Host John Billington and Brian Fletcher 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;17 – 00;00;09;00
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;03 – 00;00;26;27
Hello. Welcome to another GTI Event Host Auction podcast. Today I’m your host, John Billington, filling in the role for Cody Koster as he is out of the office. Alongside of me is Mr. Brian Fletcher. Thank you for joining the podcast. How are you doing, Brian?
00;00;26;29 – 00;00;31;14
Hey, thanks for having me, John. Another John, but a different John today.
00;00;31;14 – 00;00;34;20
So a younger, better looking version. My opinion.
00;00;34;20 – 00;00;51;18
There you go. But with John spin out or being out of the office, you took over running GTI today for the ever ag office. I think this is the first one with daylight savings, so that always feels good. Yeah, I get it now or later, but what were some high level highlights that jumped out at you right away?
00;00;51;20 – 00;01;28;10
You know, it was nice starting the auction at 7 a.m. here in Chicago versus the older 6 a.m. start time. Today’s session went about 18 rounds. It lasted pretty long. I think out of the gate. One of the things that I noticed was compared to where we were trading in the last auction, we seem to be significantly lower across the board relative to the rounds that were comparable to last auction, but I think we settled this auction unchanged for the index with looks like mozzarella leading the way at an increase of 5.1%, but kind of weighed down with that.
00;01;28;10 – 00;01;39;23
In the AMS spaces, we settled about 1.8% lower on that index price. So Brian, let’s get started here. What were your kind of key takeaways and what you saw in today’s session?
00;01;39;23 – 00;02;03;17
The main takeaway I had with both Cody and John on spring break this week, we had a very, very muted response on GDP. So there was an overall the headline number is 0% change. You did have some commodities break down and I think really continue at least on the cheese side, continue trends that we’ve seen over the course of the last month or so.
00;02;03;17 – 00;02;28;19
And the trend would be international prices and European prices continuing to move higher, while if we bring it back to the markets here at the US, the international prices are moving higher, while the US prices are moving lower. So today we had you highlighted mozzarella pricing up 5%. That is EU origin product that brings EU origin pricing to about 213 a pound.
00;02;28;19 – 00;02;55;14
Shortly thereafter this result we had the US spot cheese auction and prices move back down below dollars 60. So I mean the main takeaway I have with that is the US market should be at the forefront of getting export deals done. I would say to normal markets like to Mexico, in addition to some broader markets, that the US tends to compete with New Zealand and Europe in most cases.
00;02;55;14 – 00;03;19;07
Right now, the US markets is now by far the lowest. The other trends, too, that they weren’t as pronounced as what we’ve seen, but the broader trend we’ve seen in the fat side of things, international fat prices, relative to the US prices have been trading a big, substantial premium this time around, with AMF closing down close to 2% and butter moving slightly higher.
00;03;19;07 – 00;03;49;12
We didn’t see that the price spread necessarily widen, at least from the international price, but we have continued to see the US market move lower over the course of the last couple weeks, and then last but not least, the skim milk powder side of things, the broader trend that we’ve really seen in the last, let’s just call it two months, give or take, is the US nonfat dry milk market has moved from the highest price spot and forward curve in the world to now the lowest.
00;03;49;15 – 00;04;18;14
And I think today’s auction doesn’t really amplify that so much. Other than that we’ve seen a bit of a break down between the various regions where the New Zealand origin skim milk powder product is trading right around $1.24, give or take the EU around $1.17 and then the US around a dollar 15.5. So which I would say is more normal of a price spread than having the US market lead or be the highest.
00;04;18;14 – 00;04;46;13
But overall, the takeaway would be that the US on the spot price and probably immediate forward on the skim milk powder side should be way more competitive today than where the market stood, say, 2 or 3 months ago. So that’s what we’re looking at, I think. Just looking forward to the next auction. I’m really curious to see how the US cheese market performs here, especially now that the US spot price is sub $1.60.
00;04;46;13 – 00;05;09;15
I would imagine that that price, especially from an international perspective, should be quite competitive in terms of attracting new buyers, especially when you have EU prices continuing to move higher. So those are the general takeaways for an auction. You know, that ultimately had no change. It was just kind of continuing the momentum that we’ve seen over the course of the last couple.
00;05;09;15 – 00;05;34;08
So yeah, we saw some more data come out regarding kind of North Asia and their participation level. It seemed like they’re still pretty far away from the desk at this point and have been for some time. Do you think now that you know, the US nonfat market is back into the discount territory, that there could be potentially a light at the end of the tunnel in terms of a little bit more demand outside of the domestic area?
00;05;34;10 – 00;06;00;08
Yeah, I think with this corresponding move from highest in the world to either at par or in some cases the lowest in the world. You’re exactly right. I think when we were the highest, a lot of our contacts that are exporting product, they were saying that the Southeast Asian markets, not so much China. I think they’ve been largely absent from that space for quite some time, but especially Southeast Asian markets.
00;06;00;12 – 00;06;21;01
They just were unable to compete with Europe and New Zealand. Now we’re hearing that we at least can compete with them to a certain degree. It doesn’t mean that we’re materially exporting there yet, but at least the US market is on the table. I think what’s been interesting, though, is that the European market has also been keeping pricing quite competitive.
