In the latest edition of the Parlor to Plate dairy podcast from Ever.Ag Insights, our all-star panel discusses market rallies. What impact did the latest export data have on cheese prices? How are Class III and IV futures digesting recent spot market moves? And how are international dynamics driving corn and soybeans?
Join host Erica Maedke and panelists Brian Fletcher, Zach Bowers and Britt O’Connell for a spirited discussion.
Questions or comments? Topics you’d like to hear us discuss? Contact us at Insights@Ever.Ag.
(Transcript auto-generated)
00;00;00;10 – 00;00;08;16
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;32;08
ERICA
Hello. Welcome to Parler to Plate, a weekly podcast from Insights dedicated to offering listeners enlightening discussion and actionable intelligence about jury markets. I’m your host, Eric McKee. We are excited to have you along. And if you like what you hear, please like us subscribe. Until a friend or two as a timestamp of today’s episode, it is Wednesday, May 8th, around 1:00 Central Standard Time.
00;00;32;09 – 00;00;59;27
ERICA
A quick rundown of the markets. We’ve had some excitement. CME Spot Black cheddar, a dollar 95 per pound rocketing $0.19 since last week. Barrels a dollar 90 up $0.04. Spot butter 302 up $0.02 compared to last week. Nonfat dry milk closing at a dollar 13 today, essentially unchanged on the week in the grain complex. July corn for 58 per bushel, up $0.15 from last week’s close.
00;00;59;27 – 00;01;25;10
ERICA
July. Soybeans 1226 per bushel, up $0.71 from a week ago and July soybean meal 377 per ton, up 35 bucks. It’s a new week. Another all star panel from the financial services team. We have Brett O’Connell, who helps grain growers manage their risk. Bryan Fletcher helping our commercial dairy clients manage risk, and Zach Bowers, who works with dairy producers again on the risk management side.
00;01;25;13 – 00;01;44;18
ERICA
So as I was thinking about the questions I have for you guys today, there’s been a few key markets that have really rallied dramatically in the last week or two, and I’m thinking specifically about cheddar cheese and soybeans. And as I think about what I know, I think there’s a strong international component to both of those. But I wanted to probe a little bit deeper.
00;01;44;18 – 00;01;56;22
ERICA
Brett. I saw some really dramatic pictures of South America flooding things under water. There’s reports of flooded out being fields. Can you share a little bit of what’s going on and how that’s impacting the markets?
00;01;56;23 – 00;02;16;14
BRITT
Yeah, absolutely, Erica. So in the southern region of Rio Grande, do Sul, they’re receiving a lot of rain now, mind you, I think there’s a couple really key elements that we have to remember around this. They are receiving a lot of rainfall. But prior to when all this rain started, they were about 75% harvested already. And these are rough estimates.
00;02;16;14 – 00;02;40;08
BRITT
Right. But there’s maybe 4 to 5 million tons of soybeans left still in the field because originally Conad had estimated Rio Grande Diesel’s production at just under 22 million tons. So I think that’s important to remember just in context of what’s going on. And as we look at the grand picture of Brazil as a whole, well, this could be significant.
00;02;40;08 – 00;03;16;12
BRITT
It’s not necessarily a total loss. We’re talking about maybe 1 to 2 million metric tons off of an already big crop, not a record crop, but they did put in a record amount of acres. So I think in the grand scheme of things, this is not a game changer by any means. I think the action that we’ve seen across the entire grain complex in the last couple of trading sessions has got a lot more to do with some technical trading, some short covering as we move towards this Friday’s was the report, which is when we will get the first official look at the 2024 balance sheet as well as, of course, any revisions that they
00;03;16;12 – 00;03;33;24
BRITT
may give us for the 2023 crop. So to me, you know, when this thing starts to run and you’re trying to piece together a story, it just feels very weak. Yes, there are some elements here that are going to impact the crop negatively, but nowhere near a significant enough level to have any kind of long standing impact.
00;03;33;24 – 00;03;35;14
ERICA
Anything else you want to dive into?
00;03;35;15 – 00;04;00;08
BRITT
You know, I think, Erica, the one thing that we do need to be mindful of is the fact that we do have a big report coming out on Friday. Not always does this report give us a lot of volatility. But I think as we move towards that, we just have to be mindful that any time you get a new set of data that we’re seeing for the first time, the market can have some rather dramatic reactions as we examine the fundamentals of this market, nothing has really significantly changed.
