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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;08;29
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;01 – 00;00;17;01
Hello everybody. Welcome back to another GDC podcast. I’m your host, Cody Koster, with me from Chicago, as usual, Mr. John Spain, how are John?
00;00;17;01 – 00;00;20;25
How are you? Good morning Cody. Excited to be here.
00;00;20;27 – 00;00;38;04
And I am pumped on my Tom Brokaw voice going on today, folks. All right. Well, John, on this auction as a whole, down 3.7%, but there were some bright spots in the GTI itself. Mozzarella up 7.9%, butter up 2.7% on this allocation.
00;00;38;04 – 00;01;02;25
Yeah, Cody, you’re right. I would say in general, although the auction result was lower, that going to come in better than expectations I think for most people or most people’s expectations. Let’s start with whole milk powder. This is about the only product that was lower, and it was expected to be about 4.2% lower versus the last auction. It was lower.
00;01;02;25 – 00;01;25;17
Let’s not take away from that, but it was only 2.2% lower. I take my expectations from the GDP polls that came out last Tuesday, as well as whole milk powder futures. We’re looking for prices to come down more than they did. Moving on to skim milk powder. Skim milk powder is where we really have to get into the nuance here.
00;01;25;17 – 00;01;46;13
If traditionally we would look at it and say, well, the price that we see here, that we publish, that is the New Zealand price for that is the price of international skim. Normally New Zealand and Europe track pretty close together. There’s not much of a difference, but as it stands right now, there is a huge discrepancy between New Zealand and European skim.
00;01;46;13 – 00;02;11;10
The official average of the two is 124. That is down 0.4%. However, when you get into the forensics, you see that is an average of the European, a New Zealand price or an index of the two. Getting into that, the European price is still at $1.15 to $1.16. However, New Zealand skim medium heat went up on this auction and it went up a pretty decent amount.
00;02;11;10 – 00;02;34;26
It now stands at $1.35 again, if we just look at that aggregate number right now, we would say, oh, well, it was actually a little bit lower. I challenge everybody to get on the forensics and look in there and you see that New Zealand powder is actually up to $1.35 at this point in time. And I would say that was higher than expectations for the futures.
00;02;34;26 – 00;03;04;12
Futures that are going to sell to the New Zealand price. And I would just say that the New Zealand skim milk powder price on futures were looking for about 2860. And on this auction New Zealand actually came in at 2982. So New Zealand skim milk powder went higher and it by far exceeded expectations of where the futures and where the last pulse came in at.
00;03;04;17 – 00;03;27;16
So on the powder side, I have to say came in okay. When we move over to the fat side, as you pointed out there, Cody butter up 2.7%. If we just look at it on an 80% level, you’re at about 337 or so on an 82% fat level, you’re about 344. So New Zealand butter went higher, I would say now the highest in the world.
00;03;27;16 – 00;03;50;28
And then AMF struggled to gain much traction. We were down 0.6 on that. But still a big discrepancy that’s opened up between AMF and butter. But if we compare that to the U.S. price on butter right now, the U.S. price is almost a dollar lower than the New Zealand price. Actually, I would say it is over $1 lower than the new Zealand price.
00;03;50;28 – 00;04;16;17
Definitely that door in the U.S., if there’s going to be exports and a price is going to determine it, then that price read should be there. And then finally, as we move to cheese, cheddar cheese up 1.1% at $2.23, and then mozzarella, really the star of the show here, up 7.9% coming in at 203. Hard for us to judge where the expectations for these two were.
00;04;16;17 – 00;04;40;25
What I would say mozzarella at 203. That will put their mozzarella price the highest in the world. And I believe it puts the cheddar price as the highest in the world. Two again, we have to be very careful. It’s very small volumes that are traded on the exchange here. We don’t want to look too far into it. But I think it does say look New Zealand prices moving higher, at least on the cheddar side.
