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.

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00;00;00;00 – 00;00;08;16
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;18 – 00;00;16;25
CODY
Hello, everybody. Welcome back to another GDT Tuesday. I am your host, Cody Koster. With me from Chicago. Mr. John Spainhour. John, how are you doing?

00;00;16;25 – 00;00;18;12
JON
Great, Cody. Glad to be back.

00;00;18;13 – 00;00;29;04
CODY
Absolutely. Well, on this 19th of September, just had another positive global dairy trade auction this morning and a few big hitters coming out of this auction.

00;00;29;04 – 00;00;54;01
JON
John Yeah, you bet. Cody The total auction was up 4.6 on an aggregate index. This is the second higher auction in a row. Again, if you go back before that, I think it was one, two, three, four, five, six, seven. We had seven lower auctions in a row. So now we have to higher auctions in a row. Maybe we’re starting a trend, but let’s dig into the numbers and see what we can find.

00;00;54;06 – 00;00;59;00
CODY
Absolutely. Where do you want to start? We want to start with butter. We want to start with cheese.

00;00;59;00 – 00;01;23;27
JON
Yeah, let’s start with the butter side. Butter is going to come in 2.9% higher. That’s going to be around 207 to oh eight on an 80% equivalent. That’s going to compare to the U.S. today that went into the two eighties. So, yes, the GDT butter price came up. But again, the U.S. butter price still carrying a very large premium to the international price.

00;01;24;00 – 00;01;46;08
JON
And again, it did go up today after the auction on the AMF side, as we compare that to an 80% were around 217 a pound. So AMF and butter kind of starting to find some equilibrium. AMF was up 5% as we moved to the cheddar side. This was probably our only of the major products that was down today.

00;01;46;08 – 00;02;09;09
JON
Down 1.4 came in at a dollar 83. The U.S. cheddar price right now, at least on the black side, about a dollar 88. The big winners on the day, though, you know, the ones that people pay the most attention to will go start out here with whole milk powder. Whole powder was up 3.6% today. This was another big auction for whole milk powder.

00;02;09;14 – 00;02;28;27
JON
And if you remember, this is again, our second higher auction in a row. And we went back to the beginning of August or the middle of August, we made it to our lowest price since 2016. And we have been able to muster a rally out of that. We’ll talk a little bit more in detail about probably why that happened.

00;02;29;03 – 00;02;50;03
JON
However, as whole milk powder was rallying, we also saw skim milk powder rally. This is another consecutive auction of skim milk powder being higher. Skim milk powder today was up 5%. That is going to come in at a dollar 09 a pound. I would like to point out that we do have very active futures that trade on skim and whole milk powder.

00;02;50;08 – 00;03;24;07
JON
While these auction results were higher today, it should be pointed out that the futures on the SGX futures were probably looking for a little bit more out of this. I think Skim was looking for maybe a dollar 13 a pound and whole milk powder was looking to be up 5% and it was only up 3.6%. If we were to still look at it, to say what was the auction, what were the futures expecting versus what the auction turned out, you could say, yep, higher auction, Just a little bit of a letdown in terms of how high we got.

00;03;24;07 – 00;03;46;04
CODY
I think looking at the speaking of futures kind of following along, we had the GDT butter was higher today. Our butter kind of followed suit. Whole milk and skim were higher on the GDT and our nonfat could not quite keep up with that. But as you mentioned, pricing wise, our nonfat seems to be price maybe a smidgen higher than what was happening on the GDT today.

00;03;46;06 – 00;04;12;04
JON
Yeah. I think, you know, we got nonfat up today too, I think 112 and a quarter again as we compare that to 109 on the GDT, that puts the U.S. at a premium to the international market. I’ve said on here for a while and been amazed for a while simultaneously. But we typically don’t see the U.S. carry a premium to the international powder market on skim or nonfat.

00;04;12;06 – 00;04;46;00
JON
And I’m not saying that there is a good reason for that is just one from a geographic standpoint, it tends to be that the U.S. carries a little bit of a discount to the GDT skim milk powder price in even the European price. We have been the highest in the world and that premium has been in large part justified by a the expectation that the world market was going to come up and b, the idea that the U.S. milk supply was pretty tight and that nonfat skim production has been hindered by the tight U.S. supplies.

