and the swift growth of the Chinese middle class robustly position the Company in the expanding Chinese consumer pork market. The Company said the recent H1N1 flu had some effect on its businesses, but the Chinese government had taken aggressive measures to curtail this problem in China. Moreover, Chinese central government recently released administrative regulation that could prevent large declines in hog prices with a view toward stabilizing hog production and prices in order to protect the interests of hog farms.

4%

Median FEED

and standardizing production practices. The “Nucleus� farm will be at the top of the Company`s genetics pyramid and will support its future genetics programs.

0.41

0.55

34%

Source: Thomson Reuters.

AgFeed Industries, Inc. (Nasdaq: FEED)

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Analyst: Victor Sula, Ph.D. Initial Report June 5th, 2009

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We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable.

To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).

We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www. finra.org.

All decisions are made solely by the analyst and independent of outside parties or influence.

I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

AgFeed Industries, Inc. (Nasdaq: FEED)

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