00;06;21;01 – 00;06;42;09
So we’re not talking a significant margin, U.S. price. You know, if we’re looking precisely on the auction today of the EU origin product, we’re talking around $1.17 versus around a dollar 15.5. So we’re not talking a huge margin there. But at least it’s it’s in the same general realm of pricing at this point.
00;06;42;11 – 00;06;57;21
Gotcha. So in a sense, it’s primarily those smaller regions that have been less active when North Asia is participating. They’re kind of stepping up to the plate and providing the support to keep this market relatively unchanged after today’s session.
00;06;57;21 – 00;07;26;19
Yeah. So we’ll see as we as we progress, we’re entering here the the highest production time of year in the US with the spring flush approaching. And so I think the trajectory is we should be hopefully growing milk production again here, whereas other regions in Europe are not necessarily sitting in the same situation where a lot of their regions are still struggling to return to growth, whereas New Zealand’s their peak season is well behind them at this point.
00;07;26;19 – 00;07;43;04
So it does feel like the US is positioning itself to enter back into the broader export market on the on the skimmed milk powder in the nonfat dry milk side. And we’ll see. I mean, I would imagine pricing set up like this and holding for a while should only help that.
00;07;43;07 – 00;08;11;25
Well, you know, one other thing that I noticed this morning, you know, you were talking earlier about the cheese and the support that the GTC auction saw. You know, cheddar is about 1% higher, whereas mozzarella was a whopping 5% higher on the the index price. Yet during those GTC session, our US markets started the day off lower. And I mean, it wasn’t significant lower, but it seemed like the majority of the activity was taking place in cheese and it was lower on the day.
00;08;11;26 – 00;08;23;05
Do you think that that was caused by, you know, the industry? Just thinking that we’re going to see some sell side in the spot market, why didn’t it follow suit with the New Zealand price?
00;08;23;07 – 00;08;45;14
Well, mozzarella price on GT is actually EU origin product. So I think if we were to segregate that and look purely at that market rate, I think that mozzarella pricing moving to let’s just call it to 13 to 15, give or take, is largely catching up to the European price move that took place over the course of the last ten days.
00;08;45;17 – 00;09;17;16
So it was it was really, I want to say, midpoint of last week. And we saw European spot market jump up, and we were also seeing over the counter trades in Q2. Also jump up. And then you’ve also had a broader euro currency appreciation relative to the US dollar take place. So you had not only a commodity price move higher, you’ve also had currencies move in favor of higher European prices relative to lower U.S prices.
00;09;17;16 – 00;09;42;18
So it’s overall, I would say I think there’s a lot going on. But to me on the European side, I think it’s a real realization that no, production is not bouncing back to the extent of what expectations thought it would be, say, 2 or 3 months ago. And so now that we haven’t seen that, I think a lot of buyers over there have come back to the table and said, I need to get stuff covered.
00;09;42;18 – 00;10;06;04
And that type of behavior is ultimately opening up export channels to the U.S marketplace. And so if we were to look at the US market last week, the US cheese market, we entered the week with prices rallying and we ended the week with prices ultimately facing resistance from that rally. And then we enter this week into prices moving into new recent lows.
00;10;06;04 – 00;10;32;06
And so I think even with the US likely getting back into export channels, there’s a lot of different variables that are impacting the market. I think the biggest one is likely driven by the US domestic demand situation not being very good. Right now. And within that, I would say that the main areas really focus on food service demand across broad categories are not performing very well right now.
00;10;32;06 – 00;10;55;03
And then also that even though our prices are the most competitive in the world right now, I think there’s still the looming threat of trade, war, escalation and all of that which at this point on March 18th were approaching, I believe in April 2nd deadline with with Mexico. So while it did seem like that was punted for a month, we’re now approaching a couple of weeks.
00;10;55;03 – 00;11;16;21
And at this point they’re scheduled still to come on, which we would expect a retaliation if that is the case. So kind of back to Groundhog Day with that. But at this point, I would say moving forward here, or at least kind of what I’m thinking is the US is likely going to need to maintain lower prices, especially versus Europe, mainly because we’re growing capacity here.
00;11;16;21 – 00;11;28;29
We’re going to be very reliant on export channels, and we’ll probably continue to trade a lot with Mexico. Channels outside of Mexico might be needed as well with how much new capacity we have coming online.
00;11;29;00 – 00;11;58;00
Yeah, I’d be curious to see kind of the impacts if we were to actually go through with tariffs, you know, how does that impact participation. And for actions like the GDP, right. Is there increased volume that you see post tariff implementation or something like that. But for now it feels like these domestic prices and discount seem fair as we’re going into spring flush and bird flu out of California, that premium that was baked in to nonfat doesn’t seem to be there as much anymore.
00;11;58;00 – 00;12;07;16
So it feels like futures are saying that things are recovering out west. But yeah, Brian, is that kind of everything that you notice in today’s GDP session? Anything else?
00;12;07;18 – 00;12;15;02
Yeah, I think that covers it. Yeah. Until we get the other John and Cody back, it’s been great to fill in.
00;12;15;08 – 00;12;26;20
Thank you to all those listening out there. If you have any questions about what you’ve heard on today’s podcast, feel free to reach out to your ever ag broker and we’ll be happy to assist.
00;12;26;20 – 00;12;27;18
Thank you very much.
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