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;27
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;29 – 00;00;17;06
Hello everybody. Welcome back to Rigidity Tuesday. I am your host, Cody Courser, with me from Chicago, Mr. John Spain. How are John? How are you today on this beautiful Tuesday?
00;00;17;06 – 00;00;20;27
I’m doing great, Cody. And very, very excited to be here.
00;00;20;28 – 00;00;39;16
I thought we were happy to have you here after the long weekend that we just had in the States for Labor Day. Back to work on Tuesday. Fresh global dairy trade as a conglomerate down 5.8%. I guess if we want to kind of look at a little bit of the highlights and you’ll touch on these, but the only high one, the only one that was higher was cheddar cheese, 3.5% higher.
00;00;39;16 – 00;00;46;22
Butter came in 2.4% lower mozzarella really chasing itself, 4.6% lower.
00;00;46;22 – 00;00;47;09
And.
00;00;47;09 – 00;00;56;02
Whole milk coming in that 5.6% lower from last auction. Is there a place you want to start at with these ones, John?
00;00;56;05 – 00;01;20;27
Well, I guess you know, you’re you’re absolutely correct. And to say that overall it was a down day today, we were down 5.8% on the aggregate. Standouts are skim milk powder and whole milk powder. They were down significantly. And on the opposite side of that cheddar was up right. And so those those will be the stand out. So maybe we’ll focus on those skim milk powder coming in as you said 4.9% lower.
00;01;20;27 – 00;01;50;21
That is going to come in about $1.19. And if we just go to the futures to say, where does that come in versus the futures, I would say that came in significantly less than where the futures were looking to trade at, or we’re expecting this market to come in at. So that was a bit of a surprise. On the contrary, as we go over a whole milk powder down 5.6%, when we look at where futures were trading, they were looking for more of 7.5% lower.
00;01;50;21 – 00;02;13;21
Right. We actually came in slightly better than expectations and whole milk our futures. I know it’s hard to look at -5.6% and say that was better than expectations. But again, the futures were looking for a little bit more downside than that. And then as we move over to the butter side, you know the fat side kind of it’s been hanging around this area but drifting a little bit lower and leaking.
00;02;13;21 – 00;02;36;28
AMF coming in 2.3% lower at about 314 pound. And then when we get to the butter side down 2.4 down to about 316 a pound. And both those cases that is lower than the EU but significantly higher than the US. So if we look at it to say yes, these prices came down on the butter side, but can we still export butter?
00;02;37;01 – 00;03;01;08
The answer is absolutely. As we move to the cheese side, a little bit of a mixed bag. Cheddar up 3.5 to 214 a pound. Looking to the mozzarella side. No down 4.6%. Coming in at $1.93. Again we don’t have futures to judge the expectations against. But you know we’ll say the mozzarella price is generally a European mozzarella price.
00;03;01;08 – 00;03;22;27
This is in line with the price movements at least that we’ve been seeing take place over in Europe at the moment. Kind of leaking leaking leaking there on the mozzarella side. And we’ve said it a lot of times on this program, you know, if we’re looking to compare cheese prices us to the rest of the world, we’re generally comparing against mozzarella price.
00;03;22;27 – 00;03;49;22
That’s what we go toe to toe with Europe against. And we can go toe to toe against New Zealand against. However, if we do want to take it to the cheddar side again, they’re at 214. That’s at a significant premium to the US cheddar price and the mozzarella price as we just spoke of. And somewhat in line with the European price, although the European price has been leaking lower ever so slightly over the last couple of weeks as well.
00;03;49;28 – 00;03;56;07
Overall, though, as an auction, we’re going to go ahead and say this was a pretty solid down day.
00;03;56;14 – 00;04;14;03
I think you’ve been mentioned over the past 2 or 3 auctions that we’ve jumped on here, John, but the the volume, you know, has been pretty substantial the past couple of auctions and even again today. And you’d mentioned that it might kind of teeter off towards the end of the year. But if we look at the regions purchasing on this one, North Asia, definitely back in the buying seat.
