GDT Review with Jon Spainhour – July 6, 2023

Cody Koster and Jon Spainhour take a deep dive into this week’s GDT report.

Questions or comments? Contact Jon at jcs@ever.ag, Cody at cjk@ever.ag, or give us a call at (312) 492-4200.

[bg_collapse color=”#004053″ icon=”arrow” expand_text=”Show Transcript” collapse_text=”Hide Transcript” ]

00;00;00;00 – 00;00;08;17
VOICEOVER
Future trading involves risk and is not suitable for all investors. Content provided in this segment is meant for educational purposes and is not a solicitation to buy or sell commodities.

00;00;08;19 – 00;00;32;04
CODY
Hello everybody. Welcome back to another GDT Tuesday. We are actually recording this episode on Thursday, July 6. It is about 9:10 Central Time. And the reason for that is we all have the day off for the 4th of July. So without further ado, I am your host, Cody Koster, with me from Chicago. Mr. Jon Spainhour. Jon, how are you?

00;00;32;05 – 00;00;54;02
JON
Good morning, Cody. I’m doing well. And to all of our listeners out there, we apologize for doing this on Thursday. But travel schedules do dictate during the holiday season here. And as Cody mentioned, 4th of July, there was an auction on the GDT. They apparently didn’t take the day off to celebrate in New Zealand our, ah, Independence Day.

00;00;54;02 – 00;01;11;08
JON
But here we are. And through the magic of the internet and time we’re able to cheat just a little bit today because we’ve been able to gather lots of commentary from other people as well as gotten to see a little bit of the market reaction. But we’ll try to add a little bit more flavor to the conversation here today.

00;01;11;15 – 00;01;13;20
JON
Other than just what we’ve seen happen since.

00;01;13;25 – 00;01;22;11
CODY
With the GDT that happened on Tuesday, Jon, quite a bit lower, maybe a little bit more than the expectations had kind of given us a look into.

00;01;22;11 – 00;01;43;28
JON
Yeah, you know, it’s a bit of a tough one. You are correct. The overall auction was 3.3% lower. And then some of the highlights that are out there, whole milk powder actually held in there at about just negative 0.4 that actually exceeded expectations based on the futures and the GDP polls that we had coming into this week.

00;01;43;29 – 00;02;19;05
JON
However, that was the negative 0.4 was actually the highlight, if you will, to the upside of most of the behavior on the GDP. Skim milk powder down 6%. That is going to take skim milk powder to just shy of $1.15. This is a pretty low price for skim milk powder. And I think futures were kind of pointing towards a negative reaction here, maybe not quite as negative as this came out, but this will be the lowest price that we’ve seen since August of 2020 on New Zealand skim milk powder.

00;02;19;07 – 00;02;55;11
JON
We want to keep in mind that the U.S., we would have thought that the U.S. would react to this yesterday. It did indeed. Down 0.75, I believe yesterday, not much. It brought the U.S. nonfat market down to 1.11 on the CME. The EU, though, at 1.09 already and that was coming off of last week. So with the New Zealand price coming down to 1.15, I think we can expect that we’re going to see more downside out of both the U.S. and the EU as we move over though, to the butter side of things, butter was lower here by 10% came in the day.

00;02;55;13 – 00;03;16;13
JON
When you do the 82% adjusted, that’s going to put the New Zealand butter price at about 2.14 a pound, EU right now at 2.14, U.S. at 2.47. So the U.S. is, you know, a couple of weeks ago when the New Zealand price went higher, it put the U.S. has no longer the highest price in the world. That position didn’t last very long.

00;03;16;19 – 00;03;44;16
JON
Now both the EU and New Zealand prices have moved lower to 2.14 and the US has moved higher. We are now at 2.47, which is significantly higher than the rest of the world. Finally, of the major products out here, we want to look at cheddar down 3.1%. That’s going to put the New Zealand cheddar price at $1.99 and that compares to the EU at $1.96 and the U.S. price down here in the mid $1.30s.

00;03;44;23 – 00;04;10;13
JON
So there’s plenty of room on the cheddar side between the U.S. price and the EU and New Zealand price. However, I think that as we’ve talked about several times, mozzarella is probably our biggest comparative price there on US cheddar exports. And that is still, you know, those prices bounced up to about 1.50-1.60 a few weeks ago in Europe and have since come back down.

00;04;10;13 – 00;04;42;12
JON
So we do face some pretty significant headwinds there on the cheddar side or excuse me, on the cheese side as well. So with that being said, Cody, again, the overall composite index down 3.3% and this is going to be the lowest price that we’ve got on the index going back to April of this year. And then in order to go lower than April of this year, we have to go all the way back into late 2020, getting into Q4 of 2020.

00;04;42;12 – 00;04;54;27
JON
So it’s been a few years since we’ve been at these price levels out here. And, you know, not to bury the headline here or bury the thought, but I don’t know that we’re going to stop here in terms of finding lower prices.

00;04;54;27 – 00;05;07;12
CODY
With that being said, Jon, maybe we can speak to like the regions buying on this auction. Was there one that stuck out to you in your mind with some of these lower prices that really jumped in here? Kind of got the buying train going?

00;05;07;13 – 00;05;25;10
JON
Yeah, you bet. And that’s a great question. Our good friends at Fresh Agenda have pointed out to us that this was the lowest Chinese involvement on whole milk powder ever seen on the GDP. And that’s quite a statement from a lot of different perspectives.

