 Agricultural Market Situation Outlook webinar presented by NDC Extension. My name is Dave Ripplinger. I'm an extension economist working in bioenergy, and I moderate webinars most months of the year. This month of things will be a little bit different due to another obligation. We are going to take questions for Frayn Olson immediately after his presentation. But other than that, we'll save questions towards the end. So if you do have a question for Frayn that comes up, please, please ask that when he's finished with his prepared remarks. And of course, too, if you have questions afterwards, you can reach out to any of us in the future to address those. We do have a Q&A tool. This is the webinar platform of Zoom, and we ask that you use that. You can also use the chat. We know how to operate that as well, but we ask that you use the Q&A if at all possible. And with that, I'll hand it over to Frayn Parman. All right. Thanks, Dave. So today, I'm kind of stepping off the ag platform a little bit and just generally talking about inflation. And the biggest reason for that is it's been in the news a lot. It's been in the news all summer. A lot of concerns about inflation, headline grabbing, sound bites, and sentences that folks in the government and at the Fed and financial analysts have made. So the first, you know, my first slide here, where I just kind of title it headlines, it basically these are kind of the things that we're seeing, right? And there was a report and part of the reason I'm also covering this report came out yesterday. And one of the headlines from CNBC was consumer prices jumped 5.4 percent, but core inflation rises less than expected. So you might have seen that yesterday, the stock market rallied a little bit and saw a little bit of bump. Essentially, most folks in the market were expecting a bigger jump than inflation than actually happened. And so we saw the stock market increase. Now, why does that happen? Well, because even though there was inflation, the thought process is that it wasn't as bad as they thought it was going to be. And that may keep the Fed on track to keep interest rates low. So then then the market rallies. And then, you know, July data reveals significant cooling and transitory inflation. And here kind of the end of this talk, I'll hit on transitory versus kind of a I hate to call it permanent because nothing's really permanent, but a more lasting inflation. And then a final headline from the Wall Street Journal inflation stayed high in July's economy rebounded. You know, these were these were basically the headlines that were grabbed from the July report that came out yesterday morning. So my first slide comes with that's a chart comes from the Bureau of Labor Statistics. People call it the BLS. And what this shows is how prices changed relative to the month before. This is not an annual inflation rate. What it's showing is how much higher were prices, let's say this month than they were last month. OK, and so we see over on the right of the chart, you'll see the year is on the bottom. I know it says month, but then the numbers that it shows are the years. But you see that there was this big right at the start of 2020 actual deflation. That was the pandemic, the start of the pandemic, March and April, where prices actually dropped. Then we had a rebounded inflation there toward the end of the year. And over on the right, you can see that prices have been, you know, half a percent approaching one percent higher month over month for the last several months. And this is the inflation that folks are talking about that every month. Prices have been slightly higher than they were last month. And you can see on this time horizon of 2004, we see prices mostly higher than zero relative to the previous month. We did have big deflation, even bigger deflation than we had in the pandemic following the financial crisis. And the biggest reason for that is actually because housing and shelter is a big component of inflation when they calculate this. And when the housing bubble burst and home prices cratered, well, it showed very strong deflation or very high deflation, a very high negative number. And that was because of housing being a big part of the inflation calculation and it dropping significantly. So my next slide just zooms in on the same chart. It's instead of looking at it from 2004, we're looking at it from January of 2020. And you see that deflationary period there in March and April, kind of toward the end of February, March and April on the left. That's that line below zero. And then then that rebound toward the summer in Q3, relatively low inflation. And then again, picking up this year in price changes since March above five percent every month. Now, this isn't the yearly inflation rate. You'll see like in that last headline on one of the headlines I showed, it said five point five percent inflation. What they've done there is annualized it. They've said, you know, what would the rate be if these prices increases month over month at say four and a half percent, five percent? What would that be for an annual inflation rate? And I'm going to show some of that here in a second. So when you look at these, these are just month versus month changes. The price, for instance, in July was approximately, if all the way to the right is July, was approximately five percent higher than it was in June. That's that's how you read this, but significantly higher than it's been for the last several years. And that's what's grabbed a lot of folks' attention. So my next slide shows that annualized inflation rate. I was just saying where they take the year instead of having a monthly inflation rate, how much did prices rise this year? Or whatever year compared to the year before? And so far, I highlight the five point four. That's the projected inflation rate for twenty twenty one. In other words, taking what's already happened and what's expected to happen in the coming months, an inflation rate of five point four percent, which is high by by any metric five point four percent or by any standard that we use in the US five point four percent is very high. In fact, the last time it was even close to that high in one year was around 2008 when it was three point eight percent. Typically, the Federal Reserve likes to see that inflation rate closer to two percent. So this would be, you know, over double two and two and a half times at least what they would actually like to see for an inflation rate. So, yes, five point four percent is high. It's higher than and that's why you're seeing a lot of this stuff in the news. Okay. Now, my next slide, I just kind of want to talk about some things that don't get brought up very much. We hear terms like transitory inflation and economic rebound causing inflation and and the Federal Reserve's actions causing inflation and government spending causing inflation. A lot of all of that stuff is essentially true. But what the hardest part is disentangling one from the other or cause and effect what's actually going on. And I just want to highlight to anyone who maybe isn't really familiar that this is a little bit of an oversimplification or generalization, but there's essentially two reasons for inflation and an economy. Okay. The first one is is sort of a natural inflationary phenomenon. That would be your supply and demand driven inflation. So either there is a shortage of products for whatever reason. So that would be a supply side inflationary impact. For instance, if there's a high demand for lumber for whatever reason, everybody in the economy