Parlor to Plate – July 26, 2023

00;00;00;00 – 00;00;02;28
VOICEOVER
Future trading involves risk and is not suitable for all investors.

00;00;02;29 – 00;00;08;15
VOICEOVER
Content provided in this segment is meant for educational purposes and is not a solicitation to buy or sell commodities.

00;00;08;18 – 00;00;32;11
ERICA
Hello. Welcome to Parlor to Plate, a weekly podcast from Insights dedicated to offering listeners enlightening discussion and actionable intelligence about dairy markets. I’m your host, Eric Maedke. We’re excited to have you along today. If you like what you hear, please like us. Subscribe and tell a friend or two. First things first, we will timestamp today’s episode. It is Wednesday, July 26.

00;00;32;11 – 00;01;02;29
ERICA
It’s about 1:00 Central Standard Time. Here’s a quick rundown of the markets. CME BLOCK Cheddar. 186 a pound, up $0.28 from last week. Exciting right barrels a 1.78. A 32 cent run higher even after being down a nickel today, whey $0.26, up a penny butter 2.67, up $0.11 from last week. Nonfat dry milk at 115 per pound, up a nickel in the grain complex.

00;01;02;29 – 00;01;28;03
ERICA
September corn at 542 a bushel, down $0.04. August soybeans at 1539, up $0.47 on the week. And finally, soybean meal rounding out the complex at 463 per ton, up $19 today. I am grateful to have another all star cast from the ever.ag team. Joining me. We’ve got Kathleen Wolfley, who supports dairy producer risk management from her office in New York.

00;01;28;06 – 00;01;38;01
ERICA
Jon Spainhour and veteran advisor for commercial clients out of the Chicago office. And Shelby Myers, our director of grain intelligence and Purdue alumni. Team, how are we today?

00;01;38;01 – 00;01;39;04
KATHLEEN
Great Erica, thanks for having me.

00;01;39;05 – 00;01;40;02
JON
Happy to be here, Erica.

00;01;40;09 – 00;01;41;26
SHELBY
Doing well, thank you so much for being here.

00;01;41;28 – 00;01;52;19
ERICA
Great. So it’s July. It’s hot. And I think that’s the buzz in everybody’s world. So, Kathleen, do you want to start off with what’s going on in the producer space?

00;01;52;20 – 00;02;14;03
KATHLEEN
Well, Erica, I think you hit it right on the head. There it is. Hot in the Midwest. Hot in the Southwest. Hot in the Northeast. If you were to guess a Cow’s least favorite month, I think July, maybe August might be top of the list if she had a choice or knew what month it was. In general, I would say that milk production seasonally is tighter.

00;02;14;05 – 00;02;39;11
KATHLEEN
No huge surprise there. But I think the culmination of lighter milk supplies seasonally and this big run in the cheese market over the course of the last several trading days has all played in together. We probably said it more than once on this podcast, but 4 to 30 day old cheese really matters for Chicago. In the cheese market is the currency, as they say.

00;02;39;13 – 00;02;45;18
KATHLEEN
And we’ve just been tight on 4 to 30 day old cheese in part because we’ve had less milk around.

00;02;45;25 – 00;03;06;29
JON
Kathleen, I think you’re absolutely right when it comes to the cheese market in terms of what has been driving things, I think if we go back to late last week, we got our first signal that milk production is a little bit less than what we might have expected. I believe it officially came in just slightly lower year over year for the month of June.

00;03;07;01 – 00;03;27;26
JON
I think our internal forecasts had it up around a half to 0.6% higher. That loss of milk seems to come out of milk cows right? We saw our first substantial decrease in milk cows and I think that was mainly in Texas. Obviously there are some economic reasons for that. But also the heat had already started working on Texas.

00;03;28;03 – 00;03;46;23
JON
And I think we’ve heard of milk production really starting to have a negative effect due to the heat across the country. Right about the same point in time, we can say in the cheese market, at least it sounded like we may have gotten some exports off that are finally starting to go out. It’s been a long time since we’ve seen those.

00;03;46;25 – 00;04;14;04
JON
Realistically, we saw exports really die off as we moved into the second quarter. We always say that these these export contracts are typically done on a quarterly or half year basis. We got through the second quarter, lost them here. We come into the third quarter and it appears that we have some and then right about the same point in time, we had heard that there were some plant production issues that took place out there that may have tightened things up just a little bit more.

00;04;14;08 – 00;04;22;26
JON
And all at once you see the cheese market go from a dollar 35 to the block market, getting to about a 1.85 here in just the last couple of days.

00;04;23;01 – 00;04;33;27
KATHLEEN
So I think, Erica, to kind of go back to what’s the buzz in Kathleen’s world, I would say higher milk prices down the board have been really what producers are buzzing about here in the last week or so to.