00;04;40;25 – 00;05;04;07
All in all, the official index was actually down 3.7%. By our math, the majority of that is going to come from whole milk powder being down 2.2%. And I think some of the weightings that go into the different products, it is down again on the official index. But I would challenge people to really look at that skim milk powder number and say, wow, they just went higher.
00;05;04;07 – 00;05;12;18
And I don’t want to say I understand why, but I do also have to look at the cheese price and say, that was not what we expected to see happen here.
00;05;12;19 – 00;05;29;00
Exactly. And I had a few people contacting me this morning asking the same question, saying the GDP was down. How can this be a positive outcome? And I think you just nailed it right on the head, John. You got to look intrinsically at these reports and go commodity by commodity and not just look at the aggregate as a whole.
00;05;29;00 – 00;05;33;26
As you said, it is weighted. So there are different things to digest in the GDP.
00;05;33;26 – 00;05;38;10
That’s where I’m at in life. I look into the forensics of the GDP. Cody.
00;05;38;12 – 00;05;58;12
That’s what we like to hear. Well, John, if we move to volume by regions, is there anything that really stuck out to you here and I know, you know, right now there’s a big talk about tariffs going on throughout the world. So this might be maybe a different look at what we’re truly seeing. But can you kind of help the people decipher what happened on this GDP.
00;05;58;12 – 00;06;17;25
But I would say that in general if we were looking at this and saying, was it China that drove the boat here, I’d say not at first glimpse on a year over year change. Their volumes were down 37% on an event over event change down 29, Southeast Asia down 12% year over year and down 9%. Event over event.
00;06;17;26 – 00;06;36;02
Those are our two big players, right? So where would the strength of come from. Looks like Europe is doing a little bit of volume here a little bit more. And I suspect that’s what we’re seeing on the mozzarella side of things. I believe a majority of that mozzarella is actually going to be European mozzarella. You really have to dig into the forensics to see that.
00;06;36;02 – 00;06;56;11
But but I don’t even even within that I don’t know that that explains it away. I think most importantly what we see here is that event volume. The event volume was down 7% versus the last volume. That is not unexpected. We see that out of a seasonal trend of things. And so I think maybe we’ve got volumes going down.
00;06;56;11 – 00;07;12;03
And again, I think our demand side of things is okay. The middle East a little bit more than they did last year at this time. Maybe they stepped up some, but there’s just really nothing in the volumes that tells us why we got that better than expected result.
00;07;12;04 – 00;07;21;10
Yeah. Just looking at the North Asia right now, being negative for both event change and year over year, as you said, definitely not driving the ship on this GDP by any stretch of the imagination.
00;07;21;10 – 00;07;33;15
I wouldn’t think so. But, there will probably be people far smarter than me that dig into this and be able to see that speaking up. We’ll have to wait for Steve Spencer’s GDP wrap later on this afternoon. I’m sure he’ll have a little bit more insight.
00;07;33;15 – 00;07;45;20
Our resident forensic GDP analysis. Man, I love it. Awesome. Well, John, is there anything else that stuck out on this auction specifically in your mind, looking at it as you do every other Tuesday morning when it comes out?
00;07;45;21 – 00;08;04;05
You know, we’re dealing with tariff and trade orders right now that we’ve entered into on this Tuesday, March 4th. There’s a temptation to say, well, maybe we lost demand right here in the US, and we shifted some demand over to other parts of the world, and people went to New Zealand to get it, as opposed to the US.
00;08;04;05 – 00;08;25;14
It’s a tempting argument. I’m not going to say that it’s got its faults, but when we really dig into the volumes, right, let’s dig in to what we do know. First of all, on the last round of tariffs that we saw 6 or 7 years ago, Mexico did not tariff nonfat dry milk. Right. And so it’s hard to say that, you know, and they’re our biggest customer by far.
