Parlor to Plate – September 6, 2023

00;00;00;11 – 00;00;08;18
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;20 – 00;00;30;08
KATHLEEN
Hello and welcome to Parler to Plate a weekly podcast from Ever.Ag Insights dedicated to offering listeners enlightening discussion and actionable intelligence about dairy markets. I’m your host, Kathleen Wolfley. We are excited to have you along. If you like what you hear, please like us. Subscribe and tell a friend or two. First things first, let’s timestamp the episode.

00;00;30;10 – 00;00;52;25
KATHLEEN
It is Wednesday, September 6th at 12:30 p.m. Central. Here’s a quick rundown on the markets. CME block Cheddar close at a dollar 96 down $0.03 from last week. Barrels finished a dollar 87 up a penny, butter closed at 272, a dime higher. And the nonfat dry milk market closed at 109, down a fraction of a cent from last week.

00;00;52;27 – 00;01;15;20
KATHLEEN
On the grain side of the fence, December corn is trading around 485 a bushel. November soybeans at 1375 in the December soybean meal contract is trading just below 400 at 398 per tonne. We have yet another all star cast from the ever.AG team joining us today, starting with Ryan Yonkman. He’s alliance man with high hopes for beating the Chiefs tomorrow night.

00;01;15;23 – 00;01;36;15
KATHLEEN
Ryan works with dairy producers across the country to manage milk price risk. Up next, we have a Seahawks fan in Chicago hoping for greatness this season. Kevin Peterson is an instrumental part of the commercial dairy team and it’s not a dairy podcast without a Packers fan. Mike North is president of Ever.Ag Producer Division, helping grain, livestock and dairy producers manage risk.

00;01;36;18 – 00;01;38;20
KATHLEEN
Welcome to partner to plate, folks.

00;01;38;26 – 00;01;46;03
MIKE
Good to be here. So sad that we have to have a couple of teams that just aren’t going to walk forward with a lot of hope this year.

00;01;46;03 – 00;01;47;07
KATHLEEN
Including the Packers.

00;01;47;08 – 00;01;48;27
MIKE
No, not including the Packers.

00;01;49;02 – 00;01;51;04
RYAN
You don’t have to talk about yourself like that, Mike.

00;01;51;08 – 00;01;55;18
KATHLEEN
All right. All right. Let’s get to it. Ryan, what’s the buzz on the producer side of things?

00;01;55;24 – 00;02;20;00
RYAN
Yeah. So the buzz right now gets old. I feel like this time of year to always be talking about weather and perhaps lack of production. So I’m going to say it’s that alongside the budgets for 2024. So leading out on this milk production front, we’ve had some significant heat waves roll through a lot of the central part of the country up into where we’re at in the Mid East, southern parts of Wisconsin and Michigan.

00;02;20;05 – 00;02;40;02
RYAN
And by a lot of anecdotal reports referred to about two weeks ago, we saw a lot of that part of the country strongly admit to being off, let’s say, ten plus pounds per cow. We got a little break and then we got another wave that rolled through kind of late last week through Labor Day. And so the conversation around that is one of which, hey, milk is already tight.

00;02;40;09 – 00;03;02;00
RYAN
I don’t think that is a secret anymore. So to add that on top of a market that’s already struggling to maybe keep certain vats for you got hit with another weather event over the weekend when cows get hit twice like that, especially this late in the season, which should in theory be closer to fall than summer. Dairymen start to talk about how these animals might not recover as quickly, if at all, as we head later into the year.

00;03;02;07 – 00;03;07;28
RYAN
So an interesting talking point there from the dairies in a market, again, that more or less feel short domestically.

00;03;08;06 – 00;03;10;09
KATHLEEN
And how about on the commercial side of things, Kevin?

00;03;10;11 – 00;03;28;20
KEVIN
You know, the buzz on the commercial side of things right now is really centered around that dairy products report we got yesterday. And then, you know, also to piggyback what y’all have been saying, you know, talking about a lot of budgets for next year with that dairy products report, we saw a big pullback in nonfat production, as well as ending stocks, which definitely propelled that market higher today.

