 My name is Dave Ripplinger, Bioenergy Economic Specialist with NDSU Extension. This is another monthly agricultural market situation outlook webinar hosted by the Economic Specialist at NDSU Extension. Been doing this for quite a while. We're gonna have a series of presentations today and we happy to field questions at the end. We ask you to use the Q&A tool although the chat tool does work as well. But anytime you have a question, feel free to share it with us and we'll make sure to get up before the end of the webinar. With that, I'd like to hand it over to Brian Parman, our egg finance specialist. Brian, it's all yours. All right, thanks Dave. I'm gonna get my screen share going. All right, so today's talk, I could have went a lot of different ways. I gotta move this over here. But I think the biggest thing dominating the headlines right now has been the inflation numbers that we've all seen in the news historically highest in the last 40 years. And so I put the, anyone who's had an economics class remembers the old Phillips curve. So I put that on my lead slide where it shows the relationship between high inflation and low unemployment and low inflation and high unemployment and inflationary expectations. But we're not gonna cover that. These are some headlines I grabbed in the last few days that relate to inflation. Again, dominating headlines as stocks have been crumbling as folks fear inflation is going to continue to accelerate inflationary expectations in the public growing higher and higher. And I pulled these from a variety of sources. Inflation hits a fresh 40 year high. Higher unemployment rate looms as a fed fights inflation. That goes back to that Phillips curve where they raise rates and people stop investing and growing and borrowing money. And it hurts employment. And then the fed may have to do something it hasn't done since 1994 and it did it which was a three quarter point, 75 basis points or three quarters of a percent rate hike at the last meeting. So this was the inflation number that came out in May and this was a lot higher than folks expected. Experts so to speak and people who track this at the Federal Reserve and other entities do as well was 8.6% for the year from May of last year through May of this year. And the big driver in all items obviously is energy. That inflation, those prices in general are up 35%. Food's up 10% since a year ago. And then what they call core inflation which is all items except for food or energy that inflation rate is right around 6%. So a little bit lower. And the reason they call that core inflation let me back up here. And it's not that food and energy doesn't matter they're huge parts of the budget. It's just that those items can be so volatile that if you're looking at inflation of most other everyday items, they can move up and down. And in fact, these are some of the items that actually will decline in price where maybe some of the other durable goods, new cars, things like that might not. So this just shows a graph since about late 1950s on inflation rates year over year. And we can see in this area in the late 70s and early 80s those are the record for inflation for as long as the data's been being kept and approaching it at some points near 13%. And the green line there with the dot is where about 8.6% sits. So you can see it's not the highest that we've ever had recorded but you got to go back a long time. Like I said, 40 years to find a comparable period where inflation was around that same level. And it would have to go quite a bit higher to reach a new record but we obviously hope that doesn't happen. But the inflationary environment we've been operating in for the last 40 years has been relatively low with the early 90s and the last 20 years really hovering around that two to 2.5% mark that the Federal Reserve is actually targeting. So I just put this table together here real quick and I got it actually, I got it from the BLS but then kind of modified it so it would fit on a slide some and then highlighted yellow. The areas where in the last 12 months inflation has been high, food at home about 12%, gasoline a big one there 48% so increased almost 50% higher. Fuel oil in general up over 100% higher. Natural gas up 30% over the year. New vehicles almost up 13% and used vehicles percentage-wise are up even more. And a lot of that has to do with demand and some of the inability to get parts for new vehicles. And so used vehicles being a hot ticket item. But again, all energy really, really, really high inflation for most energy products and food as well but not nearly as high as energy. So I made these charts, these are basically expectations from the market on what the federal funds rate will be. And in a minute I'll talk about why that's even important just real quick to refresh everyone's knowledge of it. But when I was looking at these charts a month or even a few days ago, they were very different. So the June meetings already happened and they increased to a quarter of a point. And basically what this says is what does the market think the federal reserve is going to do in July? And about 74% say they're gonna do another approximately maybe even closer to a one-point hike around that amount for the July coming out for the year. And then the target rate for the 14 December. So this is the last time they meet before the end of this year, 2022 is in the middle of December. And the market is thinking for the most part if you add these two numbers together, so 40% plus 28 and a half, you get about 60, almost 70%, 69%. Think that the federal funds rate gonna be between 350 basis points and 450 basis points. So you take a midpoint at that and you say about 4% on the federal funds rate. Okay, so from where it is now at the current rate being about 150, 1.75, that would be close to a two and a quarter or two and a half percent increase in the federal funds rate between now and the end of the year. Now, this can change dramatically depending on if the inflation numbers come out for June being as high as May or even higher then this will all shift and the expectations will be for an even higher rate at the end of the year. So that's how these kind of can move. These aren't set in stone. It just depends on as more information is gained, the projections change. So here is a couple of charts from the Federal Reserve. This is the 10 year timeline for the 30 year fixed mortgage rate. And I have a table that shows them as of this morning but approaching 5.5% on average, nationwide, even more in many cases. This is a little bit behind. I show you some current numbers because this doesn't include the recent actions that have been taken. And the weekly average since 1971 for the 30 year rate is 7.77%, okay? So where it is right now is still quite a bit below but you'll notice the higher rates, the 10%, 8%, 9% most of that happened since 1971 through about the early 1990s. Since the early 1990s, it's hovered around that average. That's if you want to find a period when they were around there is that mid-90s, early 2000s. But then after that, they started dropping, dropping and have steadily stayed low, much lower than the average over the last 20 years-ish or so but then it started moving back upwards. So here's a chart showing the 30 year mortgage rate versus the 10 year T bond rate versus the federal funds rate with the 30 year mortgage being blue, federal funds rate being red and then the T bond rate, the 10 year treasury note being green. You can see they move together, especially the 10 year T bond and the 30 year mortgage rate move very closely together, the green and blue lines with the 30 year mortgage rate being a couple, typically about 2% higher than the federal, than the T bond rate, the mortgage rate being a couple of percent higher. The relationship between the federal funds rate though and these interest rates is not so clear cut. Okay, you can see they tend to trend together but an increase of a couple of percentage points in the federal funds rate does not necessarily mean a couple of percentage point increase in the T bond rate and thus the 30 year mortgage rate. So here was the rates that I pulled this morning, 30 year fixed rates about 5.91%, 15 year rate 5.11. So we're approaching 6% already on 30 year fixed rates. You look and it's about five and a half to 6% where they're sitting right now and they may slide upward a little bit given what's transpired here recently. What's challenging though is actually projecting how the Fed's actions and the federal funds rate is going to six months, eight months down the road, impact interest rates going forward. And a big reason for that is some of these relate, there's a lot of things that happen that in the market and expectations