00;04;00;08 – 00;04;27;14
BRITT
We still have a lot of corn in this country and honestly, we expect global stocks of corn to grow a little bit as well. So I would just be really mindful that you don’t get too caught up in some of the white noise of this report and really work with your risk manager to see like, is this something that is important and meaningful or is this kind of a quick flash in the pan reaction by the market similar to what we saw when the planet acreage numbers came out, market made big moves and then basically gave all that back the following day.
00;04;27;14 – 00;04;36;06
BRITT
So just as I think about feed buyers, I would just really be mindful that this report is coming up, but also be careful not to make an immediate knee jerk reaction to it too.
00;04;36;07 – 00;04;44;12
ERICA
Still from Phil and Kathleen on the dairy download, they often make bold predictions. Sprint do you have a bold prediction for Friday’s was de.
00;04;44;14 – 00;05;08;01
BRITT
You know that’s always dangerous territory. I’m not sure if I’m prepared to wait in there but you know I’ll take a swag. So bold prediction, Erica. And this is kind of going right to the bottom line. The meat and potatoes of everything, 2020 for 2025 corn U.S. ending stocks projections have a range of let’s just call it 2 billion and change all the way up to 2.5 billion.
00;05;08;01 – 00;05;26;20
BRITT
I don’t know if it’s bold or not, but I’m going to come in and say that our estimate is going to be near the 2.5 to 2.6 end of the spectrum on corn ending stocks, which would be rather bearish as we move into the report. So mildly bold prediction, but nonetheless, I think this thing could come in.
00;05;26;24 – 00;05;30;13
ERICA
Well, you know, the American grain grower, they’re really good at what they do.
00;05;30;18 – 00;05;31;22
BRITT
Amen With that.
00;05;31;22 – 00;05;48;13
ERICA
Brian, let’s turn it to you. Last Thursday, U.S. export data showed £110 million of cheese exported out of the United States in March. Now, that’s an all time record high. How have you seen this impact cheese markets in the short term and your thoughts going forward?
00;05;48;16 – 00;06;14;02
BRIAN
Yeah, Erika, I believe not only was that a record, but I think it was a record by about close to £10 million by even looking at any month of the year. So we have January, February and March year to date, exports up about 21%, which the idea around it was, yeah, exports were going to be good. The U.S. was by far the lowest price in the world, and you would think that would attract an increase in exports.
00;06;14;02 – 00;06;36;22
BRIAN
However, I think that the magnitude of the increase, at least from my perspective, I was a bit shocked with how much we were exporting in terms of what that means. You know, the market has really changed over the last ten days, really over the last six weeks. But over the course of January through March, the U.S. spot price was severe discount to the rest of the world.
00;06;36;22 – 00;06;59;05
BRIAN
Since then, over the course of April and now on into May, the spot price has been moving significantly higher. I want to say on an average pork barrel spread basis, the prices move from about a dollar 40 now in the mid one nineties, so almost $0.50 higher in six weeks. With that said, it doesn’t mean that the export situation is going to taper immediately.
00;06;59;05 – 00;07;38;14
BRIAN
What can happen when we are lower on a spot price basis, Our immediate forward curve was also lower. So the likelihood that there can be some continued contracts carried out as we work into April and May. However, what we would say is if you’re a buyer in the international market, you’re probably not coming to the U.S. today. I think the marginal additional export situation, what was previously very supportive to the U.S. market, is likely now to become resistance because our spot price, at least for chatter at let’s just call it 195 average, give or take, there’s other competing supply around the world at a lower price.
00;07;38;14 – 00;07;58;18
BRIAN
Either way, very significant exports and I think part of that was definitely price driven. So it will be interesting to see how we progressed here. And now that we’ve had a very large rally in the market. The one thing I would highlight within the exports two is it wasn’t I would say over the last several months, Mexico has been a very large trade partner.
00;07;58;18 – 00;08;18;01
BRIAN
I mean, they always are the largest trade partner, but they’re at record territory in terms of a lot of dairy products, in terms of the volume that they’ve been taking. There was no exception with the month of March. However, we’ve also seen other regions really step up as well. So we’re seeing growth out of South Korea, we’re seeing growth out of Japan.