decides they want to do home improvement repairs next month and there's a big lumber shortage. Well, that's it. That would be kind of a both a demand a demand driven inflationary reason or there's a supply side like with a drought for instance in agriculture. Where maybe demand doesn't change much. There's still the same demand for corn or the same demand for soybean around the world, but because of drought there's less of it so the price winds up going up those are your pretty much traditional supply and demand driven inflate and it is inflation nonetheless prices went up. And the cause is just different. And then again the other one was a significant shift in demand that would be my example on on a lumber that we actually saw. So I took that kind of example from, from what what actually happened was during the pandemic you had people wanting to do home improvement repairs, you had a significant portion of the economy who, after being in lockdowns and dealing with some of the things that the larger metropolitan areas and cities had to deal with. They wanted to move out into the suburbs so they had more space after being locked down for several months. So you have all these people rushing out to buy homes or build homes and then do home improvement projects. And for lumber kind of skyrocketed where supply state fixed and so we saw this big rise in prices and in lumber prices and home prices and everything else. Okay, and in these cases usually that inflationary impact is going to be somewhat isolated. Right it's it's not going to necessarily be widespread. You may not see a drought, which causes a big spike, let's say in corn and soybean prices have a big, a big impact on microchips, for instance. Okay, now the next reason for inflation is changing the next general reason would be a policy change or a change in the money supply a change in the behavior of the Federal Reserve, for instance. And in this one is the one that a lot of folks are worried about and wouldn't be as much of a transitory inflationary cause. And that is, you know, injections of dollars into the money supply causing more dollars to be in the economy and therefore prices rising, essentially to the to the consumer the value of the product the intrinsic value the utility that the consumer gets from the product hasn't changed. It's just that there's a lot more money in the money supply so that it costs more dollars to do it in other words the buy the overall buying power of the dollar has declined. And in this case, most of the time, you'll see the price impacts be felt across just near most most if not all goods, instead of just a few goods here and there causing the inflation spikes. Okay. So my next slide I want to show a quote from the Fed Fed chair Jerome Powell, and you know he says the concept of transitory is really this is that the increase will happen, or increases will happen. But we're not saying that the prices will reverse that the transitory changes inflation will be temporary. It's just that or that the basically what he's saying here is he's not saying prices are now going to go down. He's saying that the gain in prices or the rapid appreciation of prices will subside that will come up to this new more permanent price plateau for a lot of these goods and then that's where it'll stay. You know, they're not saying that producers that suddenly the lumber prices are going to crater or home prices are all of a sudden going to go down 10%, just that they're not going to appreciate at the rate that they have been. And then this transitory concept is more like if you think about you've got this pressurized champagne bottle and somebody took the cork off, all the champagne comes spilling out because there's all this built up demand from the pandemic. And using that home value thing for an example, that once all the folks who lived in the multifamily living areas and things like that in the cities and everybody who gets their home purchased or built that wanted to, you're going to go back to a more natural 2 to 3% increase in home values rather than this big rampant increase or, for instance, the increase in used car values and even new car values that's happened due to some shortages and certain components that once that once that situations resolved you're going to see just going back to a small incremental increase or appreciation and those prices rather than the big jumps that have happened. That's kind of what they mean by this transitory period is that coming out of a pandemic economy getting back on its feet. There's inflation here and there where we've got the supply bottlenecks and issues but once those resolve it's more of a normal or natural rate of inflation, or one that the Fed is targeting at that closer to 2 to 3% rate. My next slide kind of shows that there is a little bit of disagreement on that and some inflationary observations persist. Even in the July report that the cost of rent rose 2.4% compared to last year shelter which that's why I said with those new how those home prices and stuff cratering showed that big deflation. The cost of shelter accounts for over a third of inflation rose 2.8% year over year and it's been kind of sticky so and then we we saw that prices at restaurants and bars remained high with a monthly increase so not annualized monthly of 0.8% compared to like 0.7 and 0.6% the month before so food prices and beverage prices and things like that at bars and restaurants actually remain sticky and fairly high and again that food and energy are not part of the core inflation, but those are expenses that people incur and real expenses that people see even though they tend to be a little bit more volatile. So, my next slide of folks may wonder how the Federal Reserve can halt inflation are there actions that they can take to halt inflation, and there absolutely is. You know we've got government spending on one side which injects a lot of money into the economy but there's actions that the Fed can take to halt inflation and they have taken in the past. And essentially the Fed halts inflation by by selling bonds. So they sell you a bond, they sell a bond of any kind and that takes money out of the economy and it's and it's held at the Federal Reserve essentially. So that's less dollars to circulate in the economy. And we're talking about trillions and trillions of dollars here that they could potentially pull out. And that would reduce the supply of dollars keeping the demand for dollars the same, and that's going to drive up interest rates, it's going to drive up the federal funds rate. And the other thing it's going to do is if they're selling large quantities of bonds, for instance, and they're not buying for instance us treasuries, well then the rate that has to be offered in order to get all these treasuries bought up either being newly issued ones around the secondary market, the rate of being offered on them has to go up to entice new buyers to come into the market and buy it thereby again driving up interest rates. So when that happens and this the dollars are taken out of the of the general economy and as the rates are driven up that tends to halt inflation. And depending on how high they drive them up and how far and how long can have a real strong impact on inflation and somewhat a very short period of time. Okay, so this next slide and it's my last graph slide I promise actually shows that that happening. So here if anyone remembers the 1980s. Well let's go back to the 1970s they had that period under Jimmy Carter where they called the stagflation years. Yet stagnant economy