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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Hello everybody. Welcome to another GDC Tuesday. I am your host, Cody Costa with me from Chicago, Mr. John Spain. However, it is the 7th of October, just about 2:00 eastern time in the afternoon. John, how are you doing today?
00;00;22;14 – 00;00;24;09
Doing great Cody, and happy to be here.
00;00;24;10 – 00;00;50;29
Well, we’re happy to have you here on this GDC Tuesday. A little rundown real quick before we dive in. Total auction was down 2.9% from three weeks ago. As people remember, we were on a two week hiatus between GDT events. Skim milk powder down 0.6%, whole milk down 2.5, butter down 2.6 and a big one. Mozzarella cheese down 12.1% on this auction alone.
00;00;51;06 – 00;00;53;07
John, where do you want to kind of dive in on those?
00;00;53;09 – 00;01;18;29
Let’s start out with the easy ones here Cody. I would just say AMF and butter, as you mentioned AMF down 1.7. Butter down 2.6. When we convert that butter back into a one dollars per pound, that’s just north of $3. That’s really more in line with where the European price is there. So yeah, we came down. But again, still really just coming into line with where we know European prices to be AMF 314 a pound.
00;01;18;29 – 00;01;41;20
So really nothing special there. Probably more of a recalibration of the AMF to butter. But again we’ll just say this price was in line with the European price. And then we come over here to the US and we see US butter prices after the auction today we’re at 167. So really $3 overseas or $1.67 here. Can we see exports and should we expect exports.
00;01;41;20 – 00;02;04;26
The answer is a resounding yes. We have seen exports. Exports have been good and butter for most of the last 4 or 5 months, putting up some very impressive numbers. Not record numbers yet, but very impressive numbers. And at the same point in time, we really just keep moving lower here in the US. Butter price. My guess is, is that we were competitive and we remain competitive.
00;02;05;00 – 00;02;25;14
And we will continue to get butter exports based on these price differentials. When we go to the powder side, skim milk powder, a bit of a mixed bag here, I would say if we go to the skim milk powder side of things, it’s a little bit more nuanced in here and the way that we want to approach this conversation.
00;02;25;14 – 00;02;52;15
European SMP prices moved lower on this auction down to $1.13 per pound, roughly skim milk powder New Zealand prices were able to maintain. They did move lower, but are still able to maintain this 118 level. So the U.S. market we came into today’s auction trading about a dollar. 16 at that point in time, we were the cheapest in the world and now we are no longer the cheapest in the world.
00;02;52;15 – 00;03;16;09
European prices moving to 113 and again, New Zealand coming down to 118. We adjusted accordingly down to 115 against that. So we did see a reaction here in the US because of that. I think this is really important because for most of the last nine months, the US has been the cheapest price in the world. Because of that, we’ve been able to capture exports and that has kept us supported.
00;03;16;09 – 00;03;37;17
I made an argument for a long time that the New Zealand and European price was stuck. Around one 1850 we were at one 1450 to 115. That’s enough to export. I think we did do a tremendous amount of exports against that number. We’ve seen some very large and our numbers go out the door. We’ve seen some volume move and I think that we’ve been able to do that.
00;03;37;22 – 00;04;04;27
My argument has been that if New Zealand price is able to maintain its level, that we would continue to export if we if New Zealand was able to go higher in Europe, if they were able to go higher, that could drag the US higher. But if those prices move lower, that’s going to push the US price lower. I just have to say, even though New Zealand only came down to 118, the fact that Europe is at $1.13 and we’re no longer the most price competitive, I think we need to be aware of that.
00;04;04;27 – 00;04;27;25
And I think the market’s reaction today of moving to 115 is just the beginning. I suspect we’re going to see the US price move back to that 113 114 area here. Not great news on that front. But I do want to point out that again New Zealand is still at 118. And that is going to keep the door open for at least some exports when we move to the cheese side.
00;04;27;25 – 00;04;53;03
Here’s where I think things get a little crazy in terms of price spreads. New Zealand cheddar price today was up 1%. That is a cheese price of $2.20. That is important. That is a big price. The US cheese price right now is at a dollars 7350. There’s an argument to be made that that price spread on cheddar is going to facilitate exports.
00;04;53;03 – 00;05;16;04
And I think for a certain degree it will, but has been stressed to me over the years. And as I’ve tried to stress on this program, the probably the more important price to look at is mozzarella. And while very little New Zealand mozzarella trades on this auction, the European mozzarella price does. We have heard about mozzarella prices migrating lower over the course of the last few months.
00;05;16;11 – 00;05;41;16
Again it was at 225 and then it drifted to 212. And then about 3 or 4 weeks ago we saw it move below $2. And on this auction today, a bit of a surprise. We saw it settle off at $1.50 for a pound and I think was down 12%. So yes, the cheddar price was up 1%. Mozzarella, which has been drifting lower and lower, is now down another 12% at $1.54.
