Host 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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Future trading involves risk and is not suitable for all investors. Content provided in this segment is meant for educational purposes and is not a solicitation to buy or sell commodities.
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Hello everybody. Welcome back to.
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Another Game Tuesday. I’m your host, Cody Koster, with me from Chicago, Mr. John Spain, our John, how are you today? Besides. Cool.
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I’m doing very well. Cody. It is cold here, but I want you to know that we here in the Chicago office are here. And we braved negative eight degree weather to be here this morning for the GTI.
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Risking it for the biscuit.
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Standing there waiting for that bus was pretty cold this morning.
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Yeah, well, soon it should pass here. In a few days we can get back to some normal January temperatures.
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Hopefully looking forward to it.
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Unlike the weather being down, our global dairy trade today was actually up 2.9% as a as a whole, as an aggregate.
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I really like the way you did that. Cody, thank you for that segue. It was wonderful.
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So as an aggregate, we’re up 2.9%. And as you were putting out this morning, just kind of how the auction was going, one that stuck out into my mind, whole milk powder actually ended up 4.8% higher in kind of look like the belle of the ball until and hydrous milk fat came out and sunk just a little bit lower on that side.
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You know, it was a pretty weird auction. There was just a lot of different things that were pretty funky. First of all, I’ll say that we saw right out of the gate relatively strong demand numbers, right? I think we started out in butter, cheese and whole milk powder with a 3.5 demand factor, which is, you know, really strong, especially in whole milk powder to see, supply demand ratio that high.
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So that was pretty funky. And at the same point in time, we came out with AMF at a very, very low demand factor of like 1.5 on the opening skim only at two. So, you know, a lot of the times if there’s demand in one product, we see, especially Homer Powder, there’s demand in all the products, right. Or vice versa.
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And this one, our supply demand ratios were just all over the place. And it really caused mixed results across the board.
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I think the mixed results that you’re talking about definitely came on the powder side, but also on the cheese side. And I know we’ve talked about before where cheddar comes out higher, mozzarella maybe a little bit lower too. We can’t really equate our prices to what they have going on over there. But mozzarella definitely trading today ended up 0.3% lower from the last auction.
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March was down 0.3. Cheddar was up 2.5. You know, a little bit of a divergence between the two there and both of those prices now being higher than the US price. But cheddar was definitely the strongest of the two cheeses. Where I think we really saw strength though was in whole milk powder, as you noted, up 4.8. And I would just point out that when it comes to expectations, I would say that Homer Powder came in maybe slightly higher than where the futures were looking.
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It was looking for a price move higher here and we got it. If we were to say, what is one of the things that caused that price to move this much higher, and why did people expect it to? One is that on this past Friday, we saw New Zealanders cut the offers of whole milk powder and skim milk powder that would be for sale on the auction, a pretty decent number.
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And what happened is, you know, you’ve decrease the amount of product that’s for sale on the GDP. So you shorten the supply line. Prices start to go up here. Then one of the reasons that the New Zealanders said, hey, we’re going to do this is they’re saying they have fairly decent off GDP demand. So whole milk powder up 4.8%, I would say back in line with where we were prior to the last auction, just slightly higher than three auctions ago and December 3rd.
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And then in the first auction of January, we saw declines and then we saw this one bounce back up to new recent highs. You know, you look at that and you say boy that is strong. And that is a good signal that followed through into butter. We saw the butter price here today go up 2.5% up to about $3.17 a pound.
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Great sign on the other hand, here’s where things get really weird AMF anhydrous milk fat, which has a lot more butter fat in it than butter itself, was down 7.7% and it came in at $3 a pound. You just saw butter, which has less fat in it. Take a pretty decent premium to AMF, which has a lot more fat, and we don’t normally see that.
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And again, that’s just something that really stands out here. And then finally I’ll go to skim milk powder. Skim milk powder was up 1.8%. Came to $1.24, kind of in line with where the pulse was suggesting. But here in the last few days, since Friday, I guess we saw the futures start to move higher on the GDP skim milk powder.
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And again, I think it was because of the decrease in volumes that were on offer. So we were expecting to see things go significantly higher. And we only got a 1.8% lower or 1.8% higher. And I just say that because it appears as though the SNP result is really going to disappear versus the expectations coming out of the futures.
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Again, pulse was kind of in line there, give or take, here or there, but it’s really the the futures that had much higher expectation in mind than what we got today. And I think that’s going to be seen as a disappointment. I would also point out that shortly after the auction or while the auction was going on, really, we started to see our nonfat dry milk futures start to move lower some into new recent contract lows.
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And today’s spot market responds by moving lower and now sits at one 3475, which is the lowest price we’ve been at since October when bird flu really started to take hold here in our nonfat market.
