Guest host Brian Fletcher and Jon Spainhour take a deep dive into this week’s GDT report.
Questions or comments? Contact Jon at jcs@Ever.Ag, Fletch at bkf@Ever.Ag, or give us a call at (312) 492-4200.
(Transcript auto-generated)
00;00;00;10 – 00;00;08;25
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;27 – 00;00;22;23
BRIAN
Good afternoon. This is Bryan Fletcher, filling in for Cody Coster. Today is March 5th. Excited to dive in and cover today’s EDT event. 351 with John Spain. Howard, John, thanks for joining us.
00;00;22;24 – 00;00;28;13
JON
Excited to be here, Bryan, and thank you for filling in for Cody. I think he’s taken a much needed vacation.
00;00;28;15 – 00;00;34;24
BRIAN
I find it pretty ironic that he’s down over 2% and Cody’s not here to host.
00;00;35;01 – 00;01;01;23
JON
This would not be his day anyhow. Digging into the auction, you are correct that we were down today and this auction was down 2.3% on the aggregate index. That is the first healthy downtick we have seen in the GDP. Now for one, two, three, four, five, six out of the last seven auctions have been higher. So this is our first healthy downtick going all the way back to November.
00;01;01;24 – 00;01;24;12
JON
So if we dig into it and say, well, what in the heck happened here? As always, home milk powder is the leader in terms of waiting. So the aggregate auction tends to move generally in tandem with the whole milk powder. And whole milk powder was down 3%. Now that was a big move. There’s no doubt about that. And we saw it come off a little bit on the last auction.
00;01;24;12 – 00;01;48;17
JON
This one down 3%. But what I would say is that relative to the GTI pulse, the sub auction that took place last week and the whole milk powder futures home up powder actually at 3% lower, performed better than expected. Again, we’re all learning our way around the pulse and recognizing that it doesn’t necessarily get the absolute price right, but it tends to get the directionality of the price right.
00;01;48;17 – 00;02;16;08
JON
And it was forecasting cocoa powder to be down five and a half percent or so. And futures were in that territory, maybe even looking for some slightly more negative territory than that coming in at 3%. However, skim milk powder came in 5.3% lower, coming in at an equivalent of about $1.20 per pound. And so what we would say about that one is the GTI pulse had forecast we were going to see some downward pressure of about 2% and skim milk powder.
00;02;16;09 – 00;02;44;06
JON
The GDP futures were suggesting that we were going to be steady to slightly higher and we came in 5.3% lower. And I think that was really the surprise of this auction, really, these two commodities, we had skimmed down more than what we expected and whole milk powder not down as much as expected. Both of those, I think, are going to land as a bit of a surprise as we move on to the fats will say AMP was up 1.3% and butter was down 1%.
00;02;44;07 – 00;03;07;17
JON
Still some equilibrium taking place in there, but that is going to put Jed’s butter at 293 on an 82% butterfat basis. That would be slightly lower than that on an 80% equivalent. I’m going to say that this is going to put the U.S., Europe and New Zealand. All right. In the relative pricing point for butter, nothing stands out there.
00;03;07;18 – 00;03;34;16
JON
They’re all pricing relatively the same. And then finally, as we move to the cheese side of things, cheddar cheese up 3.2% to a dollar 94. Mozzarella cheese was down 0.4% to a dollar 79. Again, I always just want to throw the warning out there. Let’s be careful when looking at these cheese prices. They’re good barometer, but they don’t necessarily translate to the U.S. price from an apples to apples standpoint as we would like them to.
00;03;34;17 – 00;03;42;16
JON
So again, overall auction down 2.3%, mainly led by whole milk powder and skimmed the rest of the complex was steady to higher.
00;03;42;19 – 00;04;08;20
BRIAN
Looking back it’s been since November. I think that was the last time we saw a retracement in price from an aggregate standpoint. And then even back further than that, I think it dates back to August. So at this point, John, is it too early to say that this is a trend changer or is there anything you’re looking for to say justify that we’re changing course of prices on the international side moving forward?
00;04;08;23 – 00;04;27;11
JON
Well, I would definitely say in the last two weeks since we had the auction, there seemed to be some sort of shifting of the tectonic plates out there. I’m not exactly sure what it was. I think it had a lot to do with the Gulf Food show that took place in Dubai two weeks ago, and that was the last auction took place during that show.
00;04;27;12 – 00;04;47;18
JON
A lot of people go there and in years past, it has been kind of something that either reinforces a trend or changes a trend. I don’t think that this year was necessarily different on that. We went into that auction. I think people had hopes that they were going to see some demand show up, their prices as we’ve noted, have been moving higher and higher on a lot of the stuff.
00;04;47;18 – 00;05;06;21
JON
I think partially in anticipation of the show and what we heard from a lot of people coming out there was it was just kind of ho hum. There wasn’t anything special. No new demand showed up. There wasn’t really anybody looking for products at the same point in time. There wasn’t a lot of people necessarily looking to scramble to sell products.
