Parlor to Plate – February 05, 2025

(Transcript auto-generated)
00;00;00;10 – 00;00;20;14

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. Hello. Welcome to Parler to play a weekly podcast from American sites dedicated to offering listeners enlightening discussion and actionable dairy market intelligence. I’m your host, Katie Burgess. We are excited to have you along today.

00;00;20;16 – 00;00;42;02

If you enjoy the show. Please like it, subscribe and maybe even tell a friend or two. First, let’s timestamp the episode. It is 10 a.m. Central Time on Thursday, January 30th. Here’s a rundown of CME spot markets over the past week. Yesterday, black cheddar cheese closed at 193 per pound. That’s up 15.5 cents from a week ago. Barrels finished at one 86.5, up a nickel.

00;00;42;03 – 00;01;02;22

Butter fell to 2.46 per pound, down $0.06 from a week ago to the lowest level since 2023. And nonfat milk is at one 34.5. That’s down a penny from a week. Turning to grains, March corn is at for 90 per bushel today. That’s unchanged from a week ago. Well, March soybeans are at 1045 per bushel, down $0.20 from last week.

00;01;02;28 – 00;01;22;02

With that, let’s get to the show. I would like to welcome today’s panel. First off joining us from Chicago, Mr. John Spangler, who works with commercial dairy customers. Also up next, Colin, Kate is coming to us from the Pacific Northwest. And Brandon Weigel, a follow us on tonight who keeps a close eye on green and feed markets. How is everyone doing today?

00;01;22;05 – 00;01;22;10

Good.

00;01;22;10 – 00;01;23;07

Well, how are you, Katie?

00;01;23;07 – 00;01;24;09

Doing great.

00;01;24;12 – 00;01;25;14

Doing wonderful. Katie.

00;01;25;16 – 00;01;45;18

Spectacular, guys. It has been a busy week around these markets. What do you hope? So do you like? We typically see. But also this week it was the big dairy farm conference down in San Antonio, Texas hosted by ADFA. So it was a great time as always. It’s always fun to go catch up with colleagues. The friends, customers.

00;01;45;18 – 00;01;58;01

But as typical, when all dairy market folks get together, we also left with a lot of big questions, had a lot of great conversations. John, you were there too. It was great to see you. What were some of your biggest takeaways from the show this year?

00;01;58;04 – 00;02;22;02

Well, Katie, let me first say it was great to see you, although I think you were working about as hard as anybody at the conference. I think we barely saw each other the whole time. And I know we were both working and meeting with people, but it was wonderful to be there with you. I would say that in terms of the overall show, you know, I think we had record attendance at just really shows, you know, how important this conference is and how Horton Dairy is to a lot of different companies.

00;02;22;02 – 00;02;41;13

And the focus they have when it came to market discussions, I don’t know that I learned anything like really, you know, life changing out there. If there was one thing I would take away, though, it is that for the last two, three, almost four years, it seems like. But at least three butter has really been in the hot seat, right?

00;02;41;13 – 00;03;08;28

And has been in big demand. It’s always been a concern about how high butter prices could go right. I’m just looking back here in January of 2022, that’s when we came into Idfa, and we come out of that 180 area of butter and then went into the Idfa conference and we got up to $3. Right. And in general, although we’ve come off of $3, we’ve been at a very elevated price point in butter since then.

00;03;08;28 – 00;03;24;29

And there’s always just been a lot of concerns surrounding butter, especially from the buy side. And it’s just been a matter of, are we going to have enough? If I took anything away from this conference is people are getting more comfortable with the idea that there’s going to be enough butter come this fall and have you say, why is that?

00;03;25;00 – 00;03;43;12

I can say there is just a lot of cream out there. And cream. Not in just one region, but it seems like an almost every region of the US. It’s abundant, it is heavy and it is cheap. That cheap cream, one way or another is likely going to find its way into the churn. It’s going to get churned.

00;03;43;12 – 00;04;01;03

And with the carry that we have in the futures right now, that’s going to get put away in inventory, and it’s probably going to help us get into the end of the year here. As you mentioned, Katie, we are at our lowest butter price now since 2023 and December of 2023. And at 246 in here, I wouldn’t doubt it.

00;04;01;03 – 00;04;25;17

If we don’t grind a little bit lower out here in the short term. But the further we get into Q1 and get into that Q2 time period, I wouldn’t doubt it if we don’t see another move lower and the prices that we haven’t seen going back into 2021, it just feels like the market’s concern about having enough butter and how high compresses go is now turning into I think we’re going to have enough.

00;04;25;23 – 00;04;28;09

And maybe how low can butter prices go?

00;04;28;14 – 00;04;48;08

I’d agree with you, John. I think my most common conversation, a dairy farm, was, hey, there’s a lot of cream out there. You saw it reflected in prices and I’m with you. The question now, I think, is we’re at these lowest levels in a while. What do buyers do here? You know, are buyers going to come back in seeing butter at a price they haven’t seen in a while and buy some?

