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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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.
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Hello everybody. Welcome back to GDC Tuesday. I’m your host, Cody Koster, coming with me from Chicago, Mr. John Spain, how are John, how are you today?
00;00;17;02 – 00;00;21;28
I’m doing great, Cody, and I know it’s been three weeks, but I sure am glad to be here. Hey, we are.
00;00;22;04 – 00;00;40;25
Happy to have you here on another get Tuesday. It is the 5th of August. As John mentioned, we’ve been on a three week. It is one of those weird five week rolling months where we come back to the GTI after a little bit of a time off, but this global dairy trade and our ever egg average came in 3% lower.
00;00;40;25 – 00;00;53;03
But the volume much higher than it was last GTI. So three weeks ago. And John, I don’t know if there’s a place that you want to start. You want to start in the cheeses. Do you want to go to butter? Do you want to start with the powders or do you want to roll first?
00;00;53;03 – 00;01;30;28
Yeah. Let’s start with the fats here. I guess the fat market we would say, was a little bit of a disappointment here. Butter came in 3.7% lower. When we convert that back to an 82% butter fat, that’s about $3.27, still significantly higher than where we are in the US. But starting to lose some ground there. On the AMF side, they picked up some ground up 1.5 at 321 a pound, again still higher than the US, but in general, seeing a little bit of that premium that the world market has starting to deflate a little bit as we get to the cheese side.
00;01;30;28 – 00;02;02;23
Cheddar was down 0.3 percent to $2.08. Again this is New Zealand cheddar. And then when we go to the mozzarella side we’re say that one was down 1.5% to $2.13. So again a little bit of slippage there. On the international cheese side, these prices generally match up with what we’re hearing out of Europe right now. When I say generally, I don’t know that it just still says, hey, there are prices significantly higher than the US.
00;02;02;29 – 00;02;26;16
Even with the US having witnessed a pretty decent little cheese rally here in the last few days. If we just want to bring a little bit into the conversation here and say, do these price differences matter or somebody might even say, John, why do you guys keep talking about these price differences? I think when we look at the export report that came out right now, I’m just still looking at the preliminary report.
00;02;26;16 – 00;02;52;28
But cheese during the month of June, again, I know we’re in August now, but the data takes a while to get published. But looking at June cheese exports, we’re at 115 million pounds. And that, dear listener, is a new record that is up 34% year over year. And I think a big winner in here is cheese. The Mexico at 36.1 million pounds, up 14% year over year.
00;02;52;29 – 00;03;13;12
I bring that up through the context of the price matters. When we’re at $1.65, we capture, you know, when there’s a price spread that big, we’re at $1.65. The rest of the world’s a 215 to 25. We capture exports. And, you know, some people might say, well, John, the spot price on the international price you just said is moving a little bit lower here.
00;03;13;13 – 00;03;34;10
You know what gives now? And I would say in my humble of opinion, as we capture exports, we’re taking them away from somebody else. Right. And it starts to chip away at the strength in those international markets. There on the butter exports were up 14.1 million pounds. That’s up 100% year over year I think AMF was at 5 million pounds.
00;03;34;10 – 00;03;58;05
Another strong showing on the fat side. And I think that that just reinforces the idea when we’re at 240 to 250 and the rest of the world is up there in that 327 and then Europe above 350, you’re going to have exports out of the US. It took a long time to get them going. They are going again, you could say John, but butter prices slipped here on the GDP.
00;03;58;05 – 00;04;19;07
I think that is in direct correlation to the fact that the US is gaining more and more market share on the butter side of things as we move over to the powder side, I think one that is going to come off a little boring here is going to be skim milk powder, skim milk powder. And again, I want to make sure that I’m quoting here skim milk powder medium heat.
00;04;19;07 – 00;04;44;05
New Zealand powder came in at about 2800 on contract two. When we do that that is 2800 divided by 220, 4.6. We’re at $1.27 that is down just a shade there on that. I think the average was up just a little bit. I do want to point out because I have two the contract one right, a very limited supply.
00;04;44;05 – 00;05;05;23
But it’s the product that has to go right here right now. Traded at $1.50 on medium heat. I do not believe that to be a valid representation of where prices are for skim milk powder in the world. However that is where New Zealand medium heat traded on contract won the next contract. That’s probably the most important. Again, traded at $1.27.