of consumers and things going on in the macro economy that make that relationship a little bit murkier than just saying, well, we're gonna increase the federal funds rate and the consumer lending rate goes up too. So there was a research article that came out a while back in 2005 basically looking at these relationships between the 10 year treasury and the federal funds rate. And what they basically found was that a 100 basis point or 1% increase in the federal funds rate explains about a 37 basis point or 0.37% change or increase in the treasury, the 10 year T bond rate. So currently the 1.75% federal funds rate, this would imply about a 4.15 to 5% 10 year bond rate. Okay. And that's what this is what I'm saying here is that if that projection is true, a 3.5 to 4.5% federal funds rate is indeed what happens at the end of the year. It would imply about a 5%, 4 to 5% 10 year T bond rate which would imply about a 6.15 to a 7% 30 year mortgage rate at the end of the year. If those relationships kind of hold to this 37 basis point rule. So where would we, what would we have to look to to find that? And that would be right around 2006, 2007. That's the last time rates were about seven seven and three quarters percent, 7.77%. So if you want to look at a comp for what the environment looked like at 7% interest that's about the last time they were that high the 30 year mortgage rates. But I say all that to show this the relationship between the federal funds rate and the 30 year rate and the 10 year T bond it can in an inflationary environment that we exist in now you can see here with that red line being the federal funds rate there were periods with high during high inflation that we see the federal funds rate actually higher than the 30 year fixed mortgage rate and higher than the 10 year treasury securities especially this mid to latest 70s and then this late 70s early 80s period the federal funds rate was actually higher than that. And again, it goes to that there are a lot of things that transpire expectations and you think about it in an inflationary environment maybe folks are especially if items like food and energy items that are somewhat in elastic where people don't really have that much of a choice on how much of it they buy maybe what they consume maybe they take a trip or two less but still got to get to work still got to put food on the table. And if those items are increasing you can increase the federal funds rate to hopefully hike interest rates but a high inflationary environment on inelastic items may curb spending on things like durable goods that you would have ordinarily financed was the interest rate do well it's a way to essentially ration loans and loanable funds if folks aren't borrowing a lot buying new homes, buying new cars because inflation is hitting them elsewhere so they're putting off those big ticket purchases well then you can hike the federal funds rate but if loans aren't being made then there isn't much need for an even higher interest rate to allocate the loanable funds, if you will it's kind of a supply and demand thing if demand for loanable funds is low because of folks lower than it might otherwise have been because folks are worried about rising prices in things that they consume like food and energy they put off those purchases demand for loanable funds is lower so the supply is easily able to accommodate it at a lower rate than otherwise would have been so that's why these relationships break down a little bit and you see these periods where these federal funds rate rates hike up pretty fast above that but nonetheless the relationship over the long term has been that .37 basis points on the federal funds rate against the T bond rate and then about 2% between the T bond rate and the 30-year mortgagery so going back it's the best projection I can come up with essentially based on the relationships that have been established historically between these three different benchmarks so we went through a lot there as I said more information comes down these things will more than likely change but where we sit right now I think that folks that were thinking that rates because I was reading some articles from back in March and April where folks thought rates were going to top out at 5% or 5.5% well we're already north of 5.5% closer to six I wouldn't be surprised at all if we push it to 7.75% on your 30-year mortgage kind of rates but again as the fed hikes the federal funds rate that relationship isn't perfect and so it may be the case where the spread of the gap between the 10-year T bond the federal funds rate and then 30-year actually gets more narrow so I believe Dr. Olson has logged on and is going to be able to present and share his screen he came flying in from Bismarck sat down slammed his computer in and he was thinking he might be ready to roll All right thank you Brian so good afternoon everybody as Brian said I did kind of blow in from Bismarck today fortunately I had a tailwind this time I had a headwind going in last night but here's my contact information so if there's something you think about later on or have questions or follow up things please be sure to contact me and I'd be happy to do the best I can to answer those questions. All right so first a quick review of the WASI report again last Friday we had an update, a monthly update for the World Agricultural Supply Demand Estimates and again that it focuses not only in domestic production and consumption but also looks at some international information I'm just gonna provide a really quick summary of some of the minor changes that occurred this month between May and June let's start with old crop ending stock so this would be for the crop that's currently still in the bin again June one is the beginning of the new marketing year for wheat we won't have an official close out officially closing out the year end until we get some information on inventories in the June 30 report and I'll talk about that in just a moment so what I'd like you to look at for old crop numbers are two things first the blue line on the very top this is the average of the industry estimates before the report was released so these are the numbers that the traders were expecting to see the blue black line is highlighted is the average or is the numbers we reported last month and of course the red on the very bottom is the information that we got last Friday so two ways of thinking about this I guess the way I prefer to have people think about it is how did the numbers we got on Friday compared to what the industry was expecting to see because that's usually causes the shock or the adjustment in the system as you can tell again the blue versus the red numbers were very, very close to what was the traders expecting again we're basically at the end of the marketing year for wheat we're getting very close to the end of the marketing year which again begins on September one for corn and soybeans so unless there's something drastic that occurs there isn't gonna be a lot of shock value in the old crop numbers now before I move on I do wanna say really the only substantial changes that we saw between the May report and now this June report was some small adjustments in export forecast for the old crop marketing year so if you notice the numbers that we had last month versus the numbers we got this month for corn USDA did reduce their forecast for total corn exports a little bit which then ended up increasing exports of the final ending stocks number or the amount that we're gonna have in inventory just before the next marketing year the reverse happened in soybeans so USDA increased I guess in a minor way my opinion I increased the forecast for total soybean exports for this old crop marketing year which then again reduced the amount of inventory that we have so really those are the only two substantial changes again a reduction in exports export forecast for corn a slight increase in export forecast for soybeans well because these inventory values from the old crop changed that becomes part of the input for our new crop numbers so this is the same information but this would be for the crop that is just now being finished planting so we're looking now a year into the future for both production and consumption most of the numbers that are in these the bottom red numbers are mathematical forecasts they're projections of what we expect to happen for both production and consumption so again the information from last month gets carried for or last year's numbers gets carried forward into this year's numbers so really the only adjustments we saw in ending stocks from last month to this month or even what the trade is expecting to see relative to the numbers we actually got were contained in