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;29
CODY
Hello everybody. Welcome back to another Good Tuesday. I am your host kodi costs are coming live from the Chicago office to be with us on this beautiful tuesday Mr. John Spain.

00;00;17;29 – 00;00;21;09
JON
Howard John how are you doing? Great. Kodi Excited to be here.

00;00;21;09 – 00;00;28;05
CODY
I’m excited to have you here. We had a very interesting global dairy trade today, slightly higher, but on the purchase side, maybe.

00;00;28;05 – 00;01;03;01
JON
A little lackluster. Well, it was certainly a different dynamic on the purchase side, as you mentioned there. I may start out by saying that the overall index is going to settle 1.8% higher. That was led by several different factors, one of which and probably the most important was whole milk powder. Omar Power was 2.4%. And while that might not seem like much of a surprise that, you know, it’s not that out of the ordinary for powdered B 2.4 or 2.5% higher or lower, this one really stands out because the expectations were that whole milk powder was going to be as much as 5 to 7% lower.

00;01;03;01 – 00;01;25;09
JON
So even if the whole milk powder result today came out unchanged, I think that would still be a big surprise to the marketplace considering what SGX Hormel powder futures were predicting. As we move over to skim milk powder. Skim milk powder came in almost exactly where futures were predicting came in 0.4% higher. And I can argue that a little bit of that was on the sympathy of hormone powder being higher.

00;01;25;09 – 00;01;47;08
JON
Some of the biggest gains on the day to day came from the cheddar market. Cheddar was up 7.1% to come in at a dollar 93 a pound. I would say that that puts the New Zealand cheddar probably at the top of the heap when it comes to international pricing, certainly higher than the U.S., even though the U.S. pricing has made significant gains here in the last few weeks.

00;01;47;08 – 00;02;14;15
JON
And then finally, as we move over to the fat complex, we look at butter. Butter was up 0.7% coming in about $2.99, and the AMF market was up 0.9%, coming in at $3.23. As we look at New Zealand, butter at $2.99, that is only slightly below the U.S. price right now, which is at 302 and a quarter. And the European price, which is right in the same area.

00;02;14;15 – 00;02;24;10
JON
So for the first time in a very long time, we have the EU, the U.S. and the European prices all trading within a very tight range of each other.

00;02;24;12 – 00;02;42;13
CODY
I think, John, with this auction, people are going to say, well, you know, everything is higher. You’ve got all the commodities from skim milk, even the mozzarella in the positive on the trading from last traded auction. How is this not an extremely bullish GTI? But on the flip side, there was a certain someone that just was not there, correct?

00;02;42;13 – 00;03;01;20
JON
You bet. You bring up a great point, Cody. At first glance, you can look at this and say, well, the market got this one wrong. We were 1.8% higher. Whole milk powder was supposed to be 5% lower and it came in 2.5% higher. Right. What in the world was the differential here? China must have been there and they must have made a surprise entrance.

00;03;01;27 – 00;03;20;14
JON
Certainly, that’s what I thought as I was watching during the auction, round by round, as I tend to do super exciting here in the morning to do that. When the dust settled and we were able to look at who was in there and who participated, what we can see is that China was, I don’t want to call them absent, but almost absent.

00;03;20;14 – 00;03;46;15
JON
This was the lowest Chinese participation on the GDP since 2011. When we look at it, we can say they bought 42% less than they did the auction before they bought 59% less than they did on this same auction last year. And keep in mind, last year’s auction participation was already lower. So here we are. When you just look at it on the chart, you go, my gosh, something must be wrong.

00;03;46;15 – 00;04;09;23
JON
And in fact, it doesn’t seem that anything’s wrong there. The Chinese simply weren’t there. And I think that’s just a continuation of the pattern that we’ve seen out of China here for the last year and a half. And I guess if we were just all at the API conference or many of us were, and what we would say is there were a lot of people there that probably have a front end exposure to the Chinese market.

00;04;09;23 – 00;04;29;20
JON
And you certainly didn’t pick up any positive notes out of those people who deal with China on a day to day. In terms of the thought that China might be coming back anytime soon. I think their sentiment was correct. Specifically when we look at the results of this auction in terms of who was participating. However, you might say, well, I don’t get it.