basically, and this high inflation rate. Well the pit fed chairman then in the 1980s Paul Volcker, he adopted a policy where they were going to tighten the money supply at the Federal Reserve. And it drove in interest rates up extremely high there in the early 80s. And this is the federal funds rate but I know a lot of you folks remember who've been on here and been at this a long time interest rates in the 80s up around 20% 22%. It absolutely did. It, it caused a recession but it also stone cold stopped inflation right there in its tracks. I mean it's a painful, it's a painful process, and a painful way to do it but it can be done and it has been done in the past and that's sort of the actions that would be taken, and what folks are afraid of now I'm not saying the feds going to in the near future, Jack rates up to 20% again. If they have to but that and then and that's sort of the fears that that some of these folks in the markets are having is, how are they going to react if these inflationary numbers persist the markets a little bit nervous and they hang on every word that comes out of the feds mouth to try to see how long are they going to keep rates at zero, and how long will they allow this this inflation to continue before they start raising rates to try to curb it. And really the question is, do they believe that this inflation is a result of say, a lot of the spending that's that's been undertaking and the, and the feds most recent policies of quantitative easing, or do they think it's just a blip from the the and some supply chain bottlenecks trying to catch up with it. And in the in the next quarter or two these in these five and 6% inflationary projections are going to drop. And therefore the fed believe that you know they should go ahead and stay the course. And that's really what it boils down to which one of these is true. And it's a tough guess on their part. And as I was told, you know, going to school that fed policies are more like steering a ship than driving a sports car. You have to start turning long before the corner. In order to get your ship on the right track and that's with a lot of these fed policies that they undertake is it can take months quarters, half a year before their before we can go back and analyze was their and see the correct one and is it actually working. So that's why there's a lot of guesswork here and why folks in the market are are doing the best they can to try to predict what the feds actually going to do and how's that going to impact consumer prices, company values, things like that. So, with that, I'd like to thank you for listening to this if you have any questions on it I'll try my best to answer it it's a really complicated topic. It's complicated in some ways it's very simple, but there again, you know, there's a lot of folks out there trying to project what's happening and what will happen in the future. And that's why you see a lot of conflicting cases and statements on on what's going on with inflation and what what the government's reaction should be to it is, do you believe it's transitory, or do you believe that this is just a reaction to this big increase in supply and quantitative easing, and as a result that the government needs to take action immediately to try to try to curb it. So our next speaker is Dr. Frank Olson and frame take it away. All right, thank you very much Brian. So I'm Frank Olson I'm the crop economists and marketing specialist this is my contact information. And as David said, I do have another conference that I'm attending right now and I'll be speaking in about an hour so I need to get kind of organized and prep for that as well but I'll go through kind of the implications of the USDA was to report and production report that we got a couple hours ago. If you do have any questions, you know, please be sure to try and tap them type them into the Q&A function I'll try and answer them today. If there's something that comes up later don't feel don't hesitate to reach out and try and contact me at sometime in the future. So, just to summarize my first slide, the key numbers these are kind of the key numbers that that everybody's going to jump to first so let me explain in the August report. This is the first time that USDA, instead of using a trend line yield estimate, where they are looking at kind of historically what do we see and picking an average number. They actually look at current growing conditions current crop conditions, and try and estimate or forecast what the final yield will be. Now, I'll go through in a little bit how they get these numbers. These are the numbers that are in the marketplace right now these are the numbers people are trading off of. And until we get the September report these will likely be the numbers that most traders and analysts will use. So the top row on the very top what I said average trade estimates. So before each of these crop reports. Major news agencies like Bloomberg and Reuters and Wall Street Journal will will do survey of private analysts private forecasters and say what do you expect USDA to come out with what do you think the number will be. And that is kind of the, the number of the people are trading into the report now once we get the report. Obviously they say well how did, what did what happened I expected this number to be this, it was actually a different number. So the two things the two first numbers people jump to was the corn and soybean yield, because they have now formally been updated based on best expectations for the current growing conditions not necessarily trendline yield. So if you notice the corn yield and the very bottom row that you highlighted and read that was the number that we got a couple hours ago. The trade was expecting about one seventy seven and a half. We actually got one seventy four and a half so lower than what we were expecting. And as a result then when you do the math on well here's what our average yield per harvest acreage acre is you take that times harvested acreage you can get up an estimate of what the total production will be. So again going into the report we were expecting about a 15 billion bushel crop. Right now the current expectations is for something a little less than 15 billion bushels. On the soybean side, the adjustment wasn't quite as large. The difference between what the traders expecting to see and what we actually got wasn't as large, but it was still definitely towards the low end of the range. So if you look at the range of what the highest estimate was versus the lowest estimate you'll notice this 50 bushel per acre is towards the low end of what the trade was expecting to see. And again as a result our production numbers for soybeans were relatively small compared to what the trade was expecting. Not not seismic differences but enough difference that it really put a lift into the marketplace today especially for corn. So on my next slide we had the same updated information now for the wheat complex. And the wheat complex gets more complicated because we have not only all wheat which is all the wheat production blended together but we have these different classes. And again this is one of the reasons that the winter wheat market today is responding fairly positively is if you look at that top row which is the average trade estimate versus what the bottom row is the actual number coming out of the USDA updates. We see that there are some differences on total wheat numbers they were down a little bit but again not dramatically. But if we go class by class by class we did see some changes and the biggest change