GDT Review with Jon Spainhour – November 7, 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.

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00;00;00;10 – 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;16;20
CODY
Hello everybody. Welcome back to another Good Tuesday. I’m your host, Cody Koster, with me from Chicago. Mr. John Spain. How’re John? How are you.

00;00;16;22 – 00;00;24;20
JON
Doing? Well, Cody, happy to be here on this beautiful Tuesday morning here in Chicago in November, where it’s almost 60 degrees.

00;00;24;22 – 00;00;26;21
CODY
It’s a lot better than what we had over Halloween.

00;00;26;26 – 00;00;33;05
JON
Just one short week ago. There was sleet and snow on the costumes. So just really nice to have a day like today.

00;00;33;12 – 00;00;46;07
CODY
Well, I guess we should jump in to the Getty. Today was the first lower aggregate auction in the past five, so the previous four were higher. This one is a tad bit lower.

00;00;46;10 – 00;01;08;05
JON
Yeah, you’re right. Like you noted, we’ve gone four auctions higher on the aggregate. And finally here on our fifth auction, I think it’s important to point out on the aggregate we went lower, not very much. Only down 0.7%. It was a bit of a mixed bag out here today, and in some ways it was in line with expectations and in some ways it wasn’t.

00;01;08;08 – 00;01;17;27
CODY
Now, you had mentioned before we jumped on the show here, skim milk powder, one of the products that was actually higher today and higher for a few different auctions in a row. Now.

00;01;17;27 – 00;01;36;00
JON
That’s correct. Skim milk powder was probably the one that had the biggest surprise in it. If we measure that up to expectations, this will be the fourth higher auction in a row that we’ve had. So the aggregate has, like you noted, had moved for higher skim, was a little bit late to start. So this was our fourth higher auction.

00;01;36;00 – 00;02;00;16
JON
We came in 2.3% higher. That is roughly a dollar 24 on a dollars per pound basis. If we were comparing that to NONFAT, where the surprise is, is that we had some indications that we would potentially be moving lower here on this result. The GTI pulse, which is relatively new to the marketplace, you know, and both hormone powder and skim milk powder.

00;02;00;16 – 00;02;20;02
JON
It’s a sub auction that trades every week that the GTI does not trade. So there’s not as many participants, not as much volume by any means, but it does give us some sort of indication of where prices might be headed on the next big auction. In this case, we had two weeks between the auctions, so we had to get results.

00;02;20;02 – 00;02;42;08
JON
As of last Tuesday, we were getting some indications that this result might be down as much as 7% down to a dollar 12 skim milk powder. And again, as I said, the result here, we were actually up 2.3. So a bit of a difference there. And again, we were expected to come in around 112. We actually came in at right around $1.24.

00;02;42;08 – 00;03;06;04
JON
So 12% difference per pound between expectations and reality on this one. As we look towards the hormone powder indication that we were getting, we were looking to see this auction be down about 3.5% on hormone powder based on the GTI pulse results. They weren’t that far off, at least not nearly as much as a skimmed milk powder was almost powder came in 2.9% lower.

00;03;06;04 – 00;03;26;26
JON
So, again, forecast saying down 3.5 comes in at -2.9. We’re going to go ahead and say the market got that one pretty right is the skim milk powder where things were a little off. As we get into the other products, a little bit better results out here. AMF up 3.4% at about 249 a pound on a converted basis.

00;03;26;26 – 00;03;55;10
JON
If we look at butter, it came in down one at 222 on an 82% butterfat converted basis. We didn’t really have too much of an expectation for what these might be. And then finally we get into the cheddar. Cheddar has been moving lower here and it came in at 4.8% higher at a dollar 83. And real quick here, I just want to check last auction that came in slightly higher on cheddar and then this auction, it did come in higher.

00;03;55;10 – 00;04;16;28
JON
So we’ve been kind of up and down here over the course of the last four or five auctions. And this one, we’re finally trying to rebound here in terms of expectations. Again, we did not have an expectation on cheddar. We did not have futures. What we can say is, is that at a dollar 83, that’s probably above the EU price right now and certainly above the U.S. price.

00;04;16;28 – 00;04;35;02
JON
So maybe that will open up some opportunity for the U.S. to export. However, we’ve heard from an anecdotal standpoint that cheddar and or mozzarella is offered significantly cheaper out in the world than the price that we’re seeing here. So not sure what to make of that actual cheddar result. There we have.

00;04;35;06 – 00;04;46;21
CODY
The cheddar and the butter being higher today and our prices here on the CME slipping a little bit. Our butter at least on spot below $3 for the first time in seems like quite a few trading sessions here.

00;04;46;24 – 00;05;08;20
JON
Yeah, our butter price is always, always, always wanting to declare its independence from the rest of the world. It is not connected with has not been, shall not be and refuses to ever become connected to the pricing. It seems it’s just a really interesting thing to watch. We saw the U.S. price explode to higher maintain a premium for most of the summer.

00;05;08;20 – 00;05;30;27
JON
Right. And then explode higher into the fall. And now it’s taken some time. The U.S. price falling and on this auction, we’re down 1% to $2.22. However, speaking with people in Europe, the European butter price, as well as the cheese price, is moving higher so the rest of the world is starting to move higher while the U.S. price is finally moving lower.

00;05;30;27 – 00;05;35;20
JON
It should be noted that the US price is still well above the rest of the world. Pricing.

00;05;35;25 – 00;05;56;12
CODY
Now we’ve been on a three week hiatus essentially since our last GDP auction. The last time you and I did this, John, looking at the buyers purchasing on this Getty, was there anything big that stuck out to you, any regions of the world that were kind of coming back that might have not been here three weeks ago? Or is it just kind of the same old steady eddy as we go?