00;04;46;06 – 00;05;19;04
JON
As it turns out, last night we got the August milk production report, and the August milk production report came in a little bit higher than what a lot of people had expected. In July, the United States was down 0.7%. And in August, the milk production report was down 0.2% and cow numbers did not move. So I don’t want to dig too far into that, but I think that kind of took the wind out of the sails of the U.S. nonfat market premium.

00;05;19;07 – 00;05;40;24
JON
Certainly, we did go up today. Futures tried to go up at first and then started sinking back lower because I think the justification for the premium here in the U.S. is going to start slipping each and every day that we walk away from the heat, We will probably gain a little bit more milk production and we’ll start to eat away at the justification for that premium.

00;05;40;28 – 00;06;05;18
CODY
I think you just mentioned, John. But a big part of that milk production report that had people taken the back was the not movement of cows with all of the slaughter numbers that we’ve seen and all the cows that we’ve heard going to slaughter. And the prices right now for cow numbers not to move from July to August was kind of a bigger shock than the milk production report being 0.2% negative in itself, I believe.

00;06;05;22 – 00;06;28;02
JON
Yes, I think people had to stand back and look at this and say, boy, that doesn’t look like a structural issue, that looks like a seasonal or a temporary issue. And maybe we’re all reading it wrong or maybe it’ll be adjusted as we move into next month. But right here, right now, I think here in the U.S., we have to look at this and say, well, I don’t know that we have a lot of milk, but we still have a good amount of milk.

00;06;28;02 – 00;06;56;13
JON
And that milk likely starts coming back with the change of seasons. It will probably start to chip away into that nonfat premium. Now, as we transition into why did the GDT go up today, we have to look at that and I think there is definitely something very interesting to look at Their first of all, we have noted on this podcast for quite a while that Chinese demand has been lackluster at best.

00;06;56;16 – 00;07;17;28
JON
We came on strong at the beginning of the year and then have faded ever since then. And the Chinese have, you know, we’ve seen more and more and more news articles out there that China has economic issues, their milk production is up. They don’t need to come to the international market anymore. And I’m not saying that those assumptions aren’t correct or that they don’t still stand.

00;07;18;00 – 00;07;45;21
JON
However, last auction, the Chinese were still not very active in the Middle East and Southeast Asia were extremely active and more active than they’ve been in a long time. And that helped get the price to go higher. Kind of brought us off the mat, if you will. Fast forward to today and what we saw was the Middle East and Southeast Asia didn’t completely back away, but certainly did not perform in the way that they have had in the last auction.

00;07;45;28 – 00;08;10;18
JON
Probably just say they went back to normal. But we saw Chinese demand shoot up here and it was a very high Chinese demand that we saw some of the best we’ve seen in a long time. And what sparked that? Not entirely sure. Right. Again, they’ve been absent, absent, absent and then they come in. This time, it’s possible that, you know, they realize, hey, this is the lowest price in a very long time.

00;08;10;24 – 00;08;34;13
JON
Let’s go ahead and take advantage of that. We’ve also been hearing some talk that Chinese milk production is getting hurt by low domestic prices in China. So it could be that they came to the international market to fortify their domestic milk production needs regardless of the reason they were here. And as a result, we went higher. That’s the good news.

00;08;34;15 – 00;09;01;18
JON
The bad news is, or if you want to, that bad news, but if you want to look at the glass half empty is to say we just had one of the biggest Chinese purchases in a very long time. And two things. A, we did not live up to the future expectations. So clearly futures were expecting something there. But B, I would say that when we look at whole milk powder, yes, we are off the bottom, but we still aren’t as high as we were at the beginning of August.

00;09;01;20 – 00;09;26;28
JON
We are still at a relatively low price. And I think that’s important because this is one of those situations where maybe the Chinese continue to buy and absorb all this product and we continue to move higher. I don’t necessarily want to predict that. I just don’t see the reason yet that they stepped back in. So maybe as we understand that a little bit better, we can have a little bit better gauge on whether they’ll continue or not.