the old crop numbers there really was no significant changes or adjustments made between the May and the June reports for both for new crop in particular I wanna be very specific for the new crop numbers the crop that just got planted which is this table essentially no changes from last month's forecast the other thing we did get last Friday was an update in forecast of a projected yields i.e. total production for winter wheat okay so if we look at all wheat projections which would include the spring wheat and dirhams those numbers reflect now what we saw in the winter wheat forecast so winter wheat is divided looking at all winter wheat as well as by subclass so hard red winter wheat, soft red winter wheat and then white winter wheat now the white wheat includes both soft white as well as hard white the moral of the story, the big takeaway was let's look at the changes in the wheat winter wheat by class and I guess this helps tell the story when you look at what USDA was projecting last month versus the current month forecast they did have a slight reduction in essentially yield projections for hard red winter wheat they had very, very similar for soft red winter wheat so the hard red winter wheat we like Kansas, Oklahoma, Texas and of course they're having some very dry conditions especially in western parts of each of those states the soft red wheat is primarily produced in Missouri, southern Illinois some into Indiana and Wisconsin those yields were basically left unchanged but there was a slight increase in the white wheat production white wheat is a bit of the white wheat is in Michigan but also the primary growing region is in the Pacific Northwest so they had a slight increase in yields and therefore production estimates coming for white wheat so all of these adjustments then are built into or revised into this all wheat yield production now before I transition into forward-looking and some updates on what's going on with Ukraine and Ukraine grain movements I do want to remind everybody on June 30th so in a couple of weeks we're going to get two important reports one important report will be the grain stocks report so again that's where USDA takes a survey of farmers as well as contacts all of the major commercial purchases of grain and say how much grain do you have on inventory for at this particular date well it's reported on June 30 but the grain stocks is for June one so that June one inventory number will be important because that will be the final ending stocks for last year's wheat so that'll be the end of the wheat marketing year we'll transition from one marketing year to the next so those ending stocks numbers for wheat will be calculated and compiled in this June 30 grain stocks report the other thing that we're going to get at the end of June will be an update of the survey of planted acres and it's called the acreage report so if you guys remember in March we had the perspective plantings report we changed the name a few years ago so the perspective planting report was a survey of farmers in March to say what were you intending to plant and now this June acreage report is going to be a survey of farmers asking them what did you actually get seeded now historically at least in North Dakota when we've had very high levels of prevent plant we do get a survey number for North Dakota for June but oftentimes they'll try and re-survey again in July just to make sure that they picked up all of the possible changes and I do kind of expect to see that happening but again the market will respond to the information that we have in that June report so the surveys of farmers are going out right now for the next couple of weeks they're gonna be collecting data both by mail-in survey as well as phone survey and asking farmers what did you actually see what blend of crops did you actually plant in 2022 so again everybody will be watching for those numbers on June 30th so let me now transition a little bit give a brief update there's been more recent in the last several days some discussions about not only harvest winter wheat harvest beginning in Ukraine as well as Southern Russia that's coming up now in very shortly but also some concerns about Ukraine's ability to be able to ship grain be able to not only get the bins cleaned out from last year's crop being able to get pushed that through the system so they have storage capacity but then also are they gonna be able to be able to store and sell the crop that's either being planted this year and or that's gonna be harvested now in a few weeks in the case of winter wheat so I wanted to give just a brief update this is some information on the current status of the Russian occupation okay this is since the war has begun what has happened with the area within Ukraine that's currently controlled by Russian forces so the red area are those areas where the Russian have control of that land mass they at least for this particular source the Institute of Study of War they update this on a regular basis so this is information as of June 14th the black area was the areas of Ukraine that were claimed by Russia before this military action began so those black areas were already claimed by Russia the red areas are the new areas that have been taken over since the war has begun so just geographically I want everybody to kind of get reoriented on where we're at so here's the black sea Ukraine is obviously in the middle of this on the right hand side would be southern Russia you can see to the north is Belarus to the northwest would be Poland to the south and southeast southwest excuse me you have Moldova and Romania and I'm gonna talk about those in just a moment so here's the black sea this is the major shipping route for grain wheat as well as corn and barley and sunflower oil which are major exports into what we call the black sea region just as a reminder all of the ships or vessels whether they be kind of calling grain or petroleum products like liquefied natural gas or crude oil in order to exit the black sea and get into the Mediterranean it needs to go through this the peninsula of Istanbul or there's a canal basically a river that is used as the portage between the black sea region and the Mediterranean so that's really the choke point for a lot of the movement of product now transit through that canal or that straight to Istanbul is right now fairly fluid the challenge we're having is being able to get ships and vessels loaded and into out of the ports number one but then also the cost of the vessels one of the issues that ocean freight has now gone up significantly for any kind of vessel entering or exiting the black sea so if you're a private vessel owner or ship owner whether you're hauling grain of bulk products or either you're hauling petroleum products everybody knows that that's a war zone the insurance on those vessels have gone up tremendously and I know I've talked about that in previous recordings or previous sessions so I don't want to go through too much of the details but just recognize that right now there is a flow of grain going back and forth but it's greatly reduced from where it was before so now that we have this orientation let's zoom in a little bit and focus specifically on Ukraine so the first issue of the vast majority historically of grain movements out of Ukraine has been by ocean vessel almost all of the exports from Ukraine have been loaded onto an ocean vessel and then shipped through the black sea region so I want to give just again geographically a recap of where are some of the major ports where are some of the major ports in particular that handle grain and grain movements so the ones that you probably have heard or seen on the news one of them is Mariupol which is over here it's currently controlled by the Russians that of course was one of those areas that had been heavily bombarded there's been a lot of devastation of the city itself a lot of the grain handling facilities as well as port facilities have been damaged so just for orientation here's Mariupol Mykola is another major port again primarily for grain and grain shipments this has been under attack recently there has been some damage to some of the grain elevation systems in that port it's obviously also been mined and so this is one of those areas where there's basically no grain and or any kind of shipment of product out of that port now Odessa is one of the key ports for Ukraine not only because it is a high volume port but it's also one that is just far enough out of the zone of the current military action that the question is, can that be used? Well, the port facilities right around Odessa has been mined and so one of the issues now is of course if you have mines in the Bay Area how do you get vessels