between what the trade is expecting versus what we actually got was really in the hard red winter wheat complex. They were expecting about 860 million bushels total production we got 777 million bushels. Now again that's the price rise we saw today in wheat in the wheat complex was a combination of a little bit tighter supply to man conditions on the wheat complex. But more importantly we saw a pretty dramatic drop in tightening of that corn complex and wheat is an alternative feed source. So the wheat the milling weeks we grow in the United States has to stay at a premium to corn to prevent too much of the corn of the wheat crop excuse me to go into the feed supplies as a substitute for corn. On the spring wheat side there was a slight increase higher and again primarily because of a slight revision upward in the spring wheat yield for North Dakota. Again not dramatic changes but they were there was enough changes that the market was paying attention. So on our next slide it shows the forecast for ending stocks. So this is both the inbound supply side the production our imports plus carryover stocks less are expected or forecasted usage levels. So how much are we going to consume over the next 12 months. Again you look at the top row which is what the average trade estimate is relative to the bottom row which is what we got from USDA today. And you'll notice that in particular on both wheat and more importantly corn those ending stocks numbers the number we were expecting to see relative to what we got this this a couple hours ago. We're a bit larger than I think most traders were expecting. So again relatively neutral for soybeans but positive for corn and tightening up and positive for wheat as well. On the next slide I just want to talk a little bit about how does USDA come up with these yield estimates in particular for corn and soybeans. It's a combination of two primary sources of information or data. One is a farmer survey it's actually a survey of farm operators. They literally call up about 18600 farmers across the United States and say look given what you see today and normal or typical temperatures and precipitation from here forward. What do you think the yields on your farm will be they combine that information with satellite imagery. And again USDA has been using satellite imagery for you know 20 plus years and they've got forecasting models based on for us in for example in DVI the vegetative index of vegetative health and they try and estimate or forecast what the yield and yield potential might be for crops in this read in under surveillance or under kind of observation. Now for corn and soybeans we won't get what they call objective yield surveys where they actually send people out into the country and and actually do a boots on the ground kind of yield estimate very similar to what a crop insurance adjuster would do. We won't get that information blended into this forecast until September so we have to two major sources of information in August we'll have a third in the September report. Now the key and one of the one of the reasons you can see fairly dramatic differences between what USDA is forecasting for yield versus what you're seeing some of the private analysts coming out with in their individual reports. Is when USDA puts this information together when they're forecasting yields either through remote sensing or when they ask farmers they're very specific to say assuming that we have normal temperatures and normal precipitation from today until harvest. Obviously especially in the western corn belt we have drought conditions. You know and I'll talk a little bit about kind of the extended forecast and what we might be looking for and everybody knows at least in the western western corn belt. You know we're in a drought that drought isn't going to turn around really really quickly but form from a USDA procedure standpoint this is the procedure they have every year so you will see some differences between what USDA is forecasting versus what a lot of private analysts are forecasting primarily because about their expectations regarding weather going forward. On my next slide. I just want to talk a little bit about the reliability of the yield forecast coming out of this August report. So I'm giving you some background information so that you can put some of this into context. Now the markets traders and analysts will trade information or trade on expectations for the number that USDA gave but recognize we have a range. And at the end of each of these reports there's a and nobody reads them because it's in kind of the footnotes portion of these reports. USDA does track and say well how reliable is our forecast in August now compared to the final number we get in January which is kind of the final official numbers. And so they have two different ways of tracking that number one is well is the August number higher or lower than the the the actual how many years are the is our forecast too high and how many years are they forecast too low. As well as they put a statistical confidence interval and I don't want to spend a lot of time on this. But I do want to give a reference point for for how reliable or accurate is the corn and soybean as well as we yield forecasts out of this August report versus what the final numbers are. So for corn that first bullet point for for August corn yield forecasts. When we compare it to what was forecasted versus the actual numbers out of the last 20 years we usually use 20 years of data nine years the August report was too low and 11 years the August report was too high. So you know that's actually pretty close to a 5050 split so we got a kind of a 5050 chance of being a little higher a little lower based on what we see today. The other thing is this confidence interval and I don't want to go through again a lot of the mathematical details other than to say USDA's estimate today was 174.6. And we can put a range around that we're saying well 90% of the time we're 90% confident that the real number the actual January final report number that we get will be somewhere between about 163 and 186. Now you look at and say well that's pretty wide range and it is but if you remember back to your kind of basic statistics that nice bell shaped curve that your your your math teacher always talked about. So we're looking at a pretty wide range of saying when we're 90% confident that the actual yield will be someplace in between there and and what I'm saying is as we move through time that confidence interval will become narrow and narrow and narrow. So we're going to be more and more confident that the number we see in the report is going to be close to the actual number. I'm just wanting to emphasize that we do have this range of possible outcomes depending upon what happens and this is based off of history. We shift to soybeans which is on the bottom and soybeans is a little bit different because August is such a critical time period for soybean yields and soybean development especially in the United States. You know weather and precipitation in August can make a huge difference on flowering and pod sets and number seeds per pod. So when we look historically you look at the August soybean yield estimate versus the final. There's about 14 years out of the last 20 where the August report showed too low a number that as we moved into harvest that yield estimate actually started to increase a little bit. There's about six years out of 20 where the August number was a little too high and it kind of ratcheted down. So again looking at the confidence interval as you