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;23
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;26 – 00;00;17;00
CODY
Hello everybody. Welcome back to another Good Tuesday. I am your host, Koster. With me from Chicago. Mr. John Spain hour. John, how are you today?

00;00;17;02 – 00;00;20;04
JON
Doing great, and so happy to be here. What we are.

00;00;20;04 – 00;00;24;01
CODY
Happy to have you here on this higher GTO auction.

00;00;24;01 – 00;00;47;07
JON
Today. Yeah. like you said, we were higher. The composite index was 1.6% higher. This will be our first higher auction, I guess, here in the last three auctions. Oh, last one. I believe we’ll just go ahead and call flat. And the one before that will call lower. So this one, we are 1.6% higher with a few standout commodities in the mix.

00;00;47;14 – 00;00;54;03
CODY
So the one that I think caught everyone’s I would have been cheddar cheese on the move a little bit higher than normal this morning.

00;00;54;08 – 00;01;24;26
JON
Yeah, the cheddar one is always a bit of a bugbear to work around. There’s just not that much product that’s traded on the GTI auction. I think today I saw the maximum volume was 30, but nevertheless, last auction, cheddar contract was down almost 11% to 165 and that was a big drop that went off last auction. And then in this auction, we seem to have had a resurgence of demand and we were up 9.7.

00;01;24;26 – 00;01;41;06
JON
So we recaptured almost all of the gains that we lost in the end, we’ll just call it flat with where we came in to the last auction. So, yes, a big response. But also just getting back into that level that we were at on the prior auction before this.

00;01;41;13 – 00;01;51;21
CODY
Besides cheddar cheese, John, what other commodity really stuck out, I guess, in this auction, whether it be higher, slightly or massively from the last auctions?

00;01;51;23 – 00;02;12;27
JON
You know, we’ll look at the Homa powder contract that was up 2.1%. But if we just look at it in terms of where did that come in versus expectations, if we looked at it versus the GDP post, the post was looking for it to be down about 1%. The futures were looking for it to be higher than it was about 1% higher than where it actually came in.

00;02;12;27 – 00;02;38;09
JON
So it’s higher, not as high as the powder futures were suggesting, but a little bit higher than the Post was suggesting. And in terms of historical action, this is the second higher auction, whole milk powder in a row. And our highest home powder price since going back to the middle of July, where I think we get into kind of mixed territory here, is going to be on the skimmed milk powder contract.

00;02;38;09 – 00;03;09;05
JON
The overall index on skimmed milk powder came in at 1.2% higher. However, I think we have to dive into that number just a little bit. And I’m loathe to admit that on the last auction I probably should have done that and we had an astute listener let us know that I misspoke. And that is that the composite skim milk powder contract that we see here includes sales from the EU, sales from the U.S., as well as sales out of New Zealand.

00;03;09;06 – 00;03;35;03
JON
You know, the last auction that we looked at, we would have said, well, it settled at a dollar 21. Well, that was the composite of those three. But if we’re really talking about it in terms of where was New Zealand on the last auction, they were down around a dollar 15. However, what brought that composite so high, because it is volume weighted, is that European skimmed milk powder on the last auction settled around a dollar 30.

00;03;35;03 – 00;04;00;28
JON
Again, if we’re really focused on where did New Zealand skim settle last time out, a dollar 15 ish. This time the New Zealand skimmed milk powder was able to rally on this auction to around a dollar 18 while the European skim actually pulled back to a dollar 27. So again, where we forecast on the poles to sell new Zealand skim milk powder was trading on a pulse at a dollar 14.

00;04;00;28 – 00;04;23;04
JON
So we settled at a dollar 18, so we exceeded those expectations. However, the New Zealand futures, I would say out here at roughly a dollar 30 on the average as we look at the front month contracts, right, they’re pricing about a dollar 30. So we came in at 118 versus a dollar 30 futures. I’d say the futures were pricing another 10% increase in there.

00;04;23;04 – 00;04;50;12
JON
So I’ll see this as a bit of a letdown when it comes to skim as we move to the butter. Really not much to talk about here. AMP came in about flat water came in 0.7% higher. We would look at that and say that the butter came in roughly a 224 a pound. And if we look at the butter futures on the SGX futures, they were pricing that we would come in at about 240 or about another 8% higher than where we were on this contract.

00;04;50;12 – 00;05;19;10
JON
So again, higher results took place on the auction. There’s no doubt about that. It does seem as though if we compare them to the futures on the SGX, they came in lower than expected, but higher than where the post was predicting. We don’t have either a pulse or futures for the Chinese auction, so I’m not really sure if that was in line or out of line, but I would say just brought us back into where we were coming into the last auction.