in and out and I'll talk about that in more detail in a moment now short-term the Russian, excuse me Ukrainians have been trying to ship some of their product through Moldova into Romania Konstantina is the port that they're using now the grain loading facilities in Konstantina are not as large they don't have a high volume loading capacity that they would have let's say in an Odessa or in a Mariupol so there is some grain ship that's going out of that but the volumes are greatly reduced simply because of the size of the port facilities the ones that I have identified in red are Russian port facilities, Rustov and I'm not even gonna try and pronounce this because I'll mispronounce it and I don't wanna insult anybody but these are the two of the major grain loading facilities or ports that are part of Russia those are still open the Russians have been able to get some in particular out of the Southern one get some grain moved out of that but again because of the cost of the vessels the volumes shipped are down dramatically from what they have been before the war began now for grain movement the other thing that the Ukrainians have been trying to do is move grain by rail especially into Western Europe now I've talked about this before a little bit just as a reminder the biggest challenge we're facing or the biggest complication that's being faced is that the gauge of the rail the width of the tracks is wider in the former Soviet Union states like Ukraine and Belarus then it is in Poland so the width of the track in Poland is the same as most of Western Europe which is also the same as what we use here in the United States so the fact that the trains run on a different gauge means that once the grain hits the border of Poland it has to be offloaded from one train and really ordered on to another train to be able to get into Western Europe the other thing more recently now they're trying to negotiate and get higher volumes of grain shipments is actually moving by train from Ukraine into Lithuania or Latvia and Latvia with this port of Riga is actually one of the major ports that does have a fairly good facilities for loading grain as well as the one in Lithuania and of course the rail of the gauge the gauge of the railroads is the same from Ukraine all the way through Belarus to Latvia and Lithuania the challenge of course is that Belarus is a sister state to Russia and so there's a very strong political connection between Belarus and Russia and so there's they have to pass through Belarus which again has been politically very challenging my understanding is there have been a couple of rail shipments that have moved that direction but again volumes are fairly light so what does all this mean? It means the Ukraine is still going to have some challenges they're doing their best to try and be able to move product through the system but there are these hurdles now one of the other comments I want to make is don't ever underestimate people's creativity so given some time and of course some financial resources there are ways that these grain flows can be rerouted and become more efficient now more recently in the last couple of days you may have heard that United Nations has been working very hard to negotiate some kind of agreement between Ukraine and Russia and possibly Turkey and or Belarus to be able to encourage higher volumes of shipping not only with Ukrainian grain but also with Russian grain and the challenge of course is the concerns about humanitarian efforts about high food prices in particular in some of those developing countries or some of the countries that typically buy a lot of the products from like wheat and corn from Ukraine and Russia there's really concerns about some of the food issues and food concerns in some of those countries so United Nations has got involved Turkey is trying to take some leadership in trying to be the go-between kind of that negotiating point between Russia and Ukraine to see if they can get something out one of the plans right now the most recent that we heard as of yesterday was a plan to create some what they call sea corridors or some kind of safe routes from some of the ports to be able to get Ukrainian grain loaded onto ocean vessels through the Black Sea and then onto other destinations now before the idea was well we got to clear the mines before you're going to allow these vessels in and out the current plan or current negotiation is saying well can we bring these commercial ships in and out that are guided through different through specific regions that are guided by Ukrainian research and rescue vessels so they're able to detect and pretty much most of the mines are known where they're at right now so the idea is can we find a path or a route through these minefields where we don't have to remove the mines but they will allow safe passage to be able to load it and then transit it and being unloaded now we don't know the exact status of this that's the current plan we haven't had any confirmation that this has actually been signed on to or that there's going to be additional product flows and again, once the other issue that I have to specifically would be well what about the cost of moving those vessels again, obviously if I owned an ocean vessel I don't know if I'd be really thrilled to send my property into the middle of war zone so there's still gonna be some problems and challenges there. The plan B for Ukraine and this is now being also discussed before the war began at least based on current reports Ukraine had about 75 million metric tons of domestic grain storage so that was about the capacity they had to be able to store the grain and then from harvest and then be able to meter it and export it or use it domestically. Well, because of the war efforts because of either regions being taken over by the Russian military and or the destruction or damage due to some of the storage right now the estimate is Ukraine can only access about 60 million metric ton of the 75 million metric ton storage capacity. Again, there was a report that came out a couple of weeks ago that said that there's still about 20 million metric ton of grain in storage in Ukraine right now that still needs to be shipped again because of the volumes that were produced last year and the inability to be able to ship it these some of the bins are still full. So we're still kind of figuring out how much capacity is already in place that can be utilized and how much is available. So to backfill that to try and say well, how can we compensate or adjust? There is a plan that's being developed right now to try and construct some temporary grain storage either module structures that can handle temporary grain storage and or plastic bags. Now up here in the Northern Plains we've used both of those kinds of structures for when we had very large crops as most of you know that they are intended for temporary storage they're not really intended for any kind of long-term storage capacity but it does give you that flexibility to be able to add some surge capacity within your system. Now the United States has already pledged that they will help contribute and build some of these temporary storage primarily on the borders. Again, the United States is being very careful not to get directly involved in Ukrainian activities but they did say along the border areas that they would construct these temporary storage and help support that effort. The European Union as is under negotiations right now they say they are currently considering providing some kind of similar type of products but they have not formally committed to that. So again, a lot of uncertainty yet about not only how many acres are going to be planted how much are gonna be harvested what yield potential is going to be but then also from a product flow standpoint how do we manage these inventories going forward? So with that I will close off my presentation and stop and I will transition and let Dr. or Mr. Tim Petrie take over and again I'll be available for questions at the end. Good afternoon everybody, Tim Petrie here again and give you a little update on the livestock market. I'm gonna start off with weather and the new drought monitor came out this morning as in the upper left and we kind of set a milestone there for the first time in over two years actually back to March 17, 2020. No portion of North Dakota has any color there on the drought monitor means we're drought free for in over two years so quite a milestone. Go down below that is then one year ago how bad we were in North Dakota but for the cattle industry in particular looking at those two charts we've kind of flip flop and you see the Southern Plains a year ago Texas was a big cowcast state, Oklahoma, Kansas they're