The Ever.Ag Podcast

GDT Review with Jon Spainhour – June 4, 2024


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Cody Koster and Jon Spainhour take a deep dive into this week’s GDT report.

Questions or comments? Contact Jon at [email protected], Cody at [email protected], or give us a call at (312) 492-4200.

Show Transcript

(Transcript auto-generated)

00;00;00;10 – 00;00;08;21

VOICEOVER
Future trading involves risk and is not suitable for all investors. Content provided in the statement is meant for educational purposes and is not a solicitation to buy or sell commodities.

00;00;08;24 – 00;00;16;16

CODY
Hello everybody. Welcome to another Good Tuesday. I’m your host, Cody Koster, with me from Chicago, Mr. John Spain. How’re John. How are you.

00;00;16;17 – 00;00;18;11

JON
Doing? Great, Cody. Happy to be here.

00;00;18;13 – 00;00;22;02

CODY
We are happy to have you here on this higher GDP again.

00;00;22;04 – 00;00;30;07

JON
You bet. Cody. G’day. He going to settle the day 1.7 higher? This is our fifth higher event in a row.

00;00;30;09 – 00;00;40;11

CODY
There you go. IAG, higher prices here in the States and we’ll get to it a little bit later. But again, no China buying, not as much on this global dairy trade that we had today. First part of June.

00;00;40;11 – 00;01;04;01

JON
We had prices go up here generally across the board. We’ll start out with some of the highlights. Skim milk powder was up 3.5% coming in at an equivalent of about a dollar 23 that put the G.D. skim milk powder price higher above the U.S. and opened the door for U.S. prices to move up. Today, they started the day at one 1675 and ended the day at 119.

00;01;04;01 – 00;01;24;22

JON
As a result of today’s GDP, home power was up 2.1%. And again, this is going to be a little bit of a head scratcher here. The whole milk powder futures on the SGX were predicting that the result was going to be about 6 to 7% lower. So not only were we now 6 to 7% lower, we were 2.1% higher.

00;01;24;25 – 00;01;25;04

JON
A little bit.

00;01;25;04 – 00;01;26;06

CODY
Of a rope a dope there.

00;01;26;06 – 00;01;48;27

JON
You know, this is the third auction in a row that we’ve seen this. And we’ll explore some of the ideas as to why we’re seeing that divergence between expectations and results here. In a minute on the fat side, we’ll move over there, amp up 0.7%, going to come in at about $3.36 a pound. Well, when we get over to butter, it was actually down 1% coming in at $3.11.

00;01;48;27 – 00;01;56;15

JON
And then finally, on the cheddar side, not a lot of action in there, but we were up 0.2%. So we’ll call the cheddar side unchanged.

00;01;56;20 – 00;02;09;00

CODY
What is interesting, John, is we saw butter at 311 overseas and our butter price had a making some highs again today, leading the world in price for our butter right now they have any ramifications going forward?

00;02;09;01 – 00;02;27;10

JON
Well, I think maybe it’s hard to know about going forward. But if we look back over the course of the last two weeks, I think we can say that the action in the butter market was somewhat dictated by international prices. If you remember, two Fridays ago, we got a cold storage report which listed stocks in storage for butter well above expectations.

00;02;27;11 – 00;02;43;27

JON
It showed that we had a pretty good build on stocks and that caught the market off guard. By the time we opened up on the holiday trading of Monday night, futures and butter were limited down and then the spot market reacted by moving lower and then the futures the next day move lower and spot moved lower. And we got down.

00;02;43;27 – 00;03;08;15

JON
We went from three, 12 and a quarter to about 297. That’s when prices kind of held their ground in there and then started to move back higher again. Our futures led the show and the reason I bring this up is to say that there’s a high probability that the U.S. butter price had trouble moving to much lower simply because of the international price, the GDP price was right around 311.

00;03;08;15 – 00;03;28;13

JON
The European price was around the 310 area. That’s right where we were. And then we had that reaction moving lower again. We don’t export a whole lot of butter at this point in time, but it started to open the door to say, well, if we go too much lower, then we might export some butter. And if we do that, it only takes a small amount of export some butter to make the market move significantly higher.

