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;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.
00;00;08;17 – 00;00;17;15
Hello everybody. Welcome back to another Game Tuesday. I’m your host, Cody Koster, with me from Chicago, Mr. John Spainhour. Hi, John. How are you on this bullish GDC Tuesday?
00;00;17;15 – 00;00;45;28
You know what I’m doing? Well Cody, you are correct. It was quite a performance on the GDP today. We saw the overall index go up another 3%. If you remember the auction three weeks ago, the index was up 3.2% as a whole. So very much a continuation of that trend. And prices have really moved higher here. There are a couple prices of feature here today that we want to look at.
00;00;45;28 – 00;01;07;12
Let’s not bury the headline here. The two that I think are probably the most important to look at today, or probably that the market’s focused on. One will be cheddar cheese Cody. The cheddar cheese price today came in 12% higher at $2.50. As we’ve talked a lot in the past, it’s always hard to compare apples to apples when it comes to international cheddar prices.
00;01;07;12 – 00;01;40;01
However, I’d say this is a pretty decent barometer, and when I look at try going up and check in on their numbers. They’ve been reporting $2.40 on cheddar here for the last few weeks, so I guess it’s easy to look at that price of $2.50 going up 12% and say, that’s just New Zealand. But in reality, that’s not that much different than the last print that we got out of Troy, going to about European cheddar behind that, those mozzarella mozzarella was actually down 0.2% at 216.
00;01;40;01 – 00;02;04;16
I would say that’s actually a pretty good barometer of European mozzarella. I think it’s really only European mozzarella that’s traded on the GDP here. So a bit of a discrepancy starting to take place between Cheddar and Matt. I would say that the US we really compete in that mozzarella arena for exports. And so I guess we probably want to compare it more to mozzarella than cheddar.
00;02;04;16 – 00;02;41;15
However it’s hard to take your eye off of that cheddar price. And seeing that go up 12% to 250 and again seeing the EU is not really far behind that. I would say the next big leader on the board here would be whole milk powder. Whole milk powder was up 4.9% to 4374. I would just say if we were to look at that average price of 4374, we’re looking and saying that the whole milk powder result came in quite a bit stronger than what a lot of the futures were looking for here.
00;02;41;15 – 00;03;11;13
And so I think we want to be cognizant that it came in so much stronger than what people may have thought on the futures. I would expect that we’ll see the futures price on the whole milk powder SGX move higher here over the next couple days in response to that whole milk powder move. Behind that though, we saw skim milk powder prices come up 1.2% on the average, and it’s showing a 128 on the average in here.
00;03;11;20 – 00;03;40;14
However, I do have to stress, as always, that never before have we seen such a spread between the European and New Zealand skim milk powder prices. And what we’re seeing here on this dollar 28 is really more of an average between the EU and the New Zealand skim milk powder price. Of note, I would point out, is that medium heat, skim milk powder, which I would say is the most tangible or fungible between the US and the EU.
00;03;40;14 – 00;04;12;04
If we look at that, that price came in at 29.95 on the front month contract. That is roughly $1.36. So yeah, it says $1.28 on the average. But we moved up to $1.36 here on the front month contract. And as we move backwards back down the forward curve out there, prices are very similar. So I guess I put that out there to say that continues to show that there is a big discount between the New Zealand price and the corresponding European price, and especially the US price.
00;04;12;04 – 00;04;36;11
The US price responded today by coming up to $1.20. But I would also just say that I think the index today on skim milk powder actually did better than where the New Zealand skim milk powder futures were forecasting they would be. And then finally, as we move into the fats, the fat market was up. Today, AMF was up 5.5%.
00;04;36;11 – 00;04;59;29
That’s going to come in about a $3.27 translation. But when we look at butter, butter was up 4.1% and we look at that on an 82% butter fat, that’s about $3.63. If we were to translate that back to 80%, I’d say that’d be more around 350 or so. And that really highlights the pricing difference between the US and the rest of the world.
00;05;00;02 – 00;05;32;01
I would say that New Zealand prices up here in this 350 to 360 area, as well as the European price. The US price responded today by moving higher, but only marginally up to $2.34. So still, you know, in some cases here over $1.20 difference between the US butter price and the rest of the world. If we were to look at what these prices mean today, I would say that it continues to say there’s potential for exports.