00;04;14;03 – 00;04;22;19
Almost 50% of the total winning bids comes from North Asia on this one. And yeah, I mean, China seems to kind of be back in a certain kind of way.
00;04;22;22 – 00;04;48;01
But I got to tell you, this is the buyers behavior on these auctions has been very, very hard to characterize and or predict. If you remember going back on the last auction, China just really wasn’t there. Right? And I think you just mentioned that they backed off pretty substantially, and that would have been cause to think that we could see prices go lower on the last auction.
00;04;48;01 – 00;05;14;04
But in fact, they went higher. And when you got in there and look, the Middle East and Southeast Asia were very busy. Right. And so players that wouldn’t normally have such an effect really did. And then on this auction, you look at it and we went lower. And China, as you just mentioned, there was very active right up 64% over the last auction and up 14% on a year over year change.
00;05;14;04 – 00;05;37;07
And the Middle East and Southeast Asia really backed off. So we used to look at it and say the market moves with China buying. And really it’s kind of been the opposite, right? When that China isn’t there, other people have stepped in. And when China is there, people back off. And the prices, you know when China’s there, the prices have gone down.
00;05;37;07 – 00;06;01;10
While when they are there the prices are aren’t there, the prices go up. So very confusing in that manner. I suspect you know the volumes themselves on this auction versus last, the volume was up 13%, certainly an increase. And that that obviously is going to have an effect. But that wasn’t unexpected. And to see heavy volume auctions this time of year is not unexpected.
00;06;01;10 – 00;06;21;05
In fact, when we go back and look at the volume that’s there, right on this auction versus last year or any other time, it’s generally, you know, it’s a little bit above average, but nothing crazy. And I think China tries to do a very good job of matching their purchasing when there’s going to be the most volume available.
00;06;21;05 – 00;06;40;22
So knowing that there’s going to be a lot of volume available on this auction from a seasonal perspective, I think their demand was there to catch that. And I don’t think that’s anything different. And as we move further into the fall here, we’re going to start to see these volumes on the auction go down. And that’s just a seasonal element, right?
00;06;40;23 – 00;07;00;28
You know, the we’re just going to see volumes here fairly shortly start to go lower. And we’re kind of at the peak of the high volume season here. My guess is, is that China will be there. They always are, but that they will buy less as we go further into the fall because there is less. And I don’t think people should be shocked by that.
00;07;00;28 – 00;07;25;06
What will determine the price at that point in time is if people like Southeast Asia and the Middle East are still active and if they’re still active, they’re going to be the bit player that really can push prices higher. And or if they are absent, we’ll probably just run into that normal run of China, decreasing their purchases while the volumes are decreasing.
00;07;25;06 – 00;07;35;20
So a little bit of a value buyer if you will. While the volumes are there, they can get their product bought and they’re going to be on the auction when it slows down towards the end of the year, possibly stepping away a little bit.
00;07;35;20 – 00;07;57;03
Yeah. We can’t ever exclude the possibility that there could be things that happen. We could have a drought, we could have disease, right? There could be different things that affect the New Zealand milk offerings, or their ability to deliver upon the volumes that they’ve sold here on this auction. We don’t want to say, oh, well, all is lost, right?
00;07;57;03 – 00;08;08;19
Or it’s written in the stars because it’s, you know, there’s still a lot that has to happen. But we would say that a lot of the marketing for the 2026 year is taking place right now.
00;08;08;24 – 00;08;13;13
Okay. Well, John, anything else on this auction that kind of stuck out to you that we haven’t already hit on?
00;08;13;13 – 00;08;30;26
Well, I’ll tell you what. First of all, I’ll say last, as we as we look at the last auction, people expected a whole milk powder to be down 5 or 6%, and we actually came in a percent higher. That was a real shock from what we can tell. That wasn’t because of China. That was because of the Middle East and Southeast Asia.