00;03;28;13 – 00;03;40;17

JON
So again, I don’t know that the GDP moved higher because of the U.S. today, As much as I think the U.S. was able to stabilize those lower prices and move higher because of the international price.

00;03;40;23 – 00;03;46;25

CODY
Awesome. Well, thanks for diving on the butter side for us, because I know it’s been a big talking point to people here as of recent.

00;03;46;28 – 00;03;52;01

JON
A lot of people have concerns about butter both domestically and internationally.

00;03;52;01 – 00;04;07;20

CODY
Well, speaking of concerns here, cheddar cheese up point 2%. Mozzarella for the first time in a little while, did not trade on the today, but cheddar cheese, higher on the GDP and no movement for us here in the states. Still lagging behind the dollar 93 prices they posted.

00;04;07;23 – 00;04;26;03

JON
You know it’s true we are behind the dollar 93 price but not by much. Right. Our blocks are at 189. Our barrels are at 196. And so you start to look at it from that perspective. We’re right in there with that cheddar price that’s listed here on the GDP. I think the European price is a little bit higher.

00;04;26;03 – 00;04;47;21

JON
And there again, it’s always tempting to look at those European prices and specifically to look at New Zealand cheddar prices and say, well, that’s right where we should be. When you take into account transportation and you take into account tariffs and duties that come across, we typically need to see the US price at a discount to both the European and or the EU price.

00;04;47;22 – 00;05;09;16

JON
That being said, I think this New Zealand prices up at a dollar 93. You again at $2. I think it’s showing that there’s strength in the international cheese market and I think that’s a good sign, if you will, for the health of the cheese market. I would say though, you know, we had record exports there in the month of March and during the month of April, I’m thinking they’ll be the same.

00;05;09;16 – 00;05;27;01

JON
We’ll get those numbers here fairly shortly. And then you get to May and you’ve probably had some pretty strong export numbers as well. However, there is a distinct possibility that one of the reasons that the European price has moved higher here in the last few weeks is that they were able to get some exports off, that we weren’t.

00;05;27;02 – 00;05;49;22

JON
Our curve has certainly not given us that opportunity to form and sell much from the export situation that we normally see. It just seems hard to believe that we got a whole lot of Q3 exports. That being said, the U.S. cheese price is up here again at that mid one nineties area. So maybe we did see some exports or maybe the export game is going off in a different way than we normally see it.

00;05;49;22 – 00;05;56;27

JON
But as of right now, I think I would be tempted to look at this and say, we seem a little bit high or the export driven business world.

00;05;56;27 – 00;06;01;09

CODY
John do you want to move into the part of talk who was there buying and who wasn’t?

00;06;01;12 – 00;06;21;00

JON
Yeah, you know, it’s always a certain part. And again, I think we’ve talked about it now for a while and I know we’ve talked about it for almost the last two years of saying, Well, China hasn’t been here, their demand isn’t good, and the price moves lower and then the price moves lower. And then I’d say here in the course of the last 3 to 4 months, we’ve started to see the price stabilize.

00;06;21;00 – 00;06;43;05

JON
And it’s tempting to say, well, China must be back in here, right? And then we go in GDP after GDP and look at the participants. And lo and behold, Chinese participation was low last year. And then we look at it and see that it continues to get worse this year. And for this event as an example, Chinese participation is 29% lower than it was on a year over year basis.

00;06;43;05 – 00;07;07;27

JON
And even as we compare it to the last event, it was another 15% lower than the last event. So just not great participation out of China. You have to start saying, well, how do we have $2 cheese and $3 butter and a dollar 23 skim if China’s not there? Again, there are a few things to it. First of all, on the participation side, Southeast Asia has really stepped up here over the course of the last few months.

00;07;07;27 – 00;07;27;25

JON
We’ve seen the Middle East pick up the pace just a little bit here. As an example, the Middle East by 10% over last year and 56% over the auction before. And then again, Southeast Asia. This isn’t a great example today because they’re down 35% on a year over year basis and down 12% on an event over event basis.

