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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00;00;00;10 – 00;00;09;09
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.
00;00;09;12 – 00;00;17;16
Hello everybody. Welcome back to another GDC Tuesday. I am your host, Cody Koster, with me from Chicagoland, Mr. John Spain. Howard, John, how are you today?
00;00;17;24 – 00;00;24;22
Doing great. Cody and happy to be here on this GDC Tuesday. Well, we are happy to have you here to decipher.
00;00;24;28 – 00;00;32;18
What the heck is going on in this GDT auction. Here we had a higher auction on lighter volumes.
00;00;32;25 – 00;00;55;27
Yeah, Cody, I think you summed it up right there. This was our second higher auction in a row. By our calculations, we were about 3.6% higher. And the change in the weighted average price, some of the stars of the show would be skim milk powder. Now here, skim is going to be a little bit nuanced here today I’m going to have to spell it out.
00;00;55;27 – 00;01;20;05
I think we were up on the index, 3.9% coming in at an average price of $1.29, but I don’t think that tells the whole story. When we dig in a little bit deeper, we see that New Zealand skim milk powder, right? Keep in mind that the GTI has several different origins on it now. So New Zealand skim milk powder came in significantly higher, roughly $1.35 to $1.36 a pound.
00;01;20;05 – 00;01;49;11
However, the index that we’re looking at also includes European powder. And that came in roughly $1.15 a pound. So when we put them together, the index came in at about $1.29. But I do think that kind of under represents how well the S&P did for New Zealand on this GT. When we look at this versus expectations, when we look at the GDP pulse, we would say this came in over expectations.
00;01;49;11 – 00;02;10;15
And then if we look at the New Zealand GDP futures again we want to point out those GDP futures are going to settle to contract number two of New Zealand powder. We came in right around expectations there. So again a nuanced discussion I’m happy to dig into that with people offline. If anybody wants to give me a call when we go to the other products, let’s look at home.
00;02;10;15 – 00;02;32;02
Milk powder. Whole milk powder came in up 4.5%. And when we view that versus expectations, we would say that actually came in right around expectations here of the futures maybe a little bit over. And when we view it in terms of the GTI pulse and where did that come in? We came in a little bit over there too.
00;02;32;02 – 00;02;52;17
So I guess all in all I would say the powders performed very well on this auction. When we get into the other products, let’s go to AMF. It was a weird auction again. For most of the auction we saw AMF lagging behind butter. I caught up at the end. If you remember, on the last auction we saw a butter move higher.
00;02;52;17 – 00;03;16;11
AMF moves significantly lower on this auction. Butter was moving higher than AMF, but AMF caught up there at the end. Butter is going to settle 3.4% higher at a price of around 328 AMF, though while it did settle 2.3% higher, it is still trading at a value of about 307, significantly less than butter. And I guess that just stands out to you.
00;03;16;16 – 00;03;44;13
The butter is 82% butter fat, while AMF is close to 99% butter fat. So in most cases we would expect AMF to be higher than butter. As it currently stands right now, butter on the GTI is significantly higher than AMF. And finally, wrapping up the product mix, let’s go to the cheeses. Cheddar cheese up 3.7% at $2.28. Mozzarella was essentially unchanged, coming in at $1.89.
00;03;44;13 – 00;03;53;22
So almost all products higher here than mozzarella came in. Negative point one. In reality, but everything else doing generally very well on today’s auction.
00;03;53;28 – 00;04;02;07
So this auction like you mentioned, John Butter and AMF, not quite the discrepancy that we saw at the end of January, which had all of us scratching our heads pretty hard, but.
00;04;02;10 – 00;04;06;06
At least behaviorally today. But I’d still say that gap still exists.
00;04;06;11 – 00;04;25;00
Okay, so moving to volumes before we jump online. You know, I kind of got a little bit excited, started talking about China being back in the buying seat, possibly. And you brought up the fact that, well, that was not true. Ipso facto, the total event change itself volume wise was actually lower, which I didn’t catch before.
00;04;25;00 – 00;04;50;17
Cody, there’s just a lot going on this. Last week or so we had Idfa, we had tariffs and trade wars, and you have to excuse me, I kind of forgot at first myself that the volumes have been reduced and that we’re going at a seasonally lower volumes. So during the GDP, while that was going on and you see the performance take off, we saw some very high supply demand ratios or demand to supply ratios I suppose.