00;04;29;20 – 00;04;48;20
JON
China wasn’t there and we were still higher. What are you talking about? And I think there were some differentials in here. First of all, we would look out here and say the Middle East volume participation from one event to the other, 100% increase in volume. When we look at our on a year over year, they were up 17%.

00;04;48;20 – 00;05;07;16
JON
So the Middle East really stepped in. We would also look at it and say, let’s look at Southeast Asia. They were up 24% on an event over event change and up 5%. European participation was up 46% again coming off of a low base, but it was certainly there. And so I guess we have to look at it and say, is it a double edged sword?

00;05;07;16 – 00;05;25;03
JON
Yes, China wasn’t here. And that is just a scary thought. I mean, when I look at that chart, if I didn’t see the price response out of the GDP and I only got to see the volume, I would say, boy, I bet that GDP price went a whole lot lower. And then China is just so important. Obviously, that’s not what happened.

00;05;25;03 – 00;05;43;19
JON
But then when we look on the other side of the knife, you would look at it and say, well, China wasn’t there and we still went higher. You know, places like Europe, Southeast Asia and the Middle East are becoming that much more important. And just their purchasing power alone was enough to take the index 1.8% higher. I’ll certainly grant that to people.

00;05;43;24 – 00;06;02;19
JON
I think that’s just such a unique and cool development that we’re seeing here. The markets kind of changing right in front of our eyes, but I also still question the sustainability of that purchasing. So we’re definitely going to keep an eye on that. In terms of can that keep up? It’s just really hard to make up for that whole and the Chinese demand.

00;06;02;19 – 00;06;10;10
JON
But at least on this auction today, the Middle East and Southeast Asia and Europe certainly took a stab at it. And the net result is that prices were higher.

00;06;10;14 – 00;06;32;15
CODY
And I’ve had the conversations with different people. John, I’m positive that you have also of the question comes up, when will trying to be back in the buying seat? And as we all know, that is just impossible to guesstimate. It’s like trying to guess the weather going five months out. But I think the fact that this is the lowest participation in 13 years, that is a massive factor in the GDP right now.

00;06;32;15 – 00;06;43;14
CODY
And I think that’s just like you said, there’s a lot of people that API that did not really think that maybe they would be back and they would be correct maybe to the more massive side on that of being the lowest in 13 years.

00;06;43;14 – 00;07;02;13
JON
I guess if we use our imagination a little bit here and say imagine if China was back at the same point in time, what would prices have done if Chinese participation was even slightly normal on this auction? That’s a lot of ifs and buts, and I understand that. And there’s certainly going to be the inclination to say, well, you know, on the next auction, they’re going to be back.

00;07;02;13 – 00;07;20;22
JON
So it’s only a matter of time before we do get that Chinese participation back, as well as the rest of the world. And that’s entirely possible, like you said. Coady Guessing what they’re going to do is an impossibility and a fool’s errand. However, again, I think the inclination of the people that are more forward facing to the Chinese market was correct.

00;07;20;22 – 00;07;39;07
JON
I guess I certainly sensed a lot of apprehension from those groups of people that are more forward facing, and I think they’re looking at it saying China’s not coming back anytime soon and we have to continue to find other markets. It appears as though they did find some other markets today other than China. And I think that is such a cool development.

00;07;39;07 – 00;07;41;13
JON
Again, I just question the sustainability.

00;07;41;13 – 00;08;06;08
CODY
Well, I guess we are going to check in on the sustainability in another two weeks about the middle of May here for our next GDC auction. Up until then, John, as always, we really do appreciate your insights and you’re talking to a lot of people and telling them the same thing that we talk about on this podcast. And I know everybody appreciates the insights that you bring to what we have going on for the GDC, especially being up so early in the morning to let all of us know in the company what the heck is truly going on.

00;08;06;12 – 00;08;08;03
JON
You bet. Cody, I appreciate being here.

00;08;08;03 – 00;08;15;29
CODY
Absolutely. Well, until next time, everybody, we will see you in about two weeks. We’ll be back with another Good Tuesday.

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