00;04;33;27 – 00;05;02;29
SHELBY
Go with the sentiment of feeling hot, hot, hot. I think we’ve seen that a lot in the grain complex, too. And you know, the buzz typically in late July for grains is whether we’ve been monitoring commodities in drought. We’ve got this great new exclusive on our website insights.ever.ag that allows our viewers subscribers to check out the progress of drought intensity and severity, as well as the quantity of crop production in drought.

00;05;02;29 – 00;05;24;21
SHELBY
And we have seen a little bit of alleviation. I don’t want to discount some of the rains that we’ve had, but the alleviation has really been we’ve seen more production in corn and soybeans in particular come out of the most severe drought status D4 and reallocate to some of those other drought statuses and to maybe abnormally dry could use another shower or two.

00;05;24;26 – 00;05;52;23
SHELBY
Typically, that’s what would drive grain markets as high as they are right now. It’s arguably already built into some of the market trading right now because frankly, it’s been overwhelmed by market talk regarding Russia and Ukraine. Russia pulling out of the Black Sea Grain Initiative last week and then the further escalations of conflict throughout that area of the Black Sea have really driven markets to run higher.

00;05;52;26 – 00;06;12;15
SHELBY
I think today as of Wednesday, we’ve started to see some of the market recognizing that maybe not all of the grain coming out of Ukraine will be cut off, that there are going to be ways for Ukraine to figure out how to get grain out of the country via railroads and truck transportation. But it’s not going to go out via vessels through the Black Sea.

00;06;12;20 – 00;06;21;22
SHELBY
And so that escalation in some of the intensive attacks that are happening in that area have really elevated grain markets to hit limit highs.

00;06;21;22 – 00;06;49;09
ERICA
Really interesting insights, team. Certainly a lot of impact from the heat. Now, let’s change gears and move into the center of the plate. And I would say we tend to, as analysts sometimes focus a lot on the supply side of the market. There’s a lot of good data. That’s a lot of the commentary. But for today, I want to focus on the demand side of the equation and what we know there, because that’s obviously the other part two, setting the market dynamics and where price levels are.

00;06;49;15 – 00;06;55;24
ERICA
So we’ve certainly heard mixed bag on demand. So, Kathleen, do you want to start us off?

00;06;55;27 – 00;07;19;23
KATHLEEN
Yes, sure. I think that John made a great point about when we saw super cheap cheese prices, what they were what the lowest cheese prices that we’ve seen going back to 2020 available in the marketplace just a month ago. That did help demand to some extent, people were able to pick up some pretty cheap products both domestically and into the international market or U.S. exporters shipping more into the international market.

00;07;19;24 – 00;07;39;26
KATHLEEN
But as we sit here at a $1.86 blocks and a $1.83 barrels, you just have to wonder how sustainable is good demand? Because I think at the end of the day, even though supply is tight, I just don’t know as though consumers here in the domestic market have really fattened up their wallets over the course of the past month.

00;07;39;28 – 00;08;01;14
KATHLEEN
I think restaurant traffic is still struggling to some extent, even though we we continue to see food service sales relatively steady on an inflation adjusted basis. But traffic has been lower in restaurants. Overall, reservations at restaurants that take reservations has been lower. Grocery store sales have been lower, even on an inflation adjusted basis as well.

00;08;01;16 – 00;08;02;26
ERICA
So if I just if we look at.

00;08;02;26 – 00;08;29;16
KATHLEEN
The whole consumer package, I think that if you if you consider the fact that the Fed is probably going to continue to raise interest rates here, I think they’re supposed to announce something today and student loan repayments are coming back in a couple of months. There’s a whole lot of potential headwinds that are continuing to be blown at U.S. consumers that I don’t know, as though the demand dynamics here domestically change all that much.

00;08;29;19 – 00;08;31;26
ERICA
What have you been hearing in the international space?

00;08;31;27 – 00;08;59;01
JON
Yeah, you know, really put it getting your arms around demand out here is a multi dimensional question, I suppose, or a problem. As Kathleen said, things here in the U.S. seem okay. I don’t know that they seem like they’re gangbusters by any means, but. Okay. But as we get into the other markets of the world and we get into Europe, I think we’ve seen a lot of commentary of food inflation in Europe right now, running as much as 20% higher.

00;08;59;01 – 00;09;19;21
JON
As you talk to people in Europe and the dairy world specifically, they’ll say, man, demand is just not great. And when you talk about it from the standpoint of 20% inflation, you certainly understand where they’re coming from or why that would be the case. So we do want to look out for that. At the same point in time, European milk production seems to have stabilized.