notice the confidence interval is a little higher. So we got more variability at this time of year. We've got more uncertainty about what the final yield is going to be. Now USDA came out with 50. They're saying look there's about 90% chance that the real number will be somewhere between 45 and 55. Now in the world of soybeans and given the very very tight supplies on soybeans again that's a really really wide range. The reason I want to bring this up is to say we still have a lot of uncertainty. We still have a lot of growing season left and we have to be aware of that. So don't put too much pressure on these estimates for corn and soybeans. The next slide I do the same thing with spring wheat and spring wheat specifically. Okay so again we're looking back the last 20 years. There's about 11 years out of 20 where the August number is a little too low. There's about nine years where it's a little bit too high relative to the final numbers. So again about a 50-50 split. Also notice the confidence interval. So one of the challenges we have with spring wheat is yeah this year we're pretty much wrapping up harvest. We're kind of on the back side of the peak harvest for wheat mainly because of the drought. And we had early plantings and everything's pushed along. But you guys also remember we have quite a few years where we're in the middle of August and spring wheat harvest hasn't really even kicked in yet. So I do think that based on history that's kind of wide. We're zeroing in on kind of the final number. The 30.6 bushels per acre I guess in my personal opinion hearing some of the harvest reports. But in fact that we're getting a little bit better test weights than we had originally expected. Given a drought year you know for spring wheat I think that's probably a pretty close number. Might be a smidge too high but I do think it's very very close to the final number. Personal opinion. Okay moving on next slide. Let's talk a little bit about weather and what to expect. Now one of the challenges for corn and soybeans is we have this tail of two cities. What's going on in the western corn belt versus the eastern corn belt are very very different. So in the Midwest we usually use a Mississippi River as kind of that dividing line imaginary line between the western corn belt and eastern corn belt. So if you look at the Mississippi River which is that dividing dividing line between Iowa and Illinois between Missouri and Illinois and Kentucky. You just move down that's the Mississippi River. So let's look at the western corn belt and there's a lot of corn acres in the western corn belt. Iowa is one Iowa Southern Minnesota South Dakota even in Nebraska. I've talked about this before those are some really key corn growing regions as well soybean growing regions and the markets watching that very very closely. Now this is the drought monitor map that was released this morning. I'm going to provide some updates. Let's compare that to the eastern corn belt. I'm going to have some more soil moisture as well as kind of precipitation numbers coming up in a minute. The eastern corn belt I've talked to some farmers in Illinois. Next week we're going to have an extension conference where we bring in some of the state specialist people that have positions like myself and Tim to talk about what's going on nationally. So I expect to hear some very very big yield reports at least expected yield reports for corn and beans coming out of the eastern corn belt Illinois Indiana Ohio Kentucky Missouri into eastern Kansas and Oklahoma. That area has had a lot of rainfall they've had the extra heat. You know the crop is looking really great. So the reason I say there's this kind of tale of two cities is that we've got yield decreases that are appearing now and becoming known in the western corn belt. But we've got above average yields expected for the eastern corn belt. So the real question and the struggle for the marketplace right now is well will the extra bushels in the eastern corn belt offset the reductions we're seeing in the western corn belt. So this is going to be hotly debated as as we go through the rest of the marketing year so I do expect continued volatility in the corn and soybean markets. Now the drought monitor map I show you right here the simplest way to think about it is how much moisture is in that full soil profile so we're also looking at kind of irrigation wells and what's happening to our subsoil moisture levels. On my next slide I tried to find some information on the soil moisture content at more of the root zone. So what are the crops experiencing now this again I pulled this this morning. This is updated on a daily basis and yes it's computer generated estimates based off of rainfall evapotranspiration a lot of they got big long formulas they try and estimate this so I don't want to push this too hard, but it does kind of help us understand what's going on. This is the estimate of the soil moisture between about four inches and about 16 inches so we're looking we're not looking at the soil whole soil profile. We're looking at kind of that lower root zone and saying well how much moisture is there today relative to normal. We're looking at the scaling on the bottom and we look at those dark rays are saying look relative to normal those those lower level root zone soil moisture at least again in the western corn belt is exceptionally dry, not a big surprise to anybody probably listening. What I do want you to focus on though is what's happening in that eastern corn belt. We're now reaching the time in the growth stages where corn and soybeans start to demand a lot of moisture, they need a lot of energy and water to be able to put as much energy into the producing a seed as possible. So we do see in the root zone that we see that these areas as I mentioned before in Missouri and Iowa, I mean excuse me Missouri, Illinois, Indiana, Ohio, Kentucky, that yeah they've got some they've been getting rains, but there are relative to normal relative to average or typical. We are a little bit on the dry side now and this is not at critical levels yet, but it is again something to watch very very closely. And so, as I said looking forward, we're going to be watching the weather forecast extremely closely. The next slide is basically the same map, but it's for that top of zero to four inches so now really looking at surface moisture. So before it was more deeper in the root zone, this is a little bit higher to the surface level. And again depending upon the crop that you're growing and where the root zone goes within the soil profile, these will tell slightly different stories. So you look at the western corn belt, southern Minnesota, South Dakota, Nebraska, Iowa, again very dry. You get into the eastern corn belt, Illinois, Indiana, Ohio, even if you look at Wisconsin which is a big corn growing state. Although I know they chop a lot of that corn for corn silage, but they still do quite a bit of corn and some soybeans into even into Michigan. Michigan does a lot of soybeans. You know that surface moisture those top zero to four inches, again that it's a little bit dry relative to normal but it's still well within that normal range. So if we get some additional rain showers, there, there is this yield potential that we can see from that eastern corn belt. Next slide please. So when we look forward and I just pulled this again this morning with the six to 10 day precipitation forecast. So we're looking kind of the extended forecast what do we expect to see over the next six to 10 day time period when it comes to