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;15
VOICEOVER
Future trading involves risk and is not suitable for all investors. Content provided in the statement is meant for educational purposes and is not a solicitation to buy or sell commodities.

00;00;08;18 – 00;00;18;05
CODY
Hello everybody. Welcome back to another glorious G’day Tuesday. I’m your host, Cody Koster. With me from Chicago, Mr. John Spain. How John how are you today?

00;00;18;09 – 00;00;20;05
JON
Doing great, Cody. Happy to be here.

00;00;20;05 – 00;00;25;14
CODY
Happy to have you here. We had another GDP auction that was actually higher, worth one in a row.

00;00;25;14 – 00;00;41;26
JON
Yeah, it was our fourth higher auction in a row. We haven’t seen that in a long time in terms of that kind of succession of auctions. So definitely trying to say we have definitely found a bottom and here we were, another 4.3% higher today.

00;00;41;26 – 00;00;46;24
CODY
Yeah. And the powders kind of leading the charge on this higher auction, wouldn’t you say?

00;00;46;26 – 00;01;09;23
JON
They sure were. If we look at the big dog of the auction, whole milk powder, we would say that that is probably the barometer of the health of this auction. And that was up 4.4% today. I would, however, point out that being up 4.4% is higher, yet it’s so well short of futures that were in some cases looking for North of 10%.

00;01;09;23 – 00;01;27;28
JON
We saw that on the last auction. So by no means do we want to say, well, falling short of futures expectations is necessarily the most bearish thing in the world. However, this is two auctions in a row that we have fallen short. There are wholemeal powder for skim, very similar, up 3.9%, but we convert that to a nonfat dry milk price.

00;01;27;28 – 00;01;48;05
JON
That’s about a dollar 21 per pound. The CME today started the day at 122 and was able to get up to 123. Where we settle, however, some of the skim milk powder futures were looking for as much as 15% higher in some cases, and we came in 3.9%. So again, we don’t want to take away from the fact that we were higher, higher as higher.

00;01;48;05 – 00;02;03;00
JON
But at the same point in time, we do need to keep in mind that there are some pretty lofty expectations coming of these auctions at this point in time that aren’t being met. And at some point in time that is going to make a difference When we move it over to the fat side of things, let’s just focus on butter.

00;02;03;01 – 00;02;26;04
JON
Butter was up 2.8%, coming in at $2.24 on an 82% Butterfat content. The CME today. I don’t think it really responded to this, but did it go up $0.06 today, getting back to that 340 area? So this puts the CME well above not only the EU price but the New Zealand price as well. And then finally there was cheese.

00;02;26;04 – 00;02;49;05
JON
Cheese, always an interesting one to watch on a round by round basis here on the GDP as I get the privilege of doing it, just kind of marched up a percent almost every round in lockstep with a pattern moving up. So the demand function on cheese was actually pretty light. However, there wasn’t much there for sale and at the same point in time the price was able to settle point 1% higher.

00;02;49;05 – 00;02;52;25
JON
That was going to be a dollar 75 cheddar equivalent.

00;02;53;01 – 00;03;08;06
CODY
It was interesting to see Cheddar up a little bit on the GTI and then our cheese price today up, I mean, not a substantial amount but still upticks a little bit. And our Class three futures kind of followed along with that, primarily with a dry away kind of being the big driver.

00;03;08;06 – 00;03;29;17
JON
Over here in America. Yeah, I would think you would need to keep the idea of that rally in class three today. Looking at that, mainly through the context of what we’re seeing going on in the way market, the way market here in the US has been edging higher and higher and higher as opposed to in the past. We might move higher on no volume on the CME and then as soon as sellers show up, prices go back lower.

00;03;29;17 – 00;03;48;27
JON
We’ve been moving higher into good volume, right? There’s been products here for sale at higher and higher levels. Buyers seem happy to own it. And here we go Today, we make a pretty substantial rally today. I think that filtered through to the class three side is an index of cheese and whey and a very small amount of butter goes in there as well.

00;03;49;04 – 00;04;13;14
JON
But she’s been your biggest proportion. Then we go to the way piece it way goes higher that puts a bid in the class three As we look at it through the lens of cheese, at least on the international front, I guess I’m a little hesitant and getting too excited about the 0.1% higher rally on the GDP today. And then when we speak with people on the international side of things, I think their general attitude coming back is them and powders and proteins.

00;04;13;15 – 00;04;31;01
JON
They’ve got a bit in them. However, when it comes to the cheese side, there’s plenty of cheese for sale in the marketplace both internationally and domestically. But on the international front, I think that’s so important. We have people in a European trade show last week in a new figure, and they came back and said, look, there’s plenty of competing offers out here on cheese.

00;04;31;01 – 00;04;47;29
JON
And we’ve been able to confirm that through several different sources. That means that it’s likely going to be difficult for the US to get a lot of the exports that we need the least. As we know the market right now, we’ve got cheese that gets landlocked in here. It kind of backs up into the US and comes into our domestic market.

00;04;47;29 – 00;05;11;11
JON
And typically and I say typically it weighs on the domestic price. I’m not sure exactly where we go at this moment in time. We are going into the holiday demand run here fairly shortly. It’s important to remember that the middle of October, pretty soon we’re going to be talking about Thanksgiving and there’s going to be a lot of product moving through the door to get into that holiday market that can keep the cheese market relatively supported.

00;05;11;11 – 00;05;23;22
JON
Yet at the same point in time, it feels like we need export. It’s to keep the market very supportive. And I’m just not comfortable with the idea that we’re going to get them at this moment in time as we survey the international side of things.