top three, four, you know, throw in Missouri states with cows they were pretty much drought free last year and now drought has settled in there but it's left up here. So just kind of a switcheroo there. So go to the left hand side and more on what I'm gonna talk about today then the USDA again when the drought monitor comes out they look at how many cows are in the different states and the dark green this is on the right hand side there are major cow calf areas and the red dash lines are the drought overlaid on that. We still have about half the beef cow inventory is an area of drought, not a lot different than what it was last year it's just we flipped around so there's still a lot of cattle and drought and that has ramifications. So go to beef cow slaughter now this has been talked a lot about in the industry here as we've progressed to this year and in particular lately is that beef cow slaughter is just soaring last year of course due to the drought and then also, you know, we had lower than expected in volatile calf prices and as well as drought we were 9% higher than the 2016 to 20 average last year in beef cow slaughter which we said was relatively high and depending on drought thought, you know if the drought continued, we would do that again and we are just kind of blowing that out of the water we're up 15% over last year's 9% higher cow slaughter this year. So that is a lot of ramifications for the cow herd and what the cow herd will be our first indication of how many beef cows we will have and looking into the future will be July 22nd, NASA will release their numbers they don't do it on a state by state basis only for US but it's a semi-annual inventory report that'll come out July 22nd as of July 1st so that'll give us an indication but again, we're a lot of times and I'll show you in a minute to the January 1st numbers but that's very significant if that we don't know what's gonna happen right now you see look at when the beef cow slaughter is usually high there and moves up in October and particularly high in November and December when we're pregnancy checking the cows and so on and getting rid of the calls. We are the last couple of several weeks, two, three weeks we've been above those fall levels and so the question is not is the beef cow herd gonna be lower next after the end of this year by next January the question is it's gonna be how much is lower and then again is how much longer in months or even years is the drought gonna continue and the cow herd going to go down because taking the cow herd down certainly that's a positive for prices into the future. So here's the January 1st count numbers and on a cyclical basis I like to go for our talking now because of the drought and particularly the drought in the Southern Plains I like to go back on the bottom of the chart you see 2006 and go up there is the start of the previous liquidation phase that was along with a typical liquidation phase as it takes about four years to liquidate enough cows if prices are low enough and to get back where prices are high enough to increase the herd. So in 2006 there through 2009 we had our normal four year liquidation and started January 1st, 2010 at 31.4 million head that should have been the end of that liquidation phase and we should have leveled out but what happened then is we had four years of continued very severe drought in the Southern Plains like they're experiencing now. So we took beef cow numbers down and another 2.4 million head loan numbers 29 million head there to start January 1st, 2014. That's why we had the previous record high cattle prices in 2014 or at least one of the reasons but then when it rained in the Southern Plains then we had a rapid buildup. So now looking at what's happened in this cattle cycle we've had three years then of liquidation for a variety of reasons. Again, drought has been a big part of that but also the lower and volatile cap prices and our black swan events and so on. So the question mark now, if we continue beef cow slaughter on the pace that it is now and if we continue that throughout the year we may not and it may rain down there and maybe we're getting rid of the cows earlier that would have came in the fall and our fall numbers will be lower those are all question marks we don't know but we could take the cow herd down significantly if that beef cow slaughter continues and the drought worsens. Again, we're out of drought right now in North Dakota but we're only a couple hot windy days always in North Dakota from being back in drought and look what's predicted for this weekend 100 degree temperatures and so on. So a lot of things can happen but we're gonna take the beef cow herd down again this year for sure and probably more so than we did last year the way it looks now. And so that is supportive for prices into the future. So, you know, on the kind of you would think with all those cows we're selling that would really, really pressure the cow market but it hasn't done so. In fact, cow prices are higher than $13 last week higher than they were the previous two years or well, not including 2020 that was still affected by COVID and so we're higher at prices for a very good reason and Brian talked about this and that is because of the high inflation and so on and high gas prices and all that consumers are bidding down on what they buy and so hamburger is a hot item as well as chicken and some other things and to the detriment of steaks and so on and so because of that cows are in really, really good demand. Another thing I just wanna mention here is this series I use for the Northern Plains average these are for those 85 to 90% lean cows that are really broken mouth cows that had a calf on them and so on and are very thin. And so they're really at the low for the market but that's the series I have. So, you know, a lot of cows are selling up in the 80s. Now I just pulled a market report there on the right hand side showing, you know cows selling all the way up to 90. I just watched them market a little bit this morning selling cows and cows up in the 90s there but a lot of them in the 80s. So I'm on the low end now but the idea is, you know, higher quality animals bring more and so they're all about 10 to $15 higher. It's just the series I'm showing you there were up at 75 when we're down at 62 or so a year ago. So cows are still selling very well in spite of the amount that we're selling. Go to the fed cattle then again and fed cattle of course are very important for feeder cattle prices and fed cattle kind of stalled out at $1.40 for most of the year here. However, again, $20 higher than last year again with the lower calf crops, beef production is down and in spite of inflation and all the other things cattle prices are higher and they don't seem maybe don't seem like that. The red squares there are the futures market and usually we do have mid-summer weakness with the high previous calf crop being slaughtered and then increase and by the end of the year as slaughter drops off and demand picks up for the cuts as well. And so futures market is still saying there that we're gonna be up to $1.48 by the end of the year on fed cattle. And again, you know, what's gonna happen to inflation and the stock market the stock market going down is certainly not good for selling stakes and so on and 401ks declining. And then, you know, with the continuing lower calf crop the futures are up there over $150 for most of next year up to $155 there in April on the futures and I'm in agreement with that now but you know, the economy is the big question but from a supply standpoint again we're gonna be better and better off for the next several years because of that lower color. So I'll go to the lighter weight calf prices again they're up $25 from where they were last year none really selling in North Dakota now our USDA is not many to even report now until we get to September and whatever but you know, I think we're still gonna have that seasonal weakness end of the fall that purple arrow there shows the last three years and we could even add 2018 the last four years they've really bottomed out there in the middle of October a really tough time to sell calves because that's when they all start hitting the market most of them aren't weaned yet and maybe a snowstorm and so on. So you know, I think that's a target to somewhat try to avoid if we can and so likely they will be lower in the fall than they are now I'm kind of targeting 190 as just an average price. Again, there's a wide range of $35 range from the lowest quality to the higher quality like I mentioned in cows but using 190 as an average but probably could be lower than that in mid-October and then pick up but we still should be the way it looks now