precipitation. Now this is all about odds. This is all about probabilities and what they're saying is look when we look at North Dakota, South Dakota, Minnesota, you know this kind of driest area. It looks as though we have a pretty good probability of above average rainfall. Now I want to be careful because in August what's our typical rainfall amounts in North Dakota. They do tend to be lower so we got to be a little careful about reading the implications for this but over the six to 10 day period it looks like well you know this this western corn belt might get some above average precipitation for this type of year. We look at the eastern corn belt Illinois, Indiana, Ohio, Kentucky, etc. They're looking at saying well it'll probably be normal. Now normal rainfall in Illinois and Iowa at this time of year is still pretty good rainfall. So we're looking at either average or slightly above average precipitation. The next slide is the same thing for temperatures. Now this is the thing that again as we get into pollination for corn we get into flowering and pod set and seed development for soybeans. You know heat is one of our enemies at this stage of the game. So again there's some concern about looking at the probability the odds of above average temperatures as we get into both the western corn belt as well as the eastern corn belt. You know the heat is on and again the debate will be so even though we might have some moisture coming in with this higher temperatures above average temperatures what does that really mean for our yield and yield potential. Again thus the reason we're going to be spending a lot of time talking about not only what's happening right now but what's our weather forecasts. So I believe that's my last slide if I yep and I will hand things over well actually are there any questions that have come in because again as I mentioned I'm at I'm attending another conference. I need to be speaking shortly here so I will have to drop offline. Once I conclude so if there's an emergency or immediate question, I'd be happy to answer that if not I'll hand things over to Tim. Good afternoon everybody a Tim Petrie extension livestock marketing economist for go to my first slide. Brian mentioned supply and demand and the money supply and so on and so obviously livestock prices and talk most of the time about cattle supply and demand or the two things that affect prices to. So first of all, I just want to go through some supply issues for cattle because we've had a recent update on July 23 USD released the semi annual cattle inventory report. Report in July is not as involved as the January 1 report that state by state and so on this is just a lower survey and just an estimate for the total US and not state by state so we can't look at growth related issues and so on but anyway, we were expecting lower cattle numbers again this year and that's what we got you see, I'm not going to go through all the numbers there on the right hand side you see the year over year changes and the red numbers mean that the numbers went down. The key ones there are where the purple arrows are beef cows were about down 2% and the next one down be looking ahead is what the cow number is going to be in the next year our beef replacement halfers down 2.3% you know from a price standpoint then go down to the feeder calf supply, the third arrow down there would have 1.6% fewer feeder cattle than we had last year at this time. So all those obviously are supportive to prices into the future with lower supply so go to the next slide. This puts it in a longer run perspective and what's been happening the decline this year and beef cow numbers was nothing new this now is the third year of decline after a rapid build up since those low numbers back there. And the lowest is that dashed line at the bottom of the chart there in 2014 and then we had a rapid build up but have backed off a little bit. The big question is, what will they be next year. And again you saw the beef replacement efforts frame showed you the drought map over half the beef cow herd is in an area with drought. And so it's very very likely that numbers will decline again in 2022. USDA in the WASDE report today is is forecasting lower beef production next year and probably the next year so again, those are supportive to prices so go to the next slide. And you know here are the beef replacement heifers. And, and you know I said they were down here in 2021 and they've been declining here the last several years but go back. We've got the lowest number of replacement heifers that we had since that severe drought in the southern plains back in 2010 and particular 1112 and 13 that's kind of what drought doesn't. And we keep less replacement heifers and we reduce the herd back then. So just another indication that the beef cow herd is probably going to decline again so go to the next slide. So lower, well, again prices are affected by two things that's supply and demand so for sure we're going to have lower supplies. And on the demand side I covered that more last time and, and Brian pretty well cover this for on the demand side we have domestic demand and export demand. And the domestic demand is soaring like he said and prices are going up and maybe some worry about inflation the stock market was record high yesterday so a lot of good expectations for the the domestic demand. But any so anyway, you put a very good demand and lower supplies together you get higher prices. So here's fed cattle the red line is what they've been doing this year gradually increasing with the just a little stalling out here in the summer when they're usually seasonally low in the summer. They're actually at the kind of the highest levels for the year but stalled out about the last month but those red squares then are the futures market, which usually prices do increase after the summer. And so the futures market, therefore, you know by the end of the year is up to 133. That's, and for the rest of the year. Now, as a matter of fact, prices are higher than they have been the last three years is on the chart. 2018 is the blue green 19 purple 2020 were quite a bit higher and and expectations are to continue higher again based on the strong demand and shorter supplies the further out we go will be the shorter supplies the feds cattle are the the furthest out to show the lower supplies because you know the calf crop is lower and then it takes a year or so to feed them out or so on. And then, importantly, go to 2022 futures, you see even higher again, again, based on the strong demand and the the lower supplies there by April 2022 up to 140 and again throughout the year December 140. If that materializes and fed cattle prices in 2022 or at 140. That will be the highest monthly prices since August of 2015. So we've got to go back all the way to 2015. And of course the recordizer in 2014 so a lot of optimism for prices at the present time go to the next slide. Talk a little bit about more exports because just last Friday the USG released their exports again already talked about domestic demand and Brian did. We are at record export levels for beef exports. See we backed off a little bit in June mainly because we had very, very high prices in us but we're still at record levels on a volume basis. And we expect that to continue again throughout the year on the bottom chart is then the value the value is important that's in in dollars then and the actually the dollar amount did not back off as much as the volume did on the top percentage twice simply because we had really high prices in June is the is