00;09;19;21 – 00;09;39;14
JON
So we’re in a circumstance there where we’ve got, you know, waning demand and relatively stable milk production get over into China right now. And that really is a huge headline in almost every commodity out there. Right. It’s not just dairy. It’s it’s all together. Every commodity out there is saying, hey, the Chinese just aren’t buying as much as they were before.

00;09;39;16 – 00;10;02;06
JON
From economic reasons down to we have reason to believe that internal on the dairy side, internal domestic Chinese milk production is big and getting bigger. And that just means that they’ve got a loss of domestic demand and what demand they have, they’re feeding with their domestic milk production. That means there’s less demand coming out of China into the export markets.

00;10;02;09 – 00;10;20;21
JON
So all together, I think we can look at it and say the demand that New Zealand would typically service not awesome. And then you get over into Europe and say their domestic demand not great. And so it really is great to see the U.S. market pop up specifically in cheese here and maybe part of that was because of exports.

00;10;20;23 – 00;10;29;07
JON
But I think there is a bit of a limiting factor to how high we can go and how long we can stay here, as long as the rest of the world is suffering at a demand level.

00;10;29;08 – 00;10;57;13
ERICA
And just to put a lot of facts on the China side of things, whole milk powder tends to be one of the largest imports into China. Usually from New Zealand. And year to date through June, it’s down almost 45% compared to 2022 levels. So that certainly feels like product backs up. Interesting to see cheese up almost 13% in terms of overall imports, although total pounds there are pretty small.

00;10;57;14 – 00;11;06;06
KATHLEEN
Shelby, I’m kind of curious on the grain side of things. We’ve talked about the both domestic and international markets for dairy, but what’s happening in the grain world.

00;11;06;10 – 00;11;30;04
SHELBY
Grain demand, you know, I’ll split it up because they’re kind of telling two different stories on the soybean side. On Monday, we saw 121,000 metric tons of new crop soybeans for delivery to China confirmed on Monday. And so seeing consistent demand from China for U.S. soybeans is something that I think is not necessarily needed in the U.S. soybean balance sheet.

00;11;30;06 – 00;11;54;28
SHELBY
It’s already tight to begin with, but it certainly helps to have that export demand because exports are such a large part of U.S. soybean demand. The other large part being U.S. domestic soy crush. And those are about equivalent in their quantity of demand for U.S. soybeans. So the U.S. crush is increasing by the month. For different uses, demand for corn.

00;11;54;28 – 00;12;21;27
SHELBY
On the other hand, has been kind of wishy washy. Export demand has been slow pace, it’s been stagnant. There’s not been a whole lot to see on the mountain top and scream about. We’ve certainly seen those. The demand for U.S. corn really lack globally. Now that’s going to change most likely significantly with the dynamics of Ukraine and Russia and how grain moves out of Ukraine.

00;12;21;29 – 00;12;44;01
SHELBY
Over 55% of the black Sea grain deal was corn leaving those ports. And so that’s got to come from somewhere else. And whether it’s the U.S. or Brazil and Argentina, there are going to be countries looking for corn purchases. What I also maybe keep an eye on, too, is where do other countries step in to help those developing countries purchase grain?

00;12;44;03 – 00;13;13;17
SHELBY
Do we see other aid programs that look to U.S. grain for that opportunity? The domestic side of things for corn. Today, we got an ethanol report that was a record ethanol production for the marketing year. And so we’ve seen strong ethanol operating returns that have really helped drive that. But the net corn cost for ethanol producers and the fact that it’s lowered over the last two months has really helped drive operating margins up for ethanol producers.

00;13;13;19 – 00;13;27;16
SHELBY
And you’re seeing the uptick in ethanol production inflated with increased summer demand and summer driving. That will help add to that plus some states implementing the blending of E15 rather than E10 in their fuels.

00;13;27;16 – 00;13;49;27
ERICA
So if I can summarize the center of the plate here, there’s a lot of uncertainty, whether it’s supply, whether it’s demand. And then from the perspective of both producers and commercial folks, take care of your risk. It’s here. The volatility is here to stay so big. Thank you to Kathleen, John and Shelby for joining me today. Really great contributions to the buzz and the center of the plate.

00;13;50;00 – 00;14;11;18
ERICA
Appreciate you being here, sharing your insights and help you guys stay cool. Always. Thank you to our media team Paige Driscoll for mixing and mastering. Thank you to the listeners for joining us today. If you like what you hear, subscribe on your favorite app. And if you’d like to learn more about how we help people manage the risk, contact us at Insights at Ever.Ag.

00;14;11;18 – 00;14;31;23
CODY
At Ever.Ag, We partner with every corner of the agriculture industry, from dairy to livestock crops and agribusiness to deliver intelligent supply chain and risk management solutions. We are ever.ag everything agriculture. Learn more at WWW.ever.ag/everything.