00;03;28;20 – 00;03;41;08
KEVIN
And then, you know, one thing I noticed on cheese as well is this is now the second month in a row of year over year declines in in cheese production. So I think that’s helping to keep that cheese market propped up as we head into the end of the year here.

00;03;41;10 – 00;04;00;04
KATHLEEN
And it seemed like digging into some of that data, particularly on the cheddar side, that some of the decline in cheddar production specifically came out of California, which if we look back at the milk production report for July, California’s production was down, what, five and a half percent year over year. So just overall, less milk going into cheese plants during that month.

00;04;00;07 – 00;04;15;24
KATHLEEN
So I guess this is a question for Ryan and Kevin, but we did see a little bit better than anticipated GDP auction yesterday. And it looks like the U.S. nonfat market has been responding positively here in the last two days. What are your thoughts on this life that we’re starting to see bounce back into the powder markets?

00;04;15;29 – 00;04;37;17
KEVIN
Yeah, you know, I think for a domestic nonfat market, I mean, you know, all year we’ve been seeing Mexico still be a strong buyer. China has kind of fallen back a little bit, but yeah, Mexico’s really picked up that slack. And, you know, I think, you know, really right now the biggest thing, like I kind of alluded to earlier is just that production and stocks numbers are dropping pretty drastically, I think is really what’s, you know, giving some life to our powder market.

00;04;37;17 – 00;04;45;27
KEVIN
You know, if you look over at New Zealand, I mean, they’re still kind of on a steady decline and, you know, they’re their big problem over there is, again, with Asia and the lack of demand.

00;04;45;28 – 00;05;04;05
RYAN
But I think to to piggyback off that so right. Newsflash less milk makes less product. But when you look at where these declines in the U.S. have really come out of you know, you mentioned Kathleen, looking at California, right. We look at that whole southwest corridor, some of the PNW, a lot of that production, when full or in excess runs into balance in plants.

00;05;04;05 – 00;05;24;23
RYAN
Right. It’s making powder, it’s making butter. So it’s been inferred now for a few months that, hey, where this milk is drying up and the longer term is a it’s a class for event. It’s a powder event. Those are the first plants to get shorted or to run dry. When we look at the nature of how a lot of cheese plants run, which is it used to be on contract and run full.

00;05;24;23 – 00;05;44;13
RYAN
So to see those numbers I think only makes real regionally where we’ve seen the major milk declines and then to look at what’s going on overseas. Right. Yeah. GDP appears to maybe finally finding some bottom there. Some interesting, I think, conversation around, hey, Jan, one tariffs drop between China and New Zealand. How much posturing is happening between now and that time frame?

00;05;44;19 – 00;06;05;02
RYAN
Certainly when we look at even another factor, we look at the U.S. nonfat market, we look at things like open interest in volume in 2024. It’s really starting to pick up really starting to act like a market that is certainly putting a bottom in. And when I flip over to New Zealand futures, their whole milk powder contract also starting to show some similar price action bouncing nicely off the lows here over the last week.

00;06;05;09 – 00;06;21;01
KATHLEEN
It kind of seems to me like there’s internationally is potentially an oversupply issue. But given the fact that we’re a little tighter on stocks here in the States, it puts us in a little bit more of a tenuous situation if things get tight in a hurry. Well, that’s enough on the milk markets. Mike, what are your thoughts on grains?

00;06;21;08 – 00;06;48;25
MIKE
Well, I hate to go back and steal Ryan’s weather commentary, but this time of the year, a very, very big subject. And as we’ve watched the last 2 to 3 weeks of hot and dry weather sweep through the Midwest, it really brings into question yields. And we saw the numbers come out of the pro farmer tour suggesting a large crop but not a record crop of corn.