the last information that we have so again the export market is doing well go to the next slide. Here then get a lot of questions about where do our beef exports go and so I need to move along here but you know the red line on the top is Japan they have been and continue to be our our best customer. The green line second there is South Korea that went from our fourth best customer back in 2014 up to our second best customer and even in a couple months here they've been our, our best customer topping Japan so doing very well into Korea. Then the big one on the bottom I have circled China there in the yellow, and you see China was, you know, very low up until about 2019 they went to about our 10th best customer and last year about our seventh best customer. And this year, actually, in June, they were our second best customer even a little above Korea the red light isn't showing up there because Korea is right over the red light Japan was still number one but a very, very close second of China so the phase one agreement with China mid year last year has really kicked in the 30 months requirement was waived for beef and so we can get on and a lot of other issues there so China now is has been a really good customer but again, as Fran has talked about before and past webinars with the corn and so on they can be a fickle customer but anyway, our exports are booming which is is good news for prices as well on the demand side so go to the next slide. So here's then the feeder cattle kind of the same thing here the red line you see, compared to the last three years right now, we're just barely above 2018 still above the last three years. The reason why we aren't as high compared to previous years as fed cattle is the higher corn prices that are, you know, about double what they were last year more on that in a minute but good expectations there for feeder cattle as well you saw our supply is going to be down this fall and fed cattle prices and and corn are the two biggest issues that affect feeder cattle prices, you know, given the lower supplies and the fed cattle next year up at 140 is affecting by the end of the year futures up there at 130 at, at, at, you know, 168 and, you know, and then following through to next spring up there 168 levels, and if 168 does materialize on a monthly basis even by November of this year or into next year, those will be the highest prices since November of 2015. So a number of years back so a lot of high expectations there again, things can come along and they have bombarded this the last couple years but now things look positive there so go to the next slide. Again, the big issue that frame just got through talking about his corn is what's corn going to do on the top you see Omaha corn prices last year at this time were $3 and now they're 630. So it kind of begs the question is what would feeder cattle be now if we had corn prices last year but it's a moot point because we don't and, and that's kind of what's holding them down a little bit but again we've got a volatile market there you see on the bottom is November feeder cattle futures of this year versus December corn. And today at 1030, we had the, you know, up there at 167 on feeder cattle and on the left hand side about 554 on corn. So that was before the report came out, but then you know, all pandemonium broke loose corn went up 40 cents. After the report came out and feeder cattle went down $3 and 40 cents and by golly by the. That was by noon and by the end of the day feeder cattle came back and November, November feeder cattle closed at up 10 cents, and corn went back down corn still closed up 14 cents after being up 40 so just a wild wild day and I guess we can kind of expect that the big issue is, you know, as frame talked about us what's going to happen to the corn crop, and will prices go up or down and certainly feeder cattle will respond in the opposite direction so go to the next slide. Let's talk a little bit about lamb prices not only our cattle prices higher than they have been but lamb prices are high to particularly slaughter lamb prices are even higher than feeder lamb prices now and that's kind of the same issue that we are having on the beef the restaurants didn't have lamb and then as the restaurants opened up, they had to restock their shelves, our lamb crop is down and so we have fewer lambs and then the drought is bringing them to market earlier and so lamb weights are down and and and so on and so slaughter lamb prices have increased and and or even higher than feeder lamb prices which are down around 250 compared to the 265 70 slaughter lamb price but again why feeder lamb prices are lower is because of corn. As as well so go to my next slide to finish up here. Ron couldn't be on today's having internet issues so he gave me a call and he was just going to talk about there's a lot of interest in what's the value of standing corn for silage I was just out in western North Dakota just got back and there's a lot of corn being put up into silage. I think it's right before on the east side of Mackenzie probably the highest place in north to in Burleigh County right now is a big great big silage pile of silage or that they were making when I was going by and so a lot of questions on what's it worth. And it depends on how much corn is it and so on so Ron and our counterparts that Carlson and in animal science updated and and put together a both a tool that's on the website shown there that you can use to determine what the value of silage is and then also there's a publication. of how they did it and and and and some features for adjusting the price with an estimating yield so that you can use that if you want to determine silage which is a big thing going on so with that. I'll quit and turn it over to Dave. Great thanks Tim. Yeah I just have a few remarks this week about a few things are going on an ethanol and then oil more broadly. There wasn't an announcement just this week of a new cellulosic ethanol refinery that's planned to be built in Mason City Iowa construction wouldn't begin until next year. But they're quite you know more than a press release going on right now. $200 million facility so $10 per per gallon, which is pretty expensive usually is about $1.5 $2 for a corn ethanol refinery. Somewhat interestingly they're going to be using in the con technology if you remember back in North Dakota there was a lot of discussion of building a cellulosic refinery near spirit would where the corn ethanol refinery is where the new ADM plant is going to go where we're Cargill Malt used to be great river energy who is going to develop it was visiting within the con that was going to be the technology that's now almost a decade ago. But this group, which is based out of Pennsylvania is looking to build a facility in Iowa. Now using that same technology. During as part of the press release you know they did reference a couple of things that are going on that are making cellulosic investments. More palatable more profitable including California low carbon fuel standard that incentive for lower carbon fuels which is significant. I don't know exactly how small of a carbon footprint, the fuel that this plant would make would be, but I'm sure it's pretty close to zero. So there's some talk about you know the role the RFS and so just double back to the RFS renewable fuel standard, you know we mandate different types of fuel use, and one of those is cellulosic so it has its own bucket. Those fuels that are eligible for that can generate D3 RINs and if you look at that chart from Platts on the right hand side, you