00;05;41;17 – 00;06;05;21
There’s a little inclination to say, well, that’s crazy. That price is way out of line. Maybe this is just one price print. And I’d say, okay, but we have been seen on the ex on the over the counter stuff trades, as well as some anecdotal reports and try going as well seeing prices in the one six below one 60s to mid one 50s trading on mozzarella.
00;06;05;21 – 00;06;24;13
So maybe this price is a little bit at the bottom end of that range. But I don’t know that it’s completely out of line with the prices that we’ve heard. And I think this is really important because if we go back in time again, Europe was at 222, 12. We made it to $1.60, $1.50 at times this summer.
00;06;24;13 – 00;06;48;21
And then because of that price spread, we were able to capture exports and shoot right back out of there. And we’ve actually we saw record exports in June of cheese and July. The numbers were right behind it. In this case. I think we were able to do that because we were at such a discount to that European price in this case right now with mozzarella at $1.54 and Europe.
00;06;48;21 – 00;07;15;20
And let’s just handicap it and call it $1.60 with mozzarella trading around $1.60 in Europe, it’s probably going to be a struggle for us to capture exports right now on mozzarella. Now again you can say, okay, does that mean we have to go lower immediately? And the answer is probably not. We probably have very good exports through the fourth quarter is kind of what we’re leaning towards at least maybe through November or December could become a different time, different landscape.
00;07;15;20 – 00;07;31;04
But right now we’ll say, hey, probably pretty good exports. But as we get into Q1, that’s probably where we’re going to see where we’re going to lose exports and see the market. The more subjected to lower prices and because of losing exports.
00;07;31;10 – 00;07;40;10
Yeah, it’s going to be hard to hang our hat on those exports, especially now that we’re holding that premium over the rest of the world. And what seems like, you know, three very short months is when it happened here.
00;07;40;10 – 00;07;57;10
Boy, I tell you, Cody, it happened quickly. The European price, it was migrating lower and then all of a sudden fell falls off a cliff. And if you were to say, what in the world happened over there, how can they go from 212 to $1.60 so quickly? I would say the main culprit is going to be milk production.
00;07;57;10 – 00;08;21;18
Milk production in Europe has just moved higher and higher and higher, and it’s really exceeded people’s expectations. If we look just at Germany and France, German and French milk collections for last week, we’re up 3.6%. The rolling four week average is up 3.7. You can see it on a chart. It just continues to grow. Germany alone up 4.4%.
00;08;21;18 – 00;08;40;09
That is so much different than last year when we were talking about bluetongue. And coming into this year talking about bluetongue and lumpy skin disease and hoof and mouth disease. Right. And all those things that we thought maybe could have affected European, negatively affected European milk production again this year. They did not. Even then, it’s a temptation to say, well, yeah, easy to beat.
00;08;40;09 – 00;08;58;00
Last year you had disease in there. When you look at the German and French milk production chart versus 2024, okay, that argument can be made. Put it up against 2023 when we weren’t aware of any of these diseases or milk production problems. We are growing off that base too. And I think that just means that the Europeans have milk.
00;08;58;00 – 00;09;12;23
They need to get it exported. They’re going to do the price that they can find to get it exported. And right now that appears to be $1.55 to $1.60. And if we want to get compete with them, it’s likely that we’re going to have to go to that price as well or lower. I was.
00;09;12;23 – 00;09;19;21
Just gonna say, isn’t the general rule of thumb, if we’re going to get exports booked compared to the rest of the world, it’s a good 10 to $0.15 ish below that.
00;09;19;21 – 00;09;42;03
Price. You know, it’s actually kind of, a worse basis than that. You know. You know, exports can happen for any number of reasons. But historically, it’s been a 25 to 30 cent discount that we need to be in order to capture those wholesale exports against the world. That doesn’t necessarily you know, you could hear that and say, does that mean we’re going to $1.20 €5 dollar 30 maybe?
00;09;42;03 – 00;10;06;03
I know that six weeks ago I probably would have ruled that number out categorically. Now I at least have to be open to the possibility that that could happen. But my guess is somewhere in here, after we get through the holiday demand piece and some of these cheese processing problems we’re hearing about out in the US landscape, that we’re going to see the market turn and migrate through that dollar, at least underneath that 150 area.
00;10;06;04 – 00;10;29;03
That would be in agreeance with that. John, if we kind of switch gears here a little bit, looking at the sales by volume, there’s a decent amount traded on the GDP today. Some of the year over year changes Africa up 86%. You’ve got Southeast Asia up 9% in North Asia, China up 17% year over year. And they were up 31% on an event changed basis.
00;10;29;03 – 00;10;37;04
But you made a great point before we were jumping on here is China was back yet again in the buy in seat. And prices continue to kind of stumble a little bit lower here.
