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.
(Transcript auto-generated)
00;00;00;10 – 00;00;09;00
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;09;02 – 00;00;17;13
CODY
Hello everybody. Welcome back to another Getty Tuesday. I’m your host, Cody Costa. With me from Chicago, Mr. John Spain. Howard. John, how are you doing?
00;00;17;16 – 00;00;31;10
JON
Feeling pretty cold today. Cody. It is a balmy one degree here in Chicago today after a negative seven on Sunday. So still cold, but getting warmer and by the middle of the week, we should be at 15 degrees.
00;00;31;11 – 00;00;47;15
CODY
Well, hey, don’t call it a heat wave now. Come on. Come on. Well, I guess let’s jump into the Getty. Not such a cold. Get today as it is in Chicago with the fourth auction in a row of being higher. We haven’t had a lower auction this year yet, John.
00;00;47;20 – 00;01;17;17
JON
Man, man, when you’re right, you’re right, Cody. No lower auctions this year. But as you stated there, this auction landed 2.3% higher on the aggregate index. Some of the highlights to point out. We’ll start with maybe the biggest mover that would be butter. Butter came in 7.1% higher at roughly 268. That is going to compare to a U.S. price of roughly 257 and an EU price of 261.
00;01;17;17 – 00;01;40;06
JON
So putting all of those together, the butter price, in my mind, we haven’t seen international convergence like this in a long time. So we’re going to go ahead and say butter, all trading about the same in terms of expectations for this auction. We would say that the futures called it a little bit higher. So the actual result came in about 2% less than what was expected.
00;01;40;06 – 00;02;04;04
JON
As we move to EMF in that fat world, EMF came in 4.4% higher at an average price of about 265 a pound. And I would say that the futures on AMP actually were a little bit lower than where we came in by about 2%. So put it all together. I’d say the fat world came in within expectations with butter a little bit higher, AMF a little bit lower.
00;02;04;04 – 00;02;27;20
JON
We’ll call that even with expectations. Nonetheless, it did come out higher. From there we move to the cheese world and cheddar was up 1.2% back to that 191 area. This is a level that we’ve been at now for several auctions in a row, moving inside and out of that 191 area. This is the third time we’ve traded right around this level.
00;02;27;20 – 00;02;52;01
JON
If we do not have cheese futures to compare to, But we can say is as we compare New Zealand at 191, the EU at 201 and the U.S. at roughly about a dollar 50. So the U.S. very much at the bottom of the scale in terms of the spot cheddar price, I would point out a newcomer to the world of GDP is mozzarella.
00;02;52;02 – 00;03;15;01
JON
Mozzarella came on board here. The volumes are going to be light, but it was 3.3% lower coming in around 174. I believe this is the second time we have seen mozzarella trade. And then as we move on to our powder markets, we would say the whole milk powder market came in 1.9% higher today. Futures were looking for a little bit more strength in that.
00;03;15;01 – 00;03;37;14
JON
They were looking for about an additional 2% higher. So a higher result, just a little bit less than expectations. And then finally, we would say skim milk powder, skim milk powder came in on the average for all products at about a dollar 20. I think what we want to get inside of that, we would say that is a weighted index, if you will, of several different regions.
00;03;37;15 – 00;04;00;24
JON
Most notably, it would say New Zealand rallied on this auction to about 118. However, the EU, which had been as high as 131 not that long ago, has been progressively moving lower from 131 to 1 27 to 123. And then finally on this auction, now it is at 120. The U.S. responded to today’s auction by rallying slightly to one 1950.
00;04;00;24 – 00;04;25;11
JON
So we are in an area here where the EU was at a major premium to the rest of the world and has now come back down to earth and New Zealand has come up a little bit. As a result, the U.S. is kind of languishing in-between in terms of expectations for today. We would say that the S&P pulse suggested that we were going to move lower by about one and a half percent, and we actually came in 1% higher.
00;04;25;13 – 00;04;49;15
JON
However, the futures on this auction were expecting something entirely different. S&P futures were trading at about 129. So we came in at about 118 for New Zealand. Futures were saying 129. The futures had about another 11% priced into the market. So all in all, a higher market, 2.3%. As you said, Cody, this is several auctions in a row that we have come out that way.
00;04;49;15 – 00;05;10;01
JON
And I would say home out powder is most definitely the one that is leading the charge. And before I wrap up just the commentary on this, I just want to make sure we point out that whole milk powder has now rallied one, two, three, four, five, six, 7899 out of the last ten auctions. Whole milk powder is rally.
00;05;10;02 – 00;05;34;28
JON
If you remember going back into the middle of August, there was just an implosion in the price of powder. That was likely due to the realization that Chinese demand was bad and probably getting worse. And so that price fell apart. But since then, the New Zealanders have kind of retrofitted their output and as a result they probably made less hold on powder made more SMP and more cheese.
00;05;34;28 – 00;05;40;14
JON
And as a result of that, I think whole milk powder has been able to come off the bottom pretty substantially here.
00;05;40;16 – 00;05;51;05
CODY
So as we had mentioned or as you talked about before, John, so higher prices necessarily on the GDP today, but the overall volume maybe not quite there as has been on previous auctions.
00;05;51;07 – 00;06;15;00
JON
Ubiquity and that’s really a bugbear here. If we were to look at the event volume versus the last event right down 5%, so less volume than the last auction and prices have come up a little bit. Right. But if we look at it from a year over year perspective, the total event volume is 22% less for this corresponding auction to last year.