00;08;18;01 – 00;08;44;05
BRIAN
I think Canada was even larger region. So now the question is, are these peripheral Southeast Asian and Japanese markets, are we returning to growth? That’s still a question that’s unanswered. I know that over the course of a lot of the 20, 22 months, the overall market supply was competing for, in essence, a smaller demand. And then the other questions that continue to linger are the domestic demand situation.
00;08;44;05 – 00;09;05;26
BRIAN
It doesn’t appear to be firing on all cylinders where there’s still a question about foodservice demand and all that. So either way, definitely come off the bottom. And for a lot of the reasons that were previously supported are now turning into resistance. But it doesn’t mean that the momentum can’t take us higher before we I don’t want to say that we’re done going up because it sure doesn’t feel like it.
00;09;05;26 – 00;09;18;05
BRIAN
I just feel like over the course of the next couple of weeks, we need to be mindful of where international pricing is and how the US stacks up against that, because in the medium term that likely will come into play.
00;09;18;07 – 00;09;24;23
ERICA
So that’s a great segway. Brian, into are we going to see $2 cheese? Do you have a bold prediction?
00;09;24;26 – 00;09;46;28
BRIAN
Erica I think if I would have said yes to that three weeks ago, it’d be much more bold than me saying yes today. At this point, it feels like we’re kind of destined to go wring that bill, whether or not we sustain at that price. I myself don’t think it’s a sustainable price given this market. However, it feels like we’re heading that way, at least in the near term.
00;09;46;28 – 00;10;04;27
ERICA
Zach, would this run higher in cheese and butter? That’s translated into higher class three and class four prices. Dairy producer margins are looking better than they have in months. How are you seeing this impact producer decisions? Are they changing anything on the farm? Are they doing anything different in managing risk?
00;10;04;28 – 00;10;30;09
ZACH
Yeah, I mean, it definitely makes the conversation a lot easier than it was six months ago, and that’s for sure. Right. I tend to agree with each here that the trend is our friends, but at the same time, we’re now back up into those prices where the last year and a half we’ve seemingly always hit resistance. And while we can cheer about the big export numbers we’ve seen the last couple of months, at the same time, almost $0.50 cheaper than the rest of the world.
00;10;30;09 – 00;10;49;12
ZACH
So of course we’ve got good exports. Now all of a sudden we’re back priced out there, right? So that’s kind of where the conversation is, is continuing to go in saying, hey, we really need to take advantage of these high prices because this seemingly feels like a supply driven market, right? I mean, supply has been tight, demand’s been very weak, low prices cured that demand for now.
00;10;49;12 – 00;11;07;14
ZACH
But now we’re back on the high price is right. And is the real demand actually out there domestically and globally and is it really there at $2 cheese? Right. Well, I think supply continues to remain tight and get even tighter in the summer months, as most dairy men, especially the three states, have yet to even realize. One of these is still April.
00;11;07;14 – 00;11;25;18
ZACH
This came off the board at 15 half there. Right. So margins are still extremely tight into the future, though. They look a lot healthier, though. So we’re definitely taking advantage of those. Right. Clean it up. That class three that Class four risk up here, especially with drop off no brainer level with what the feed side of things is doing and what we think it can continue to do.
00;11;25;18 – 00;11;33;07
ZACH
You can protect some pretty decent margins for the first time in one and a half, two years it feels like. Right? So yeah, we definitely want to be taking advantage of that.
00;11;33;07 – 00;11;34;17
ERICA
And a bold prediction.
00;11;34;17 – 00;11;52;17
ZACH
Zach I don’t know if there’s anything bold out there right now. I think milk continues to stay tight. I don’t think that’s very bold prediction of me. I don’t think cow numbers come back anytime soon. That’s probably not bold either. And I think we probably do for a little bit of a pullback here. But overall, I think two cheese could be sustainable in the back half.
00;11;52;20 – 00;11;58;14
ZACH
I don’t think we’re sustainable yet, but I think eventually this year we’ll see a be a sustainable two or three month price.
00;11;58;14 – 00;12;19;04
ERICA
A big thank you today to Brett, Brian and Zach for joining me on the episode and sharing your insights with our listeners. Thank you, as always to our media team for mixing and mastering and thank you to the listeners for joining us today. If you like what you hear, subscribe on your favorite app. And if you’d like to learn more about how we help people manage risk contact us at insights ever.ag.
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