00;07;27;25 – 00;07;49;13

JON
But I would say that on the whole, Southeast Asia is buying significantly more than they have this year than they have in the past. I would also point out that it’s important that we are in the low season of New Zealand. The offering on the exchange are extremely low. Even when we compare it to just the last auction, we’re down 5% on the volume, right?

00;07;49;13 – 00;08;08;09

JON
So less volume a few different buyers in here. And suddenly we continue to spark prices a little bit higher. One still has to stand back and say, I get it, I understand it. But what does the world look like when we start to see New Zealand bring their volumes back on here as we move out of the low seas?

00;08;08;09 – 00;08;18;09

JON
Maybe China steps back in, but it’s just hard to imagine that we’re going to see prices continue moving higher as volumes start to gradually get higher and higher on the offer here.

00;08;18;11 – 00;08;35;01

CODY
I think you mentioned it last global dairy trade that we had so about two weeks ago, John, where China hasn’t been here, you know, hasn’t been on the auction for a while, but other countries kind of step up in their place to take advantage of the volume, maybe not as much, but there are still buyers that are in the market.

00;08;35;01 – 00;08;37;13

CODY
Just because China is gone doesn’t mean that everybody else’s.

00;08;37;16 – 00;08;58;26

JON
It certainly does not mean that other people are gone. And, you know, ukulele was a conference that took place in Europe a couple of weeks ago. And I think part of the talk that was coming out of there was, well, prices are moving higher and we don’t have China in here. Maybe we don’t need China anymore. Maybe the world of dairy pricing can move past the idea of needing China to be a big part of the price action.

00;08;58;26 – 00;09;16;28

JON
And I think I guess that is attempting to argument. We’ll see. I have my hesitations about that type of thinking. Again, we’ll see what it looks like as we move down the road here and get a little bit more offers on the board. I would also point out there’s some discussion about milk being less and more in Europe, and I guess that might be in certain regions.

00;09;16;28 – 00;09;36;18

JON
When we look at the look at the regions that we see on official prints, China says something else. It tells us that milk production in Europe is not in horrible shape. We can actually say that milk production feels like it’s starting to grow. And I know that that would be contrary to what you hear out of a lot of people.

00;09;36;18 – 00;09;55;14

JON
But it does seem to say that, you know, hey, wait a second, we’re growing a little bit. France up 0.5% on a weekly, Germany up 1.1. Those are your two big engines of European milk production. So even though we’re going to go into the summer, we’ll probably have less milk and more on a seasonal basis. We’re starting to see some milk growth in Europe.

00;09;55;14 – 00;10;14;24

JON
And another one, a dark horse out there is Poland. Poland is a big region just in general, and their milk production is up 5.4%. I guess what I’m trying to say is you’ve got less demand coming out of China and at the same point in time, you’ve got European milk production starting to increase. I’m not really sure where this is going to land right now.

00;10;14;24 – 00;10;22;00

JON
Again, it’s easy to say, look, prices are going higher. I would like to see what the world looks like when we get on the back side of the New Zealand low season.

00;10;22;06 – 00;10;38;06

CODY
Awesome. Well, John, as usual, we appreciate your insights into the global dairy trade today. John and I are actually going to be back with everyone in two weeks. The middle of June is going to be the next GDP, so we look forward to that one. Until then, everyone have a great week and even better weekend and we’ll see you next time.

Disclaimer: TRADING FUTURES AND OPTIONS ON FUTURES INVOLVES SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THE INFORMATION AND COMMENTS CONTAINED HEREIN ARE PROVIDED BY EVER.AG AS GENERAL COMMENTARY OF MARKET CONDITIONS. THIS INFORMATION SHOULD NOT BE INTERPRETED AS TRADING ADVICE OR RECOMMENDATION WITHOUT FURTHER DISCUSSION WITH YOUR EVER.AG ADVISOR. THIS IS A MATTER OF SOLICITATION.

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