can see what a D3 RIN has been trading for in the last year, and it's over three bucks and so that clearly there's a federal level to or this policy based pull for cellulosic fuel, because of the RFS, in addition to whatever financial incentives, you know would be generated because of California's policy to incentivize low carbon fuels. Looking at the corn ethanol crush right now interestingly last week USDA did not report numbers for South Dakota Minnesota. I don't know why. So I did take Iowa should be pretty close to what we're seeing here. The corn ethanol plants in Iowa last week we're paying 660 a bushel getting 215 a gallon for ethanol and and and $1.75 per ton of distillers grains. I would expect that we'd be we'd be paying less for corn up here in North Dakota but that's not the case I did check both. I did check blue flints bid right now and they're right at that number. So they're bidding quite a bit over. And typically, you know they we typically have lower price corn than the rest of the country because of lack of demand but with the short corn crop kind of going back to what frame was talking about. The prices are are higher than you would expect them to be. And then of course with today's report there was that push as well and you know Tim mentioned that it ended 14 cents over the start of the day. Ethan all prices here also going to be a little bit less versus Iowa I was closer to Chicago land and you know other points of points of demand so price be a little less but just looking at where I would be would be with that simple crush and this is just doing math with those inputs in corn and then outputs in terms of ethanol distillers grains really close to that break even number so I always use 25 cents for the cost of other operating and another 25 cents for capital so these these plants are close to breaking even. I would say that given that I would think that most corn ethanol plants in North Dakota are are not doing quite as well still covering operating but not not making quite as much and of course so much if it comes now to that corn availability. Going into harvest and then exactly how they're going to be sourcing their their grain for the next the next year. Just kind of looking back and kind of revisiting what's gone on in ethanol and I'll look at oil as well. If we go back to the dip and so that that vertical line goes through March of 2020 so that's about when COVID hit and then just looking at where you know after that point is the things we've limited so this is this new post COVID world that we have and then looking at where the what the level was this month person where was two years ago using 2019 is saying you know where we think we might be and you actually look at net input so that's the amount of ethanol going into refineries. It's actually really close to where we were two years ago. It's recovered. Almost completely and in fact if we look at the number above it's a blue line is is domestic ethanol production. We're at over a million barrels a day so that's about 15.3 billion gallons a year, which is about you know a good, a good amount of use for corn ethanol and pretty close to where we were two years ago and of course we'll see what happens with continuing demand. It's almost the end of the driving season, but the economy is continuing to grow. And then those numbers might see some growth and again we do see that announcement of that that cellulosic plant. Finally stocks on the bottom half of basically recovered in a really close to where they were two years ago. And again, pre pre COVID, we were in a really tight range for ethanol stocks for for four or five years and so we're basically back to that level after just a bit of a roller coaster ride due to COVID looking at similar things with oil production so again this is that same kind of map so what happened after March 2020 so when COVID started, we have not seen a full recovery in terms of oil production imports have for the most part recovered, but we're still a little bit short gasoline supply so the actual month that we take the market is is is close to recovered so I'm imagining that we're cracking a little bit of jet fuel because we don't have much jet demand and sending that into the that retail market for gasoline. So in many respects you know that part of the, the fuel market is recovered so gasoline use you know passenger miles and all sorts of talks of folks traveling this summer all of those recreational dollars going on out there. I would probably expect that to continue if not grow as the economy continues to rebound. One of my last comments just kind of springboarding off of some comments that Brian made, you know, he had some really good points I just want to talk a little bit about energy. And so energy is one of those areas where if the price of energy goes up it does have the the potential to lift other prices because so much of our economy, you know requires energy is based on energy. And so right now we're still seeing some pretty high numbers. And of course, based on a year ago, you know things are looking as if there's extremely high levels of inflation. But again, a lot of this is it does go back to that supply demand push we do have pretty strong demand. And most importantly, you know supply just has not gotten back to where we expected to be the price of oil is high and it's still not incentivizing that domestic production that we were hoping would come online. And so that that kind of justifies why energies at where it is. And then also going back to Brian's point where it could be transitory, you know, if we you know can increase that that domestic oil production we should see at least a stabilization of those oil prices. And you know the same can be said for you use cars and trucks. There, you know, there's been a shock there we had a dump of vehicles with with with COVID. We have our circuit shortage, which is causing a lot of trouble. We have supply issues and supply chain issues, just as we're moving trucks to market or trying to finish off vehicles. And those numbers are high but even those are already starting to plateau. The thought is here again, you know price, you know, those use car prices are likely stabilizing, they probably will decline to some extent because of how like with that market is but it's not going to be a dramatic decline you know just as Brian alluded to previously. Those are the comments that I had and so that concludes our prepared remarks. We're happy to answer any questions you might have. As we noted before frame is is out for now. But if you do have any questions for him, I will definitely get him his way or if you'd like to ask him directly you're welcome to do that as well. So that is the end of summer we are going to you know continue the webinar series for the foreseeable future, including next next month in September so you know we'll continue to have the webinars will be posting our slide decks as well as uploading the recording webinars so you can view them in a later time, or if you'd like to share them for one of your colleagues you're welcome to do that as well. But if there's no more questions that Tim or Brian you have any comments, anything that might have come to mind. Let's get some rain but I know it's hard of us to and if I catch 22. Well if there aren't any questions today I want to thank Tim and Brian and frame for presenting for all of you for attending. We'll get the slides up the recording up in short order and let you know when they're online. And with that being done I hope you guys have a great rest of the day and weekend.