00;06;15;00 – 00;06;36;28
JON
And we were only able to rally 2.3%. So I think that’s saying something. And then when you really dig into some of the numbers here, you say, well, how is that possible? Again, a continuation of the trends that we’ve been seeing here, North Asia, which we would consider to be largely China volumes on a year over year basis, we’re down 39% on their purchases.
00;06;36;28 – 00;06;56;18
JON
We would also say Southeast Asia, who has been kind of the one that picks up the slack when North Asia is not there is down 35% on a year over year basis. And then European volumes picked up a little bit. But just on a really small base here and the Middle East is probably the biggest player here to really clean things up.
00;06;56;18 – 00;07;24;29
JON
They’re up 71% year over year. So again, our major players being North Asia and Southeast Asia, just not there in the way that we would like to see them in their absence. You know, that means that New Zealand has a lot of milk solids to market that probably aren’t going to be out there as home up powder, whole milk powder as they change up their production, make up whole milk powder has been able to increase in price and for the most part, the skim price has moved lower.
00;07;25;00 – 00;07;31;27
JON
The standout here is the cheese market, where we’re at a dollar 91. Even with the increased production of cheese.
00;07;31;29 – 00;07;46;18
CODY
So that is going to kind of lead me into my next question. John. And I know we might have hit on this before, but when people see mozzarella and cheddar cheese trade on the what is a better market to compare it to ours here in the States out of those two?
00;07;46;18 – 00;08;12;03
JON
It’s a perplexing question because when we talk about exports out of the U.S. here, we want to be able to compare ours generally to mozzarella. That’s what we’re going to be export. However, I would say that the mozzarella number here on the GDP, like I said, I think this is the second time we’ve seen volume trade is just not a price point that I think that we can necessarily believe in yet.
00;08;12;03 – 00;08;47;01
JON
And then when we get to the cheddar side of things, we would say the cheddar price. It’s been around for a long time, but even within that, it’s just such a small amount of volume that trades on every other week basis that it’s hard to make too much out of that number. What we can say, though, is speaking with people that participate in the export market, they will continue to say to us there’s business that the U.S. is able to do for mozzarella or cheddar right now based on the prevailing spat us prices, the spot we’re able to get business down because where there is a spot business to be done, we are the cheapest
00;08;47;01 – 00;09;14;09
JON
in the world. However, as we start to look towards the contractual volumes that are out there, most everybody in order to do a contract is going to have to back in that contract with the futures curve. Our futures curve is higher than where both New Zealand and probably soon. The Europeans have been willing to offer contractual volume. And so we have been missing out on potential to do contractual exports.
00;09;14;10 – 00;09;22;18
JON
But we can say though, again is that there was word out there last week there was a pretty decent amount of export business that was done in the spot cheese market.
00;09;22;26 – 00;09;32;22
CODY
Perfect. Okay. Well, I mean, we hit on quite a plethora of things on this GDP auction today. Was there anything else that really stuck out in your mind, John, about this specific auctioneer?
00;09;32;26 – 00;09;55;25
JON
You know, we’ve talked about it several times. And again, I just can’t stop praising them for their ability to hone this argument down. We would say that demand in the world is rough. Every AG Insight’s team has done a great job of pointing that out. Demand is a little rough out there, especially out of North Asia and Southeast Asia, two huge export destinations for dairy sales.
00;09;55;28 – 00;10;16;19
JON
While those are off, that’s rough for the rest of the dairy world, right? And at the same point in time, I would say milk production in the northern hemisphere has been curtailed. We see it here in the U.S. We’ve seen it in the European numbers. One of the things that we have started to hear recently, at least on an anecdotal basis, is that European milk production is actually starting to pick up again.
00;10;16;19 – 00;10;38;23
JON
And as a result, you have a little bit more milk, at least right now, than what people in Europe expected to have. As I mentioned earlier, their S&P price was at a dollar 30. That was when they didn’t have anything to offer. Now they’ve got some product to offer. And as they’ve come to the international skim milk market, they’re finding that no one wants to buy them at a dollar 30 when New Zealand’s at 180.
00;10;38;23 – 00;11;02;03
JON
And the U.S. is at one 1950. So we’ve seen a pretty big correction in the EU S&P market. I think that’s something we expected to see for a while and I wouldn’t doubt it if we don’t see more corrections out of the other EU products. And I guess I bring that up to say the EU was the market that stood out and the rest of the world maybe and demonstrated there for a while the prices could be higher.
00;11;02;03 – 00;11;19;25
JON
I think a lot of that came down to they had milk production shortfall this fall and now they’re getting some of that milk back and as such their prices are decreasing. So I guess I was a little bit more on the side of the ledger that we’re going to have less milk and more milk. But seen what’s happening in Europe right now.
00;11;19;25 – 00;11;28;28
JON
I just have my eye on that saying why it feels like milk might be coming back over there and if so, is probably going to keep a cap on our markets here for just a little bit longer. All right.
00;11;28;28 – 00;11;50;00
CODY
Well, a little bit of good and bad news kind of buried in the weeds there, but we definitely appreciate the insights on that, John. And that is going to do it for this episode of Get Tuesday. We are going to be back with you folks in three weeks, February six. This is kind of a hiatus where they take a three week little lump there where the days fall in the month.
00;11;50;00 – 00;11;55;20
CODY
So until then, have a great week and even better weekend. Try to stay as warm as you possibly can. And we’ll see you next time.
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