00;10;37;05 – 00;10;57;23
You know I know I’ve mentioned it before, but in the past we always used to say, well, when China’s here, prices go up and when China’s not here, prices go lower. And over the course of the last four months, four, maybe five months, we’ve seen kind of a switcheroo on that. And that really comes down to, you know, I think the Chinese really time it when the volumes are going to be the largest on the auction.
00;10;57;23 – 00;11;19;21
Right? So when the volumes are the largest, the Chinese step up their action. And yet prices go lower on the auctions that the Chinese aren’t there. It seems as though Southeast Asia is willing to step in and fill that void. And then prices go up. So recently it’s really been on the times that China steps in, prices go lower, and on the weeks that they’re not there, prices go up.
00;11;19;21 – 00;11;40;22
And again, I think that’s very much to do with Southeast Asia. And when we look at the volumes on this one, I think we can say China was pretty much here today, up 31% on a event over event change and up 17% year over year. It was a big performance out of them and and volumes were high. 42,000 metric tons were offered out.
00;11;40;22 – 00;12;01;15
I think the whole milk powder volumes were pretty large and that really they came here to buy those whole milk powder volumes. And then if we go to Southeast Asia, we would say they were down 19% on a event over event change, up 9% year over year. But we seem to keep going back and forth with those guys there.
00;12;01;15 – 00;12;21;27
And I realize I failed to mention the rundown earlier. Whole milk powder on this auction was down 2.5%. And I just talking a little bit about that, that actually came in a little bit. Even though that was lower, that came in better than expectations. I think whole milk powder futures were looking for that to be down 5%. We come in 2.5%.
00;12;21;27 – 00;12;36;20
I don’t know if you want to call that a victory, but it certainly wasn’t. I don’t know if the whole milk powder market wants to call that a victory by exceeding expectations, but it did come in a little bit better. And I think that the expectations for the being so low were because of the volumes being so high.
00;12;36;20 – 00;12;43;24
And I think the reason that it was able to beat expectations is because China was here to scoop up those larger volumes.
00;12;43;24 – 00;12;52;29
But like you mentioned, if China does step away, I mean, they’re here buying and prices are going lower. If they step away from the buying plate, we could be in for a little bit of a hurt.
00;12;52;29 – 00;13;18;26
We sure could be. And I just don’t know. I don’t know that they’re going to step away. And at the same point in time, I’m not sure that we can say, well, I expect to see them coming back here anytime soon. You know, one of the things that Matt Gould and Phil really keep a really great eye on, are Chinese dairy companies and their stock prices and trying to use that as a proxy for, hey, are we seeing things more action or more demand out of China?
00;13;18;26 – 00;13;44;24
We would say bright dairy, which is, you know, of the top three bright dairy. Mengniu. And I always get that, pronounced wrong. And usually of those three bright dairy down 2% year to date on their stock menu, down 13% year to date and yearly down 8% year to date. I just don’t look at, you know, if we’re using that as a proxy of, hey, China is going to come back in here and start demanding more milk solids from the rest of the world here sometime soon.
00;13;44;24 – 00;13;48;06
This doesn’t seem to be portraying that message.
00;13;48;06 – 00;13;53;08
Well done for this auction itself. Is there anything else that we haven’t talked about that kind of stuck out in your mind?
00;13;53;11 – 00;14;12;04
You know, I mean, let’s not walk away from the fact that cheddar cheese in New Zealand right now is $2.20, right? I mean, it is saying something. I know the volumes are very low on New Zealand cheddar. It’s probably going to a very specific customer. Nevertheless, it is at 220 and we want to keep our eye out on that.
00;14;12;07 – 00;14;28;06
And then finally I would just say, you know, we don’t really see it in this on the way side. There’s not a way auction on here. So I don’t want to talk in too great a detail on it. I would just say that the protein world is specifically on the whey protein side of things. It is ablaze right now.
00;14;28;06 – 00;14;50;19
There’s just no way around it. Protein is on fire. You can see it in the grocery store everywhere. Starbucks, you know, put out their protein drinks this week. And I think that that is signaling that there is demand out here for dairy products if it’s the right product. Right. And I would just say it’s not as if we can say, oh, all hope is lost and dairy products are going lower.
00;14;50;23 – 00;15;01;25
Cheddar is up here at 220. And again you’re seeing the WPC prices at near record highs. And I think that in itself is saying something about the health of the overall dairy market.
00;15;01;29 – 00;15;07;29
Yeah, definitely seems like the protein side is what people are looking for at this point in time. And that’s what the companies are going to give them.
00;15;08;01 – 00;15;13;19
Yes, sir. So we’ll see. One of these days somebody might discover that cheese has protein.
00;15;13;21 – 00;15;32;28
Someday, someday, someday. Awesome. Well, John, appreciate your insights on the global dairy trade. As always, we’re going to be back together here in two weeks. Back on track for your regularly timed GT auctions. But until then, appreciate everybody listening and we will see you in two weeks. Have a great week. Even better weekends. We’ll see you next time.
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