00;06;49;02 – 00;07;24;19
MIKE
Yields on soybeans were taken down, even though we ultimately saw pod counts higher in every place but Iowa and Minnesota that I believe was postured ahead of some of the heat that was happening during the pro Farmer tour. We are going to have a lot of interest in this supply and demand report that’s coming up here very quickly to see what the USDA does with the yield as it relates to that, whether the soybean balance sheet by our forecast is already very tight, it’s going to take us a while to fully flesh out all those numbers.

00;07;24;19 – 00;07;45;14
MIKE
But we’re already showing balance sheets that could be sub 100 million bushels. That adds some premium to soybeans. And I think as you’ve been watching the price movement over the course of the last couple of weeks, it really does justify the move from sub $13 back to testing 14. But we’re going to need to see the USDA weigh in on this.

00;07;45;14 – 00;08;17;11
MIKE
And the thing about the September report is that we’re still running off of objective yield models, an objective yield plots, and that ultimately may hinder their desire to cut very aggressively into that yield number. So we might be warring here between what people believe when watching the weatherman and what the USDA says in this next report. But, you know, all things said and done, you know, this is a market that is heading towards harvest very quickly and the heat is helping to progress.

00;08;17;11 – 00;08;39;04
MIKE
Some of that along is silage. Harvest was mentioned earlier in the show that is happening, you know, rapidly across the Midwest as things dry down and maturities get pushed forward, we’re seeing some crops that, you know, ultimately were intended for grain that are being slid over into the silage category. So how that shows up in the balance sheet is another thing to digest.

00;08;39;04 – 00;08;56;22
MIKE
And we can talk more about that here a little bit later. But right now, weather is the primary focus. That’s the buzz in the market. And we’re just going to see what the USDA does with all of the the gut feel that, you know, farmers have right now as we walk this thing into harvest.

00;08;56;24 – 00;09;16;17
KATHLEEN
Great. Thanks for the update, Mike. Thinking about whether it’s really hard to believe you’re on a 90 degree day in September in western New York, that the end of the year is going to be here before we know it. So that means that on the commercial side, on the producer side, folks are really starting to think about budgets and in some cases taking action on 2024 plans.

00;09;16;20 – 00;09;24;29
KATHLEEN
what are all of you hearing out there for thoughts, expectations, budgets for the upcoming year? Kevin, maybe I’ll start with you on the commercial side of things.

00;09;25;01 – 00;09;42;28
KEVIN
Yeah, you know, September is is definitely that time of year when, you know, a lot of the end user community starts to look out at 2024 and get some coverage on out there. You know, so far I think it’s been fairly light from what I’ve been seeing. We talked before this call and the five year average for cheese prices, call it about 180.

00;09;43;05 – 00;10;00;20
KEVIN
And if you look at it, that cheese curve right now in 2024, you’re looking at about 192. And so, you know, that’s not historically a price where a lot of people want to want to take coverage. And so I think this year we might see folks wait as really as long as they can before entering into coverage out there.

00;10;00;22 – 00;10;14;14
KEVIN
And then, you know, you look at, you know, butter is kind of the same deal where mid $2 is not extremely enticing for a lot of these guys. And so, again, I think, you know, we’re seeing people kind of sitting on their hands and waiting to see if they can’t get some better pricing.

00;10;14;16 – 00;10;16;14
KATHLEEN
Are you seeing similar action on the producer side?

00;10;16;14 – 00;10;39;06
RYAN
Ryan Yeah. So, you know, as Mike had mentioned, now that we’re getting, you know, we’re through our three or four cartons of alfalfa right on the pad and now we’re getting to the corn silage. Our budgets, our cost of production are becoming a lot more known for next year. And so as I talk with dairies and even crunched the numbers for our own dairy back home, we are definitely finding our costs are going to be down from a year ago.