00;08;25;14 – 00;08;48;10
You could say well yeah but China does by S&P from the US. And you are in fact correct. I would just say that the volumes that we’ve seen during 2024 were so insignificant that it’s hard to imagine that it would have made any difference here. In fact, our volumes are completely eclipsed by the country of Finland as it reached the relates to SMP in the China.
00;08;48;10 – 00;09;12;21
So gotta be careful with that when we go to the cheese side of things again and it’s tempting to say, well, heck, maybe the Chinese buyers moved, some demand for cheese out of the US and went to New Zealand. Definitely possible. Again, when we look at the cheese exports out of the US into China during 2024, it was about 46 truckloads of cheese per month.
00;09;12;22 – 00;09;34;17
Not to say that doesn’t have an effect on the marketplace, but I just don’t think that that’s where that’s coming from. And then finally, on the butter side of things, we really don’t take anything on the butter fat side into China. According to the data I’m looking at here. So it really shouldn’t have been that. And then finally, the big dog of the auction is whole milk powder.
00;09;34;17 – 00;09;57;09
We really don’t take any whole milk powder into China either. So now it does not mean that somebody that there’s not some sort of trade imbalance that’s taking place here because of the tariffs or the trade wars and people moving around to different products. But I guess I’m just not sure that that would explain away the relatively good performance that we saw on today’s GDP.
00;09;57;17 – 00;10;11;08
Again, I want to stress relative to expectation and relative to the fact that S&P went up to $1.35 while the US is at 119 and Europe is at 115 to 116.
00;10;11;08 – 00;10;26;03
Well, as you said, relative to expectations, because again, correct me if I’m wrong here, John, but going into this, especially us knowing that tariffs were going to be implemented this morning, there was kind of a buzz in the industry that this might not be any kind of positive GDP for any commodity.
00;10;26;03 – 00;10;45;07
Yeah. I just stand back and go, And then finally, if I just wanted to add one thing in here to the nuance of the skim milk powder price, for a long time, New Zealand was at 120 to 125. Europe was relatively at that price. The US was at $1.40. We did not export, we couldn’t possibly have exported.
00;10;45;07 – 00;11;09;11
And people have said, well, we didn’t have anything to export anyways because we were suffering through bird flu and California and our nonfat production was down. We have now probably recovered substantially in nonfat production in California. Not to say the bird flu doesn’t exist there, but as we’ve made more nonfat, we now have product to clear. Our price has gone down from $1.40 and it went to $1.30 and then $1.25.
00;11;09;11 – 00;11;31;17
And here we are at $1.90. We are substantially cheaper than new Zealand right now. And I would also point out that we are not that much more expensive than the European price. European at 115 to 116, while we’re at one 19.25, I don’t want to rule out the possibility of our prices moving lower, especially in the chaos that’s created by a trade wars.
00;11;31;17 – 00;11;55;16
It’s very, very difficult to understand. It’s bound to change from minute to minute, if not day to day within that. Right now, the Canadians have said they are putting no tariffs on US dairy products. The Mexicans still have not said what products they’re going to retaliate against. What we do know is, is as of the last round that we went through of this nonfat was not included in that.
00;11;55;16 – 00;12;20;02
And so the reason I bring that up is to say, I don’t know that the US nonfat price needs to go a whole lot lower versus its current price through the context of New Zealand being at $1.35 and our cheapest competitor being at $1.16 while we’re at one 19.25. So I just want to keep that in mind. You know, at $1.40, we were pretty bearish on nonfat down here at $1.19.
00;12;20;02 – 00;12;22;18
I believe there’s reasons to at least be supportive.
00;12;22;19 – 00;12;43;12
Awesome. Well, John, on this particularly hard GDP Tuesday with everything else going on globally. We appreciate your insights. Appreciate diving into every single thing that is intrusive to the GDP. And John and I will be back with you in two weeks for the next global dairy trade. Until then, everyone have a great week, even better weekend and we will see you next time.
00;12;43;12 – 00;12;44;05
Thanks for listening.
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