00;05;05;23 – 00;05;25;23
What is $1.27 compared to where expectations were? I think it came in right around where futures were predicting. I think it also came in right around where the pulse was predicting futures on the GDP had gone up significantly higher than this or the beginning of last week, and then spent all of last week retracing. And I think in this case they got it about right.
00;05;25;23 – 00;05;50;17
So no big fireworks there. I think, though, where the talk of the town is going to come about is in the whole milk powder side of things, whole milk powder up 2.1% today is this was the second higher auction in a row. If we were to say where does that come in versus expectations? We came in at just over $4,000 a ton.
00;05;50;17 – 00;06;20;23
Futures, the highest on the board was September, and it was looking for 39, 55 per ton. October at 3900. No. At 3870. In other words, this exceeded expectations on the whole, milk powder futures. And what’s interesting about that is just go back to where futures were on the last auction and they were down in the 3700 territory. So futures have rallied significantly about $200 a ton.
00;06;20;23 – 00;06;42;03
And then we just came in about another $100 or $150 a ton over where they were pricing, if you ask me, the signals that we came in over expectations on the futures side, when we go look at the GDP pulse and what that was telling us, that was suggesting that we were going to come in at 39, 60.
00;06;42;03 – 00;07;05;06
And again, we came in at 4012. So again, over expectations when we compare it to the pulse as well, a big auction for powder, why would I think that? That’s the talk in the town. I guess I’m going to look at that and say that is the workhorse of this whole complex. When that has a bid in it, it tends to be a bit infectious.
00;07;05;06 – 00;07;25;10
I don’t have the calculation in front of me. We’re not quite at a price where whole milk powder is going to steal solids from skim or cheese, but we’re probably not far off. And if powder has a bid in it and it starts moving higher, that is likely going to cause some of the other products to at the very least, stabilize and probably move higher.
00;07;25;10 – 00;07;31;25
And hopefully by the next time we talk, I can have my calculator working to be able to tell you where that break even might be in Jan.
00;07;31;25 – 00;07;50;22
Switching gears for a second, looking at the quantity sold, I remember three weeks ago you had mentioned at a certain price point and at a certain time of the year is when bidders usually start coming in and buying generically more than maybe auctions. Previous to that, we saw quite a jump in the quantity sold and the actual bidding rounds.
00;07;50;22 – 00;08;03;26
I mean, we had five extra rounds compared to the last auction we had in the middle of July, and the metric tons were, what, 13,000 metric tons higher than last auction? I mean, quite a bit of a jump on the amount of product traded hands here.
00;08;03;26 – 00;08;23;18
There certainly was. And I think we need to keep it in the context. You know, in the Northern hemisphere, especially here in the US, our milk production season, yes, it ebbs and flows, but we generally make milk all year. So we have varying degrees of product to sell. But it’s not substantially different from one point in the year to the other.
00;08;23;23 – 00;08;47;28
As we go into New Zealand, they have a very distinct milk production curve, a bell curve, if you will, and bear in certain times. And that means that there is a lot of product to sell at certain times, and not a lot of product to sell at other times. We are in the point of the year when there is a lot of product that is being marketed against next year’s season or the upcoming season.
00;08;47;28 – 00;09;03;17
I suppose when there’s going to be a lot of product being made, there’s nothing particularly unique about that. Buyers know about that, sellers know about that. And generally when you know if you have a lot to buy, you don’t want to go try to buy it during the time when there’s not a lot to offer, because what are you going to do?
00;09;03;18 – 00;09;22;07
You’re going to drive the price higher. If you’ve got a lot to buy, you wait until volumes on offer are pretty strong. The thing is, though, when those two kind of when you’ve got big bids and big offers, a lot of times it drives the price down. If we go back a few months ago, I think that’s the expectation of that was exactly what was taking place.
00;09;22;07 – 00;09;43;00
People looked at it and said, New Zealand’s going to have big milk. There’s going to be a lot of product coming for sale here. And prices drifted lower. And now, over the course of the last two auctions, we’ve actually seen prices specifically on a whole milk powder start to go higher into the bigger offers. Now, Cody, you brought up the prior auction and the volumes versus this auction.