better than the last several years on calves because we're gonna have again now the really the third straight lower calf crop to sell a big question mark is corn and corn is at high levels now and Frane talked about some of the fundamentals there and corn so all of a sudden to get drought and the corn belt or something else would cause the corn to spike even more remember that, you know, change calf, change corn can sense a bushel change calf prices are bucking the opposite direction so that's probably the biggest unknown now and then again we're gonna have to have those a fed cattle up there to 148 to kind of to help prices there by fall as well go to the heavyweight yearling cattle then they aren't up as much as calves because they're affected more by the high corn prices but, you know, they still have throughout the year been better than the last several years still up about $20 over last year trading right on the average about 160 here the last several weeks compared to more down by, you know, 140 a year ago and so on and the futures market is still optimistic with fewer to sell and getting cattle fed cattle up to 148 and barring, you know more tragic news in the economy I suppose, you know you're seeing those red bars there on the futures getting, you know, up there to almost 178 on the futures yesterday there for November significantly higher than they were last year and again corn is a big player here that's, you know, you know keeping corn at what the decent corn futures are now and not seeing an expansion in them and then again next year even a better year with those gold squares the 2023 futures there in the left-hand side of the chart based a lot of again on that the lower calf crop that we will have and probably add a few more years because we're taking the cow herd down again so, you know, from a supply standpoint we are going to be in good shape it's just the demand that we're really really worried about here and then corn prices just kind of switch gears a little bit here talk a little bit about milk prices milk prices this year have done very very well and are up to record levels previous record back there in 2014 at about $25 a hundred weight and now they're up to $27 a hundred weight however the bugaboo for milk prices of course is that feed costs are significant higher too so from a profitability standpoint I mean the higher prices are good news but not making the huge amount that that might look at because both hay prices and of course corn and soybean meal and so on price are I do but the milk prices are doing well and we've got really strong exports and good domestic demand as well dairy prices are high in Europe and high in Oceania and our competitors as well so that's really helped the milk price situation out and then when we look at dairy cow slaughter opposite a beef cow slaughter you see here at least in the last several months now dairy cow slaughter is running below the last couple of years because trying to keep all the cows that we can and kind of finish up on lambs here we've had a kind of abrupt turnaround in the lamb market the last month or so from a supply standpoint not a problem in that we're down three to 5% on lamb production but what's happened here since Easter we kind of peaked out right there prior to Easter there at April and then have fallen off but we've seen and some of this is kind of anecdotal but we've been talking to restaurants and so on because of the gas prices and all of those inflationary things that Brian mentioned and the people buying lower priced meat items because lamb is the highest price we've seen a back off particularly at the white table cloth restaurants on lamb and even at the retail level that really sparked during COVID when that's one of the meat that they could buy and so because of that here's just in the last couple of weeks lamb carcass weights have started to increase indicating kind of a backup on lambs and packers are kind of backing off because retail buying is somewhat backing off there so we've moved below last year and we'll have to wait and see here how the economy does but I think probably and then on the feeder lamb's corn we're gonna be still hopefully be above those 20 16 to 20 average prices but probably tough to get back up on the fed lambs to where they were last year at those record high levels simply because of the economy. So with that I'm finished and stop sharing my screen and turn it over to Dave. Great thanks Tim. So Dave Ripplinger Bioenergy Bioproduct Specialist with NDSU Extension, some quick thoughts on the bioenergy situation. I have no idea what the outlook is things are getting pretty crazy but to talk a little bit about what's going on here's a chart of prices from South Dakota ethanol refineries in terms of what they're paying for corn, what they're getting at the plant for ethanol or distillers grains and leading to the next chart which will be margins and of course right now what we're seeing is really high commodity prices in agriculture energy across the board and margins in general actually really good is cutting to the chase but we have seen a dramatic run up in corn prices which if we're in production agriculture that's good news if you're a buyer of corn not so much and what we've seen also is a pretty strong ethanol price both at the wholesale level and then also at the retail level pulled in general by this recovery from COVID and this recovery of demand and incomes and folks wanting to drive. So this is just a quick chart adjusting those prices from the previous chart to the gallon equivalent basis so the price of ethanol stays the same but we divide the corn price by 2.8 which is how many gallons we get from a bushel of corn and then distillers grains price adjusting that for the number of pounds that we get from that same gallon and if you kind of going down to that next slide we can see that simple crush the simple crush is just the difference between our revenue from ethanol distillers grains less the price of corn so it doesn't cover a number of important costs but it gives you a good idea back of the thumb at least in most years regarding profitability and if we look at recent numbers you can see that beginning through last summer over the fall we've had near record margins or at least for this last five or six years very high margins the one thing I don't take account for in this is the high price of natural gas in the past when natural gas has been two and a half $3 per MMB to you it hasn't been a big deal that's really not the case anymore so that additional costs really would be factored in for the actual profitability of the refiners and again this is a signal to us about kind of keeping track of our corn ethanol refineries going to continue to buy corn continue to operate and right now they're certainly in the money which is a good sign and looking forward to the fall and winter and future years to keep that type of relationship there again in many respects we're gonna see what's gonna happen to gasoline demand as the economy responds to higher interest rates to inflation and possible recession just looking at ethanol production weekly year over year the green line I hope we can see it at least somewhat well is for this current year and right now we're just under where we were in 2019 but we're actually quite a bit of ways underneath what our actual production capacity is nationwide you know we are seeing profits it's just that there's really not a tremendous amount of room for additional product in the market and really working to build out some imports and additional markets for that globally of course now with the status of the national economy the global economy some of those prospects are probably less bright than we might have thought a few months ago something we're all familiar with this is a national average regular gasoline price so this is E-10 it's collected by AAA for the first time ever we're over $5 and both in real and nominal amounts nationally we're at record high prices if you remember back a couple months ago we're actually not at record high prices here in North Dakota our record high price adjusted for inflation is about 525 but that was really the result of regional supply disruptions about a decade ago that was really short lived for about a week and so this is for the most part you know we're entering this area if prices continue to rise somewhat to be having record prices here in North Dakota as well just looking a little bit about what's going on with relative prices for gasoline and ethanol so this is at the wholesale level the rack level that's the top charts dollars per gallon which you can see that the lighter green is gasoline price and it actually happens to be it's our Bob so the blend at