00;04;50;17 – 00;05;12;06
And it kind of gave the indication at first. Hey, wow. China’s here. And that’s not to say that they weren’t here, but it was when the dust settled and were actually able to see the regional volume breakdown that you get to see that this really wasn’t about China. If we look at Chinese volumes on the auction, we would say they represented 30% of the total share that’s down.
00;05;12;06 – 00;05;35;15
We would also say that their event, if we look at their percentage change from one event to the other, it was down 32% versus the last auction. When we look at it on a year over year basis, it was down 23% on their volumes. So this really wasn’t about China. If we go and say, well, was it about Southeast Asia a little bit Southeast Asia year over year, up 28%.
00;05;35;15 – 00;06;02;01
But their event changed. They were actually down 3%, something that, you know, the Middle East probably had a pretty good showing here. But then finally, this is a weird one. The volumes are small, but the percentages really stand out. South and Central America up 37% on an event change and up 589% on a year over year change. So some pretty decent participation out of South and Central America.
00;06;02;01 – 00;06;23;23
But in reality, that’s just a small base that they’re coming off of. It’s really if we’re going to have volume a group really influence things, it’s going to be China. And as we noted, China’s down. So how do you get a much higher auction result with Chinese volumes being down? And again, I kind of forgot about this, but we’re going into already a seasonally lower volume season.
00;06;23;23 – 00;06;47;27
But recently we saw New Zealand start to reduce the volumes that we’re going to be offered on the GT, in addition to the seasonal decline from one event to the other. We were down 14% on volume here. If you just said, hey, we’ve got the same amount of people trying to buy stuff as the last auction. We have 14% less product available out there.
00;06;47;27 – 00;07;08;05
And that starts to beg the question, okay, fine. Well, why is there less volume? Is there a weather event in New Zealand? And the answer is I don’t believe so. The guidance I believe that we’ve seen from New Zealand is, hey, they’ve got pretty good off GDP demand. So you know you look at it to say that the GTI is a bit of their spot contract.
00;07;08;05 – 00;07;29;03
Right. Or their spot auction where people come to buy either on the spot or kind of look at it as a spot forward basis, or they can get on to a contract that is tied to the GTI at some sort of basis, or a spot sale. So my guess is, is they’ve had some volume get tied into the contract side, so they’ve got less that they need to offer on the spot.
00;07;29;03 – 00;07;38;04
So more well contracted up and going into the seasonal decline. Here we are with less volume, probably less buyers but higher prices.
00;07;38;05 – 00;07;49;08
Okay. Well John, with that information right there that we just went through, besides the prices in the event change, is there anything else on this GTI that really stuck out to you as far as movement kind of throughout the world?
00;07;49;15 – 00;08;11;00
I’ll just point out that again, that skin price has gotten pretty darn confusing here in the US. We have held the pole position in nonfat dry mode for quite a while now, and I’d say most of that premium that we’ve held has come out of respect of bird flu, specifically in California. Right. We made less milk in California.
00;08;11;00 – 00;08;39;04
It stands that we probably made less butter, and it tightened our nonfat price up, and we were able to hold a premium where at one point in time we would say the European price at 115 and New Zealand at $1.21, in what stands out to me here is our nonfat price has started to move lower recently. And if you say why, I would say, well, I think that milk production in California likely better today than it was 2 to 3 months ago.
00;08;39;04 – 00;08;58;09
Not recovered, but probably better. It means we’re probably making more nonfat. So our prices started coming down and New Zealand’s price came up on this. And as to why, I’m not entirely sure. I guess I would go back to some of the dynamics we just spoke about. But now New Zealand is about $1.36 on their skim and here we are at $1.34.
00;08;58;09 – 00;09;22;15
So for the first time in a long time, the US is not the highest price in the world. And I would say that the New Zealand price, it is the highest price, but in itself kind of a weird area there. And then finally pointing out that Europe, European skim milk powder on this auction is at $1.15. And that’s not really that different than prices that we’ve seen off of the GDP as well.
00;09;22;15 – 00;09;39;25
So that skim world kind of going through a transition here and instead of the rest of the world bringing us down, which we might have thought could happen. And this case right now, the New Zealand price has come up and taken the pole position at a higher level than us here in the mid one 30s. Okay.
00;09;39;25 – 00;10;00;11
Well John, as always, we appreciate the intricate look inside of the GTI. Our next auction that we’re going to have is in about two weeks, the middle of February. So John, I will be back with everyone then. We appreciate all of you guys tuning in and listening. If you have any questions, please let either John and I know we’ll try to answer those for you, but until next time, thanks again for listening.
00;10;00;11 – 00;10;02;29
Have a great week and even better weekend. We’ll see you next time.
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