Guess host Brian Fletcher 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.
00;00;08;22 – 00;00;25;23
Good afternoon everyone. I am Brian Fletcher, filling in for Cody Custer. Today we are covering the DDT auction and as always, we have our lead DDT analyst John Spain Hauer to walk us through the results. John, thank you for joining us today.
00;00;25;24 – 00;00;29;27
Thanks, Brian. You make it sound so illustrious to be the lead analyst.
00;00;30;00 – 00;00;47;16
It sure is. You’re here bright and early, going round by round. And we’re excited to hear what you have to say today. With that said headline result made it appear as it was a pretty quiet auction down 0.3%. What were you anticipating going into this auction and how are you perceiving these results?
00;00;47;19 – 00;01;06;25
Thanks, Brian. I guess let me begin with saying yes on the GDP website itself, their official result is down slightly. When we go to our average, it was actually up 1%. So I do want to make sure that we point that out. However, when we get into it, let’s just call it kind of a flat auction. There were some highlights though.
00;01;07;01 – 00;01;28;18
Let’s start on the cheese side. The cheese cheddar slipped a little bit here, coming in at about 206. Remember we had been as high as 215 just a few weeks ago and slipped off of that. For most of the auction. It looked like cheddar was going to settle well below where we did ultimately round the day out. But down 0.6 when we go to the mozzarella, that one actually felt a bigger pull down.
00;01;28;18 – 00;01;58;05
Down 5.2% down to 202. And again, the mozzarella side is probably the one we want to be more focused on just in terms of relevance to the international market. And we’ll say that’s mainly yes, that’s on the GDP, but it’s mainly a European price. So European moths on here down to 202. While the U.S. cheddar price today responded, started the day at 183 after today’s GDP and our spot auction today going up to 185.
00;01;58;05 – 00;02;22;16
So that big screaming gap that we saw between the U.S. and international prices has closed considerably, both by the US coming up and the international cheese price coming down. As we move to the butter side of things, we will say that butter was down ever so slightly down 1%, coming in at about $3.24 on an 82% butterfat basis.
00;02;22;16 – 00;02;50;25
When we go to the AMF side, almost exactly flat, there. So the butter fat side was pretty flat. We’ll say that we’re down around the 320 area there. The European price is still on that. 340 to 350 area. The US butter price right now coming in at 232. And that was after the GDC today. We went down from two 33.25 to 232.
00;02;50;25 – 00;03;16;18
So a big gap still in the US price versus the international price, leaving lots of room for more exports moving forward. Finally moving to the powder side. I think this is really where the the fireworks were coming into this auction. Whole milk powder futures were expecting to see about a 5% pull down in value. And the skim milk powder was looking for about 2%.
00;03;16;18 – 00;03;36;16
As it turns out, whole milk powder settled higher on the day. Again, I want to repeat it. Look like futures were saying we were going to be down 5%. We actually came in 0.6% higher. And then skim milk powder was supposed to be down about 2% and came in about 1.7% lower. So we’ll say that skim futures had it just about right.
00;03;36;22 – 00;04;03;26
Coming in at $1.25. Our whole milk powder futures got it entirely wrong. Not only where are we not lower, but we were higher. And again, the futures were expecting a relatively big break in that spot price. And we responded by moving higher out there. Again. The whole milk powder futures coming into the day were about 3750 on average, and whole milk powder here today.
00;04;03;26 – 00;04;08;24
So at $4,036 a ton. So a big differential there out of.
00;04;08;24 – 00;04;15;22
The regional participation. Did anything jump out to you in terms of who was at coming to today’s auction?
00;04;15;22 – 00;04;36;03
Well, at first glance, when you look at it, you go, oh, well, China was down 23% year over year and 20% on an auction over auction. Right. That’s a significant number. And you go, how on earth did we settle some of these contracts higher or even steady? And I think what it really comes down to is Southeast Asia.
00;04;36;04 – 00;04;56;13
Southeast Asia was down only 2% on an event over event basis, but they were up 38% year over year, right. And if we go back to the last auction, the last auction, we saw Southeast Asia buy more than they had bought in at least the last three years that I can see on my chart. And then the only slightly down this auction.
00;04;56;13 – 00;05;15;17
And I think that, you know, you put that together in their buying offset. China’s lack of buying some other standouts in here might be the Middle East. Their year over year participation was down seven, but their event over event was up 54%. So we tend to look at it as, hey, this is a really Chinese lead price action.
00;05;15;17 – 00;05;36;17
And in this one, China was I don’t want to say not there, but they were really backed off. And Southeast Asia and the Middle East really stepped in and bought a lot of product. And then finally I would point out that Europe again coming off of a small base, but their participation was up 65% year over year and only down 1% from the last auction.
00;05;36;17 – 00;05;42;28
So a lot of these different, you know, other regions stepping up and making up for the fact that China wasn’t quite there.
00;05;42;28 – 00;05;55;14
At this point with these GDP results, will this have much of an influence on the US market or has it already? How are you looking at this through the lens of the US market going forward?
00;05;55;16 – 00;06;20;29
That’s a great question. It’s always tempting to say, well, the international cheese price just came down. So the US price has to come down. And if you talk to people in the international spectrum, if you will, they will say, hey, we’ve run into a lot of competition from US product out here. And there’s a distinct possibility that the US stole some market share or got into some market share that other regions were trying to get into.