00;05;19;16 – 00;05;29;02
CODY
As you had mentioned, John, kind of higher auction here. But flipping to the other side of the coin, purchases by region slightly down from last auction, maybe two auctions.

00;05;29;02 – 00;06;00;16
JON
Boy, that’s really another confusing part of this. I’m glad you brought it up, . Chinese demand that’s been in question all year long are really always in question but it’s really been a focus all year long and there have been fits and starts when it comes to Chinese purchasing on the GDP. We would look at the data here and I don’t have an exact date to match it up against, but on our charts I can see that Chinese participation on this auction was as low as it’s been in the entire second half of the year.

00;06;00;16 – 00;06;23;18
JON
It was just a bad performance out of China on this. And you know, they’re going to buy a lot of hormone powder. We will look at this and say versus the prior auction, they bought less whole milk powder versus the season to date. They are well, well behind on season to date on the GDP, as well as if we compare it to the same auction last year.

00;06;23;19 – 00;06;45;27
JON
Chinese demand is down. There’s no way to get around that. Some of the other regions that might stand out here would be Southeast Asia. Southeast Asia has had a relatively decent performance on whole milk powder, on the GDP when it comes to skim, they’re really a powerhouse buyer versus the prior auction. They were down versus season to date, they’re about flat.

00;06;45;27 – 00;07;15;07
JON
And when we look at it compared to the same event last year, they were down. So you say, well, North Asia kind of not great. Southeast Asia kind of hanging in there, but nothing special. Where’s the standout in here? And I guess I would look at that and say some of the standout players of mention here would be the Middle East has been doing relatively strong and then we would say that the volumes that are offered on this auction were 20% lower than they were on the last auction in some cases.

00;07;15;07 – 00;07;29;04
JON
So a lot less buying out of China, but less offered. And here we get a 1.6% higher results to talk about. So some of that up, , were there any standout players? I’d say China was a standout player by not showing up here.

00;07;29;06 – 00;07;33;21
CODY
So John, were there any major standouts from the auction in general that really caught your eye?

00;07;33;23 – 00;07;54;23
JON
I guess this auction is tempting to walk away from this and say higher is higher and that means something. Certainly the cheddar market did bounce out here. I guess I will look at this and say that it is a positive result and that is really interesting. But I will say that it continues to highlight the double edged sword that we’re dealing with in here in terms of dairy pricing.

00;07;54;23 – 00;08;21;28
JON
One is that European milk prices are higher and the reason that they’re higher is that European milk production is moving lower and continues to move lower. That has again allowed for domestic European prices to increase in price. At the same point in time, demand both on the international front and on the domestic front for dairy products is a little on the weaker side, specifically out of Asia and Southeast Asia.

00;08;21;28 – 00;08;42;07
JON
So if we put those two together, we have a weakening supply and a weakening demand. And at the moment it does feel as if the weakening demand is kind of ruling the day. We can see that in the prices, if we hang out down here for a while, certainly will buy in more demand and probably lose some milk production and that will lead to higher prices.

00;08;42;07 – 00;09;00;11
JON
But in terms of where are we at right here, right now, I would say that the demand story kind of continues to rule the day here. And as tempting as it is to say, well, it’s a higher auction, prices are probably going to start marching higher here in the absence of China’s purchasing in here or the continuation of their weak demand.

00;09;00;11 – 00;09;22;16
JON
It’s just hard for me to get terribly excited about this. I wouldn’t doubt it if we don’t look back and say, well, we did rally, you know, maybe we stabilize or move lower again. We could be talking about something much different as we move further into Q1. And if European prices remain higher, maybe that opens the door for exports out of New Zealand and the U.S. to pick up.

00;09;22;16 – 00;09;41;02
JON
But one gets the sense right now the Europeans have already done a bit of the exporting and have stolen some market share and now you have New Zealand without one of their biggest demands being China coming out full bore. They’re out here looking for a home for those milk solids and it feels like that’s going to continue to weigh on the milk price.

00;09;41;05 – 00;09;59;28
CODY
Fantastic. Well, John, we appreciate you giving your insight to this GDP auction on the 5th of December. The next time John and I will be with everybody is going to be two weeks from now on the 19th, winding down the end of the year. That’s going to be the last auction for 2023. But until then, everyone have a fantastic week.

00;09;59;28 – 00;10;02;04
CODY
And even better weekends. We’ll see you next time.

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