00;08;30;26 – 00;09;00;22
This time they weren’t there. And then futures generally got it right. Right. I mean, again, as I noted, we came in a little bit better than what the futures were expecting on hormone powder. But still, being down 5% is pretty significant in my book. And skim milk powder came in under expectations and it coming in at $1.19. I’ve said it for a long time that the nonfat dry milk market in the US is, for the most part, going to follow the S&P markets on the international market.
00;09;00;22 – 00;09;34;24
Last year was an example of when that didn’t happen, and that was because we have had bird flu. We didn’t necessarily have to compete in the international market because we didn’t have it to sell. This year. We have milk here in the US and we’re very, very reliant on the export markets. Therefore, with New Zealand at 119, I guess it’s hard for me to say that the US is going to be able to survive very long up here at $1.26, and we’ll probably see that market move towards that 119 area.
00;09;34;26 – 00;09;53;02
Again, that is simply because we are going to have a hard time getting out into the international market where we have to do some selling. We’re going to have a hard time getting anything sold at $1.26, while New Zealand’s at 119. And then when it comes to the cheese side, again, I’m not saying cheddar doesn’t play a role here.
00;09;53;02 – 00;10;14;22
It most certainly does. But mozzarella is going to play probably the larger role. And right now mozzarella at $1.93 and the US at roughly $1.77. You know we’ve closed that export window down or we’ve decreased that export window. I’m not saying that we cannot export at these prices or that we will not. It’s just going to make it harder.
00;10;14;22 – 00;10;37;04
And if Europe continues to move lower again, that’s going to continue to make it harder for us to export where we might be a little bit not surprised, but what might be able to keep our exports running a little bit longer than what we’re giving them credit for, or what I’m giving them credit for in this part of the discussion is that many times exports are booked on a contractual basis and on a spot basis.
00;10;37;04 – 00;11;02;25
So it’s very possible that as we move through September, we still have exports that were contracted 2 or 3 months ago. Right. And that will continue to see exports move and keep the market a little bit tighter. But as we get into the Q4 year, if we don’t have exports on the books that are contracted and we have to go out and find new ones, I think it’ll be difficult for us to get those done.
00;11;02;25 – 00;11;14;18
At least in the way that the market is square it up at the moment with futures and or spot here in the US on the one 70s and our biggest competitor for mozzarella, being in the low one 90s.
00;11;14;22 – 00;11;24;03
Was a lot of people had talked about our price needing to go up and meet the rest of the world and, you know, maybe come to find out, the rest of the world could just come down to meet ours. And it would be the same kind of token.
00;11;24;03 – 00;11;43;24
You know, it’s one of those deals where it’s tough to diagnose exactly what to make out of that. I think it’ll be even more confusing, because here I don’t know if it’s this week or next we’ll have an export report. That export report is significantly delayed just because of the data, and it will be the July export report.
00;11;43;24 – 00;12;13;18
And I have every reason to believe that if we don’t have near record exports, we could even have new high record exports of cheese. You look at that and you say, well, geez, John, when you talking about I guess I just really want to caution everybody that that is for July. And we are now entering September. And so I think those exports will probably do a good job at telling us why we were able to be as high as we were there in August and part of July.
00;12;13;19 – 00;12;29;09
I just don’t know that I can count on those exports remaining as strong as they may be in the July report through the rest of the year, and definitely as we go into Q1 of next year, I just don’t have a reason to believe that we have a significant amount of exports booked against that.
00;12;29;09 – 00;12;35;24
Yet the data looks fantastic. It’s just when you look at the date of it, you’re going to say, oh boy, this is delayed by a month. And a few a few days here.
00;12;35;25 – 00;12;40;21
And I saw a picture of myself 15 years ago and I looked great. I don’t think I look so good today.
00;12;40;24 – 00;12;57;22
Oh, man. All right. Well with that, John, we appreciate you coming on here. Given your insights into the global dairy trade, myself and John are going to be back with everyone in two weeks. The 16th of September is going to be the next GTI, and we will be back with some more information for you. But until then have a great rest of the week, even better weekends.
00;12;57;22 – 00;12;58;18
We’ll see you next time.
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