00;06;20;29 – 00;06;44;00
And it might explain how the US has moved from $1.65 to $1.85. And conversely, the European market has come down from 215 to 20 to just above $2. I think when we go to the butter market, I’m not sure that this is going to have a huge influence on the US butter market. What I can say is going to contend you to produce exports, right?
00;06;44;02 – 00;07;06;20
And I don’t think that that’s a big difference. And I think exports have been a huge part of the price action in the butter market. But the part, the role that exports have played at this point in time seem to have been, hey, they kept the price supported, it hasn’t made it go higher, but they’ve kept it from falling apart in the face of huge milk production and huge cream production are really huge fat production in the US.
00;07;06;22 – 00;07;36;21
And then finally, as we get over to the skim milk powder side of things, we came into this auction, I would say with Europe at $1.27, New Zealand at $1.27, and the US at $1.27. You very rarely get that kind of parity. And I will say that as the international market goes, the US market will go too. So with that being said, I open the door to say New Zealand just went to $1.25 and $1.25 is going to make it hard for the US to go higher than $1.27 or even sustain $1.27.
00;07;36;29 – 00;08;01;03
And as a result, today we saw the CME spot market migrate from $1.27 down to $1.26 50. We’ll continue to monitor the situation and maybe we see more weakness come out of the skim milk powder price. However, I just want to say the whole milk powder price really catches me off guard. And I can tell you that it’s going to catch a lot of market participants off guard.
00;08;01;03 – 00;08;18;08
They were expecting lower. The fact that it’s not going lower could be enough to, you know, and in fact actually went higher. This has happened now for several auctions in a row. This could cause whole milk powder that now buyers to say look, awesome. I got to go get busy and cause even more strength in whole milk powder.
00;08;18;10 – 00;08;47;01
If that happens, what? We’re likely to see some switching of the product offering on the GDP and what we could see is more whole milk powder being offered, and less skim and less cheese and less butter whole milk powder specifically, it is the engine of that New Zealand market as it’s moving higher here, it will likely start to pull some solids from these other products in a new end, a whole milk powder and possibly lift those we’ll have to see.
00;08;47;01 – 00;09;04;02
But in the end, you could say it was a very boring auction. And in fact, it kind of was. But I’m not going to negate the fact that whole milk powder is acting very, very good in the face of expectations. And that could be enough to kind of tip the boat over to the other direction here.
00;09;04;08 – 00;09;08;27
So you’re saying that if Cody was here today, he’d be pretty excited right now.
00;09;08;29 – 00;09;24;02
He would not see this as a boring auction. I don’t think so. And, sir, I’d like to see a little more enthusiasm out of you. But no, I think again, on the face of it, it was pretty boring getting into there. I think it exceeded expectations, at least in whole milk powder, and not by a little bit, by a lot.
00;09;24;02 – 00;09;45;12
And sometimes that can just be enough to, I thought the last auction might have woken people up. You know, these are several auctions in a row now that I think is could serve to really wake the market up. And I do want to point out we only have I think our next auction is kind of the high watermark of volume for the year, and then we start moving in the lower volumes for the year as we move through the season.
00;09;45;12 – 00;10;03;17
So if we continue to see these big bids out here into decreasing volumes, we could see prices start to move higher. And as we go from fresh agenda and I work with seasonally, we tend to see prices move higher anyhow, as we move deeper into Q4.
00;10;03;20 – 00;10;16;22
Very good. I mean, going into this as you kind of formulate expectations, are you primarily using the SGX futures to do that, or what are you saying is driving the expectations coming into the auctions?
00;10;16;22 – 00;10;39;06
I think it’s a bit of three different things. One, or will be the SGX futures. That’s probably the most visible and most day to day. Generally, we have a GTI pulse that takes place on the off auctions. That gives us a hint of where we’re going. On this past week, the GDP at Kohl’s had technical difficulties in that auction did not take place, and that so we did not have that.
00;10;39;06 – 00;11;03;21
And then finally just talking to people and getting their opinions and reading other people’s material, looking at it, I think people were saying, you know, I read one guy saying, geez, I hope that the result of homework powder is only as bad as the futures are saying. I mean, there seem to be a pretty sour sentiment out there, and I think a large part of that has to do with the production expectations for New Zealand.
00;11;03;21 – 00;11;27;13
Right now, our expected to be pretty good as we go to Europe. Their production expectations are good, right. And exceeding expectations. And then here in the US, you know, I think everybody’s trying to at least get comfortable with the idea that we have big milk production and that we’re probably going to have even bigger. So you put that together and people say, you know, from a supply side, prices moving lower, it’s going to come down to demand now at this point in time.
00;11;27;13 – 00;11;54;08
All right. Well very good John. Really appreciate you jumping in covering kind of pulling back some layers of the onion here today. Cody will be welcoming you back hopefully next week. But I’m happy to fill in whenever you’re out. And to all the listeners out there, really appreciate you tuning in. If you ever have any feedback for us or questions that you have related to get, please reach out to insights@ever.ag.
00;11;54;09 – 00;11;59;01
Love to hear from you and really appreciate you tuning in until next time, have a good one!
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