New York Harbor so kind of far away from where we're at and then the blue line is actually a Chicago Argo prices so that the rack in the Chicago land Metro and you can see there's quite a bit of a difference some of that is being driven by high oil prices and they oftentimes are priced closer to what's going on in Europe and we know what's going on in Europe as opposed to what we see in much of the rest of the country but again in general what we've seen is ethanol trading at a bit of a discount on an energy equivalent basis and again revisiting that ethanol in this country for almost the entirety is used as a fuel additive not as a fuel again because it increases octane at a price lower than alternatives at almost all times and again too we can kind of look at that price ratio in the bottom half of the chart and you can see that we're below one and so that's ethanol price divided by gasoline price and we're definitely in that zone where at the wholesale level ethanol is about the same cost on an energy equivalent basis as gasoline or this gasoline blend. Looking at the actual level so these are physical levels the top is the absolute level the orange line is finished motor gasoline so that which is actually going from the refinery blender into the wholesale retail market pretty much recovered and you can kind of see the difference between that and the blue which is the amount of ethanol that's actually just going into blenders and refineries that it's been pretty constant and if we divide the two we can get an idea of what the relative blend is this doesn't match up perfectly in terms of what consumers are actually buying and there is a bit of a lag because we're talking about ethanol input into the blender refiners and motor gasoline that's supplied for the same week but we actually saw for a bit of time before the beginning of the summer motor season where we actually had blends higher than 10% or that ratio is higher than 10% again it doesn't mean that they're squeezing in 11% for E10 you can't do that but rather E85 sales, E15 sales or just a bit of a lag in that noise again the idea or the goal is within the industry to see that number increase of course we also saw a little over a month ago the administration allowed emergency sale of E15 to help alleviate the price at the pump. Another chart, this is the current carbon price for California LCFS credits so low carbon fuel standard in California is really kind of the benchmark for carbon prices and this is something to look at when we think about the profitability of renewable diesel and advanced biofuels and those sold both into California but also other low carbon fuel states or provinces and countries and just seeing where things are at and what we've actually seen and one of the reasons I brought this up is the prices actually fallen quite a bit almost half from its high and it's a good thing and a bad thing I mean obviously if you're long low carbon fuels you'd love to see a higher price but really what we're seeing is a lot of additional very low carbon fuel coming on the market and that's reduced the price there's a bit of a blip at the end of May which I don't have an explanation for but if we look kind of longer term to me it's actually quite promising because it does recognize that folks are responding in the market we're seeing additional biofuel come online we're seeing a lot of investment and movement towards even lower carbon biofuels going forward and I think this is really important because if we think about the expansion of low carbon fuels across the country beyond California which is about 10% of the transportation market I think it's actually promising saying that there is some give that the market can respond that there is supply that we can provide to meet these regulatory requirements One of the quick things I just want to talk about really briefly is how to maybe save a dollar at the pump in terms of the relative pricing of different blends of ethanol so E10 is regular E15 or unleaded 88 can be used by vehicles made in the last 20 years and then E85 is for flex fuel vehicles but just wanted to share the rule of thumb of what you can do to possibly save money at the pump One of the points it has to be recognized too is that gasoline stations exist to make money they're there to maximize profits so you can't really look and say gosh go back to those rack numbers and say well the price of ethanol is so much less I should be getting that it's like no they're gonna price it to that local market or at least principles, economics tells us that they should so you can't necessarily expect those types of things but moving down to the bottom half of the chart the slide here we can see the relative energy for these different types of fuels and it's important to note too that both E15 and E85 there's a range so these are not necessarily exact to what you're gonna be purchasing at the pump it can actually vary quite a bit there's a you know and they actually vary above and below these numbers but this is kind of the midpoint of what we'd expect if we bought a 15% or 85% ethanol blend ethanol has less energy per unit of volume it's just a characteristic of it doesn't mean it's a bad fuel although some people like to pose it that way but the thing that you wanna do is you wanna compare the relative energy basis if that's what you're doing to buy considering when you're making that fuel purchase E15 has 1.7% less energy than E10 E85 has about 25% less energy so just keeping those two ratios you might as well just say 2% and 25% when you go you can actually calculate what you should be expecting so just using an example if gas does reach $5 at your local station I mean, besides the pain of that you can do the quick math and say well that 1.7% or rounding up to 2% about 490 or less E15 is selling at a discount on an energy equivalent basis so that's great and then for E85 it ends up being that 25% or 24% so it ends up being 376 and again, that those numbers are gonna vary but it's something that I think folks should be thinking about it's always fun to get a deal to find a deal and there's certainly some case I have some notes at the bottom that these opportunities do exist and they've existed off and on for the last few years for E15 and especially by market and also for E85 one of the most important things to note too is that engines are designed tuned to run on certain fuels and so even though you might have less energy or a certain amount of energy you might not get the mileage that you would get from that energy because it's not optimal to how that engine's designed to how it actually performs you're not translating necessarily on that same basis that change in BTU to miles down the road but just so you know there is at least one gas station I just checked this before I'm not gonna tell you who it is but if you wanna go do your research you can your field research there's at least one gas station where E15 is selling at a discount to regular and not only is it selling at a discount to regular it's actually the lowest price fuel in town it's trading or it's selling at 437 a gallon and that's less than you would see at either Costco or Sam's Club which in the Fargo-Moorhead area is the lowest cost could almost always lowest cost station but that's kind of neat and then also looking at E85 there's one station in Fargo right now there was one in Grand Forks earlier this week where E85 was sold at a discount on that energy basis and I would say if you can take the time and find that station in Fargo or if the price that was posted is right it's an absolute steal I would be surprised if it's a miss report because they usually keep track of that pretty well but the price that is reported and it's a place that only takes cash for that price it might give you a little bit of a hint it's a substantial discount to that energy equivalent basis last thing I just wanna touch on I think that most of you probably heard about this but just to let you know that we're fully expecting the possibility of rolling blackouts in the Midwest this summer they had a recent auction MISO which manages the grid in the Midwest and for much of North Dakota they had an auction and they're essentially short of power during periods of peak demand this summer and then the way that is managed is that you would have rolling blackouts and this is really caused by if you look at a specific state we can look at the state of Illinois they've retired a lot of nuclear and not put themselves in a position to have other energy sources available either intermittent or peaking facilities to help meet that demand and so I think it's gonna be really interesting thank goodness it's not gonna be this weekend with record heat here in