00;05;25;10 – 00;05;26;20
CODY
Ever, right? Not just like this year, but ever.

00;05;26;20 – 00;05;45;05
JON
Ever seen on the GDP for whole milk powder. And I think we have to make sure that we put that categorization on there, that descriptor. There was not the lowest Chinese participation ever on the but at least in terms of whole milk powder, I think, you know, the Chinese predominantly buy whole milk powder.

00;05;45;05 – 00;06;17;00
JON
And so that is just so important that when they’re not here, prices typically go lower and it’s a sign of a weakening market, if you will. What I find remarkable about this is that whole milk powder only came in 0.4% lower. And a lot of different analysts that I’ve been able to read while I was on vacation, sitting at the beaches of Wisconsin, perusing, you know, my email was that if we just look at that 0.4% lower, it kind of hides the idea that there’s a problem out here, right?

00;06;17;00 – 00;06;36;01
JON
You can look at that and say, well, China must have been there. Well, they really weren’t. And we can see it. This is the lowest whole milk powder participation ever for the Chinese. That doesn’t bode well in terms of demand. Again, if I want to turn it upside down and look at it, I can say, well, the Chinese weren’t there and whole milk powder was still at 0.4%.

00;06;36;01 – 00;06;56;17
JON
That means we had some participation from some other regions and that we did. The Middle East did a pretty decent buying out here. And we again, we’ve got Central and South America doing a little bit, but it’s really Southeast Asia that’s been the strong second contender in here. That is really great to see. And I think that they are going to continue to be here.

00;06;56;17 – 00;07;21;04
JON
At least they’ve shown that. But there’s just nobody that can buy as much whole milk powder as China can and as they back off, one has to suspect that the New Zealanders are going to adjust their make and move out of whole milk powder and start putting it into maybe some of these other products, if not simply at a price, but because that’s what they need to do to find a home for some of this product.

00;07;21;07 – 00;07;39;00
JON
So we’ll see. These things do take time to adjust and again the New Zealanders are going to go out there and chase that highest return. And if whole milk powder is the highest return, we can expect that they will try to do that. But my guess is, is that in the absence of Chinese demand is going to be tough for them to even market the stuff they got.

00;07;39;00 – 00;08;05;27
JON
So it just feels like it’s going to pull the whole market down and just as an example of that skim going down here to $1.5, this is the lowest skim milk powder price that we have seen since November of 2020. Excuse me, going back even a little bit later than that into August of 2020. We talked about how this was the lowest overall auction since April of this year in order to go back before that, you had to go back to 2020.

00;08;06;04 – 00;08;17;13
JON
Skim milk powder is already there. And that kind of senses to me or it leads me to believe that whole milk powder is is going to head in that direction and we’re going to see the general auction move that way as well.

00;08;17;18 – 00;08;28;29
CODY
Well, I mean, we put out a lot of good things in this episode today, Jon, but is there any one thing that stood out to you that we haven’t kind of talked about yet for global dairy trade, kind of looking into the future here?

00;08;28;29 – 00;08;48;01
JON
As it comes right now? If I read anything out of all of the different reports on the GDP that I’m able to read and a lot of times I have to read them after we put ours out, I was able to read this and read a lot of this stuff now. And you know, what we can look at it is, is just demand, demand, demand right now.

00;08;48;01 – 00;09;15;28
JON
There’s a lot of milk out there. We can look at it all and say, hey, we expect milk prices to lead to less production. And I think that’s probably pretty clear. But in the meantime, right now, demand is an issue. It’s an issue domestically, it’s an issue internationally. And I think we see that here with, again, Chinese participation being so low, I’m just not sure, you know, I’m not sure how to take anything else away from that.

00;09;16;01 – 00;09;40;19
JON
And that, you know, if we get that demand to come back, maybe we go someplace. Right. But right now, in the absence of that, we probably have a little too much milk, and that is just deflating prices here. And again, it’s not just in the U.S., it’s in other regions of the world as well. And I would expect right now to see a further deterioration of these prices as we move through the summer here.

00;09;40;22 – 00;09;56;05
JON
Again, as we get further into the fall, we’ll probably see the effects of these low milk prices. But in the short term, we have to look at this and say, hey, we’ve got a little bit too much more milk than we need. And demand certainly isn’t showing signs that it’s growing at the moment.

00;09;56;08 – 00;10;17;15
CODY
All right. Well, that’s going to do it for another episode of Geeky Tuesday on this special Thursday with Jon Spainhour and myself. We will see everybody in about two weeks, middle of July for the next auction. But until then, we’ll have a great week, great weekends. We’ll talk to you soon.

[/bg_collapse]

Disclaimer: TRADING FUTURES AND OPTIONS ON FUTURES INVOLVES SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THE INFORMATION AND COMMENTS CONTAINED HEREIN ARE PROVIDED BY EVER.AG AS GENERAL COMMENTARY OF MARKET CONDITIONS. THIS INFORMATION SHOULD NOT BE INTERPRETED AS TRADING ADVICE OR RECOMMENDATION WITHOUT FURTHER DISCUSSION WITH YOUR EVER.AG ADVISOR. THIS IS A MATTER OF SOLICITATION.

—

The following music was used for this media project:

Music: Funky Intro 29 by TaigaSoundProd

Free download: https://filmmusic.io/song/9520-funky-intro-29

License (CC BY 4.0): https://filmmusic.io/standard-license

Artist website: https://linktr.ee/taigasoundprod

© Ever.Ag 2023, confidential and proprietary.