00;04;48;08 – 00;04;53;04

Or is the weight of all the supply out in the market going to continue to weigh on things?

00;04;53;04 – 00;05;18;02

As I mentioned earlier, there is a pretty substantial carry in the market. And by that I mean the futures are substantially higher than the spot market right now. And even when we assess a pretty healthy carrying cost against those futures prices versus the spot price, it’s still very profitable for someone to buy spot butter and put it in a warehouse and sell futures against it into the future that’s out there.

00;05;18;02 – 00;05;35;23

I think that incentive will remain there for a while, and that is what, you know, on the spot in the things that might keep things supported a little bit. When you ask about what buyers are going to do, I’ll steal from Phil, as I do from time to time. As he said, no one has been fired for buying 280 butter in the last 3 or 4 years.

00;05;35;23 – 00;05;58;23

Write budgets were written a while ago. The market is moving progressively lower, and I think your end users out there going to say, I’m not going to buy at all, but I’m going to take advantage of this lower price I’m covering in better than I’ve bought in the last three years. I’m covering and better than my budget, and I’m probably going to sit in here and at the very least, buy some calls and have that upside protection and hope that prices move lower out here.

00;05;58;23 – 00;06;11;11

You can do that for a certain amount of time, and then pretty soon you’re going to fill that bucket up of the people that are willing to carry that butter. And you’re going to fill the bucket up of the people that need to manage that risk. And that’s when we could see prices move lower, for sure.

00;06;11;11 – 00;06;35;18

Agreed. I think another big talking point of the show, and one that impacts both our dairy and our feed markets, is what might happen with tariffs. So President Trump has talked about February 1st as a date for potentially tariffs on Canada and Mexico. That’s coming up. That’s this Saturday based on some of the speakers of the show or conversations with people in the know, it feels like they point to that date as more of a negotiating tactic than for, say, a firm date.

00;06;35;18 – 00;06;57;10

Even here we are, two days out, and there’s still no clear path forward of what might happen. But I do think, given the potential risks to the dairy and food markets, probably worth talking about. I mean, John, if we think about, you know, if we put tariffs on Mexico, if they choose to retaliate against our U.S. dairy products, Mexico’s been a pretty important market for us, for U.S. dairy exports in the past year.

00;06;57;11 – 00;07;18;24

Mexico hasn’t been pretty important. I say they’ve been really, really important as an export destination. We send an ever increasing amount of cheese down there, right? They’ve just become a huge part of our cheese export market. And the growth that we’ve experienced in cheese exports in the nonfat market, I think they sometimes take over 25% of our nonfat production.

00;07;18;24 – 00;07;37;23

It is huge. So I guess if you were to say, what effect could a tariff on Mexico have and then respond to retaliatory tariffs, we don’t know what those are going to look like. Let us be clear from right here. We don’t know when a tariff is going to go and or how a retaliatory tariff would come back, or even what products would be included in that.

00;07;37;23 – 00;07;56;26

But if we assume that dairy is going to be included in that, we have to say, hey, that is going to be an added cost to, you know, the product that we’re sending to our most important dairy export destination. One can’t help but think that that is going to lower prices somehow. Here in the US for both nonfat and cheese.

00;07;57;03 – 00;08;13;24

No, for sure. And I agree with you. I’ll change my pretty important two extremely important trading partner in Mexico for sure. Brennan. How about on the feed side? I know we import canola meal from Canada, but yet we export grains. What do you think? On the grain side of thing of how tariffs could impact if indeed they do come into play?

00;08;13;24 – 00;08;33;06

Yeah. It’s a great question and I think I would echo what John said. I mean, there’s really no way of knowing for certain what sort of, you know, retaliatory impacts. There could be obviously a grain tariff as a whole with Mexico are likely going to be bearish for the corn market. Specifically. Mexico is our top trade partner on the corn front.

00;08;33;06 – 00;08;51;18

So any sort of tariff war that we have with them is likely going to put pressure on corn prices, especially given that this market has rallied so hard over the course of the past few weeks. You’ve got funds that are carrying a very large, long position, which leaves this thing vulnerable to liquidation. If we do see some sort of a big tariff headwind can be thrown into this market.

00;08;51;18 – 00;09;11;14

And if you look at our export commitments so far in Mexico this year, Mexico’s been a very aggressive buyer. Our export case right now is far outpacing what the five year averages. And really anything in the recent history. You know a lot of this is expected to be front loading. So I wouldn’t be shocked to see tariffs really put a halt on this export market with Mexico.

00;09;11;14 – 00;09;23;10

Now if they don’t happen and we see some sort of a new trade deal being inked, you know, that’s where you could see a little bit more life come back into this corn market again and maybe throw some more fuel on the fire that’s already started to burn for sure.