00;05;23;24 – 00;05;38;19
CODY
John, Looking at the regions buying today in the auction, I mean, China was still pretty heavy in the buyer seat and we also had Southeast Asia that kind of crept up and offered its hand to a little bit more buying than it had in previous auctions.

00;05;38;19 – 00;05;58;08
JON
Yeah, this is where the nuance comes in to reports like this, right? If we look at it, we can say, was China present? And the answer is yes. Go back three auctions ago when we really turned the corner and we saw the Chinese participation just rock rocking and rolling. Right. It was the highest participation we had since 2021.

00;05;58;09 – 00;06;14;24
JON
It made the market really come off the bottom, very important auction. I think a lot of people looked at that and said that was a watershed event that was going to lead to more Chinese demand and thus prices moving higher. If we go to the auction that took place two weeks ago, everybody was expecting China to be there.

00;06;14;24 – 00;06;32;11
JON
China wasn’t there. Prices were still higher. Southeast Asia and the Middle East were there, but China was relatively present, but not substantially. And the idea behind at that point in time was, well, it was a Chinese national holiday. A lot of people were traveling, just wait for the next auction and we’ll see them come back in mass again.

00;06;32;12 – 00;06;49;29
JON
So here we are. We get to this auction and I don’t really feel like that was the case. We were down 7% on an event over event change. And then when we look at it from a year over year, we were only up 16%. And if you remember at this point in time last year, Chinese participation wasn’t exactly robust.

00;06;49;29 – 00;07;07;09
JON
So we were only up 16% there. Again, I think I read one person’s description of the previous auction who said we were all waiting to see if China was going to come back or not. And I think the results are still inconclusive. If I were to look at this result, I would say, well, I think the results are still inconclusive.

00;07;07;09 – 00;07;25;14
JON
Where are they here? Sure. But they’ve always been here. It’s those times at the margin when they’re really here that really make up the difference. And in this one, I don’t really feel like we can say they were. To your point, though, Cody, we did see Southeast Asia show up. They were 5% higher than the last auction and 48% higher than a year over year change.

00;07;25;14 – 00;07;44;20
JON
Does that mean something? And the answer is absolutely yes. They were very much here. The Middle East backed off, though. They were really heavy on the last auction and they backed off. So that really leaves the feature out here. Being Southeast Asia. Again, I don’t want to predict whether China is going to come back and force or are they not.

00;07;44;20 – 00;08;02;06
JON
What I can say is they didn’t really on this auction. Right. So that’s two auctions in a row that they didn’t really in this case, the Southeast Asians have done a lot of the heavy lifting on prices. Maybe they can, but I just don’t see the Southeast Asians being able to support in the market all on their own in the absence of Chinese demand.

00;08;02;06 – 00;08;20;21
JON
So we’re really still we’re going to have to keep a close eye on this. I think, again, the expectation was that China was going to be here, and that’s fed into the futures expectations that we were going to see some prices being 10 to 15% higher. That simply didn’t happen. So again, it’s just such a nuanced response that we have to look at this auction through.

00;08;20;21 – 00;08;38;28
JON
You don’t want to get too worried about it and you don’t want to split too many hairs. But it is important to note that it just wasn’t the resounding, Hey, China’s back, let’s rock and roll answer that we were looking for. The market where that probably makes the biggest difference in right now on a day to day is the U.S. nonfat dry milk market.

00;08;38;28 – 00;08;58;24
JON
Today we were a little bit higher, but futures before the CME were responded by moving lower. For the first time in quite a while. We bounced back up when the spot came out and by the end of the day, a lot of our futures were lower. Again, I get the sense at the very least, the U.S. is probably going to lose our pole position of being the highest price in the world.

00;08;58;24 – 00;09;17;15
JON
And if we don’t see continued follow through here on the auction or the expectations for the next auction, we might see prices move lower. We may have seen the high water mark here for a while. Again, I don’t want to throw water on the fire here, but we just want to point that out. At the same point in time, I have to come back and say higher is higher.

00;09;17;15 – 00;09;20;26
JON
This is the fourth auction in a row and that’s nothing to sniff at.

00;09;20;29 – 00;09;28;21
CODY
Well, John, besides the purchases by region and the pricing that we’ve already talked about, is there anything about this auction specifically that really hit home for you personally?

00;09;28;24 – 00;09;47;27
JON
No, and I hate to say that, but I watched it this morning and I thought, well, the behavior of the auction looked very similar to the last three auctions, just for those of us who watch it round by round the way, the price was moving. It just looked almost identical to the last three or four auctions. So nothing really stood out in that behavior at all.

00;09;47;27 – 00;10;06;24
JON
Again, I do feel like the nonfat market here in the US has been able to have that highest price in the world. The further we get away from the heat of the summer and gain our milk production back, and the more the rest of the world catches up to our price, I think it’s going to be harder and harder for us to maintain that highest price in the world.

00;10;06;24 – 00;10;27;20
CODY
STEPS Well, I guess we’ll see what the next auction brings. Speaking of that, the next GDC is going to be on the 7th of November, which is actually three weeks away, not our usual two week or a three week hiatus this time. But until then, John, we appreciate you sharing your insights, the global dairy markets. And as always, we appreciate everybody tuning in and listening.

00;10;27;20 – 00;10;37;03
CODY
And we will see you back in three weeks. Until then, have a great weekend and even better week. We’ll talk to you soon.

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