00;10;39;06 – 00;11;13;03
RYAN
It’s not that hard to figure out when we just look at what grains have done, but I’m getting a pretty strong feel in that 18 to 18 and a half dollars per hundred weight seems to be the fairly sweet spot, I think, across the country where dairies breaking even making a little bit of money. And kind of to Kevin’s point, you know, you look at butter, you know, maybe from an as a your perspective kind of interesting and cheese I go look at class during class for features June to June is trading at 18 half on class three and 1880 on class for so if you remember the 1818 half mark I just mentioned, you’re kind of

00;11;13;03 – 00;11;32;29
RYAN
right there and so depending on the dairy, right, Yeah. Got lower cost of production, maybe you got better premium. There may be some interest, but from a very generic perspective, you’re kind of right there. So it’s not creating, I would say, easy decisions for the dairymen just yet, especially if you’re in the camp of, you know, trying to to buy puts.

00;11;33;01 – 00;11;43;08
RYAN
You can’t, I think, effectively do that and lock in margin. So it does have a still a little bit in a holding pattern even though we’ve got some knowns in hand here at where costs are starting to set.

00;11;43;11 – 00;11;53;11
KATHLEEN
Mike I imagine on the grain side of things, there’s a lot of budgeting and planning that happens. While folks are sitting in combines, are waiting at the grain elevators. What are you hearing from your perspective?

00;11;53;14 – 00;12;20;10
MIKE
Well, there’s a lot of discussion around this side of the equation. And, you know, when we look at feed cost, if I’m a dairyman today, I’m staring at, you know, corn going into a bunker, a dollar to a dollar and a half cheaper than it was last year. That’s certainly a great news story for dairymen. But I will tell you that for the grain farmer, it’s equally uninteresting, equally unappealing.

00;12;20;10 – 00;12;51;05
MIKE
And one of the things that’s going to be interesting to monitor is the response by grain farmers to the current market. We’re trading sub $5 corn. Last year, as we were going in the harvest, we were six and a half to $7 corn. And you know, that is not a very good place to find yourself. And in talking with grain buyers around the country, their forward book of purchases is one of the lightest that we’ve seen in nearly a decade.

00;12;51;07 – 00;13;20;17
MIKE
Farmers have not sold forward in the calendar year 2023 to grab a hold of what used to be $6 corn or anything less than that. So that may invite, with this forthcoming expected to be pretty good crop, may invite a lot of added selling pressure because farmers are going to need to find a home for some of this corn they can’t store on farm just adding some weight to prices as we go towards fall.

00;13;20;20 – 00;13;39;22
MIKE
So the only counter to this will be if this weather, as I alluded to earlier, steps in to say the yield is drastically less buyer beware and the buyers come forward aggressively in bid for crop to try to get their hands on it this fall. So that’s where this thing could have a little bit of a razor’s edge.

00;13;39;22 – 00;13;51;02
MIKE
But, you know, if I’m a if I’m a dairyman, I’m loving this corn price, if I’m a grain farmer, not excited at all. And that may have its own set of consequences on price as we come through fall.

00;13;51;05 – 00;14;09;19
KATHLEEN
So it seems like overall, no matter which side of the fence you’re sitting on, it’s kind of been a little bit of a waiting game at this point as we head into 2024 and it’s early yet. It’s still September. It’s just, as I mentioned, creeping a little closer every single day to the end of the year. A huge thank you to Ryan, Kevin, Mike, for joining me today.

00;14;09;22 – 00;14;28;14
KATHLEEN
I appreciate you sharing your insights and thoughts with our listeners. Thank you, as always to our media team for mixing and mastering. And thank you to you, the listener, for joining us today. If you like what you hear, subscribe on your favorite app. If you’d like to learn more about how we help people manage risk, contact us at Insights at Ever.AG.

00;14;28;21 – 00;14;31;11
KATHLEEN
And one last thing before we go. Go, Bills.

00;14;31;13 – 00;14;32;25
RYAN
Neutral.

00;14;33;01 – 00;14;34;01
MIKE
Go pack, Go.