00;09;23;10 – 00;09;38;20

Good points to consider on that as well. One of the other big questions that people keep coming back to this week is about milk production. So, Colin, I’d like you to lay in there that, you know, we’ve got new cheese capacity ramping up here across the U.S. everyone is really curious to know what’s happening on the milk supply front.

00;09;38;27 – 00;09;46;17

Now, we got a new milk production report last week. And as we’ve kicked off 2025, there’s a lot of chatter. So what’s the latest from the producers you’re talking with?

00;09;46;19 – 00;10;05;10

Yeah Katie, it feels like milk production has been something we’ve been talking about for almost a year at this point, and the conversation is only picked up. I think what started maybe the new fire in the conversation was back in November. We were surprised by the Milk production report, which showed that the impact of avian influenza was far worse in California than we’d really seen in any other state.

00;10;05;10 – 00;10;28;01

You know, we just got on Friday, the report for December, and even though we did see November actually revised to show more milk than initially had, -7.9% instead of -9.2, we still saw California down 6.8%. And that still takes the entire US down 0.5% versus our expectation of plus 0.1. So still less milk than we would have thought was out there.

00;10;28;01 – 00;10;44;21

That being said, you know, same story as we’ve seen these past few months, the rest of the country is definitely returning to growth. So if we pretend that California was neutral, I believe the rest of the country would have actually been up to 7%. No surprises there. I know there’s a lot of chatter. I think, on the heifer prices.

00;10;44;21 – 00;11;04;11

And I do think that it should be said, you know, the old rule of thumb is that two cull cows equal one heifer. If we look at cull cow prices, we are at record beef prices. So without good information on how many heifers are really out there and if we can’t expand the milk supply, etc., I would just say the rest of the country is returning to growth and to cocoa still equals one heifer.

00;11;04;11 – 00;11;09;25

So just because the price is high doesn’t mean that we don’t have the cows to backfill and continue to see supply growth.

00;11;09;26 – 00;11;26;02

And I know, Colin, I know you like a good data set just as much as I do. And so it is going to be exciting. We’ll get USDA as one time of year heifer data published on Friday afternoon. So at least USDA will give us a little bit of an outlook of how many heifers are out there to freshen in 2025.

00;11;26;03 – 00;11;41;22

Feels like potentially it could be a few more than in 2024. But I mean, the 2024 number was the lowest and I want to say 20 years. So a little bit more than a low number is still not a big supply of heifers though. We’ll see what that comes out when the data drops on Friday afternoon from USDA.

00;11;41;22 – 00;11;57;06

And then it is January, the middle of winter here in the Northern hemisphere. But I know down in the Southern Hemisphere, they’re working their way through summer crops. Think with these volatile grain markets. It’d be good to get an update to from you, Brandon, on how South America looking and what are you watching the grain markets down there.

00;11;57;08 – 00;12;24;08

Yeah. So South America has been having a little bit of an issue here lately, both in Argentina and Brazil. Argentina has been extremely dry. And because of that, we have started to see some of their grain exchanges trimming back their production forecast for this year. And even last week, on Friday, the Argentinian government came out and basically said they are going to reduce the rate of export tax on both corn and soybeans as a way to kind of help producers out that are in those drought stricken regions.

00;12;24;08 – 00;12;44;29

So Argentina definitely could use some precipitation as something that is providing some underlying support to this corn market. If we turn to Brazil. Brazil has actually been too wet in certain areas where they are trying to complete bean harvest. So their pace of bean harvest right now is at the lowest it’s been in the last five years, which the bean crop itself is looking like it should be very large.

00;12;45;02 – 00;13;04;19

They’re expecting to have a record bean crop and lot of growth. So what we really have to keep an eye on as it pertains to corn is how much does this delay push back their sophina corn crop planting, which that is their most important corn crop. That is their largest corn crop. If you start to delay that planting window too much, you push back pollination into some of those hottest, driest times of the year.

00;13;04;19 – 00;13;11;12

So those two things are like on the forefront of what this corn market and soybean market are watching here for these next few weeks.

00;13;11;15 – 00;13;15;02

For sure. It sounds like a grain market to dry in some spots. And to add.

00;13;15;02 – 00;13;18;08

Another. Exactly. Yeah, that’s always the case somewhere.

00;13;18;10 – 00;13;34;06

Else to not our problem currently at the moment. Right. We’ll keep an eye on those weather forecasts down south. Well I think that’s a wrap for today’s show. Big thanks to our panelists John Brandon and Colin. Appreciate it. All of your insights today. A big thank you to you, our listeners and the ever Insights Team for production support.

00;13;34;10 – 00;13;42;20

Again, if you like the show, please hit subscribe. If you’d like to learn more about how we help customers manage price risk, please contact us at Insights at ever.ag.