00;05;32;01 – 00;06;01;29
And we probably already have seen some exports. We’re waiting for the final details to get published today, but the export numbers that came out for March were very strong. What we can say is we saw cheese go up to 109 million pounds for the month of March. It was just shy of last March’s record high. I would say that that happened partially because the US was at $1.60 during that time, while the rest of the world was in the 215 to 220 area.
00;06;01;29 – 00;06;31;17
If we look at butter, butter shipments came in at 13 million pounds, significantly higher than what they have been in the past. Why is that? Well, look at the pricing difference between the US and the rest of the world. And then finally, when we get to skim, I don’t know that those exports were as impressive there in March as the rest of the complex, but I think if you remember correctly, we were still at $1.40 or coming down off of $1.40 during that time, ultimately going as low as $1.14 to $1.15.
00;06;31;17 – 00;06;43;13
We probably got some exports, and I wouldn’t doubt it if we don’t see that the April or May export report for us, nonfat and or skim is significantly higher than what we’ll see for the month of March.
00;06;43;15 – 00;06;52;14
United States being such a discrepancy to the GDP. You would imagine, like you said, that exports had getting off. And maybe we’re seeing a little bit more right now. But if we switch to.
00;06;52;14 – 00;06;53;16
The event.
00;06;53;16 – 00;06;56;12
Volumes for this auction specifically.
00;06;56;12 – 00;06;56;29
It looks like.
00;06;56;29 – 00;07;08;11
Southeast Asia, at least on an event over event change kind of led the way in percent change in also in winning bidders coming in second place behind North Asia there.
00;07;08;11 – 00;07;29;22
Yeah Cody again I do watch the auction round by round. And when you see demand starting out on whole milk powder at four like it did this morning or 3 or 5. Right. And it’s specifically on a whole milk powder, you go, oh my gosh, China’s back. Because that’s generally a sign. And we don’t really get to know who was there until the auction’s over with.
00;07;29;22 – 00;07;48;25
And you go through the whole auction and we go through the results like this, and then you get it. And as always, you say, well, China was here, but they weren’t really the star of the show. If we look at their volume specifically, we can say on an event change, they were down 23% versus the last auction on a year over year basis.
00;07;48;25 – 00;08;19;11
They were up 14%. But then when I get to Southeast Asia, I think this is really where the star of the show, as you mentioned, was event change up 59% versus the last event and only down 6% versus last year. And they had a pretty strong showing on this event last year. So really like China was there. But I would say Southeast Asia is really the one that is having an outsized role in these events lately.
00;08;19;11 – 00;08;40;00
And I would say, yeah, they’re buying a little bit more. But I think it’s also important to remember that during this time of year, the forward curve offerings of volume start to decrease. And I think people like China are very much accustomed to that. And saying, look, we buy the most when the volumes are the highest and we really back off our bids when the volumes are to decrease.
00;08;40;00 – 00;09;07;09
Southeast Asia seems to be saying, we’re here, we’re just continuing our bid and so into a decreasing supply offer and a constant demand bid coming out of Southeast Asia. You’re creating a bit of a buoyant effect here and an upwards effect that you probably wouldn’t have when the volumes were the highest. But here we have somebody that continues to buy at a pretty aggressive pace into decreasing volumes, and it’s having an upwards effect on prices.
00;09;07;09 – 00;09;11;04
It’s almost like a steady as she goes for these last couple auctions.
00;09;11;04 – 00;09;27;18
It is. And again, when I wrap the auction up and we get to see our internal data or the data that we have access to, you look at it and you go, oh man, that really wasn’t China again. And so I guess you always say, well, there’s two sides to every coin. What happens if Southeast Asia decides to turn it off?
00;09;27;18 – 00;09;37;12
Right. And you go, all right, well, prices could probably come down pretty suddenly, but then you also have to start to look at it and go, what if the Chinese start to say, we’ve got some buying to do here?
00;09;37;12 – 00;09;42;13
Then you’ve got essentially two different places that are, you know, viable and fighting for some of this product here.