00;05;56;17 – 00;06;18;10
JON
Well, it’s a great question, Cody, and it is one that is not that easy to answer. We would say that on this auction when we break it down, China was again present, right? They have been present. I always want to stress that a lot of people say, well, China wasn’t there. Well, China has been here for a long time.

00;06;18;10 – 00;06;37;00
JON
They never really went away. It just comes down to how much are they there relative to where they been on this auction. We would say that the Chinese bought 4% more than they did on the last auction. And if we look at it on a year over year basis, that’s 26% higher. So the Chinese were here, they were fairly well represented.

00;06;37;00 – 00;07;01;01
JON
And maybe that’s what made up a little bit for that skim milk powder rally. But they weren’t here with any gusto again. And at the same point in time, the Middle East was here. They’ve been a real standout player. They were 6% higher than the event last time and 56% higher than where we were last year. So the Middle East continues to really bite a little bit above their weight.

00;07;01;01 – 00;07;23;04
JON
And then finally, we would say, if we look at southeast Asia on this one, down 18%. And I think that that is really where the expectation for the lower Homa powder price and the lower skimmed milk powder price was coming from was probably the expectation from Southeast Asia that they weren’t going to participate. And if not, maybe prices can come lower.

00;07;23;04 – 00;07;44;08
JON
So again, they’ve been kind of outperforming 18% lower on this one. As we look at the last event and almost on par with where they were last year. So if we really add that up, we can say, yeah, this was a decent result as it relates to maybe what the expectations were. Again, we were looking for skim milk powder to be down 7% and we came in higher.

00;07;44;08 – 00;07;59;07
JON
So that’s good. And at the same point in time when we really added up in order for us to really move higher here, it feels like we’re going to need to see the Chinese start to outperform or, you know, really start to pick it up or other regions of the world are going to have to pick it up.

00;07;59;07 – 00;08;17;18
JON
And in this case, China was kind of there, Right. But Southeast Asia backed off and they’ve really been one of those standout players. So we’ve all been looking for answers out of here and really dissecting this data and trying to find those answers. I don’t know that this tells us is China back or or even did Southeast Asia go away permanently?

00;08;17;18 – 00;08;36;17
JON
Right. It’s really still a bit of a confusing thing. What I can say, though, is in order for us to move higher, we will need China to come back and really put their back into it or the Middle East and Southeast Asia are definitely going to have to step it up. And I get the sense that those regions are starting to wear themselves out.

00;08;36;17 – 00;09;03;00
JON
Specifically when we look at the Southeast Asian performance today, as many of you know, we’ve been able to join forces with our friends in Australia and will now be working with the fresh Agenda folks, Steve Spencer and his crew. And we are just so excited and they do a really nice job at dissecting this data even more. And from their standpoint, they’re able to look at it in terms of the regional buying as it pertains to each product.

00;09;03;00 – 00;09;23;23
JON
We’re excited to be able to get into that ourselves and use Steve’s help and you’ll be hearing more about that in these podcasts as we move forward. Today, though, I’m only able to look at it from a regional standpoint, from an aggregate buying. And what it tells me is, is that yeah, China was here but nothing special. And in order to to really move this thing, we’re probably going to need to see them back in full force.

00;09;23;23 – 00;09;29;17
JON
If not, then what we’re probably going to find is that prices stagnate or move lower.

00;09;29;20 – 00;09;48;22
CODY
So, John, I had someone email me in a question about DDT pertaining to the auction and pretty much what it came down to he wanted me to ask was on the CME. Once we get towards the end of the year, buying slows down a little bit with the holidays right in front of us. A lot of that product has been bought and getting ready to shipped out, so on and so forth.

00;09;48;22 – 00;10;01;07
CODY
Is it the same for the GTA T auction or because it’s every 2 to 3 weeks? Is that not a big market mover or indicator for the global dairy trade?

00;10;01;13 – 00;10;36;16
JON
I think you’re right. There can be seasonal buying patterns. In the past we would see Chinese participation on the GDP really ramp up sometime in late September, going into early October, and it would stay pretty decent, I think, if memory serves me correctly, at least through the end of October, and then it would die off. The reason for that is, is that there was a preferential tariff on the first gosh, I think it was 100,000 metric tons or 150,000 metric tons of whole milk powder that came into the country of China got a preferential tariff.

00;10;36;16 – 00;10;57;22
JON
So what buyers would do is line up and buy early so that they can have the product shipped and have it in a bonded warehouse on December 30th and then be able to transfer it on January 1st. To the best of my knowledge, a lot of those preferential tariffs are going away. There may be still some out there, but I think it’s been a tiered approach to eliminating that.

00;10;57;22 – 00;11;03;20
JON
And as that’s happened, we’ve seen a lot less of that type of behavior from Chinese buyers.

00;11;03;28 – 00;11;06;28
CODY
Sorry to spring it on you, but it was just a question that kind of came up.

00;11;06;28 – 00;11;15;27
JON
I like the question and I hope I got it right. If there’s somebody out there that can spot a particular. And what I said that was maybe not exactly correct. I hope you won’t hold that against me.

00;11;15;29 – 00;11;34;07
CODY
So we I appreciate it. Well, I think that’s going to do it for this GMT on this fantastic Tuesday here. John and I will be back with you in two weeks on the 21st of November, right before Thanksgiving, to give you the results of the next global dairy trade. But until then, have a great week, even better weekend.

00;11;34;07 – 00;11;35;06
CODY
We’ll see you guys next time.

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