00;09;43;00 – 00;10;10;19
A lot of times we have the first auction of the month has bigger volumes associated with it, and then the second auction has smaller volumes. So yes, there was a lot more product for sale on this auction than there was on the last. But that wasn’t something that it’s not uncharacteristic. What I do think, though, is uncharacteristic, is here we have this product comes for sale and it got absorbed and prices generally moved higher again on whole milk powder.
00;10;10;19 – 00;10;27;10
I think that says something. It’s not as if this is the last auction of the year where we’re going to have big volumes, we’re going to have big volumes for about the next month and a half or so. And buyers know that, and they’re still here willing to take this product on at these prices and prices are going higher.
00;10;27;10 – 00;10;50;13
I just have to say, you know, looking forward down the road, you know, in the next 2 or 3 auctions, I wouldn’t be surprised if we don’t start to see, you know, as volumes start to decrease. Yes, of course, people might back their bids off out of their bids, stay in there as strong as they have been. I wouldn’t rule out the idea that prices can continue to move higher from where they are right now remains to be seen.
00;10;50;13 – 00;11;09;04
People might be saying, hey, you know what? I want to be here. Why? The offers are big, and when the offers aren’t big, I’m going to go away. My sense, though, is as we see those bids continue on a little bit bigger than what they have been, and that prices. I just look at this and say, wow, this is a surprisingly supportive auction, all things considered.
00;11;09;08 – 00;11;29;22
One of the leading the way. And on some of the buying here, if you look at the the map that we have on the average insights page here, it looks like North Asia, Southeast Asia and even a little bit of the Middle East kind of leading the charge on event change, but not so much even change. Also, the year over year change, I mean up significantly on some of the winning bids here.
00;11;29;23 – 00;11;49;29
Yeah you bet. You know, you go and you look at it and you say event over event China was up 84%. Again. They knew there was going to be more volume here. Right. They brought that same volume to the last auction. We probably would have been 15% higher. But they knew that volume was going to be here. And they came in and they bought 84% more event over event.
00;11;50;01 – 00;12;13;01
And you go, okay, fine. But now let’s go look at a year over year change up 16%. That’s not coming off of a small number either. Southeast Asia up 57% on an event over event change. And then you go look on the year over year that’s up 8%. And so even old Europe got in the mix here up 5% event over event and 16% year over year.
00;12;13;01 – 00;12;31;00
Very small volume. But it’s still something mean. It shows who the buyers are here. And again it’s not as if the volume that was on here shocked them. I mean, I knew it was going to be there. They know more is coming. And it appears we have a bit of a bit of a competition here for product. Now, all in all, did the price go significantly higher?
00;12;31;00 – 00;12;45;26
No, but I think we have to keep our mind open to the idea again. What does this look like if both China and Southeast Asia and potentially the Middle East, if they all get involved here at the same time as these volumes go down, I think we need to have the expectations of higher prices.
00;12;46;00 – 00;12;53;09
Awesome. John, on this particular GDC, is there anything else that really stuck out to you as far as the auction itself goes?
00;12;53;11 – 00;13;13;13
Again, that whole milk powder behavior and price and the strength there support however you might want to look at it, leads me to believe, like, we better leave the door if that’s got string to it, we’ve got to leave the door open to the other products, having some string or support to them. I look at it and say the relation of our butter price to the international butter price.
00;13;13;14 – 00;13;40;13
That happens. We’re going to continue to see exports of butter roll out the door here. If we see cheese stay where it’s at, we’re going to continue to see cheese roll out the door here. So I think we just need to be aware of that on the nonfat side. I guess I’ll tend to look at this and say a bit of a neutral play here, but I wouldn’t doubt it if we don’t see as a result of this, new Zealand’s futures on skim nonfat start to bump higher because of the whole milk powder.
00;13;40;13 – 00;14;02;10
And maybe we see a higher pulse next week if that happens. Right. Pointed out there at $1.27 we’re at $1.28. If they start moving higher, I do think it’s got the potential to drag the US nonfat market higher at the same point in time. I do think there’s a limit to where that can go, and I would call it $1.35 right now on the nonfat potential.
00;14;02;13 – 00;14;20;20
Well, John, as always, we appreciate the deep dive into the global dairy trade. Myself and John are going to be back with everyone in two weeks. Please tune in then to see what the auction brings to us. But until then, everyone have a great rest of the week. Even better weekend and we will see you next time on the Global Dairy Trade.
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