the Dakotas for at least a day but sometime this summer and it could be on a very, very hot day that you'll see blackouts here in North Dakota so that's what I had for my presentation I'd now be happy to open it up to everyone for any comments that they might have I know no one's jumping in I do have one comment I've seen it twice in the last week one in a private conversation and yesterday at a public conversation is that folks are not factoring in inflation into some long-term price projections and it's distortionary and that's one of the problems with inflation is it's really tough to prepare for the future and in both cases it was related to forward or future natural gas prices where folks are saying, look at it, it's going up and that's because of this it's like, no, if you look at that it's actually staying flat in real terms and so that's something that we're gonna have to deal with and again, if we all expect 3% inflation we can kind of build it in but if it's eight and then four and then all over the place it can make life a little bit more challenging There's a question for you, Dave Yeah, so what are the prices of gasoline gonna be the next 12 months? That's why I didn't call it an outlook because I really, I don't know we're gonna see strong demand and then to me, so much of it depends on the economy are we gonna see a recession? How severe is that recession? How are folks impacted? Is that recession gonna impact? Let's call low income or low skilled folks are they gonna lose their job and stop traveling or driving to and from work? There's a lot that can give and again, right now, we have a global energy crisis then we have our national even regional markets for energy or for transportation fuel and from my perspective, it's really tough to tell I mean, one of the things that is nice I didn't share the slides but we have seen the domestic oil industry now respond as much as they can to these higher oil prices so we're seeing additional production we're gonna have record production of oil in the United States this year but really that forecast for future prices I think the best way to say is it's gonna be really high through summer and probably high for the rest of the year but it can give so quickly that change in price of people decide to stop driving or have to stop driving that excess supply and then the elasticity you can see rapid changes in what might happen at the pump Then there's a question for Frane on Durham Yeah, so Durham prices this summer and fall I'll try and make this brief I spoke with some industry people a couple of days ago and asked them about Durham acreage in North Dakota and I guess at North Dakota, Montana and their expectation was we might actually see a slight drop in Durham seedings from the Perspective Plantings Report so we're always looking at that March Perspective Plantings Report as kind of the baseline because of some of the weather and shifting of acres and what's gonna get planted what's not gonna get planted there were some concerns that not all the intended duramakers in North Dakota will get seeded this year so we'll have to watch that and look for that in the March excuse me, in the June 30 report The other thing that actually in my opinion will have a bigger impact will be what happens in Canada the Canadians are much larger producers by area as well as by volume most of that is kind of in kind of a diagonal Northwest Southeast through the middle of Saskatchewan planting progress for Durham and Saskatchewan was pretty much on par but they were very dry coming into the season they have been picking up some rain so it looks like the early indications are the crop is in pretty good shape but it's very, very early they have not had enough rains to do a bunch of recharge of soil moisture so I think the Durham crop in Canada will always be kind of on this bubble of yield and yield drag potentially if it gets hot and dry so I'm actually focused a lot more on what's happening in Saskatchewan in the growing region there when it comes to rainfall and precipitation amounts they did get seeded they got seeded pretty much on time but there's not a lot of soil moisture to carry it through any kind of the extended period of hot dry weather one about central banks they expect to have having to cut rates in 2020 forward does that mean they're expecting a recession already? Well, one thing that the projected GDP growth rates have been the projections for the remainder of this year and then 2023 have been revised downward already the projection for 23 is already pretty low at 1.6% I think was the latest after this latest round and keeping in mind a recession is simply two consecutive quarters of negative growth so it's very possible I'm sure that recession is something that they're thinking about but they can be fairly mild like I said, two consecutive quarters of negative 0.1 and negative 0.2 and then it bounces back and grows 2% well, that was a recession and then the recession was over relatively shortly I think it's certainly on their mind and they're probably if you go back and look historically when they have hiked rates up fairly sharply they have come back later on and revised them back downwards and the key to that will be first of all how high they push rates in the next I'd say year or so six months to a year and then they may pair them back a percent or two once they achieve their whatever their objective is with inflation one of the biggest challenges the Fed has is the rate increases that they've already done really haven't trickled through the economy yet as much, their full effect hasn't been felt as soon as they make a rate announcement it affects the stock market it affects bond yield and stuff immediately that's stuff we get to see in real time basically happening the other stuff, the slowing of demand which is what they're hoping to actually achieve a slowing of demand hence it slows the inflation rate down and it's kind of like piggybacking on to what Dave said about gasoline because we're in an inflationary environment and things like food and energy are being impacted and they're such a big portion of the budget you can have folks cutting spending just on that alone and then you increase rates on top of it and so you may not see like the mortgage rate or whatever go one for one or whatever is as high as the federal funds rate or the treasuries simply because people wind up cutting down the spending and again the interest rate is the mechanism by which they manage supply and demand for low-enable funds but if inflation is high people are paying on consumables higher prices they can't buy durable goods so they're not financing as much so the supply of low-enable funds stays strong stays fairly full and there's just not much demand for it so you don't see that need to increase rates and going back to the recession I would think that anybody there's a good chance that there will be when the central bank increased rates remarkably in the 80s it did force a recession but in some ways it's I hate to use the word necessary but it's kind of part of what it takes to curb inflation is to force a situation where demand wanes enough that even if I expect higher prices in the future I can't go out and buy anything because my demand is reduced okay so that's what they're trying to do and part of inflation is inflationary expectations if they hike rates high enough people knowing this fact revise their expectations for inflation in the future and thereby inflation actually reduces because in some ways inflation can be a self-fulfilling prophecy and then the mechanisms and the levers that they're pulling to try to curb it changes expectations it's kind of a complicated deal and there's some indigeneity in the whole thing where one variable impacts the other variable which then goes back and impacts the same variable before but I suppose that's an extremely long-winded way to say that yeah they're probably if they're thinking about this a recession is in the back of their mind they certainly have to believe that it's very possible especially with these GDP growth rates it's not much to revise it down another point and a half and say yeah we're in a recession but I think that probably has more to do with how long they think it will take these rate increases to curtail inflation than a expectations of some kind of prolonged or deep recession but that's a very simple question with not a very simple answer Brian, well it looks like there's no more questions with that I'd like to thank everyone for joining us today and the panelists for presenting yet again look forward to seeing you again in July on the 14th after the next WASDE report and of course stay cool this weekend it's gonna be a hot one, bye everybody.