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And I think looking at how our market responded, because a lot of people look and say, well, GDP was higher, they’ve got some of the higher prices in the world. Ours should follow along. And it just doesn’t always correlate 1 to 1. Kind of like you mentioned the AMF and butter. They don’t always move to 1 to 1, but usually when one is higher, like butter is a point higher, AMF will kind of follow along.
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We haven’t seen this kind of discrepancy in those two markets in a long time. I’m looking back at a few auctions and I don’t see one recently where we had AMF. That low and butter rise like that and create that kind of wide band there.
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We very rarely see this. And, you know, I think it probably speaks to the fact that AMF has a very particular type of customer, a confectionery customer or an ingredients customer, whereas butter can have a totally different kind of customer. Right? My sense is, is that after this result, you’re going to see some adjustments on the volumes where they’re going to make less AMF and they’re going to make more butter.
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Trying to bring those two back in balance. It does highlight a couple other subject matters that I’d like to focus on real quick, if you don’t mind. And please understand, dear listener, this is me going out on a bit of a limb here, but we are entering a period where things can get a little weird and a little wonky.
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And I know that’s a highly technical term there, but there are two things that really stand out. One is that we are entering, and I say this from an apolitical perspective. We are entering a period where we’re going to have a lot of tariffs and trade wars, and that has an effect on different regions, products and what can be brought into certain regions and what cannot be brought into certain regions.
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It can cause a buyer to say, well, if I can’t buy it from this one region without a tariff, maybe I’ll go to this other region. And that causes prices to really fluctuate. Just out of those tariffs, I would say we are preparing to enter that type of period. But this morning I woke up and it says, you know, there are 25% tariffs planned on Canada and Mexico in two weeks.
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I can’t stand here and tell you right now that I understand exactly how that’s going to play out. But I do just want to say that it’s going to do funky things to markets, and sometimes it takes a little bit of time to parse out, you know, what’s affecting what I think that might have a little bit to do with the action that we saw here.
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Another point I want to bring is that there was foot and mouth disease found in a water buffalo in Europe a week and a half ago. I think the Europeans are acting very responsibly, and it is pretty incredible to see the mechanism and the scheme they have designed to isolate this case, and to try for it to have as little effect on the markets as possible and at the same point in time will be in there are countries that are going to say, I can’t take product from Germany because of this.
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It’s just written into their import codes. I bring that up to say that can really cause things to get weird, especially because the way the Europeans have done this, they’ve isolated a part of Germany and has said no product leaving this area, you know, or a product that’s manufactured in the specific area, you know, we’re isolating it. But then some of the stuff in Germany can be traded into the Netherlands.
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Right. And the Netherlands say, well, you know, we can export that stuff. We can export our own stuff and we’ll use the German stuff. I don’t know exactly how it’ll play out, but it does seem to scramble markets, especially as people try to figure out what is going to happen and how it’s going to happen. We could wake up tomorrow and somebody says it was a false positive, and we could also wake up tomorrow and somebody would say, we found 3 or 4 more cases.
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I simply don’t know that what I do know, though, is that it can really discombobulated markets and make regional prices do bizarre things.
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I think you make a great point there, John, between the foot and mouth disease and the tariffs that were announced that are not supposed to go on for two weeks, I mean, kind of like you mentioned with that, we could wake up in a week and they’ve got a deal done where the tariffs possibly don’t go on. And what that creates in our market, just like we saw last week, was the volatility and the unrest, I guess.
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And now you’re kind of seeing it on the global dairy trade, the same kind of way that we’ve been watching it in our markets.
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Another point to that is that a lot of people were saying part of the rally that we saw in December and in January in some of our markets here in the US, have been people pulling you know, and trying to get product across the border as quickly as possible before tariffs do. Come on. It is just hard to know how much of that really happened.
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But what I can say is, is that China has definitely been somebody that is in the crosshairs of this potential trade war, and as of right now, there isn’t going to be any tariffs on there. Again, it’s hard from a timing standpoint to understand it. But December imports into China were pretty strong. So it’s one of those deals where I admittedly will say it is a very complicated subject matter is hard to understand.
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The yin and the yang and understanding where you put pressure over here, and it’s going to cause a reaction over there. If I were to go back in time to, you know, eight years ago, I remember it being a relatively confusing time and seeing regional price discrepancies because of these types of terror. So I just want to bring that up, and it’s something that we’ll have our eye on.
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We will do our best to understand it, but understand that things can change pretty darn quickly.
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Absolutely. Well done. We appreciate you diving into the global dairy trade today. Our next one is actually going to be in two weeks beginning part of February. But until then, everyone, we appreciate you tuning in and listening. If you have any questions, please don’t be afraid to email and let us know. But until then, have a great week and even better weekends and we will see you next time on the GT podcast.
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