00;05;06;21 – 00;05;43;15
JON
So kind of a ho hum event. But I think the net result was, hey, at these price levels, if we don’t have that follow through demand there, maybe we have to go lower again. Last week we saw the GTI pulse make that move and just a general attitude of the international market has been to move lower. When we look at the regional breakdown of the GDP on this auction and say, well, who all was there and who wasn’t there, I would say, let’s look at it through the context of through most of the last year and a half or so, we have seen China, which is characterized as North Asia generally on the GDP.
00;05;43;15 – 00;06;06;23
JON
They have been buying significantly less than they had the year before. And that in itself was a fairly bearish statement. But I think the market adjusted to that and we saw some buying come in from other regions specifically for the fall. We saw Southeast Asia come in and they picked up the slack where China was backing off. And then in the last month or so, we saw the Middle East step in and own quite a bit of product.
00;06;06;23 – 00;06;29;13
JON
And that kept product fairly well supported and probably was responsible for the price drive higher. Looking at this GDP, it’s almost like everybody was down. If we look at North Asia, it was down 36% versus last year and last year was already a light year there in this time versus this most recent event, we were down 22% versus the last event.
00;06;29;13 – 00;06;50;09
JON
When we look at the Middle East, who again, had been somewhat of a featured buyer here recently, two auctions ago, they bought a quite a bit and then this auction they bought 32% less than they did a year before. And only 1% higher than they did just one auction ago. So, again, the Middle East stepped up almost a month ago and drove prices higher.
00;06;50;09 – 00;07;17;23
JON
Now they’ve backed back off when we go to another huge player here, we would say Southeast Asia versus last year down 2% versus the last auction, up 3%. So we’ll say Southeast Asia kind of at par. The Middle East coming back down to normal. North Asia still on the lighter side of things. And so when we look at the event, volume that traded here was 13% less than what traded on the last auction.
00;07;17;23 – 00;07;37;12
JON
So we’ve got less product for sale on the auction and less volume and prices went lower. I think that really speaks to the demand function. And again, I think it really comes from the idea that these other regions are formidable buyers. They do a nice job and they are a big piece of demand and a growing piece of demand.
00;07;37;12 – 00;07;56;02
JON
But there’s just nobody that can take on the amount of product that China can. And I think that is weighing on the market at this point in time. And until we see them step back up, it will probably continue to weigh on the market. Not seeing that it puts us in an extremely bearish environment, but I think it’s extremely limiting on what our upside is.
00;07;56;02 – 00;08;13;20
BRIAN
So from a high level demand internationally and even to a certain degree domestically has largely been in question in a lot of cases, just straight up bad. This auction is no exception, you would say. On top of that, how did the U.S. markets react to today’s auction?
00;08;13;20 – 00;08;39;08
JON
Well, it wasn’t a good day here in the U.S. We started out with way, which I don’t feel like is influenced by this, but we saw the CME way price move down a penny to 4150. This is the lowest level it’s been at over a month now. But then as we move to the Chinese side of things, blocks moved 375 lower and now stand that 149 barrels move two and a quarter lower and stand at 162 five.
00;08;39;08 – 00;09;01;14
JON
So again, both the CME blocks and barrels trading significantly less than the 194 chatter price here. So that was maybe I don’t want to say unexpected, but we might have expected to see maybe a different reaction if there was going to be one to the auction. But then when we move over to the most tangible comparison would be skim versus nonfat.
00;09;01;16 – 00;09;23;25
JON
Skim market, like I said, was down 5.3% to a 120 level. We came into this auction this morning at one 1975, and most of our futures trading at a pretty decent premium to that. I would note, though, that the futures over the course of the last week and a half or so have been moving lower here on the nonfat dry milk futures.
00;09;23;25 – 00;09;42;14
JON
And I think a lot of that has been in response to the Pulse auction that we talked about last week as well as the NCAA futures indicating that prices were going to come down. I think people started leaning on the U.S. futures and they had already made a move coming into this auction again with New Zealand at 120.
00;09;42;14 – 00;10;03;16
JON
And it being such a big move, futures started selling off here even more immediately after the first couple of rounds of the auction. And so I think that led to our spot price moving to 117. My sense is, is that we will continue to see some downside in the spot market and probably a little bit more downside in the future market for nonfat dry milk.
00;10;03;18 – 00;10;14;11
JON
On the butter side, like I said, they’re all fairly equal. So if anything, this auction was supportive of our fat market, but I don’t know that I would call it bullish.
00;10;14;14 – 00;10;37;05
BRIAN
John, thank you very much for this recap today. It will be interesting to see. And two weeks from now, if this pullback is continued, which at that point you could say kind of broke that uptrend that’s been intact since last August, or if Tony comes back and goes up again. So time will tell. But to all the listeners out there, we really appreciate you tuning in as always.
00;10;37;05 – 00;10;47;07
BRIAN
If there’s anything you would like John or Cody to touch on in these podcasts, please don’t hesitate to reach out to the team and hope everyone has a great afternoon. Thank you very much.
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