00;09;42;13 – 00;09;58;16
And again, I want to be clear, I’m not saying that’s going to happen. It just starts to become a concern. Now, if maybe they were waiting on the sidelines or suddenly they’ve got some buying to do, then you could really see an upsize are upwards effect on prices. Right now though, I’ll just say this is what we see.
00;09;58;16 – 00;10;24;02
China’s not really here and Southeast Asia is really coming out in this thing and prices are up again. The chatter price at 250. Skim milk powder at $1.36, butter at $3.60. And then you look at the US prices and you go somewhere out there. And I think there will be more and more people starting to look at the US as a bit of a discount as it relates to the EU and specifically now the New Zealand price.
00;10;24;06 – 00;10;43;08
And I don’t know, for some reason, John, whenever you push the information out, like what’s going on in the morning, this one seemed to last a little bit longer. But do you think that going from the GDP pulse to what we had on here was the big jump more than people were expecting, or was it just kind of like a regular mediocre jump that kind of took people by surprise?
00;10;43;08 – 00;11;04;01
I guess. Well, let’s look at it here. I’ll look at our GDP pulse for whole milk powder. Was expecting a result of 4130. Right. It was looking for an upwards of N of 0.6. And on this event we came in at 43, 74. So we came almost $300 a ton over the GDP bolts. Yeah.
00;11;04;03 – 00;11;09;14
Plus 4.9%. So we call that a pretty good jump from what we were expecting them.
00;11;09;17 – 00;11;28;00
We very much defied expectations on this event. I would imagine there are going to be some buyers in the rest of the world that wake up and say, oh my gosh, I didn’t expect that to happen. And I think, you know, if you’re a buyer of skim milk powder, you start to say, do I want to buy out a New Zealand at $1.36?
00;11;28;00 – 00;11;47;19
Or do I want to buy out of the US at $1.20? I think it’s going to come down to be as simple as that. You know, there’s always the potential of tariffs and those are things that we have struggled with now for quite some time. Right. Trying to navigate through that. What I would say as of right now, the biggest market threat we have from tariffs would be China.
00;11;47;19 – 00;12;08;24
And when we look at the dairy complex here in the US and say, well, what products would be most threatened by it? You know, we don’t export a lot of cheese to China. We don’t export a lot of skim milk powder to China, nor a lot of butter. We do for a lot of whey products. Right. And that’s really the one that’s been the most under threat in terms of cheese skim and butter.
00;12;08;24 – 00;12;17;26
I don’t really believe that tariffs are what stand in the way of those exports continuing. Certainly the price seems right at this point in time.
00;12;17;28 – 00;12;31;03
Okay. Well, John, as always we appreciate the deep dive into the game, especially today with, you know, how high some of these prices went and kind of how out of balance we kind of ended up on this auction more than people had expected. So we definitely appreciate that.
00;12;31;03 – 00;12;58;10
You know, in modern day history, it doesn’t feel like we’ve seen an auction that felt like this in quite a while. Right? If we go back in time, there was a lot of illiquidity and volatility in the GDP. But over the course of the last five years or so, it seems like it’s a fairly quiet auction or we come in within expectations when don’t see huge price movements like this for chatter, to see a 12% move like that, and for powder to be up 5%, that’s a big move.
00;12;58;10 – 00;13;04;23
Again, not unprecedented, but somewhat unimpressive. And in it, as it relates to modern day GDP behavior. Yeah.
00;13;04;24 – 00;13;13;11
When you were posted this morning that cheddar in the butter and then the whole milk powder, I think is what stood out to a lot of us here. And it was just right off the bat away we go. And this is what we ended up with.
00;13;13;11 – 00;13;24;27
I had to do my dollars per metric tons and the dollars per pound conversion a few times on cheddar, just to make sure that I was coming up with $2.50. I was kind of taken aback when I looked at that number.
00;13;24;29 – 00;13;42;16
Carry the one, dropped the four. All right, everybody, we appreciate you guys tuning in. John and I will be back with you in two weeks on the 20th of May for the next GDT auction, and we will see what that brings that time. But until then, we appreciate you guys tuning in. Have a great week and even better weekend.
00;13;42;16 – 00;13;44;16
And we will see you next time.
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