00;09;27;01 – 00;09;48;01
JON
But this one seems like it was a hey, I’m going to go ahead and take advantage of these lower prices. And again, all that being said, China comes in with one of its highest purchases and several years on one auction and we were up 4.6%. When we go to the skim milk powder side again, same setup, but 5.4% higher.

00;09;48;03 – 00;10;15;17
JON
And here we still sit and skim milk powder at a dollar oh nine. So I guess I just have to look at that and say, great, that they’re here. It kind of makes sense in a in a world where they were always here and now they backed off. But here they come back in and at the same point in time, I think it just shows that if we don’t have these people making enormous purchases on each one of these, again, last time it wasn’t China, it was the Middle East and Southeast Asia.

00;10;15;20 – 00;10;35;28
JON
They got out of there. This time it was China making a huge purchases and the absence of those huge purchases, we could see prices continue to move lower. So don’t want to undersell the importance of China showing up today. Very important. Something that we I think we’ve all been standing back scratching our heads about now for several months.

00;10;36;06 – 00;10;43;02
JON
They finally show up. I guess the bigger question is, why did they show up and are they going to show up again?

00;10;43;04 – 00;11;02;01
CODY
Right. I was just going to you and I have talked about this before as it seems like whenever China is back to the buying table, the other countries kind of slip and take a back seat to that and then vice versa when China’s not here, the other countries really stepped up. What do you think the ramifications would be if all of those countries were kind of in the buying seat together at the same time?

00;11;02;01 – 00;11;06;09
CODY
Because we have not seen that in quite a few. GDTs if I’m not mistaken.

00;11;06;13 – 00;11;28;26
JON
I mean, it’s been a long time since we’ve seen something like that, and certainly we don’t want to exclude that possibility. Again, we’re at relatively low prices from a buyer standpoint. Anybody that’s been sitting on their hands waiting for lower prices, sure, they may have missed the bottom, but we’re still at a low price. If they’re worried about upside potential, I think they better get in there and get something done.

00;11;29;03 – 00;11;41;28
JON
I guess I would just go back to what you just said, Cody. We haven’t seen that in a long time. But if it were to happen, to answer your question, if it were to happen, I think you can make the case that we could have a 10% higher auction at some point in.

00;11;41;28 – 00;11;50;26
CODY
The year, but we did on quite a bit on this GDT podcast today. John, is there anything that we hadn’t really delving into that kind of feature interest off of this auction alone?

00;11;50;28 – 00;12;18;05
JON
I think that the cheese I’ll just say the cheese number here at a dollar 83 can be a little bit deceiving. Again, it’s a very small amount of cheese that’s traded and domestically we have spoken with several people that have said that getting cheese exports off out of the U.S. is very, very difficult right now, not just at current spot prices, but at futures prices or even being willing to discount a little bit.

00;12;18;12 – 00;12;44;20
JON
And you say, well, I mean, we’re at a dollar 88 box, the GDP is at a dollar 83. How much lower do we really need to go? Right. And I guess I would look at it to say, I think again, that 183 is a benchmark. I don’t know exactly how much cheese is bought or sold off of that, but I think a better representation of that international cheese price is more around a dollar 65.

00;12;44;22 – 00;13;26;08
JON
Right. And we have been hearing that exports out of the U.S. are being turned back or they’re hard to get a hold of. And as a result, you see products starting to show up here on the CME. And as a result, the CME barrel price has moved substantially lower here in just the last few days. The block price has come off its highs, but still sits at a dollar 88, starting to get the sense from people that block exports have really backed off and that that product is starting to back up here in the U.S. And I just wouldn’t exclude the idea that you’ll see some of those turn back exports show up here on

00;13;26;08 – 00;13;47;26
JON
the CME one way or another. Again, white blocks or mozzarella can’t show up on the CME. But, you know, as people within the production of those products down and start to put it into barrels or blocks, that’s when we start to see that product show up. And typically that’s a good sign that prices are going to move a little bit lower.

00;13;48;03 – 00;14;12;06
CODY
John, we appreciate you coming on and giving me insights into the global dairy trade that happens today. Appreciate everybody tuning in and listening. Next, GDT is two weeks from now. First part of October is when John and I will be back with you. But until then, have a great weekend. Have a fantastic week and we’ll see you next time.

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